The FE Commissioner reports into a college group that has been engulfed in a financial scandal have been published this morning.

It comes a day after one of them, Hadlow College, was placed into education administration by a High Court judge.

The sister college, West Kent and Ashford (WKAC), is not affected by the ruling, although it is also under a financial health notice of concern.

A letter from the skills minister Anne Milton was published alongside today’s reports and says both colleges are in a “perilous” position, and they have been placed in “supervised college status”.

Here are six key findings from the commissioner’s reports into the two colleges:

 

1. Both boards failed in their fiduciary duty, putting the ‘sustainability of both colleges and learners at risk’

Governance failures across the board put learners at risk, the commissioner found.

Several of the colleges’ functions are governed by joint-committees, with members drawn from both colleges’ boards.

The boards only found out shortly before the commissioner visited about the “extremely serious” financial situation the colleges and the other Hadlow Group organisations were in.

However, the report found this interconnectedness of membership led to a few individuals having “significant sway” over decisions affecting every organisation.

In addition to that, there was no qualified accountant on the board, and “insufficient” financial and accountancy skills.

The report pours scorn on the “peripatetic” clerk, Jonathan Allen, who works across both colleges’ boards and the group and college committees. This is on top of his work with a number of other large FE colleges and a MAT.

Allen was found to have “failed to address matters of good governance”, leading to “poor and inappropriate decision-making” and inappropriate governance.

 

2. How the Hadlow Group ran out of money

Although the two colleges have shared governance and leadership since Hadlow adopted WKAC from K College, they never merged and the overall body for the two colleges and subsidiary companies, the Hadlow Group, is not a legal entity.

The FE Commissioner’s area review in 2017 recommended Hadlow remain standalone, but this was later revised to recommend it merge with WKAC, which they refused to do.

A subsequent area review-related joint audit between the commissioner and the ESFA found the college had made exceptionally high claims for Additional Learner Support, which formed the basis of an ESFA audit in March 2018 and June 2018.

In March 2018, the commissioner met with the chairs of both colleges to confirm he would be recommending they merge. They accepted, with a target date of January 2019, and requested £24 million from the restructuring fund.

This request was rejected, partly due to the lack of transparency over intercompany transactions at the colleges.

Hadlow’s deputy principal Mark Lumsdon-Taylor then alerted the ESFA that both colleges would need exceptional financial support.

 

3. Senior post holders cut the executive teams out of decision-making

The executive team members that the FE Commissioner’s team met when they visited in February complained they had been cut out of key decision-making, and had only recently become aware of the financial issues plaguing the college.

The principal and deputy principal, Paul Hannan and Lumsdon-Taylor (both of whom have resigned) “regularly made decisions themselves outside of executive and any open discussion – and reacted strongly to questioning or challenge”.

Executive team members had not been given access to important financial information other than their own budgets; and had not been consulted on business partnerships, which had been made by senior post holders, and where curriculum and learner implications had not been properly considered.

One such partnership is the Rosemary Shrager Cookery School at WKAC, which the FE Commissioner’s report gives as an example of a partnership “crafted in isolation by senior leaders”.

 

4. There had been a ‘breakdown of trust’ between staff

Executive team members also displayed a lack of trust in senior leaders, and there was reports of “inappropriate behaviours” from “one key individual” had not been followed up.

Union representatives the commissioner’s team met also made a number of serious allegations, which, the report says, indicated a breakdown of trust has taken place.

 

5. Hadlow College could have been in intervention a lot sooner

Hadlow College evaded intervention by the ESFA for 2016/17, when it produced an automated financial health score of good, which did not take into account information about loans.

Had the loans been taken into account, the college would have been scored as ‘inadequate’, meaning they would have been in scope for an FE Commissioner intervention and an ESFA Notice of Concern, both of which did not happen until the end of 2019.

If an ‘inadequate’ had score been generated, governors would have been informed about the “extremely serious” financial situation much sooner.

The “significant and longstanding” concerns regarding the reliability of data could have impacted upon the college’s outcomes and their funding, and meant the report has to include an aside in the ‘outcomes’ section.

 

6. ‘Unlikely’ Hadlow’s grade one status could be justified now

Hadlow College was graded ‘outstanding’ in an inspection nine years ago, and has not been inspected since, apart from several curriculum and development visits – the last of which took place in 2012.

The college has self-graded as ‘outstanding’ for the past three years.

However, the report argues that given the issues that have emerged about the college’s leadership, management and governance, it is “unlikely” a grade one could be justified for those areas; which brings the college’s self-assessed grade one into question.

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HOW FE WEEK EXPOSED IT ALL – A FULL TIMELINE OF THE SAGA:

11 Feb: FE Week broke the news the FE Commissioner had intervened at the Hadlow Group, likely because of its finances; and deputy principal Mark Lumsdon-Taylor had resigned.

14 Feb: We later reported Hadlow College and WKAC principal Paul Hannan had gone on sick leave.

15 Feb: Graham Morley was announced as the interim principal of Hadlow College and WKAC. It was also reported the commissioner’s investigation had been triggered by the group’s application for restructuring funds to the Department for Education’s Transactions Unit.

18 Feb: Hannan and Lumsdon-Taylor were reported as having been suspended, and WKAC chair Paul Dubrow having stood down, with Hadlow chair Theresa Bruton taking over from Dubrow.

1 Mar: Hadlow Group colleges’ boards in “meltdown” as governors step down, the commissioner loans one of his deputies to stand-in as chief financial officer, and it was found Hadlow had not had an accountant on its board.

8 Mar: FE Week revealed the truth behind the investigation into Hadlow College, which told how Lumsdon-Taylor had been caught altering emails from the ESFA to justify claiming taxpayer funding, and the college had failed in a bid for £20 million from the ESFA. It was also revealed the college had failed to sell Betteshanger Park, an organisation within the Hadlow Group, for £4 million and had to spend £1.2 million on new foundations.

11 Mar: Theresa Bruton resigns, as did two other governors. The ESFA and commissioner’s team met the Friday before, ahead of a decision on whether the education secretary should continue to financially support the colleges, or let either of them go into administration.

15 Mar: FE Week exposes how the DfE bailed out WKAC was ordered by the High Court to pay £1 million that was owed to BAM Construction for the construction of a state-of-the-art teaching building in November.

18 Mar: Paul Hannan resigns.

19 Mar: Ex-Association of Colleges boss Martin Doel and mergers and acquisitions expert Andrew Baird are announced as the new chairs of WKAC and Hadlow, respectively.

26 Apr: ESFA takes control of investigation into Lumsdon-Taylor, who is also being evicted from his on-campus flat. But the college admits to paying for the first year of a Master’s degree course he is on at Manchester Metropolitan University.

15 May: Hadlow and WKAC are handed notices to improve by the government after being found to have ‘inadequate’ financial health.

17 May: FE Week broke the news Hadlow College had asked the education secretary, Damian Hinds, to apply to put it into education administration. A financial advisory firm was contracted to shop around for buyers of the group’s assets, including Hadlow and WKAC.

20 May: Hadlow College confirmed it was looking to sell Betteshanger Park, and intends to find a buyer by 31 July.

22 May: The High Court grants the education secretary’s application, and Hadlow College becomes the first FE body to go into education administration.

23 May: FE Commissioner publishes intervention reports into Hadlow and WKAC.

Hadlow College has been put into administration today, making it the first college to fall under the insolvency regime since it was introduced this year.

At the High Court today, the Chief Insolvency and Companies Court judge Nicholas Briggs granted an application from the education secretary Damian Hinds for an education administration order for the scandal-hit college.

Three insolvency practitioners from BDO – Danny Dartnaill, Graham Newton, and Matthew Tait – have now been appointed to run the college with the aim of achieving the best results for creditors and minimising the disruption to Hadlow’s 2,089 students.

It’s a landmark moment for the FE sector

A college spokesperson previously said it “envisages no changes to staffing” as a result of the education administration process.

The application by the education secretary was made in accordance with a request by the college, which has been in receipt of government bailouts to survive.

It has also been subject to intervention from the FE Commissioner, the report of which is expected this week and will likely cover the actions of the principal, deputy principal and several governors, all of whom left their roles at Hadlow and WKAC in disgrace following allegations of financial irregularities.

The court heard today that the college received £2.827 million of emergency funding from the Department for Education in February alone after it said it was out of cash when the leadership had quit.

More emergency funding will be offered by the DfE if it goes to supporting the administration of the college – to minimise disruption to students.

It was also revealed during the hearing that the college has received two letters threatening material financial claims: one from “Heritage Funding” and one from the National Lottery, which gave the college £1.3 million in June 2016 for the development of the Kent mining museum.

The National Lottery is trying to clawback £526,000.

Speaking to FE Week straight after the hearing, FE Commissioner Richard Atkins said: “It’s a landmark moment for the FE sector, one of the most significant moments since we were incorporated. Sadly in this case this is the right course of action.

“The reasons for that are the highly complex financial situation at Hadlow, and usually complex on the grand scale, the very poor governance and leadership of the college leading up to these events, and the fact that it is a protected scheme as the judge noted several times, means that the students and their experience and provision in that part of Kent will be protected.

“That is the part of the work that I and my team are focussed on, which is supporting the staff to ensure the students face the minimum disruption as a result of this particular course of action.

“I will be making recommendations to the administrators from BDO, who now have responsibility for running the college.”

Government guidance for further education bodies which become insolvent states the administrator must prepare a report on the conduct of all of the governors for the last three years for the business secretary.

The Insolvency Service will then review these reports and decide whether to seek to disqualify any of those governors; however, board members could also face jail sentences if it is found they have committed a statutory offence.

Education administration does not affect any of Hadlow College’s subsidiary businesses; such as Betteshanger Park, Grove Farm Park Ltd, Hadlow Rural Community School or the UK Sales Academy.

Nor will it affect Hadlow’s sister college, West Kent and Ashford College (WKAC), although that is also under a financial health notice of concern.

However, due to Hadlow’s financial state, it is looking to sell Betteshanger Park, which includes a business and country park as well as a multi-million-pound visitor centre and mining museum.

Meanwhile, financial advisors at BDO have been tasked with overseeing the potential sale or transfer of assets from the Hadlow Group – which includes Hadlow College and West Kent and Ashford College – to colleges in a 30-mile radius.

Following today’s hearing, a DfE spokesperson said: “Following a request from Hadlow College,  we can confirm that the college has today been placed into Education Administration.

“This is not a decision we have taken lightly, but it is a necessary step to maintain educational provision at Hadlow and to protect learners.

“The ESFA will continue to work closely with the FE Commissioner, the administrators and with Hadlow College to minimise disruption to staff or students, and to make sure we have excellent provision of FE in Kent.”

The names of the 30 providers to win contracts with the Greater London Authority to deliver its devolved adult education budget from August have finally been released.

Of the GLA’s total annual budget of £306 million, around £130 million is being procured over four years.

A tender for a slice of the funding got underway in October and the list of winners was endorsed last month, with the plan to feedback to bidders on April 24.

But owing to a “large number of queries” raised by applicants, this release was delayed.

Documents leaked to FE Week show that the names of the winners (see tables below) were released last night, but their contract values have not yet been revealed.

The GLA said in early April it received 202 bids for the total amount of £811 million. But the results letters sent to providers shows there were actually 336 submissions.

The contracts are worth £32.5 million for 2019/20, approximately £130 million over four years, and are split into two lots: 75 per cent is for one lot dedicated to training out-of-work Londoners; and 25 per cent will go towards a lot for training Londoners who are in-work, particularly those with low-pay or a low level of skills.

A total of 37 contracts, between 30 providers, have been awarded across both lots.

Among those providers chosen to deliver provision to out-of-work Londoners, three are rated ‘requires improvement’ by Ofsted and eight have never been inspected.

For those chosen to deliver training for Londoners who are in-work, there is one grade three provider and six that have never been inspected.

One provider to win a contract in both lots is rated ‘outstanding’: East London Advanced Technology Training.

But another, London Skills & Development Network Limited, is rated ‘requires improvement’ overall and ‘inadequate’ for apprenticeships.

While 37 contracts have been procured, the remainder of the GLA’s adult education budget will be dished out to colleges and other institutions that currently receive funding via a grant from the ESFA.

The GLA has previously come in for criticism because of plans for the authority to topslice £3 million from the AEB every year to pay administrators to handle provider contracts.

The mayor was warned in September that a team of 72 administrators may not be enough to handle the fund when devolution kicks in, with procurement being a key issue.

The West Midlands was the first combined authority to release the winners from its AEB tender last week, as revealed by FE Week. They were closely followed by Liverpool City Region.

Tees Valley Combined Authority is understood to currently be in the final stages of funding awards and is expected to make a decision in the coming months, and the West of England Combined Authority is making decisions on allocations at its next committee meeting on June 14.

The procurement exercise being run Greater Manchester Combined Authority is still live, according to a spokesperson. Cambridgeshire and Peterborough’s is also still ongoing.

Lot 1	Ofsted grade
5 E Ltd	2
Big Creative Training Ltd	2
Back 2 Work Complete Training Ltd	early monitoring RP
ELATT (East London Advanced Technology Training)	1
Free to Learn Ltd	never inspected
Gloucestershire College	2
London Learning Consortium Community Interest Company	2
London Skills & Development Network	3
London Vocational College	never inspected
Martinex Ltd t/a Burleigh College	3
Maximus People Services	never inspected
Newham College of Further Education	2
United Colleges Group (City of Westminster College)	never inspected as merged body
Poplar HARCA	never inspected
Rapid Improvement Ltd	never inspected
Reed in Partnership	2
Strive Training	early monitoring SP
Simply One Stop Ltd t/a Learn Plus Us	3
Step Ahead Social Enterprise Community	never inspected
The London Hairdressing Apprenticeship Academy Ltd	2
Vocational Skills Solutions	never inspected
Waltham International College	never inspected

 

Lot 2	Ofsted grade
5 E Ltd	2
Dynamic Training UK Ltd	2
ELATT (East London Advanced Technology Training)	1
Free to Learn Ltd	never inspected
Go Train Ltd	never inspected
JGA Ltd t/a The JGA Group	2
London Vocational College	never inspected
London Borough of Lambeth	2
London Skills & Development Network	3
Maximus People Services	never inspected
Morley College Ltd	2
Pathway First Ltd	2
Poplar HARCA	never inspected
Rapid Improvement Ltd	never inspected
The Consultancy Home Counties Ltd t/a TCHC	2

The way the apprenticeships programme is evolving is “out of kilter” with the government’s own objectives and “poor execution” has created “serious longer-term problems”, the Public Accounts Committee has warned.

The damning conclusion was made in the influential committee of MPs’ new apprenticeships progress report that said the reforms made in spring 2017 are failing to deliver.

It hits out at the DfE’s “focus” on higher-level apprenticeships and levy-paying employers which “increases the risk that minority groups, disadvantaged areas and smaller employers miss out on the benefits that apprenticeships can bring”.

They ought to come clean and think about how to reset this

The PAC reiterated what many other sector leaders have warned: that some employers are using apprenticeship funds to pay for professional training or management courses that they would otherwise have paid for themselves.

Speaking to FE Week, PAC chair Meg Hillier (pictured) said the Department for Education has “given away the power to control” this unintended consequence, and it has lost sight of the original goals of the apprenticeship reforms.

“Obviously some companies were already funding people through MBAs and so on, and I’m absolutely fine with people having continuing professional development at every level, but that’s not really what we all thought was going to happen with apprenticeships,” she said.

“If levy funding goes on these expensive standards there will be less for lower level apprenticeships where the investment in somebody makes a huge difference to their lives, the productivity of the UK and the sector they are going into. A few people doing an MBA I’m sure is helpful to them and the company they are working for, but that’s not what ministers intended when coming up with the reforms.”

The PAC report said employers’ “preference” for higher-cost apprenticeships means the programme is expected to come under growing financial pressure in the coming years.

In December, the Institute for Apprenticeships estimated that the apprenticeships budget for England could be overspent by £0.5 billion this year, rising to £1.5 billion during 2021/22.

The National Audit Office then warned in March there was a “clear risk” the apprenticeship programme is not financially sustainable after the average cost of training an apprentice hit double what the government predicted – rising from around £4,500 to £9,000.

It said that employers are developing and choosing more expensive apprenticeship standards at higher levels than was expected, which is “absorbing” the public funding.

Following this, the Association of Employment and Learning Providers called for all level 6 and 7 apprenticeships to be removed from the scope of levy funding in order to relieve mounting pressure on the budget.

Jonathan Slater, the DfE’s permanent secretary, then admitted to a PAC hearing that “hard choices” will need to be made in the face of an imminent apprenticeship budget overspend – which could include prioritising some apprenticeships over others.

Hillier told FE Week that it will be a challenge for the government to now tell employers what they can and cannot spend their apprenticeship levy funds on after giving them free rein to do so.

“There is a big issue there,” she said. “The DfE needs to say they didn’t expect these consequences and what they’re going to do about it.

“They ought to come clean and think about how to reset this while keeping the best bits.”

She added that the DfE is “in danger of moving the goalposts” if they say they are happy with the current set-up and the “hard choices could be saying to some companies ‘you may think you can do what you want with the apprenticeship levy but we’re going to push for a focus at the lower end’”.

The PAC made a series of recommendations to the DfE in its report, which FE Week has pulled out here.

Apprenticeships and skills minister, Anne Milton defended the government’s reforms.

“We are making apprenticeships better,” she said. “They are now longer, higher quality and have more off-the-job training.

“Our reforms have also seen more employer buy-in giving employers greater control so they can invest in the people and skills they need.”

She added there is “still work to be done, but we won’t sacrifice quality for quantity”.

The DfE is now “considering the PAC’s recommendations carefully and will respond in due course”.

 

The Public Accounts Committee has today published its progress report into the apprenticeship reforms that were introduced in April 2017.

Members of the committee grilled a number high-profile government officials on the affordability of the programme in March following a National Audit Office report earlier that month that warned it is not financially sustainable.

The PAC’s final report dissects the evidence given, offers its view on how the apprenticeship reforms are going, and gives six recommendations for the DfE and Institute for Apprenticeships to act upon.

 

1. DfE should assess whether there are enough level 2 standards

The PAC said the way the programme is evolving risks leaving behind people with lower skills and those from disadvantaged communities.

It reported that the programme is now “more heavily weighted towards higher-level apprenticeships”, as around 20 per cent of the new apprenticeships standards are available at level 2, compared to more than 40 per cent on the old-style frameworks previously available at this level.

The report added that the proportion of apprenticeship starts among people from disadvantaged areas has fallen, partly because of the growth in starts at level 3 and above.

The PAC wants the department to assess whether there are enough level 2 standards to “allow school leavers or those with fewer skills to easily access apprenticeships”, and report back within six months.

 

2. More stretching diversity targets need to be set

The DfE’s approach to widening participation among under-represented groups has been “inadequate”, according to the PAC.

Despite this being one of the apprenticeship programme’s four main objectives, the committee believes the targets for apprenticeship starts among the black, Asian and minority ethnic population, and among those with a learning difficulty, disability or health problem, are “unambitious in that they are below the respective levels of these groups in the working-age population”.

Additionally, there are no gender-based targets for the programme despite the fact that only 9 per cent of people taking STEM subjects are women, a position that the DfE’s permanent secretary Jonathan Slater has admitted is “hopeless”.

The PAC wants bigger targets for 2021 and beyond, as well as an evaluation of the impact of the DfE’s efforts to attract more women into STEM apprenticeships.

 

3. Evaluate the impact of interventions at failing providers

“Too many apprentices are being trained by sub-standard providers,” the PAC said, after finding around a third of apprentices covered by Ofsted inspections in 2017/18 were being trained in providers rated as ‘inadequate’ or ‘requires improvement’.

It added that the “poor quality” of some providers contributes to a situation where over 30 per cent of apprentices fail to complete their apprenticeship successfully each year. In 2016/17, this equated to more than 132,000 apprentices.

And since 2014/15, a growing proportion of training providers have fallen below minimum standards for their apprenticeship achievement rates.

The PAC points out that the ESFA may issue these providers with additional conditions of funding or extra contractual obligations. Ultimately it can terminate providers’ contracts, but this is “extremely rare” — it has taken this step with only 11 providers in the past five years, according to the PAC.

 

4. DfE needs to set out how small employers can benefit fully from the reforms

The PAC said the apprenticeships programme is not supporting smaller employers “well enough”.

It explained that while levy-paying employers have direct access to their funds via an online system, to pay for apprenticeship training and assessment, smaller employers currently access apprenticeships via training providers who are funded through contracts with the ESFA.

The DfE expects all small employers to be on the online apprenticeships system with levy-payers next year to access training funds directly.

But until then and under the current arrangements, if levy-payers spend “more than around half of their funds, the ESFA will have less money available to fund apprenticeships among smaller employers” and while levy-payers have spent a “relatively small proportion of their funds so far, training providers are already reporting that they do not have enough funding to offer as many apprenticeships to smaller employers as they would like”.

The PAC wants the DfE to consider “protecting” funding for non-levy-paying employers.

 

5. Strengthen assessment arrangements for apprentices

The PAC said they do not have “confidence” in the arrangements for assessing apprentices.

Under the standards, each apprentice is assessed by an independent third-party at the end of their apprenticeship. However, in late 2018, 19 standards had no end-point assessment organisation in place, and 98 standards had only one assessment organisation. In addition, the arrangements for checking the quality of end-point assessments are “muddled, and it is unclear whether the numerous bodies involved provide a consistent level of assurance”.

The committee wants the ESFA and Institute for Apprenticeships to write to them within six months to “provide more detail about the coverage and capacity of end-point assessment organisations” and “set out what they will do to streamline and strengthen quality assurance arrangements in order to give greater confidence that end-point assessments are robust, fair and consistent”.

 

6. DfE needs to set out what productivity gains it expects from the programme

The department uses a ‘skills index’ as a proxy measure for the impact of apprenticeships on productivity, which takes account of the number of apprenticeship starts, apprentices’ progression into jobs, and the subsequent increase in their earnings.

However, the PAC said the DfE has not set out what improvement in the headline value of the index would constitute success.

It recommends that the department should “publish the level of improvement in the skills index that it is aiming to achieve in the short and long term”.