Cash-strapped college reveals shock deficit on the same day insolvency regime goes live

A cash-strapped college’s 2017/18 accounts have revealed a £5 million deficit, on the same day that the insolvency regime came into force.

The massive shortfall at North Hertfordshire College is 20 times higher than was budgeted at the beginning of the year, and twice what was predicted just two months before the end of the year.

As a result, the college received £2.5 million in bailout funding in just three months, and submitted a last-minute application for an unspecified sum from the restructuring facility.

A new approach has been taken to managing our cash position ahead of the implementation of the new insolvency regime

An FE commissioner report, triggered by the college’s request for exceptional financial support in September which also prompted a financial notice to improve from the Education and Skills Funding Agency, is understood to be expected imminently.

The college “generated a deficit in the year of £5.03 million” compared with a £713,000 surplus in 2016/17, while its income fell from a little over £30 million to nearly £24 million in 2017/18.

The deficit includes a £4.3 million overspend compared to income, and a £713,000 loss on the sale of a property.

The college “struggled to meet the budgeted revenue targets set, a situation caused by several factors but most notably the significant nationwide slowdown in apprenticeship starts following the introduction of the apprenticeship levy,” the accounts said.

Education and Skills Funding Agency figures show North Hertfordshire had 890 starts in 2017/18, down 29 per cent on the previous year’s total of 1,260, and down 66 per cent on the 2,590 starts in 2015/16.

The college received £1 million in exceptional financial support in September, and a further £500,000 in November, while “approval for a further £1 million has been granted and is due in December 2018”.

Meanwhile, an application to the restructuring facility in September has been endorsed by the FE commissioner, Richard Atkins, whose team visited the college in the same month.

The college also plans to “secure a significant cash injection” by selling “surplus land”, although it was unable to tell FE Week how much this was expected to raise, citing commercial confidentiality. 

“A new approach has been taken in 2018/19 to managing our cash position ahead of the implementation of the new insolvency regime for colleges,” the accounts said.

Nonetheless, the principal risk facing the college is that “we are not able to maintain our target level of cash reserves in light of the new (sector wide) insolvency regime”, which came into effect on January 31 and which will allow colleges to go bust for the first time.

“We are now looking forwards,” a college spokesperson told FE Week.

In addition to the apprenticeship slowdown, the college’s recent improvements – which saw its Ofsted grade increase to ‘good’ in November 2017 – “required considerable investment”, she said.

“We have robust recovery plan in place, we are making good progress towards implementing all the commissioner’s recommendations and we are confident about our future.”

Minutes from the college’s board meetings show how the deficit spiralled over the course of the year.

In June 2017 “the proposal was for a budget showing a small loss” for the coming year which the senior management team “was confident could be managed”.

We have robust recovery plan in place, we are making good progress

Four months later the minutes reveal there was a “risk that this forecast deficit would increase” as part of a “full reforecast” that was “in hand” after Hart Learning and Development – the college’s apprenticeship arm – “failed to hit the forecast surplus in 2016/17”.

By February 2018 the forecast deficit had increased to £1.5 million.

The original deficit had been £250,000 “but it had become clear towards the end of 2017 that this was optimistic”.

The June minutes show the forecast deficit had gone up yet again, to £2.5 million.

The college claims the final £5 million deficit is not comparable. The £2.5 million was “from the management accounts which covers the operational performance of the college only” while the £5 million includes “subsidiary accounts and several non-operational (and non-cash) balance sheet adjustments such as losses on disposal of assets”.

The fall in apprenticeship numbers and rising deficit are among a number of challenges the college had to deal with in 2017/18.

Its former principal, Matt Hamnett, resigned with immediate effect in November 2017, shortly after the departure of the James Sowray, the managing director of Hart Learning and Development.

Board minutes from the following month report on the outcome of a review into a whistleblowing incident involving Hart, in which they say “income had been forecast which would not now be received” and would lead to a “review of the management structure and culture in the business”.

Mr Hamnett, whose £294,000 salary made him the highest paid principal in 2016/17, received £74,000 payment in lieu of notice in 2017/18 according to the accounts.

Since leaving the college Mr Hamnett has worked as a consultant and authored a study “to understand and offer some reflections on the transformation of FE colleges which are not performing to the level that their students, business customers and communities should expect.”

Commissioned by the Further Education Trust for Leadership and published today, the study is called ‘Beating the odds, and the system’.