A college at risk of insolvency after its income halved in seven years has been handed a financial health notice to improve by the Education and Skills Funding Agency.
Cheadle and Marple Sixth Form College is one of two colleges to be handed such a notice today; the other, Warrington and Vale Royal College, was served the notice after having ‘inadequate’ financial health in 2017/18.
Both have now been referred to the FE Commissioner Richard Atkins for intervention.
The notice to Cheadle and Marple says “there is, or in the foreseeable future there is likely to be, a risk to the solvency or financial viability” of the institution, which generated a £3 million deficit in 2017/18.
A £7 million drop in income, which was blamed on a declining student intake and funding reductions, took the college from £15.6 million in 2010/11 to £8.3 million in 2017/18.
In order to make up for this shortfall, the college sold land to the Department for Education in 2017 for £6.3 million, to build two new free schools.
The area review for the college, based in Stockport, recommended it convert to an academy and join a multi-academy trust.
However, the college instead proposed it join a federation supported by Liverpool Hope University, a move that was endorsed by the ESFA.
The college’s latest accounts show there was an operating cash outflow of £3.6 million in 2017/18.
A grade three college, Cheadle and Marple received a share of a £1.8 million strategic improvement funding in March, as part of a scheme to help struggling colleges.
A college spokesperson said about the notice to improve that it was working with the ESFA to explore options for dealing with cash flow issues it expects to face “over the coming months”.
It said the issues had been “largely caused by a number of years of low demographics against a backdrop of funding cuts”.
Warrington and Vale Royal College also received a grade three at its last inspection, but was found to have made ‘reasonable’ or ‘significant progress’ in every area of an ensuing monitoring visit.
It won a contract in the Liverpool City Region AEB tender in May, but its 2017/18 accounts predicted it would fail to meet its bank loan covenants in 2018/19.
Following its creation in a merger between Warrington Collegiate and Mid Cheshire College, staff costs soared at the newly-formed institution by more than £6 million.
Principal Nichola Newton said the college has experienced “continued financial challenge”, and it has been working closely with the agency and the FE Commissioner throughout the last year to monitor the college’s financial health, something that will continue to happen going forward.
Both colleges have been set a series of conditions by the ESFA as a consequence of the notice to improve.
They must work with the agency and the FE Commissioner, who may intervene at either of them; must submit a draft financial recovery plan and monthly management accounts; and allow the agency to attend board meetings.