Select Committee on Public Accounts Minutes of Evidence

Memorandum submitted by the Further Education Funding Council



  1.  This pre-submission updates the Committee of Public Accounts (PAC) on the follow-up action taken by the Further Education Funding Council (the Council) following the 37th report of the PAC, Investigation of Alleged Irregularities at Halton College.

Halton College

  2.  The principal and vice-principal resigned in April 1999. The majority of the governors resigned in July 1990. The Secretary of State then appointed additional governors to form a quorum in October/November 1999. The governors quickly established themselves, appointed additional governors and, most importantly, appointed a principal from another college who had successful experience of bringing about college recovery as the new principal for the college. He took up his post in January 2000. The college was inspected in October 1999. The college was awarded a grade 5 for governance and grade 4s for management and quality assurance. The Council has provided the college with a substantial contribution from the standards fund to support its response to the inspection report. The college will be re-inspected later this year.

  3.  In particular after the appointment of the new principal, the college has moved quickly to ensure that it fully complies with all Council requirements. New internal (Robson Rhodes) and external (KPMG) auditors have been appointed, franchising and partnership arrangements have been reviewed, the management information system has been reformed and an independent and experienced clerk to the governing body has been appointed. A new management team is in place. The college has accelerated its strategy to build up its local direct provision and to withdraw from distant franchised and partnership provision. The college is working collaboratively with Widnes Sixth Form College and the Halton unitary local education authority to implement proposals for the reorganisation of post-16 secondary education in Runcorn.

  4.  The Council has supported the college both through its recurrent and capital funding arrangements. The college's new external auditors are expected to confirm shortly that the provisional figures for the return of funds to the Council are broadly as reported in the NAO report. The Council will then review and finalise the draft recovery plan that included the phased return of funds with the college that was first put in place in June 1999.


  5.  My follow-up report to the PAC in January 2000 setting out the findings of the Council's investigations into three colleges with similar statistical profiles to Halton included, at Annex B, a position statement on progress in actioning the recommendations. I reported that a substantive progress according to timetable had been achieved on all issues.

  6.  Annex A to this report sets out progress to date. The Annex shows that the action to implement the recommendations is substantially complete.


  7.  In December 1999, I reported to the PAC on follow-up checks regarding 11 other colleges where statistical analysis showed that they may have been reclassified franchised provision to direct and gained a financial advantage as a result, in the same way as Halton College did. One of these colleges was Bilston, which is covered later in this report. Three colleges were the subject of detailed individual reviews and a separate report for which an update is provided in the following paragraphs. In relation to the remaining seven colleges I was pleased to confirm that none had made an inappropriate classification of franchised provision in the way that Halton had done.


  8.  In June 1999, I provided the PAC with a report on six colleges the Council had identified as exhibiting similar growth characteristics to Halton College. Three of these colleges (Bilston, Handsworth[1] and Stafford) were subject to special reviews at that time. In January 2000, I reported to the PAC on the progress on the joint Council/college investigations undertaken at the three other colleges (Clarendon[2], Mid-Kent and Barnsley). The report also included an annex setting on the progress on the three reviews that had already been underway in June 1999. In July 2000, I provided the National Audit Office (NAO) with an update on the three reviews; other than for Bilston which was the subject of special liaison arrangements with the NAO. Updates were provided for Stafford, Barnsley and Mid-Kent Colleges. The following paragraphs summarise the outcomes of the reviews. Bilston is included in a separate section of the report.

Stafford College

  9.  The Stafford review consisted of a full inspection (November 1999), which included a full review of its franchising work, and a review of funding claims through the colleges's external auditors, KPMG. The inspection included grade 4s for the management and governance. The inspection was particularly critical of the weak management of information at the college. The Council has provided the college with a substantial contribution from the standards fund to support its response to the inspection.

  10.  The governance and management at the college was re-inspected in October. The grades have not yet formally been confirmed to the college. The Council is continuting to work to support the college in the implementation of its inspection action plan and to monitor progress through the regional review.

Handsworth College1

  11.  Handsworth College had been subject to a separate inspection of its franchised provision with reports published in May 1995 and September 1996. In the light of the college's reponse to the inspection, the reports from the college's auditors, KPMG for 1996-97 and 1997-98, and statistical analysis by the Council, I reported in January 2000 that I was satisfied that Handsworth College had addressed its weaknesses in its franchised provision at an early stage and that the provision was made in accordance with Council guidance.

  12.  Following the merger to form City College Birmingham in July 1998, the college management, under the leadership of the former principal of Handsworth has maintained a rigorous approach to issues that have arisen from the college's strategies to refocus its provision within Birmingham and to improve quality, in particular to improve the college's widening participation provision delivered through community partnerships. The college has maintained a close liaison with the Council throughout and has revised its funding agreements for 1998-99 and 1999-2000.

Clarendon College2

  13.  In my January report I concluded that the funding claims for Clarendon College had been compiled in accordance with prevailing guidance. The college had acted only after receiving authoritative advice from their legal advisers and external auditors and kept the Council fully informed of developments. I concluded that had all the colleges observed both the spirit and the letter of FEFC guidance in the way in which Clarendon College had done, the issues which had caused such concern to the PAC would not have arisen.

  14.  The rigorous Clarendon approach has not been applied to the colleges with which it has merged. In particular, ineligible franchising provision has been declared at Arnold and Carlton in 1998-99 and 1999-2000, which will result in a return of funds to the Council. The Council has now commissioned an area review of Greater Nottingham.

Mid-Kent College

  15.  From 1996-97 until 1999-2000, Mid-Kent College was the largest provider of distance learning in the further education sector through their provision of book-keeping courses on an open and distance learning basis. The college has withdrawn from the provision from 2000-01. In my January report, I stated that I was satisfied that the reviews of funding claims and reclassification were substantially complete. There were however a number of follow-up actions in relation to developing the Council policy towards open and distance learning. In addition, the Council and the college agreed that the eligibility of the entry phase of the Mid-Kent provision for funding would be reviewed in the light of a special report on the quality of the provision for the Council and the college to be undertaken by the inspectorate as part of the national survey on open and distance learning during 2000.

Policy developments

  16.  The Council established a new interim tariff from 1999-2000 to limit the risk of overclaiming for open and distance learning programmes. An inspectorate national survey has been completed. It will fall to the Learning and Skills Council and the University for Industry to consider the implications for future funding by the Learning and Skills Council.

Review of the eligibility for funding of the entry phase of the provision at Mid-Kent College

  17.  The inspectorate's report on the quality of distance learning provision in bookkeeping at Mid-Kent College was sent to the college and to the chief executive on 11 August 2000. The overall conclusion was that the provision was less than satisfactory with weaknesses clearly outweighing strengths (grade 4). The college has notified the Council that it has stopped recruitment to the courses with effect from July 2000. The implications of the report's findings for the eligibility of the entry unit have been considered and the Council has decided that the activities do not meet the minimum requirements set out in the Council guidance. The Council and the college will then agree the appropriate deductions from the college's funding claims 1996-97 to 1999-2000.

Barnsley College

  18.  In my January report I stated that the review of funding claims and reclassification was not complete. Progress had been slow, partly due to the inspection which took place in November 1999 and partly because the work of the college's external auditors (Pannell Kerr Forster) had been insufficient to provide the Council with assurances on the final funding claims and ISR for 1996-97 and 1997-98. The work was to be re-audited and I could not reach a conclusion until that work was completed.

  19.  I regret that although some progress has been made, in particular on the review of funding claims, the Barnsley review is not yet complete. A contributory factor has been the serious illness of the principal during 2000. The re-audits of funding have been completed to the Council's satisfaction. The audit reports have been qualified. The Council and the college are currently clarifying the extent to which the college's funding claims might be reduced and the implications this might have for the college.

Load-Banded Qualifications

  20.  I reported in January that the college had acknowledge it had mistakenly overclaimed £95,000 for work-based provision at load bands 5 and 6. The audit evidence has confirmed that the college did not make claims for work-based provision in load bands 5 and 6 in 1997-98.


  21.  I reported in January that the college did not reclassify provision simply by describing it incorrectly as direct provision as Halton College did. The Council and the college are currently considering the report of the auditors on this issue as part of the clarificaion of funding claims referred to in paragraph 19.

Internal audit review

  22.  The January report referred to an internal audit report to be commissioned by the college on value for money and compliance with financial regulations in relation to the placing of contracts with the company responsible for the provision of quality assurance and student tracking for its franchised provision. The commissioning work has been disappointingly slow. The work is now expected to be completed in (to be confirmed).

Bilston College

  23.  Following a highly critical report from the Council`s own inspectorate in January 1999 and an enquiry of March 1999 into the college's future commissioned by the Council and undertaken by Terry Melia CBE, Chair of the Further Education Development Agency, Bilston Community College was dissolved by the Secretary of State for Education and Employment on 1 October 1999 (statutory instrument 1999 No 2544). The Dissolution Order provided for the transfer of the former college's property and assets to Wulfrun College, to be known as Wolverhampton College, and its liabilities, including outstanding debts to its bank, pre-incorporation local authority and Customs and Excise to the Council.

  24.  At this stage it is not possible to report on the various matters arising from the dissolution of the college because of the extensive investigations that are still ongoing. The current phase of investigation involves joint work between the Council, the audit companies HLB Kidsons and Bentley Jennison, the Department for Education and Employment's Special Investigations Unit, the Charity Commissioners, the Department for International Development and the Qualifications and Curriculum Authority. Some aspects of the issue are being considered by the West Midlands Police. The NAO are being kept fully informed.

  25.  The affairs of the college are characterised by significant complexity but it is expected that the current phase of the investigation will be completed by early 2001. At that time the Council will consider the appropriateness of civil proceedings against the internal and external auditors and the most appropriate form for reporting the findings on Bilston College.

Further Education Funding Council

November 2000

1   Handsworth College merged with East Birmingham College to form City College, Birmingham on 1 August 1998. Back

2   Clarendon College became New College, Nottingham in August 1998 upon merger with Basford Hall College. New College, Nottingham subsequently merged with High Pavement Sixth Form College in April 1999 and Arnold and Carlton College in September 1999. Back

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