Examination of Witnesses (Questions 120
WEDNESDAY 22 NOVEMBER 2000
BOURN, KCB, PROFESSOR
120. Managing Growth in the English Further
Education Sector you did?
(Professor Melville) I did.
121. Strategies to Achieve and Manage Growth
(Professor Melville) That is the same session.
122. Indeed the two appear. Corporate Governance
and Financial Management in the Scottish Further Education Sector?
(Professor Melville) That is not mine.
123. The Financial Management and Governance
(Professor Melville) That is not mine.
124. An Investigation of Alleged Irregularity
(Professor Melville) Yes, that is mine.
125. Three strikes and you are out has not applied
to you yet. On the whole, were the reports that this Committee
produced congratulatory or critical of the FEFC's involvement
on those three occasions?
(Professor Melville) As far as the Managing Growth
report was concerned then generally the Committee concurred with
the actions that the Council was taking. There was a good deal
of sympathy. We were at that point, at the very cusp of the worst
situation, that is the background to our discussion today. That
was a very positive meeting. As far as Halton College is concerned
it is very clear that there was a failure of a whole set of systems.
One of the issues was could the Funding Council have spotted what
was going wrong earlier. I believe that I put up a robust defence
that indicated that the Funding Council was already onto this
case when the issues blew. Of course that was a difficult case.
126. I do not want to relive that one. I take
the point that you make. It leads me on to the next question I
have, and also what you stated to the Committee this afternoon.
You saw the FEFC's role more in assisting colleges to get out
of financial difficulty rather than preventing them from getting
into financial difficulties?
(Professor Melville) I tried to respond to that. Let
me try once again. It was the nature of the requirement of Government
that the Funding Council did not interfere with colleges, it responded
to colleges and actually funded them.
127. Would you care to turn to Figure 2 on page
8 of the C&AG's Report? You will see there the third box down,
the roles of the various bodies involved in further education.
You will see the role is described, amongst other things as being
to procure the provision of sufficient and adequate facilities
for further education. In your view, does the securing of the
provision of sufficient and adequate facilities not mean taking
some proactive stance in relation to colleges, such that they
do not get into the sort of financial difficulties that time after
time colleges have got into under the FEFC?
(Professor Melville) We take the viewand you
have heard me mention that specific issuethat that is the
very centre of our duties. There is absolutely no doubt about
it that securing enough quality and quantity of further education
is central. Therefore, we do try to ensure that the infrastructure
is there in place. I do not want to belittle the issue of financial
health Category C, but we do have a situation where no college
has actually gone bust. There is no college where we have found
there has been a failure in its ability to provide the education
in sufficient quantity in their locality associated with financial
considerations. So although we have focused extensively around
that particular financial health category, I think much more broadly
we should look at our regional review process. In the regional
review process there are only 13 colleges where we have extreme
concernsnot the 70 or so we see here. There are 13 colleges
out of 420 or so now where we have that level of concern. As to
the fact that we have financial health Category C, if we look
at what it means, it actually means very broadly the college is
dependent on borrowing to continue with its operations. Most of
business is dependent on borrowing.
128. You keep on coming back to the ones that
are in the difficulties, but I am trying put to you what other
colleagues have been trying to put to you this afternoon, which
is that if you had been a bit quicker off the mark in the first
place in trying to prevent them getting into that situation, everybody
would have been a damned sight happier, but that is something
that you have resisted, have you not?
(Professor Melville) No, I have not resisted that,
I have merely described the history of the situation. I have said
it is more difficult to prevent.
129. Instead of describing the history of the
situation, which I think you have done, you have said you are
not trying to resist that. Do you accept, therefore, that if the
FEFC had been more proactive, had been quicker off the mark in
assisting colleges or assisting them not to get into those difficulties,
it would have been a much better way to get there?
(Professor Melville) Can I indicate to you, as soon
as I came into the Funding Council in 1997, I introduced this
regular review process precisely for that purpose, if that answers
130. I think it does. Finally, can I turn to
figure 4 on page 10, which you referred to earlier in your response,
I think it was to Mr Campbell, and figure 5 there. Can you explain
to me, because it is not clear to me although it may be to others,
why, when the deficit was so enormous in 1994-95, yet the percentage
of colleges in financial health on figure 5 was so high in comparison
with the situation in 1997-98 where the surplus is there for the
first time, but actually the percentage of colleges in financial
health is substantially lower?
(Professor Melville) Basically the changes came about
at incorporation. Many colleges that actually had deficits were
also well funded. There was a huge variation in the level of funds,
if you count in the cost-per-unit terms; it varied from local
authority to local authority by a factor of 10. Therefore, this
is one of the reasons why you have two different financial measures;
they do actually tell you two different things. It is perfectly
possible for a college to be trading at a profit, actually to
have cash and to have cashflow, to have the requirements that
meet our financial health Category B, for example, but to be sitting
with some inherited deficit. They are two different things, and
that is why generally we have not used that as our main indicator.
In fact, if you look at our financial health categories, you will
see there is a basket of indicators that we use, rather like business
indicators, to determine those concerning us.
Mr Gardiner: Thank you.
Chairman: Thank you. It just remains for me
to thank you, gentlemen, for coming and answering our questions.
Thank you very much indeed.