Select Committee on Public Accounts Minutes of Evidence

Examination of Witnesses (Questions 120 - 130)



  120. Managing Growth in the English Further Education Sector you did?
  (Professor Melville) I did.

  121. Strategies to Achieve and Manage Growth 1997?
  (Professor Melville) That is the same session.

  122. Indeed the two appear. Corporate Governance and Financial Management in the Scottish Further Education Sector?
  (Professor Melville) That is not mine.

  123. The Financial Management and Governance of Gwent?
  (Professor Melville) That is not mine.

  124. An Investigation of Alleged Irregularity at Halton?
  (Professor Melville) Yes, that is mine.

  125. Three strikes and you are out has not applied to you yet. On the whole, were the reports that this Committee produced congratulatory or critical of the FEFC's involvement on those three occasions?
  (Professor Melville) As far as the Managing Growth report was concerned then generally the Committee concurred with the actions that the Council was taking. There was a good deal of sympathy. We were at that point, at the very cusp of the worst situation, that is the background to our discussion today. That was a very positive meeting. As far as Halton College is concerned it is very clear that there was a failure of a whole set of systems. One of the issues was could the Funding Council have spotted what was going wrong earlier. I believe that I put up a robust defence that indicated that the Funding Council was already onto this case when the issues blew. Of course that was a difficult case.

  126. I do not want to relive that one. I take the point that you make. It leads me on to the next question I have, and also what you stated to the Committee this afternoon. You saw the FEFC's role more in assisting colleges to get out of financial difficulty rather than preventing them from getting into financial difficulties?
  (Professor Melville) I tried to respond to that. Let me try once again. It was the nature of the requirement of Government that the Funding Council did not interfere with colleges, it responded to colleges and actually funded them.

  127. Would you care to turn to Figure 2 on page 8 of the C&AG's Report? You will see there the third box down, the roles of the various bodies involved in further education. You will see the role is described, amongst other things as being to procure the provision of sufficient and adequate facilities for further education. In your view, does the securing of the provision of sufficient and adequate facilities not mean taking some proactive stance in relation to colleges, such that they do not get into the sort of financial difficulties that time after time colleges have got into under the FEFC?
  (Professor Melville) We take the view—and you have heard me mention that specific issue—that that is the very centre of our duties. There is absolutely no doubt about it that securing enough quality and quantity of further education is central. Therefore, we do try to ensure that the infrastructure is there in place. I do not want to belittle the issue of financial health Category C, but we do have a situation where no college has actually gone bust. There is no college where we have found there has been a failure in its ability to provide the education in sufficient quantity in their locality associated with financial considerations. So although we have focused extensively around that particular financial health category, I think much more broadly we should look at our regional review process. In the regional review process there are only 13 colleges where we have extreme concerns—not the 70 or so we see here. There are 13 colleges out of 420 or so now where we have that level of concern. As to the fact that we have financial health Category C, if we look at what it means, it actually means very broadly the college is dependent on borrowing to continue with its operations. Most of business is dependent on borrowing.

  128. You keep on coming back to the ones that are in the difficulties, but I am trying put to you what other colleagues have been trying to put to you this afternoon, which is that if you had been a bit quicker off the mark in the first place in trying to prevent them getting into that situation, everybody would have been a damned sight happier, but that is something that you have resisted, have you not?
  (Professor Melville) No, I have not resisted that, I have merely described the history of the situation. I have said it is more difficult to prevent.

  129. Instead of describing the history of the situation, which I think you have done, you have said you are not trying to resist that. Do you accept, therefore, that if the FEFC had been more proactive, had been quicker off the mark in assisting colleges or assisting them not to get into those difficulties, it would have been a much better way to get there?
  (Professor Melville) Can I indicate to you, as soon as I came into the Funding Council in 1997, I introduced this regular review process precisely for that purpose, if that answers your question.

  130. I think it does. Finally, can I turn to figure 4 on page 10, which you referred to earlier in your response, I think it was to Mr Campbell, and figure 5 there. Can you explain to me, because it is not clear to me although it may be to others, why, when the deficit was so enormous in 1994-95, yet the percentage of colleges in financial health on figure 5 was so high in comparison with the situation in 1997-98 where the surplus is there for the first time, but actually the percentage of colleges in financial health is substantially lower?
  (Professor Melville) Basically the changes came about at incorporation. Many colleges that actually had deficits were also well funded. There was a huge variation in the level of funds, if you count in the cost-per-unit terms; it varied from local authority to local authority by a factor of 10. Therefore, this is one of the reasons why you have two different financial measures; they do actually tell you two different things. It is perfectly possible for a college to be trading at a profit, actually to have cash and to have cashflow, to have the requirements that meet our financial health Category B, for example, but to be sitting with some inherited deficit. They are two different things, and that is why generally we have not used that as our main indicator. In fact, if you look at our financial health categories, you will see there is a basket of indicators that we use, rather like business indicators, to determine those concerning us.

  Mr Gardiner: Thank you.

  Chairman: Thank you. It just remains for me to thank you, gentlemen, for coming and answering our questions. Thank you very much indeed.

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