From education to employment

It seems good ideas never die, they just go in and out of fashion: Financial Management and Governance in FE

Rupert Crossland, Director of Audit and Compliance, Professional Assessment Ltd

Throughout its existence, the Learning and Skills Council’s (LSC) Provider Financial Assurance inspected financial management and governance at FE colleges in parallel with Ofsted inspections.

A similar approach operated for larger independent training providers and specialist colleges for LLDD provision, taking account of their limited company or charity status.

The LSC’s inspection used the same grading scale as Ofsted, with separate grades for framework and for effectiveness. Although reporting separately from Ofsted, the LSC grading was taken into account in forming the findings, recommendations and grading of Leadership and Management, and thereby ultimately the overall opinion.

Unsurprisingly, there was often a correlation between colleges and providers that managed their finances effectively and maintained good corporate governance and those that provided high-quality education and fulfilled their strategic plans.

Establishments received recommendations to address any weaknesses, and less than satisfactory grades led to further intervention from the funding body to change strategy and, if necessary, ultimately college senior management and governing body membership. The results formed part of the wider picture that informed decision making and future plans for providers.

These rigorous reviews were scrapped in the early years of the then Skills Funding Agency during one of several restructures, in a package of reforms badged with positive sounding concepts such as ‘lighter touch’, ‘demand led’ and ‘reducing bureaucracy’. Such concepts rely on robust controls to underpin the resulting greater level of trust in colleges and private providers. Trust on its own is not a control.

College governing bodies and boards of directors of private training providers are charged with promoting success and are accountable for the impact of their scrutiny, planning and decision making. They should have regard to the interests of learners and their employers, their own employees, the government as their funding body and thereby their largest customer and ultimately society as a whole as the users of taxpayers money to generate a skilled workforce equipped to meet the needs of the nation. Sound financial management and good corporate governance are widely respected for their contribution to successful businesses. Financial management is not just a matter for the board or the finance director, it must also be a priority amongst the operational leaders and those that form the succession planning of leadership roles.

Certainly, with apprenticeships, the employer is much more in the driving seat of commissioning the programme. High profile failures of providers, and various other concerns that have hit the headlines, point to insufficient controls to prevent their occurrence. Thus, these concerns are increasingly prompting employers to apply their own due diligence expectations to inform their choice of training provider. If employers recognise this, the ESFA as the lead commissioner for England’s post 16 education should also recognise that they have an even greater part to play in the stewardship of self-regulation of financial management by the sector.

The FE Commissioner has a role to engage with colleges with significant risks, but often that takes the form of intervention when poor performance has already begun to impact on learners and employers. We all know that prevention is better than cure. Providers can benefit from an objective self-assessment, and periodically have that subject to external review to have assurance on their arrangements.

News items in the FE sector in recent months indicate that it is right to reconsider an inspection of financial management. Financial management principles that could form the basis of the review might include strategic and operational oversight, sub-contracting controls, financial planning, risk management, internal controls, and financial monitoring. Financial results, contractual obligations and learner performance data could all be of reference. The depth of the work could, and indeed should, be risk-based taking into account a range of data including, but not limited to, financial health, quality of provision, contract value, the range of delivery, the rate of expansion and performance data.

For example. If financial plans do not read across to strategic plans, when plans materialise into actual delivery, there is a risk that either budgets will be exceeded and financial health is at risk, or the strategic plan will not delivered; impacting upon the intentions for the quality and range of learning delivery. Providers with strong financial management will have arrangements for board oversight of financial plan and strategic plan alignment, and will welcome confirmation of the robustness of their arrangements and external guidance on how to strengthen them.

There could be an element of self-assessment as with Ofsted inspections, but an inspection of evidence to confirm the position would be required. After all, the concept of self-assessment and external validation is one that providers are used to when it comes to their provision. Applying it to financial management is a natural progression. The Regularity Self-Assessment Questionnaire published in the ESFA’s Audit Code of Practice could form part of this process; its scope is limited to the regularity of the use of funds by colleges for the purposes for which they were intended.

This will have a resource implication. For providers, yes there is the cost of time resource input, but they receive in return free external consultancy. The ESFA Provider Risk and Assurance teams have new recruits who could benefit from the added breadth to their role this work could bring.

The issuing of the Further Education Corporations and Sixth-Form College Corporations: Governance Guide by the ESFA in November 2018 provides an updated regulatory framework for college governance that could be inspected alongside financial management.

Interestingly this replaces a predecessor document that was last updated in 2014. Perhaps the focussed mode of thinking at the Department for Education is pendulum swinging towards a requirement for more robust control.

Rupert Crossland, Director of Audit and Compliance, Professional Assessment Ltd

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