The National Audit Office (NAO) has qualified the 2014-15 accounts of the Skills Funding Agency (SFA) on the ground of irregularity of expenditure, which included making payments totalling £49.9m to 17 further education (FE) colleges without securing the necessary permission to do so
The SFA failed to seek prior approval from the Treasury, and its application for retrospective approval was refused on the grounds that it had not sufficiently demonstrated the benefit or value for money from making these payments.
The payments were part of a distribution by the agency of £143m of remaining capital funds to FE colleges by the end of March 2015. After that date, responsibility for public funding of capital projects at FE colleges passed to local enterprise partnerships.
The NAO says evidence of slippage in the capital programme had already been evident in December 2014. However, the SFA did not challenge the revised expenditure profiles submitted by colleges sufficiently before deciding to make the remaining capital grant payments in February and March 2015.
As a consequence of the £49.9m advance payment, the grant expenditure will score against the 2015-16 capital budget rather than 2014-15. As a result, the SFA will have to find resources equivalent to this amount for 2015-16.
In a separate report, the NAO raised concerns about the number of FE colleges in financial difficulty, which is expected to rise rapidly, and said there are fundamental structural problems which might require decisions at a regional or sector-wide level.
In 2013/14, the FE college sector was in deficit for the first time, and the number of colleges with an operating deficit doubled to 110, from 52 in 2010/11. The SFA assessed 29 colleges as being ‘financially inadequate’, up from 12 colleges in 2010/11.
The watchdog said the decline in the financial health of the sector has been quicker than indicated by college plans, with the SFA estimating the total number of colleges it rates as financially inadequate reach around 70 by the end of 2015/16.
The NAO says some colleges’ forecasting has been over-optimistic, with the result that problems are not identified until a later stage. It says the financial support that the SFA offers to struggling colleges has increased significantly since 2010, but most has not yet been repaid.
By September 2014, the SFA had converted advances of £40m at three colleges to grants, meaning the advances would not be repaid. The outstanding balance, including new advances, stood at £45m by February 2015, relating to 13 colleges.
The NAO wants the SFA and the Department for Business Innovation and Skills (BIS) to improve oversight of the financial situation at FE colleges, focusing on those most at risk.
Meg Hillier, chair of the Public Accounts Committee, described the report as ‘deeply alarming’ and said the FE sector ‘ is at risk of financial meltdown’.
‘ I worry that many colleges are taking tough decisions to avoid financial difficulty, and trying to maintain educational standards, without having the right financial management skills in place.
'Although BIS and the SFA have improved their analysis of risk in the sector, they must support colleges in spotting financial difficulties sooner so that colleges can get back on track before needing formal intervention,’ Hillier said.
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