College Financial Handbook 2024: making the best of a bad job

Instead of delivering a more streamlined system, the new College Financial Handbook adds to the sector's over-regulation and confusion

Instead of delivering a more streamlined system, the new College Financial Handbook adds to the sector's over-regulation and confusion

8 Apr 2024, 5:00

The College Financial Handbook 2024 (which we will call the “Handbook”) has been released and comes into effect on 1 August 2024. It sets out restrictions on colleges post-reclassification.

We already knew that the Handbook would be bad news for colleges. It could only ever bring more regulation to an already over-regulated sector.

The Handbook will indeed increase the regulatory burden on colleges and its overlap with other documents could bring confusion.

But there is nothing outrageous in the Handbook; none of the new obligations on colleges look unfairly limiting and the sector and DfE have done a good job of producing something with which colleges can work.

Nevertheless, I still do not think that we needed it in the first place.

A bit of background

Reclassification of colleges to public bodies in November 2022 has changed their financial landscape and obligations. The ESFA has aimed to capture this new framework and combine the financial rules and requirements into a single document for the FE sector.

The Handbook applies to further education and sixth-form college corporations and bodies designated as being in the FE sector. It does not apply to 16-19 academies, sixth-form colleges forming part of an academy trust, LA maintained schools within a sixth-form, 16-19 free schools or University Technical Colleges.

The document will be refreshed annually and, in the words of the ESFA chief executive, takes a principles-based approach demonstrating to the sector “what needs to be done rather than how it should be done”.

The Handbook is a combination of well-established obligations with which colleges will be conversant, such as compliance with procurement principles and subcontracting standards, but also provides further detail, such as when colleges must obtain DfE approval for certain transactions.

The requirements are described in two ways: musts, meaning statutory or regulatory requirements to be adhered to, and shoulds which are standards of good practice to be followed, unless colleges can show a good reason for differentiating their approach in individual circumstances.

Compliance with the Handbook is a condition of colleges’ accountability agreements. The DfE may take action if there are concerns with college compliance.

Part 2 sets out the main financial requirements, which cover internal control frameworks, budget and spending decision management and the roles played by governors and college individuals in determining financial management.

What is in it?

Not much of the Handbook is totally new – it tends to repeat obligations to which colleges were subjected post-reclassification, and it sets out other obligations which are already covered in funding agreements or guidance documents.

Where there are new obligations on colleges, these tend to be additional detail in an already regulated area, or things which colleges probably already do.

Some of the obligations include that colleges must:

  • follow procurement processes and ensure delivery whether direct or subcontracted meets the necessary standards
  • follow codes on setting executive pay
  • have an audit committee with oversight of financial controls of the college
  • refer novel, contentious and repercussive transactions to the DfE for approval before the transaction occurs
  • obtain DfE’s prior approval for writing off their debts and losses beyond the delegated limits, entering into guarantees/letters of comfort and entering into indemnities which are not in the normal course of business and beyond the delegated limits
  • obtain ESFA’s prior approval for new borrowing from the private sector and amendments to existing private sector borrowing, regardless of the interest rate chargeable.

Some more difficult provisions

A college now needs DfE consent to appoint an accounting officer who is not an employee of the college. It is very rare that a college would want to do this, but we have seen it happen, for example where colleges are merging.

Accounting officers must adhere to the Nolan Principles. Of course accounting officers will probably be a governor of the college and so should comply with the Nolan Principles anyway. But it is odd that a college is now in breach of its obligations to the DfE if one of its officers behaves in a way which is contrary to a list of principles which cannot be seen as hard and fast rules.

The accounting officer must notify the ESFA if the college acts outside its powers. It would normally be a college’s governance professional who advises the board on vires issues. These can be complicated and nuanced, so it is a bit harsh on an accounting officer to take personal responsibility for this.

Colleges must ensure that “a competitive tender policy is in place and applied”, but then colleges should “consider approving a procurement policy”. These things seem to be contradictory.

Over-regulation and confusion

The college Handbook is mercifully a bit shorter than the equivalent Handbook for academies. Overall the two are unsurprisingly pretty similar, but the DfE and their consultees have done a good job in tailoring the Handbook to the further education sector.

However, this is a sector that is already heavily regulated. Colleges are subject to charity law, multiple funding agreements, many sets of funding rules, dozens of regulatory documents imposed by the DfE, laws which set the powers of colleges, their own constitutions and to restrictions contained in grant agreements for the many stand-alone pots of funding for which colleges must compete.

The Handbook brings more restrictions on the sector which it did not need.

Arguably more problematic than bringing more regulation, is confused regulation through so many different layers. Just to take one example: Why does the Handbook need to cover audit committees when they are already subject to regulation in funding agreements and policy documents? By regulating the same issue multiple times we make it harder for colleges to know where to go to find definitive answers. Worse still, we risk one regulatory document contradicting another.

The Handbook’s foreword sets out that the ESFA is “supporting the sector in the application of these rules in as streamlined and simple a way as possible”. This continues promises to streamline funding and regulation which were set out in the Skills for Jobs white paper.

As things stand, this policy objective is very obviously not being achieved. The further education sector would hugely benefit if the ESFA and DfE could achieve it.

In the meantime, as usual, colleges will just get on with it.

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