The FE commissioner has urged colleges to stop running their cash reserves down “too fast”.
Shelagh Legrave spoke to FE Week about the key trends her team found when investigating the reasons behind the latest batch of government financial notices to improve.
Rising costs have had an impact, as have restrictions imposed on the FE sector from reclassification to the public sector, namely the ban on revolving credit facilities. But the main cause leading to intervention is cash flow pressures caused by poor strategies.
Legrave said: “The key reason is a lack of focus on cash. Colleges have run their reserves down too fast and then something unexpected happens and they don’t have a contingency.”
She pointed out it’s also not only small colleges working on the tightest margins that are running into trouble.
Warwickshire College Group (WCG) with a turnover of £50 million was hit with a notice to improve this year due to “serious cash flow pressures”.
The FE Commissioner’s team will publish their report after investigating the reasons for WCG’s issues in the coming months. Legrave said the college’s financial strategy was “interesting” and “wouldn’t be one that I would have followed”.
Revolving credit ban
She also told FE Week that one of the biggest challenges she sees is capital cash, and restrictions on using a revolving credit facility from a bank has “really hurt colleges”.
Legrave said the Department for Education had “done its best” by introducing the college capital loans scheme to fill this gap, but admitted this is not a “proper lending facility”.
The FE Commissioner acknowledged a lack of pay settlement for FE was also an issue as there is a “necessity” to pay certain teachers “a lot of money” in skills shortage areas.
“Very high” agency costs are a related problem. She said: “They [leaders] can’t persuade the individuals to come on to the books of the college, but at the same time, it’s costing them an enormous amount.”
Legrave said her message to colleges seeking avoid financial intervention would be: “Try to ensure you have a reservoir of cash that you won’t go below. Also ensure that you are very clear on your financial strategy. If you combine both of those you should be OK. If you’re really worried about it, please ask for help early.”
Severance pitfalls
The commissioner also called colleges out for falling foul of severance agreement rules, imposed as a result of the 2022 public sector reclassification.
Approvals must now be sought for severance payments of £50,000 or more, where they are equal to three months’ salary or more, an exit package of £100,000 or more, or where the employee earns over £150,000.
FE Week reported earlier this year on how waiting times for approvals from the Treasury were taking months longer than expected.
Legrave suggested that some colleges are confused about when to apply for severance approval and have run into trouble with the government.
She said: “If the severance payment is over and above three months’ salary, then you have to get Treasury clearance for it.
“I know as a previous principal that you have tricky cases occasionally, and it could be somebody, let’s say a teaching assistant who is earning quite a small amount of money. So if you multiply three months, even if it isn’t a huge amount of money, you still need to get approval.
“It’s just understanding the rules. Where some colleges have fallen foul, they didn’t read the financial handbook and realise that they needed approval before they did it. Lack of knowledge isn’t a defence.”
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