Two firms who between them carried out internal audits for nearly 50 per cent of England’s colleges in 2011/12 are to become one.

Debt-laden accountants RSM Tenon, whose sector clients included Harrow College and Middlesbrough College, has been acquired by Baker Tilly.

It was rescued in a ‘pre-pack’ deal, overseen by administrators Deloitte. It is understood that under the terms of the sale agreement, Lloyds TSB Bank will not recover borrowings of £80.4m in full.

The two London-based firms between them handled 49.9 per cent (172) of internal audits and 39 per cent (134) of all English colleges’ financial accounts.

A spokesperson for Baker Tilly, whose sector clients included Runshaw College and Hugh Baird College, said: “This transaction allows for the ongoing success of RSM’s Tenon’s profitable trading businesses, free from the burden of the group’s historic debt obligations, as part of an enlarged and financially strong Baker Tilly group.

“We believe that this is an excellent outcome for RSM Tenon’s clients and employees, allowing for enhanced service excellence and career development opportunities.”

Research carried out by FE Week indicates that in 2011/12, 49 colleges, including East Surrey College and Croydon College, used both firms – with one for either financial accounts and the other for internal audits.

However, the Skills Funding Agency declined to comment on the implications of the acquisition for the sector.

“It is not the agency’s place to comment as this is a commercial acquisition of one organisation to another,” said a spokesperson.

But FE Week can reveal that college auditing rules were recently altered to allow the same firms to carry out a college’s financial accounts and internal audits in the same year.

“It is no longer the case that a college must use different firms to carry out their financial and internal audits,” said a college finance director that did not wish to be named.

“The Joint Audit Code of Practice Part 2, which has just been released states, ‘where a college decides to appoint one firm as both financial statements and internal auditors, they must establish and maintain appropriate safeguards. The college also must have amended its Articles of Government to remove the prohibition on one firm providing both services.’

“So, colleges can have one firm providing the two services as long as they put in place safeguards and go to the trouble of changing their governing documents quickly.

“However, many college finance directors, and certainly audit committees, would feel uncomfortable.”

Julian Gravatt, assistant chief executive at the Association of Colleges, said: “The Baker Tilly purchase means they’ll be the biggest audit supplier to colleges with at least one-third of external and internal audit business.

“Our concern is simply to ensure that college governing bodies get an excellent audit service at a fair price.

“There have been several audit mergers recently and colleges now have more choice over how they provide assurance. We will be discussing this issue with colleges at our finance and audit conference in October.”

Laurence Longe, Baker Tilly’s national managing partner, said: “Baker Tilly and RSM Tenon are businesses of a comparable scale operating in similar markets across the UK and internationally, and so combining our strengths and skills will provide us with new opportunities for growth, as well as further strengthening and expanding our offering to the market.”