3 years ago

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

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

Exhibit 1: Annual

Exhibit 1: Annual deficit and balance on income and expenditure reserve 1995/96to 1999/2000Historic cost surplus/deficitBalance on I&E reserve5000-500-1000-1500-20001993/94 1994/95 1995/96 1996/97 1997/981998/99 1999/00Source: College accounts14. In response to the accumulated deficit the college produced a draft recoveryplan. However, FAMS found that the college’s plan did not arrest or address theunderlying causes of the accumulated deficit, nor did it provide a securefoundation for the financial future of the college. FAMS thereforerecommended that the college submit a recovery plan addressing the areas ofweakness by June 2000.15. A draft recovery plan was submitted by the college to SFEFC in November2000. The plan forecast a deficit for 2000/01 of £200,000, though SFEFCsubsequently found that the forecast was significantly understated, and byNovember 2000 the college’s year to date deficit had reached £350,000.Furthermore, because the college had failed to achieve the target level of studentactivity contained in forecast returns to SFEFC, the amount of grant payable tothe college was likely to be significantly lower than forecast and that,consequently, the forecast level of deficit for 2000/01 had been revised to£750,000.16. Because of concerns about its financial position the college undertook to reviewits draft recovery plan. In January 2001 SFEFC agreed to finance the cost of theservices of a financial consultant to assist the college to produce a revised draftrecovery plan by May 2001.17. The persistent weaknesses in governance and financial control highlighted byFAMS are a serious cause for concern. The action necessary to improvemanagement of the college raises important issues which must be addressed bythe board of management if the college is to succeed in providing suitable andefficient further education for its students.Issues for the Department and SFEFC18. The Scottish Ministers have a duty to secure adequate and efficient provision offurther education in Scotland. If it appears that the affairs of the board ofmanagement of any college of further education have been or are beingmismanaged, Ministers may remove board members (other than the principal)and, subject to certain restrictions, appoint new members.4 Governance and financial management at Moray College

19. Alongside its responsibility for securing the adequate and efficient provision offurther education, SFEFC may use the following powers:■to do all that is necessary or expedient to fulfill that duty■those relating to the funding of further education as defined in the 1992 Act■to give consent to the board of management of an FE college to borrowmoney from any source, give any guarantee or indemnity or create any trustor security over or in respect of any of their property■under Section 18 of the 1992 Act give consent to the disposal of certain typesof property.20. Management of the college is a statutory duty of the board of management andSFEFC has no specific powers to intervene in the direct management of a collegewhich is facing difficulties. In the case of Moray College, SFEFC has used itsexisting arrangements to produce regular updates on the college’s progress inaddressing weaknesses in governance and to monitor the scale of the college’sfinancial difficulties. In addition the SFEFC accountable officer has hadmeetings with the chair of the college’s board of management.21. Although concerns over college management first became evident in aninvestigation into allegations of misconduct which began over two years ago,SFEFC has not, despite considerable efforts, persuaded the college to make allthe necessary changes. Similarly, even though SFEFC first sought a collegerecovery plan to address financial problems in February 2000, a robust plan hasyet to be produced. This case highlights the limitations of the effectiveness ofthe accountability framework within the further education sector.Issues for Moray CollegeGovernance22. The report on the investigation into allegations of misconduct at the college andthe results of SFEFC’s FAMS review of the college have pointed to majorweaknesses in governance procedures operated at the college. While the boardis seeking improvements in a range of areas, much remains to be done beforethe college achieves best practice.23. As a result of the allegations of misconduct at the college and the subsequentdeparture of the college principal, the board of management has been facing asignificant challenge in restoring confidence in its management. A key issue forthe college board is to ensure that its governance procedures are robust andproperly applied. It is therefore disappointing that the improvements identifiedby SFEFC have not yet been implemented in full.Financial recovery24. Since incorporation in 1993 the college has had a history of financial deficitssuch that by July 2000 it had an accumulated a deficit of £1.9 million. Thecollege expects to incur a further deficit of some £750,000 in the year to 31 July2001. SFEFC have been pressing the college to produce a recovery plan toaddress the underlying causes of continuing deficits since February 2000.However the college has yet to produce a clear and robust plan.Governance and financial management at Moray College 5

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