A new audit system from the Skills Funding Agency has caused “major concern” within the FE sector.

Accountability reviews — described as “a key element of the agency’s intervention strategy” — will consider not just financial management, but also governance and strategic oversight arrangements.

The announcement, which sources have told FE Week came as a surprise to many in the sector, was accompanied by a 58-page guidance document on the agency website.

It is understood the reviews could be used to assess the progress of providers issued with notices of concern relating to finances.

But Paul Warner, Association of Employment and Learning Providers director of employment and skills, called for clarity on what action was needed from providers and whether audit would result in a straight pass or fail.

“We are unsure how these new guidelines fit with the existing Financial Health Guidelines which are applied to providers on the Register of Training Organisations [RTO],” he told FE Week.

“Does this new review override the existing guidelines and in particular the ratios submitted in an RTO application?”

He added: “The way that the audits are conducted will be crucial. While the guidelines themselves are generally acceptable, they cover a wide area and different auditors may reach different judgements on each aspect.

“If we have understood them correctly, they seem to suggest that if a provider is judged inadequate or ‘needs improvement’ in any part of the inspection, a straight fail will result and for us, this is a major concern.”

Agency guidance on the reviews says they will not be triggered by an Ofsted inspection, but will instead follow a risk-based schedule.

Key risks that would lead to a provider being flagged up on the schedule include “under-performance against allocations, key senior personnel changes or concerns and trends in success rates”.

Providers would be notified that an accountability review was coming three to four weeks in advance.

Julian Gravatt, assistant chief executive at the Association of Colleges, said the audit plan would be looked at soon.

“We discussed the agency’s plan to have targeted reviews to replace FMCE (Financial Management Control Evaluation) and we’re currently discussing the new BIS intervention arrangements and the College Finance Directors Group will be reviewing the detail of this document,” he said.

Each accountability review will examine management, including governance and strategic oversight, financial management and internal control arrangements.

The audit guidance added that reviews would not be undertaken at non-college providers with aggregate contracts under £10m.

An agency spokesperson said: “We would welcome comments from colleges and training organisations on how they could be further developed and refined in the future, particularly in respect of their scope, usefulness and content.”

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