A struggling UTC must join a “strong” multi-academy trust and improve its finances, after reports from a whistleblower prompted an investigation by government funding bosses.

The Education and Skills Funding Agency said ministers would pick out a list of potential new trusts for the ‘inadequate’-rated Bolton UTC to join this September, after issuing the 14-to-19 institution with a financial notice to improve.

ESFA officials visited the UTC last summer after they received “anonymous allegations” of financial mismanagement and poor governance. The college has struggled to recruit pupils, and owes the government substantial debts after it overestimated pupil numbers.

They found evidence that financial decisions had gone unchallenged, and that the lack of an audit committee or any financial checks had led to “inadequate” financial controls and management of conflicts of interest, including around an estimated £920,152 in related-party transactions.

The investigation started last July, but details have only just come to light after the notice to improve was issued last month.

The UTC, which is currently run by an interim management board, has had most of its spending powers suspended until the notice is lifted. It has also been told it must get agreement from ministers to join a “strong” multi-academy trust in September 2018.

“This MAT will be from a selection determined by the department,” the notice said.

The UTC must also develop an action plan to make sure that all of its contracts are compliant with procurement law, avoid all conflicts of interests, “accounting irregularities” and “novel and contentious payments”, ensuring clear lines of accountability among senior figures.

A financial management and governance review of Bolton UTC, which was also published today, reveals that of six suppliers reviewed by the ESFA during its investigation of procurement at the trust, three were classed as connected or “related parties”.

There was “no evidence of any formal procurement exercise” for any of the six suppliers, and five of them did not have a signed contract in place. The one existing contract was described as “brief” and without “adequate detail”.

For the three related parties – the University of Bolton, Bright Tribe Education Services and Greater Manchester UTC – the trust was unable to show adequate management of conflicts of interest or evidence of complying with a policy that related-party transactions must only be “at cost”.

Since September 2015, the UTC has paid £658,922 to the University of Bolton, £209,862 to Bright Tribe and £51,368 to Greater Manchester UTC.

Between September 2015 and December 2016, the UTC, which was less than half full, had a chief executive officer and a principal, but also bought in support from the principal at Greater Manchester UTC at a cost of £297,507. Officials were unable to explain why all three were needed.

Other issues highlighted included paying relocation expenses of almost £6,500 to someone moving around 20 miles away, and a compensation payment of £45,000 paid out with any proof of a business case or professional advice for doing so, and no evidence of board evidence or approval.

The boss of the organisation that will be responsible for T-levels has admitted he has deep concerns at the “worryingly tight” delivery timeline.

Sir Gerry Berragan, the chief executive of the Institute for Apprenticeships, made his fears known during a keynote speech at an Ofqual conference for vocational education awarding organisations in Birmingham this week.

He discussed the need to “articulate” what T-levels are and how they fit into the technical education landscape, saying it was pivotal that the IfA has “success” with the wider rollout.

But his unease at the viability of the government’s proposed 2020 timeline for the first three routes was clear.

“The last thing we should do is start the first three on the wrong footing and give them a bad reputation,” he said.

I think the timeline for delivery of the three pathways is worryingly tight

“We need to deliver these successfully from the outset. I think the timeline for delivery of the initial three pathways is worryingly tight in that regard.”

He is the latest – but perhaps most significant – industry figure to admit concern about the tight timescale for T-levels, given the IfA’s central role.

A spokesperson for the Department for Education admitted its timetable is “ambitious”, but said it remains confident of meeting the 2020 rollout.

“We know that the timetable for T-levels is ambitious,” she said. “We are working closely with Ofqual and the IfA to make sure we get these reforms right.

“New T-levels are going to give young people a high-quality technical education, equal in esteem to A-levels, and we’re on track for teaching to start from September 2020.”

T-levels have been designed to increase the prestige of technical qualifications, as match for A-levels.

The first three subject areas to go live in 2020 will cover digital, childcare and education, and construction.

It was announced last October that a further eight subject “routes” should be launched from 2022.

Ofqual’s boss Sally Collier also discussed the regulator’s concerns about T-levels.

The body released its response to the government’s T-level consultation two weeks ago, in which it brought up various worries about plans for a single awarding organisation per qualification, and the FE sector’s ability to cope with yet another set of reforms.

“It is absolutely essential that the majority of the content is set before we turn to assessment strategies and qualifications design,” Ms Collier told the conference.

“Government, quite rightly is wanting to get on with it, to deliver on its commitments and see these qualifications as fundamental for improving our skill base. That means the timelines are very ambitious, and we all need to be cognisant of those risks.”

We know that the timetable for T-levels is ambitious

“That means our timelines are very ambitious. We all need to be competent of those risks.”

Her organisation has been working with the IfA and DfE for “some months” about the role Ofqual will play in helping deliver the programme, and she described “extremely good progress”.

The Confederation of British Industry shares Sir Gerry’s opinion that the current delivery timetable is unviable.

In its own response to the T-levels consultation, representatives went so far as to say they think the full delivery should be delayed further, until 2023.

These views will no doubt heap pressure on Anne Milton to delay T-levels further, after she pushed them back from 2019.

In July last year, the skills and apprenticeships minister announced first three routes would be delayed until September 2020 – a year later than planned.

The Public Accounts Committee has today published its report into the monitoring, inspection and funding of Learndirect.

Members of the committee grilled the organisations who’ve been closest to the saga involving the nation’s biggest FE provider during a hearing in January.

Learndirect was given an ‘inadequate’ rating by Ofsted in a report published in August, and the government offered it special treatment by allowing it to retain its contracts for almost a year – much more than the usual three-month termination period.

The PAC’S final report dissects the evidence from this long running debacle and gives five recommendations for the government and Ofsted to act upon. 

 

1. Develop a new framework for identifying providers who are too big to fail

Having awarded Learndirect several vital contracts for a variety of public services, the PAC said the government was later restricted in its ability to take “decisive action” when the provider’s apprenticeships provision began to fail.

The DfE and other government bodies should now “develop a framework for identifying any risk that a commercial provider becomes so large and essential to the delivery of public services that it cannot be allowed to fail, or requires special treatment if it begins to do so”.

The PAC wants the Cabinet Office to report back on this progress by December, and the DfE to do so separately by the start of the next academic year.

The DfE told FE Week it would respond “in detail” to the PAC’s recommendation in “due course”.

The Cabinet Office did not respond to requests for comment.

 

2. The ESFA should publish its expectations on management fees

Learndirect has charged “unusually high” management fees of 40 per cent to its subcontractors for years, which means a “large amount of funding is not available to be spent on teaching and learning”.

Even though the ESFA requires all providers who subcontract their provision to be transparent about management fee rates, it provides no guidance on the levels of support that “might be merited by different levels” of top-slices.

The PAC said that the ESFA should therefore “formally publish”, in time for the next academic year, its “expectations about the services that should be offered to subcontractors, and the associated management fees that are reasonable”.

 

3. Ofsted must urgently review its plans for assessing risks of private provider failures

In assessing when to reinspect Learndirect, the PAC said Ofsted did not “take full account of the company’s size and the consequences for learners of its declining performance”.

It pointed out that a full inspection of Learndirect requires Ofsted to commit around 15 per cent of its total inspection capacity for the FE sector.

It wants the watchdog to “urgently revisit how it prioritises its use of resources and the different type of risk attached to a private sector failure, in a way that takes account of risks to high numbers of learners and the changing provider-base in FE”.

Ofsted said it keeps its inspection processes “under regular review, particularly as the skills landscape changes and new risks emerge, and will study the PAC’s recommendation”.

 

4. A new inspection deferral policy is needed for commercial providers

Ofsted’s policy for deferring an inspection “risks putting providers’ business interests ahead of learners’ interests”, the PAC said.

The watchdog originally planned to reinspect Learndirect at the start of November 2016, but agreed to defer its inspection when the provider claimed it was negotiating the sale of its apprenticeships business.

This sale never actually went through but delayed inspection for four months.

To prevent a situation like this from happening again, the PAC says that by June 2018, Ofsted should develop a “specific deferral policy for commercial providers, to ensure that learners’ interests always take priority over the pursuit of profit”.

Ofsted said it will “always put the interests of learners before any commercial considerations, which is precisely what we did in this case”.

 

5. The government needs not to hand so much power to private giants

The PAC concluded that Learndirect had received hundreds of millions of pounds of public money while “neglecting its learners in pursuit of profit and frustrating the Ofsted inspection regime with delaying tactics and spurious legal action”.

It pointed out that the ESFA gave Learndirect almost £500 million in the academic years from 2013/14 to 2016/17, during which time the quality of apprenticeships provision was in decline and the provider failed to achieve the ESFA’s minimum standard. Yet, despite this downward trend, the company waited until September 2016 to develop an improvement plan.

The PAC believes the government should “learn the lessons” from the failure of Learndirect, in particular “concerning the need to understand how many government contracts a company holds at a given time and how well it is performing against each of those contracts”.

The Cabinet Office did not respond to requests for comment.

 

Learndirect was indeed given special treatment because the government considered it too big to fail, the Public Accounts Committee has concluded in its final report on the saga.

The scandal engulfing the nation’s biggest FE provider has engrossed the sector for nearly a year, and the PAC’s round-up asserts that it still “holds the whip-hand” over Whitehall and demanded more definitive action.

The PAC’s chair Meg Hillier (pictured above) told FE Week that there had been a “shocking message” to taxpayers and learners when the government “propped up” a “failing education provider” instead of stopping its funding.

She had put the wheels in motion for an investigation back in September when she referred the case to the National Audit Office.

At this point, Learndirect had been given an ‘inadequate’ rating by Ofsted in a report published in August, following a long legal battle to suppress it, including an injunction.

It was a shocking message to taxpayers and learners when the government propped up a failing education provider

The Department for Education then allowed it to retain its contracts for almost a year – much more than the usual three-month termination period – and Learndirect is expecting to receive over £105 million in 2017/18.

The government and Learndirect have attempted to defend themselves ever since, denying it received “special treatment” and claiming it acted in the best interests of the tens of thousands of learners involved.

Seven months on and after the NAO’s report on the debacle, Ms Hillier has laid waste to this flimsy defence insisting that the provider leveraged its sizeable contracts across Whitehall to stay afloat.

She believes Learndirect’s failure should act as a wake-up call for the government to get a grip on individual contractors that grow so large they become too big to fail.

“In the case of Learndirect, thousands of learners have been let down amid poor oversight by the government and at significant public expense,” Ms Hillier said.

“There has been disruptive legal action and, finally, a scathing Ofsted report. Yet still Learndirect appears to hold the whip-hand.”

Having awarded the provider several vital contracts for a variety of public services, including with the Home Office, the PAC found the government had been restricted in its ability to take “decisive action” when the company’s apprenticeships provision began to fail.

Its achievement rate has dropped considerably over the last four years: since 2013/14, Learndirect has trained 58,283 apprentices but 24,712 of them have failed to achieve their qualifications.

During this time the provider was given over £150 million to deliver apprenticeships.

Ms Hillier said it “cannot be right” that individual contractors should command such large sums of public money regardless of their performance.

“No commercial provider should be allowed to become so essential to the delivery of services that it cannot be allowed to fail,” she continued.

Thousands of learners have been let down amid poor oversight by the government

“The government has a duty to manage taxpayers’ exposure to risk diligently and we urge it to act on the recommendations set out in our report.”

Learndirect’s funding comes to a halt at the end of July, but it remains to be seen as to whether the provider will even survive until then.

Its latest set of accounts, published in November, it showed that its long-term survival hinges on the success of its sister companies, including Learndirect Apprenticeships, over the next 12 months, as it is saddled with debts of more than £50 million.

In February, Learndirect entered redundancy talks with an unknown amount of its staff.

The PAC used its report to publish five recommendations for government and Ofsted to take action on to ensure a scandal like this is not repeated (which you can read here).

A DfE spokesperson said Learndirect’s contract to provide apprenticeships and adult education was coming to an end “because of its failure to meet the high standards expected”.

She reiterated that the department’s priority “has always been to protect learners” and make sure they “do not lose out and get the opportunity to complete their courses”.

Learndirect declined to comment.

The government should publish guidance on how it expects management fees to be applied by August, the public accounts committee has said, piling pressure on ministers to act faster on subcontracting.

The demand came in the committee’s report on Learndirect, which is published today and slams the provider for charging “unusually high” top-slices of 40 per cent.

It said that even though the ESFA requires all providers who subcontract their provision to be transparent about management-fee rates, it provides no guidance on the levels of support that might be merited by different levels of top-slices.

The PAC has urged the government to “formally publish” its “expectations about the services that should be offered to subcontractors, and the associated management fees that are reasonable”, in time for the next academic year.

It adds to similar calls from Robert Halfon’s (pictured below) education select committee.

In December, he accused the government of double standards on subcontracting charges, after it missed its own deadline for issuing templates for providers to submit their figures.

Colleges and independent training providers have since 2013 been obliged to publish the amount of government cash they withheld before paying subcontractors to run training by the end of November each year.

But the ESFA recently decided it would publish all the figures instead.

FE Week has been badgering the ESFA to get on with it, and in January it said it “aimed” to publish by the end of March – four months after its own deadline and too late to make them available for scrutiny by various committee inquiries into the issue.

Learndirect, which retains all of its contracts despite an Ofsted grade four last year and special treatment from the DfE, is notorious for its high management fees.

In 2015/16, it retained £19.8 million from its 64 subcontractors, 36 per cent of its total SFA funding for that year.

Meg Hillier, the PAC’s chair, described this as an “outrageous scooping off of profit”.

“All management fees should be transparent,” she told FE Week. “I’ve spoken with third-sector providers and some of them are not savvy enough in the commercial world, and only take tiny amounts of management fees.

“There are a lot of good providers out there who are swimming with the sharks which are these companies who learn how to botch things up.”

She said transparency on fees would enable the ESFA to monitor the wider subcontracting picture and identify any problems which need to be acted on.

There are a lot of good providers out there who are swimming with the sharks

Mark Dawe, the boss of the Association of Employment and Learning Providers, backed her call.

“AELP strongly supports the PAC’s recommendations on subcontracting and associated management fees,” he said.

“We want full transparency and we are disturbed that while the ESFA is restricting funding to the non-levy market, some lead providers are using the opportunity to charge unjustifiably high management fees.

“This is totally unacceptable and we hope that official guidance which tackles such poor practice will be available soon.”

The AELP believes that the government’s amendment to the funding ruless that providers don’t have to publish their subcontracting arrangements and associated management fees was “mistaken” and in the “interests of maximising the amount of funding that reaches frontline training”, transparency around the practice “should be restored”.

Julian Gravatt, the deputy chief executive at the Association of Colleges, said his organisation also agrees with the PAC’s recommendation.

The DfE said it would respond “in detail” to the PAC’s recommendation in “due course”.

A new FE Commissioner report has shown how the dire financial position of a college that needed two government bailouts last December came as a surprise to its governors.

The report on Bradford College, following intervention by Richard Atkins and his team, was published today.

“The college now finds itself with a serious cash shortfall and inadequate financial health,” it warned.

The grade three-rated college was hit with a financial notice to improve in November.

But today’s report pointed out that it “was only at the meeting of June 22, 2017 (month 11 of the financial year) that the board were made aware of management concerns around the college finances”.

It adds that “during the period July 2016 – June 2017 there is insufficient evidence in the board minutes to demonstrate questions being asked, actions being taken, and challenges being made to address the deteriorating financial position of the college”.

“Management accounts were consistently late, and papers are confusing and unclear,” it added.

FE Week revealed last month that Bradford College had to be bailed out twice in December, to the tune of £1.5 million each time.

Figures revealing the amount of exceptional financial support were published accidentally by the Department for Education.

No reason was given at the time for the bailouts, and the college didn’t provide one when asked for a comment.

The FE commissioner was sent in to carry out an assessment of the college’s “capability and capacity to make the required changes and improvements”, and shortly after it was announced that its chief executive, Andy Welsh, would be stepping down at the end of the academic year.

The executive team were recognised in today’s report for acknowledging that “mistakes had been made between April and July 2017, when they became aware that savings needed to be made”.

The report concluded that the college has “some serious financial challenges to overcome”, and is currently working on developing a strategic financial recovery plan to start this process.

It warned of a “lack of ownership of the financial problem” as there “seemed to be a consistent view of blaming others” during interviews with the intervention team.

The commissioner was forthright in his recommendations.

He said the board should urgently commission “an independent piece of work to enable governors and the executive to understand what went wrong in 2016/17 and why it was not reported until after the year end”.

The management team, to include all budget holders, should also “undertake finance training to enable them to effectively monitor their own budgets and the whole college financial performance, as a team”.

The college was unavailable for comment ahead of publication.