ESFA warns it could trigger college insolvencies with adult education budget claw-back

The government is encouraging under-performing colleges to reduce their 2018/19 adult education budget now, to avoid cash flow problems as a result of the ESFA clawing-back funding.

A funding claims and reconciliation update was published by the Education and Skills Funding Agency today.

It states that if a provider considers it “may not fully spend your 2018 to 2019 AEB allocation, we can discuss reducing it with you immediately after the mid-year claim in February”.

“It is in your interest to reduce your allocation now so you can manage your cash flow over a number of months rather than having to fund a large recovery in December,” the update adds.

“It is government policy to recover debts, such as AEB under-delivery, as soon as possible after a contract reconciliation but public bodies have discretion where recovering the funding too quickly could put the supplier at risk of insolvency.”

The ESFA’s encouragement to reduce AEB earlier rather than later in the year comes after the insolvency regime came into play last week, which spelt the end of major government bailouts which many cash-strapped colleges have relied on to sort cash flow problems.

Previous analysis by FE Week showed that hundreds of colleges and training providers between them failed to deliver £73 million of allocated adult education funding in 2016/17, which they had to pay back.

It is expected that the 2017/18 AEB spend has also been under-delivered, although final figures are yet to be revealed.

Numerous new college accounts reveal adult education underspend, including at Highbury College whose financial statements show it will be required to pay back around £200,000 of unspent AEB to the agency.

Today’s update from the agency states that to ensure “effective planning for 2018 to 2019 reconciliation, we will compare mid-year and final claims against data returns, from this year and prior years, to gain assurance into the claims presented”.

“Where we are not fully assured by your mid-year claim, we will contact you in February and March to discuss your plans,” it said, adding that where the agency does “not gain further assurance, we may reduce your 2018 to 2019 allocation from April”.

The update continues: “For the reconciliation of AEB 2018 to 2019 funding in November 2019, it is the ESFA’s intention to recover under-delivery from subsequent payments across AEB, 16-19 programme and apprenticeships from December.

“However, if you believe that you would require longer we will consider repayment within the 2019 to 2020 financial year where this is supported by an acceptable demonstration of need.”

If colleges have concerns over their ability to repay any under-delivery in the 2019 to 2020 financial year they “must discuss this with your territorial team manager immediately after the mid-year claims in February”.