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Sir John Bourn, the Comptroller and Auditor General, reported to Parliament today that the financial health of the further education sector in England is improving but that 13% of colleges are still in poor financial health. He identified a number of key management practices, which are typical of colleges in good financial health and which would help other colleges improve their financial position. 

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Sir John’s report examines the financial health of the English further education sector, which consists of 429 further education colleges providing learning opportunities to students from the age of 16 up. The colleges have an income of over £4 billion a year, mostly provided by the Further Education Funding Council (the Funding Council). The government sees the colleges as crucial to its overall strategy to combat social exclusion, unemployment and skill shortages. However, the proportion of colleges in poor financial health grew rapidly between 1993 and 1997 and although now declining, still stands at about 13%.

Sir John also reports that:

  • a number of external factors over which colleges have relatively little control have an effect on colleges’ financial position. These factors include the rate of funding colleges receive and colleges’ inheritance of assets at the time of college incorporation (1993). However, the effect of most of these factors is diminishing with time;
  • some external factors, such as location in Greater London, the size of colleges and whether students came from areas of social and economic deprivation, do not appear to affect colleges’ financial health; and
  • the Funding Council has a sophisticated system for monitoring colleges and assisting them from poor financial health to recovery. However, there are some areas where Sir John finds scope for the Funding Council to give still more effective assistance to colleges.

Sir John commends the progress the colleges and the Funding Council have made in improving financial performance in recent years and the many good practices that he found during the course of preparing the report. Largely through extending this good practice to the whole sector, he makes 14 recommendations for improving colleges’ financial health and the assistance the Funding Council provides. These include the need for colleges to: 

  • produce more detailed management accounts more quickly and distribute them more widely;
  • introduce clear and consistent costing policies and processes;
  • use systems to forecast their funding receipts from the Funding Council more accurately to avoid shortfalls in income (a major source of financial problems); and
  • explore further the scope for comparing performance with other colleges.

There is a need for the Funding Council to provide colleges with:

  • more feedback about the results of their monitoring (and provided information about key assessments directly to college Governors as well as to Principals); and
  • more assistance with performance comparisons.

The Funding Council should also consider developing standard course-costing models and financial and management information systems for colleges’ use. 

"My report shows that the financial state of the sector is improving but there are still too many colleges in poor financial health. Governors and managers can make a vital contribution to their colleges' financial condition and the best practice I have identified should help colleges with problems to overcome their difficulties effectively."

David Melville, chief executive of the Further Education Funding Council (FEFC) said:

"We welcome Sir John Bourn's report and the recommendations for improving colleges' financial health. We would like colleges to make more use of benchmarking comparisons to identify the means and scope for financial improvement. We will be actively promoting groups of colleges as 'benchmarking families' in the future. Through this initiative we will continue to put colleges into contact with others with a similar profile leading to the useful sharing of knowledge and consequent improvements in performance. However, the success of this initiative depends on reliable and prompt data from colleges.

"We will be working with Further Education Development Agency to develop a standard course-costing model together with common financial and management information systems."

Sir John


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