2 years ago

Governance and financial management at Moray ... - Audit Scotland

Governance and financial management at Moray ... - Audit Scotland


Moray CollegeIntroduction1. The purpose of this paper is to inform and update the Council aboutdevelopments at Moray College in three areas, in each of which there arematters about which the Council should be seriously concerned. They are asfollows:■the deterioration in the College’s financial health and the need for it toprepare a robust financial recovery plan;■progress made relating to Professor Sizer’s Report of the National AuditOffice (NAO)/Scottish Office Education and Industry Department’s (SOEID)investigation into allegations of misconduct, previously reported to theCouncil; and■progress with regard to FAMS’ assessment of the College’s governance,financial control and audit arrangements;2. The Chief Executive, as the Council’s Accountable Officer, and the Chair of theCouncil’s Audit Committee, met formally with the Chair of the Board ofManagement and Acting Principal of the College on 14 February 2001, todiscuss this situation and to seek assurances that shortcomings would beaddressed.3. Clearly, these areas are interrelated. However, in the first instance, they havebeen considered individually with specific conclusions drawn on that basis. TheCouncil will be asked to consider these discrete assessments together, in termsof an overall view of the College’s governance and financial management.Financial health4. A team from FAMS visited Moray College in February 2000 to carry out amonitoring visit as part of its ongoing review of the FE sector. From this visit, areport containing 31 recommendations was issued. The first recommendationin the report was as follows:“It is recommended that the College submit a Recovery Plan which arrests andaddresses the cause of the accumulated deficits and which provides the Collegewith a secure financial future. The Recovery Plan should be submitted to SFEFCby 30 June 2000.” [subsequently revised to September 2000]5. In addition, the Financial Forecast Return submitted in September 2000indicated that the College would incur an operating deficit of £200k. A firstdraft Recovery Plan submitted to SFEFC in November 2000, two months afterthe deadline, also forecast a deficit of £200k at 31 July 2001.6. In January 2001 a follow-up visit by FAMS was carried out with the aim ofdetermining what progress had been made with the FAMS’ Action Plan. Areview of Finance Committee papers for December 2000 indicated that, at theend of November, the College’s year-to-date operating position was already anoperating deficit of £350k. At this time the management accounts did notinclude balances from the 1998/99 or 1999/2000 accounts, as the financialstatements for 1998/99 were not signed-off until December 2000 (15 monthslate). The financial statements for 1999/2000, due to be submitted in December2000, have not yet been received. The College estimate they will be delivered inMarch 2001. It is unclear therefore what the opening financial position of theCollege was as well as its current financial position.36 Governance and financial management at Moray College

7. On further investigation it was ascertained that there had been a material shiftin the forecast year-end position for 2000-01. Board papers indicated that therevised year-end position was now estimated to be an operating deficit of £750k,an adverse forecast movement in-year of £550k. While there is no immediatefinancial crisis, the College are forecasting to run out of cash in May 2001.8. The Financial Memorandum requires the College to:■ensure that the College has a sound system of internal financial managementand control and a robust mechanism for considering financial issues. TheCollege shall, by 30 June each year, or such other date as may be agreed,submit to the Council a budget of income and expenditure authorised by theBoard of Management for the financial years beginning 1 August following, insuch form as the Council may require; and■inform the Council of the likelihood of an unplanned (or greater thanplanned) annual deficit as soon as is practicable.9. This deterioration had not been communicated to SFEFC as required by theterms of the Financial Memorandum (paragraph 27.2). The failure to notifySFEFC is compounded by the fact that the College’s first draft Recovery Plansent to SFEFC in November 2000 was silent about this deteriorating financialsituation. In addition, at meetings held with the College in December 2000 andJanuary 2001 to discuss the Recovery Plan, it was not pointed out by theChairman and Acting Principal that a material change with regard to the inyearfinancial position had taken place. This is considered to be a materialomission on the part of the College and a specific explanation will be pursued.Conclusion10. The Council, primarily through its Accountable Officer, must seek assurancesfrom the Board that the Board of Management will take immediate steps toarrest and address the causes of the College’s deficit. In addition, the Boardmust initiate the development of a robust Recovery Plan that will remedy itsfinancial situation and which will enable the College to comply with the FM.The Executive has serious concerns about the College’s ability to develop such aplan in the short-term.Report of the Investigation into Allegations of Misconduct11. As the Council may recall at its meeting on 17 February 2000, it considered areport by Professor Sizer, in his role as Accountable Officer for SFEFC, into ajoint NAO/SOEID investigation into allegations of misconduct at MorayCollege. The Report, taking into account the Council’s comments, and that ofits Audit Committee, was subsequently issued to the College in March 2000.12. In issuing his Report, Professor Sizer required the College to submit quarterlyreports on progress, in response to the Report’s 24 recommendations, in theform of an Action Plan. The purpose of the Action Plan was to set out details ofactions taken and also to identify a completion date and a responsibleindividual. It should be borne in mind that, for the most part, therecommendations were high-level in nature. They required the Board ofManagement to review the existence, operation and effectiveness of systems andprocesses in certain broad areas, including overall arrangements for corporategovernance and human resource management.Governance and financial management at Moray College 37

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