Government commissioned college finance review to slam ESFA


A government commissioned review is set to heavily criticise the Education and Skills Funding Agency and their intervention regime for failing to spot when colleges get into finance trouble, FE Week understands.

Dame Mary Ney, who had a 40-year career in local government, was commissioned to undertake the review in August after the FE Commissioner’s team found Hadlow College, now in administration, had an ESFA financial health score of ‘good’.

It is expected that Ney will be particularly critical of the calculations the ESFA uses to determine the financial health scoring and grading.

We need to know more than just what the single score is

She will argue that had the agency’s formula been more robust, it could have intervened in college failures, such as that of Hadlow, much sooner.

The Ofsted grade one college has been subject to government investigations after financial irregularities were uncovered. These included submitting partial information to the ESFA in order to secure a ‘good’ financial health rating. However, according to the FE Commissioner, had the ESFA looked at their published accounts they would have rated them as ‘inadequate’.

The agency’s scoring system allows colleges to self-grade themselves by inputting three measures: one based on cash, another on debt and then margin.

This set of metrics then formulates an overall financial health grade of ‘outstanding’, ‘good’, ‘requires improvement’ or ‘inadequate’.

Julian Gravatt, deputy chief executive for the Association of Colleges, said this “broadly balanced” system has been around since 1994 but is in need of change.

“A college that is reporting a big loss or got low points on their current assets, or high debt, that is all a flag. But the big issue is you have got to be certain the figures are correct, which was clearly a bit of a Hadlow issue,” he told FE Week.

“What I think is a problem is that we are not a sector full of financial analysts. Ttere is a slight danger that a college thinks their rating is fine, so nothing more needs to be done.

“We need to know more than just what the single score is ­– you need to understand what contributes to it. It is useful as one of the things in the picture, but it is not enough.”

The ESFA appears to be aware of its trouble in overseeing college finances, and has already started to make changes ahead of Ney’s report.

It was announced in September that college financial returns, which historically have been submitted at least twice a year, will from this month be consolidated into a single annual return.

The ESFA claimed this would help college governors­– and the agency – “spot signs of declining financial health and ensure preventative action can be taken at an earlier stage”.

But principals were critical of the move, with Bedford Colleges Group boss Ian Pryce commenting at the time: “You don’t wait until you hear the football results and learn your team lost 10-0 as a basis for preventing problems and poor performance. You spot things early by developing strong human relationships.”

We are not a sector full of financial analysts

On December 23 the ESFA published a new integrated financial model for colleges (IFMC), which replaced the agency’s modelling for financial plans, financial record, and cash flow forecast.

Gravatt said the new spreadsheet, which all 248 colleges must have completed by February 28, will collect more cash data and thus give the ESFA a wider overview of a college’s financial health.

“This is a spreadsheet that those colleges applying for restructuring funding – about 10 per cent of the sector – had to fill in,” he explained. “But it ­is now being extended to 100 per cent of colleges,  asking them to predict their funding for up until July 2022.”

He added that while the financial health scoring and grading hasn’t changed, the ESFA has “promised that they are going to look at changing the system”.

Ney’s report will be published ahead of a National Audit Office’s value for money review on the management of colleges’ financial sustainability, which launched in August.

FE Week understands the government’s audit watchdog will release their verdict in the summer.

The DfE declined to comment on the upcoming Ney report.

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  1. Philip Gorst

    Julian states – ‘it’s a bit of a Hadlow issue’.
    The current leader in the ‘understatement of the year’ competition!
    We had a bit of a running story last week about ‘governance’, and here we go again.
    If a College was run like a business (which it should, in my opinion), the directors and auditors would be directly and indirectly responsible for the financial health of that business under pain of prosecution and imprisonment.
    So, given that Colleges are self governed (CEO salaries in excess of £300kpa, foreign trips for no apparent purpose, expensive gifts for employees…….) then the system is not working.
    Couple this with an ESFA that is a compliance body with no commercial experience then off we go again.
    I mentioned last week that the Halton College scandal of 1999 has invoked no discernible changes in the way that colleges are run.
    Self declaration is a fantastic route to obfuscation -‘ let’s put in the return what we think the ESFA need as it will be judged by people who don’t understand a balance sheet in any case’.
    As the article makes clear – the ESFA don’t even check Companies House, when all audited financial records have to be posted. It’s a five minute job.
    Let’s all stand by for another instalment in the ongoing story of college mismanagement.

  2. John Devine

    Well what a surprise that it. I was once in a meeting with a minister and the director of finance at the ESFA who got confused between the difference of a creditor from a debtor. When he was challenged, he replied ‘ it doesnt make much difference’. He embarassed himself and the organisation he worked for.

    But most importantly, there are few in FE who can read a balance sheet and understand the importance of cash and too many governors who are appointed by CEO’s for a quiet life. the words ‘constructive challenge’ in governance is not common in the FE system

    to rely on scores on historical data is a total joke and the work of the commissioner who is great at shutting doors after horses have escaped with crass findings needs sorting once and for all.

    I read with interest about his revelation about hull and them not publisizing board minutes. it doesnt take much brain power to realise there are about 200 colleges that dont do that for obvious reasons including some of the largest.

    Fundamental review of FE required and put them back under local authority control and we can save some money and get rid of the incompetent principals

  3. Claude Lebel

    The alarming fact is that Colleges have since Incorporation become thiefdoms for Greedy Principals and senior management, the Tax payer, staff and students are all being fleeced.
    The College governors are totally out of their depth in fact they are inept, they hardly ever turn up to meetings and their influence and input to make College leaders behave properly and run a College along proper business lines is a joke.
    The Government departments (since incorporation of colleges in 1996) given responsibility for Oversight, Audit and Funding are incompetent, is it any wonder the FE sector is fatally wounded.
    I know the old system of local authority control worked perfectly, I don’t know what will fix this 20 year slide into mediocrity.