St Helens College is at “high risk of insolvency” without action to mitigate its financial position following an underfunded merger, according to an FE Commissioner report.
The college did not properly predict how much money it would need for a 2017 merger with Knowsley College to form the SK Colleges Group, which was supported by £14.1 million from the ESFA’s restructuring facility.
As a consequence of which, FE Commissioner Richard Atkins wrote in a report published today, the current underlying position of the college is “not sustainable”.
“The college and the board of governors have accepted that the income targets used in the original restructuring facility application were too optimistic and have stated that they would not have proceeded with the merger if they had fully understood the impact on overall financial and quality performance,” he continues.
The level of funding required to support a successful merger did not take account of certain PFI arrangements or over-stated recruitment targets at Knowsley, the report says.
The chair even stated the board were aware their funding may have been insufficient for a sustainable merged institution.
Yet they decided to carry on regardless because of the preparations and commitments between the two institutions were already in place.
The chair told the commissioner’s team that “with hindsight” they should not have progressed.
It has set a “significant deficit budget” for 2018/19, but has not achieved the budgeted income for that year, which has resulted in a significant deficit, and has not taken any remedial action in-year to mitigate the deficit.
The college automated a financial health score of ‘inadequate’ for 2018/19, after the ESFA found it had ‘inadequate’ financial health in 2017/18 and handed it a financial health notice to improve in June.
St Helens College was given a grade three by Ofsted in 2017 – and a grade four for apprenticeships – yet in a monitoring visit from October 2018, it was found to have made ‘reasonable progress’ in every area.
Since the FE Commissioner visit, the principal of SK Colleges Group, Jette Burford, retired from the college and has been replaced by an interim.
The college has now been ordered to prepare a recovery plan by the ESFA, which the FE Commissioner report concurs with.
Atkins has also recommended the college should plan for a substantial reduction in its underused estates, put a policy in place to find a new principal, but ensure the focus on improving its financial position should not detract from improving provision.
The FEC team said they would return to the college within six to eight weeks of the March report to consider the recovery strategy prepared by the college, and further recommendations may be made.
In her letter accompanying the report, skills minister Anne Milton said: “It is clear from the commissioner’s report that you, your governors and senior leadership team now fully recognise the need to take swift actions in order to address the significant financial challenges facing the college including the current high risk of insolvency.
“I welcome the positive work you and your college group have already undertaken in the development of a recovery plan. As will be clear to you, it is important that this demonstrates how the college group will achieve a sustainable financial future.”
Monica Box, Principal of SK College Group, said the college has taken a “variety of significant measures to improve its operating position” since the FE Commissioner’s visit in January.
“During the last six months, the college has produced and is implementing a clear three-year recovery business plan,” she added.
“The board is monitoring the plan vigorously, and is confident it is robust, achievable, and will deliver the necessary actions to provide a sound financial position during the lifespan of the plan.”