Scottish Further Education Funding Council: A ... - Audit Scotland

Part 2. Financial performance72.1 This part of the report commentson financial stewardship in individualcolleges and the actions taken bySFEFC to improve financial healthacross the sector and assist collegeswhose financial performance givesthe Funding Council cause for concern.Main findings• Financial stewardship in collegesis sound but concerns remainabout the financial position oftwo individual colleges. Sevencolleges out of 39 still haveaccumulated deficits.• Good progress has been madeon the campaign for financialsecurity with the sectoroperating surplus continuingto rise and the number ofcolleges in deficit falling.• SFEFC has increased thegrant-in-aid available to thesector and has targetedadditional grant funding of£38 million to help colleges toimprove their financial healthand address other key priorities.• SFEFC has continued to developits monitoring arrangementsfor colleges whose financialhealth is of concern.Sources of funding2.2 For 2004/05, the incorporatedcolleges are forecasting expenditureof £551 million. This will be fundedby income of £557 million, including£392 million grant-in-aid provided bythe Scottish Executive via SFEFC.Income has increased by nearly 25%in cash terms or 13% in real termsover a five-year period to 2004/05,largely as a result of a £91 million(30%) increase in grant-in-aid. Thebalance of the funding for 2004/05,£165 million, came from a rangeof sources, including tuition fees,European grants and commercialservices (Exhibit 3, page 9).Financial stewardship2.3 Financial stewardship in theincorporated colleges is sound.Auditors’ opinions on college accountswere qualified on only five occasionsbetween 1999/2000 and 2002/03,and none of the auditors’ reports onthe 2003/04 or 2004/05 accountswere qualified. Audited accounts forthe year to July 2005 were submittedto the AGS in December 2005, andwill be laid in Parliament early in 2006.2.4 In previous years, auditors havedrawn attention to questions aboutindividual colleges as going concerns.The number of colleges involved hasfallen from seven in 2000/01 to onein 2004/05. The AGS has reportedthis to Parliament under section 22of the PFA Act.2.5 For 2003/04, the AGS reportedon the accounts of Inverness, LewsCastle and West Lothian Colleges.The reports highlighted that:• Inverness College would beunable to clear its accumulateddeficit of £3.32 million by July 2009,as it had originally forecast in itsrecovery plan, because of poorerthan expected results.• Lews Castle College’s bank hadwithdrawn an overdraft facility inDecember 2003 and, as a result,