Shock £4m accounts black hole could lead to college fraud probe

The Skills Funding Agency is considering whether a London college should face financial investigation after a shock £4.1m black hole emerged in its books.

Ealing, Hammersmith and West London College confirmed it was involved in “constructive discussions” with the agency after auditors discovered an “unexpected deficit”. A leaked internal report allegedly puts forward the possibility “data falsification” and called for a fraud probe.

An agency spokesperson told FE Week it was working with the college and said it had not ruled out a further investigation.

He said: “We take any allegations of financial irregularity extremely seriously and will act in cases where there is sufficient evidence to do so. In this particular case, we are working with the college to determine if any further investigation is needed.”

The 25,000-learner college, which has been allocated £21.4m from the agency for 2014/15, including more than £18m from the adult skills budget, said the deficit had been identified last year.

A college spokesperson said: “The college suffered an unexpected deficit in its finances in the last financial year, ending July 31, 2013. The audited accounts, as audited by Baker Tilly, the college’s external auditors, show an operating deficit of £4.1m.

“Consequently, the governors commissioned the college’s internal auditors Grant Thornton to undertake an extensive review to understand how this had come about.

“The outcome of this initial review led on to a review of management information systems and processes in the college.
“Changes to financial systems and processes have been made as a result of this review and are continuing to be made.”

The college has ruled out wrong-doing in connection with the deficit, after a draft version of a report by Grant Thornton was apparently leaked to London’s Evening Standard newspaper. It said: “It is critical that concerns around falsification of data and the existence of an additional bank account (that was not known to senior team) are subject to urgent fraud investigation.

“While minor discrepancies could be attributed to human error, and we have not been able to obtain conclusive proof, the number of changes and their magnitude…suggest the possibility of data falsification.”
But the college has claimed the final version of report from Grant Thornton, handed to the college in September last year, ruled out any wrongdoing.

A spokesperson said: “The [Evening Standard] story refers to a leaked document which is a draft internal audit report by Grant Thornton from last summer but not the final audit report which was completed in September 2013. That final report highlighted the auditors ‘had not identified any conclusive evidence of fraud’.

“Led by interim principal Dr Elaine McMahon CBE, the college is working on a viable financial action plan and continues to have constructive discussions with the Skills Funding Agency.”

The college said it would not release the final report, claiming it was a “confidential, internal audit”.