A damning FE Commissioner report has revealed how Hadlow Group’s leaders concealed the truth of its financial position until the college needed bailing out, in a “corporate failure of leadership”.
Richard Atkins’ reports on Hadlow and West Kent and Ashford College were published on Thursday, the day after the High Court put Hadlow into education administration – the first time that has ever happened to a college.
The report reveals how a clique of leaders and governors ran the college on their own, having cut out executive team members and left board members and the government completely unaware of the “extremely serious financial situation” at the college.
Deputy principal Mark Lumsdon-Taylor declined to comment after the commissioner report said he and principal Paul Hannan made decisions themselves and reacted “strongly” when challenged by others.
Entwined government arrangements, where the college shared an audit, finance and governance committee, led to a few individuals having “significant sway” over all the organisations in the group, the report said.
In his report, the commissioner argues the board failed in its fiduciary duty and put the sustainability of the two colleges and its learners “at risk”.
“Loans” were the key evidence behind the commissioner’s team’s claim that there were “significant and long-standing” concerns about the reliability of data at the college.
This extended to the college’s grade one Ofsted rating from 2010, as the emerging issues with leadership, governance and management brings into question the board’s self-assessed grade of “outstanding” for the past three years.
Achievements in its 16-19 study programmes fell by 2.7 per cent between 2015-16 and 2017-18, from 86.1 per cent to 83.4 per cent.
An Ofsted spokesperson said the regulator was “aware” of the achievement rates for 16-19 provision at Hadlow College and would continue to keep the situation under review.
A spokesperson said Hadlow College and WKAC have already begun implementing the FE Commissioner’s recommendations, including those to recruit an interim chief financial officer and increase the financial expertise on the board, and the college is working on addressing its clerking, governance and auditing.
The two colleges have also separated their boards, each of which has a new chair, and a buyer for its £40 million subsidiary Betteshanger Park site is being sought, with the intention of finding one by July 31.
This is after the commissioner challenged the college to justify the educational rationale for the college’s involvement in the business.
The commissioner did take the opportunity to refer to the dedication and commitment of the college’s staff, in what the spokesperson said “continues to be a challenging time for them”.
ESFA failed to check accounts
The Hadlow Group’s financial crisis could have been caught sooner, had the ESFA checked the college’s self-assessed financial health score of “good” against its accounts and realised that the college had not included borrowings, such as a £3 million loan.
Every year, colleges have to send the ESFA financial data to calculate a financial health score.
The college sent ESFA data in which they claimed to have a “borrowing as a percentage of income” of 24.41 per cent.
This would have been given an automatic financial health score of 80 out of 100 by the ESFA, according to the college financial planning handbook.
But analysis by FE Week of the Hadlow College accounts found the borrowing percentage was in fact 45.35 per cent.
This would have scored 40 out of 100 and would explain a shift in the score from “good” to “inadequate”.
The commissioner’s report found “material differences”, particularly in relation to loans, between Hadlow’s annual accounts and its self-generated score of “good” in 2016-17.
The 2016-17 Hadlow College accounts show that, for example, in addition to long-term college bank loans, one of their subsidiary businesses, Grove Farm Park Limited, took out a substantial £3.3 million eight-year loan in 2015.
FE Week spoke to a financial adviser who works with many FE colleges, and who criticised the ESFA’s assurance role on this occasion.
“Accountants don’t audit the financial record. There is an expectation the ESFA will check the financial record they receive from the college against the statutory accounts.
“Clearly with Hadlow College, this did not happen, which brings into question what, if anything, the EFSA does to check the reliability of the data they receive.”
Skills minister Anne Milton has promised an independent review into processes for monitoring college finances, saying: “The DfE will be undertaking an independent review to check whether there is anything more we should do to make sure we know if things like this are going on at a much earlier stage.
“I have also asked officials to check whether we have proper procedures in place for whistleblowers.”
This comes after the FE Commissioner’s report made reference to concerns that had been raised during their visit about whistleblowing.
Milton added that the government’s immediate focus is on minimising disruption to staff and learners.
Who runs Hadlow College now?
A High Court judge has approved the appointment of three administrators – all of whom are from the same firm, BDO – to take over the running of Hadlow College.
The administrators’ objectives are to protect provision for existing learners, then seek the best outcome for creditors.
Education administrators do not have to have direct experience of the FE sector, but they can consult sector experts for advice.
The FE Commissioner has already said he will be making recommendations to them about the college’s future.
They are not obliged to consult any specific person about redundancies, though the college has stressed it envisages no changes to staffing as a result of the appointment of administrators.