College group disputes £8m ESFA clawback demand

Lawyers called in as agency attempts to reclaim funding for historic delivery across NCG

Lawyers called in as agency attempts to reclaim funding for historic delivery across NCG

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One of England’s largest college groups is locked in an £8 million clawback dispute with the Education and Skills Funding Agency.

NCG has instructed its lawyers to challenge the agency’s attempt to reclaim funding for historic delivery across the group between 2018/19 and 2020/21.

FE Week understands the claim relates to the application of funding rules in 16 to 19 and adult education budget funding streams, although it is unclear which rules were allegedly broken.

NCG, which has been chaired by former ESFA chief executive Peter Lauener since 2018, coughed up an undisclosed amount of funding to the agency in 2019 when it closed its two training providers, Rathbone and Intraining, after an audit found “significant data anomalies” in apprenticeship funding claims.

Lisa Sproats, chief finance officer at NCG, confirmed that the latest clawback claim relates to a data audit of historic delivery across the group and is “not connected to Intraining or Rathbone in any way”.

She added: “After seeking legal advice, we are disputing certain elements of the clawback, including the application of current and historic funding rules. We hope that this will be concluded this financial year, but whilst it is ongoing we are unable to provide further comment.”

NCG’s recently published accounts for 2021/22 state that the group’s financial health has deteriorated from ‘good’ to ‘requires improvement’ due to the “additional, exceptional provision for potential funding clawback” of £5,836,000 in the year.

The financial statements show additional clawback of £3,035,000 in the previous year.

The reclaim is, however, considered to be “prudent given the level of challenge NCG is undertaking in relation to this”, the accounts added.

NCG faced turbulence between 2018 and 2019, when it was downgraded to ‘requires improvement’ by Ofsted, achievement rates fell, staff went on strike, and its training providers and a free school it sponsored closed. The group also dropped a bid to open an Institute of Technology.

NCG’s former boss Joe Docherty resigned in 2018 and was replaced by Liz Bromley.

The group, which runs seven colleges, has since regained its ‘good’ rating from Ofsted and is in a very strong financial position.

The accounts state that excluding the clawback claim, NCG would improve its EBITDA (earnings before interest, taxes, depreciation, and amortization) percentage of turnover to a healthy 7 per cent. This would return the group to financial health ‘good’ which is “significant given the operational challenges the sector has faced, specifically, political and economic uncertainty, significant inflationary pressures and the legacy impact of the Covid -19 pandemic”.

The group’s turnover from continuing operations increased from £132,639,000 in 2021 to £136,563,000 in 2022 primarily due to growth in its 16 to 19 contract, apprenticeships and other commercial income, but was partially offset by reduced adult income.

While NCG has a deficit of £14,628,000, this is due primarily to depreciation charge concerning its large asset base, plus its pension service charge. None of these are cash-related and the pension item fluctuates depending on external factors, so is not a measure of operational performance or financial strength.

NCG’s primary performance measure is EBITDA, which is the most relevant when assessing current and future sustainability and the ability to generate cash.

The ESFA declined to comment on the clawback dispute.

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