A Leicestershire college group is being propped up with emergency funding after the FE Commissioner flagged an insolvency risk, as governors admit they “took their eye off the ball” following a “turbulent” post-merger period.
The SMB Group was handed a government warning notice last July after “serious cash flow pressures” came to light. FE Commissioner Shelagh Legrave is now deploying her team of national leaders of FE and governance to help its recovery.
Staff restructuring is also underway, although it is not clear how many jobs are at risk.
The SMB Group was formed shortly before the Covid-19 pandemic in 2020 through the joining of Brooksby Melton College and Stephenson College. Quality at both colleges pre-merger was judged by Ofsted as ‘good’ and the financial health of the newly merged college was also good.
In a report published last week, Legrave said a downward trend in student numbers has continued since the merger and made a large dent in income.
There was also a “significant” increase in pay and non-pay costs in 2022/23, which will result in a “substantial operating loss”. SMB recorded a £3.6 million deficit last year, but this year’s accounts are yet to be published.
Bailout funding for an undisclosed amount from the Department for Education is being used so that the college can continue its day-to-day running. Governors have even been told to “ensure they understand” their responsibilities including the provisions of the insolvency regime.
Legrave said early indicators for this academic year point to a “more positive” 16 to 19 student intake, though the college is anticipating another year of substantial losses even after taking account of the recent uplift in 16 to 19 funding rates.
“Work is underway to finalise a recovery plan which will need to demonstrate a credible path to financial sustainability and identify solutions to the impending cash shortfall”, the FE Commissioner added.
To balance the books the college has embarked on a “substantial cost reduction programme” that has involved closing most of the Melton campus and relocation of most provision to the Brooksby campus.
Quality of education has meanwhile suffered since the merger after Ofsted downgraded the group to ‘requires improvement’ last year.
Jane Wilson joined the college’s board in 2017 and became chair in 2022. She told Legrave that the merger, followed soon after by lockdown, had combined to distract the newly forming board and “cloud issues”.
She admitted that the board “took their eye off the ball” regarding income and wasn’t monitoring financial trends closely enough.
Other members said the financial issues were “foreseeable, but not foreseen” and referred to the board as being “relatively passive”.
Governors also told Legrave that post-merger, “a structure came about through attrition” and that the senior leadership team, formed by existing managers, “did not embed or prove effective”.
Chief executive Dawn Whitemore, who joined in 2018 and told the Melton Times in May 2022 the merger was a “lifesaver” for both colleges, revealed in Legrave’s report she had decided the “best way to move forward” was for her to focus on finance and for her deputy to focus on curriculum and quality.
She said she now recognised that this “wasn’t the right strategy” and that she “hadn’t secured the correct structure in place for leadership to be effective”.
Leadership of curriculum and quality was highlighted as particularly problematic, and several decisions of that post-merger period were identified as “concerning”.
A board member, for example, referred to the introduction of A-levels and running classes of three or four students as “worrying examples” and spoke of how the “feel” of the merged college was wrong.
Legrave said the board should now engage external advice from a turnaround specialist to “stress-test key aspects of the recovery plan and cashflow forecast to give assurance that the forward projections are robust and credible”.
A spokesperson for the college group told FE Week: “SMB College Group recognises the challenges currently facing the education sector, which is impacting a number of colleges across both the region and the wider nation.
“We are continuing to work in partnership with the Department for Education, the FE Commissioner team and other key advisors, and have already scoped and agreed a single improvement plan, which currently is progressing well with key milestones all on track.
“We currently have no debt as a college and have not yet agreed to the final support required. Our governors, executive team and our employees are all committed to ensuring our students remain at the heart of all of our decisions.”