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Scotland's Colleges 2015 | 3 Scotland’s colleges 2015 Prepared by Audit Scotland April 2015 Auditor General for Scotland The Auditor General’s role is to: • appoint auditors to Scotland’s central government and NHS bodies • examine how public bodies spend public money • help them to manage their finances to the highest standards • check whether they achieve value for money. The Auditor General is independent and reports to the Scottish Parliament on the performance of: • directorates of the Scottish Government • government agencies, eg the Scottish Prison Service, Historic Scotland • NHS bodies • further education colleges • Scottish Water • NDPBs and others, eg Scottish Police Authority, Scottish Fire and Rescue Service. You can find out more about the work of the Auditor General on our website: www.audit-scotland.gov.uk/about/ags Audit Scotland is a statutory body set up in April 2000 under the Public Finance and Accountability (Scotland) Act 2000. We help the Auditor General for Scotland and the Accounts Commission check that organisations spending public money use it properly, efficiently and effectively. Scotland's colleges 2015 | 3 Contents Key facts 4 Summary 5 Part 1. College reform 10 Part 2. College finances 29 Endnotes 42 Exhibit data When viewing this report online, you can access background data by clicking on the graph icon. The data file will open in a new window. 4 | Key facts Hours of learning delivered by colleges in 2013-14 Number of colleges 76 in 2011-12 million 37 Number of colleges 20 in 2014-15 1 Fall in the number of college staff -9.3% (full-time equivalent) Colleges' overall between spending in £582.8 2011-12 and 2013-14 million 2013-14 70.9% Percentage of colleges' income in 2013-14 provided by the Scottish Funding Council Note: 1. This figure relates to colleges incorporated under the Further and Higher Education (Scotland) Act 1992. There are a further six colleges not incorporated under the Act: Argyll College, Newbattle Abbey College, Orkney College, Sabhal Mòr Ostaig, Shetland College and West Highland College. Summary | 5 Summary Key messages 1 Scotland's colleges have faced significant changes over the last few years that have had implications for funding, the provision of learning and how colleges are run, managed and scrutinised. In addition to the reduction in budgets that most public bodies have had to deal with, colleges have had to manage reforms and other changes. Many of the effects of these changes are still taking place, including standardising terms and conditions of service for staff and integrating ICT systems. 2 The reform programme has led to the number of incorporated colleges decreasing from 37 in 2011-12 to 20 in 2014-15. Planning for mergers was generally good and all of the merged colleges were established on time. The Scottish Government identified that mergers would deliver £50 million of efficiency savings each year from 2015-16, along with other benefits, such as reduced duplication and better engagement with employers. While mergers have contributed to significant efficiency savings, the Scottish Government and the Scottish Funding Council (SFC) have not specified how they will measure some of the expected wider benefits. This makes it difficult to assess whether the reform programme is achieving all of its aims. 3 The decision by the Office for National Statistics (ONS) to reclassify colleges as public bodies has led to greater accountability for the use of public money in the college sector through additional financial reporting and reduced autonomy for colleges. Reclassification also led to the formation of arm's-length, independent foundations to protect colleges’ financial reserves. Colleges transferred £99 million to these foundations in 2013-14. As the foundations are independent, there is no guarantee colleges will be able to access the transferred funds. However, the foundations' Articles of Association limit the activities that they can fund and any transferred funds must be spent on supporting further education in Scotland. 4 The changes to date have had minimal negative impact on students. Historically, the Scottish Government has required colleges to deliver agreed amounts of learning activity in return for the funding it provides. Colleges continued to meet targets for learning, delivering around 76 million hours of learning in 2013-14. Colleges need to continue to monitor the effects of ongoing changes to the sector on students and address any issues of concern. The Scottish Government continues to prioritise younger students and has reduced funding for very short-term courses (under ten hours) and those courses which do 6 | not lead to a recognised qualification. There has been a reduction of 48 per cent in part-time students and a reduction of 41 per cent in the number of students aged 25 or older between 2008-09 and 2013-14. 5 The development of outcome agreements for the sector has seen an ongoing shift to a focus on outcomes, with an associated change in the approach to funding. However, improvements are needed in how the SFC reports colleges' progress against outcomes to support effective scrutiny of performance. 6 Scottish Government funding to colleges fell by 12.3 per cent in real terms between 2011/12 and 2013/14 but colleges’ finances continued to be generally sound. The sector reported a deficit of £95.2 million in 2013-14 but adjusting for transfers to arm's-length foundations would result in an overall surplus of £3.8 million (just under one per cent of total income) in 2013-14. 7 Recent changes have made it more challenging for colleges to plan and forecast their longer-term financial position. However, colleges need to develop longer-term financial planning to ensure they consider, and plan for, the future needs of their region. The mergers and funding reductions have led to reductions in expenditure, mainly in recurring staff costs. Staff numbers decreased by 9.3 per cent between 2011-1 2 and 2013-14. The reductions in staff costs were delivered mainly through voluntary severances. While most severance was managed in accordance with good practice, auditors found significant weaknesses in how two colleges processed senior staff severance payments, while another four fell short of good practice. Recommendations The Scottish Government and the SFC should: • specify how they will measure and publicly report progress in delivering all of the benefits that were expected from mergers • publish financial information on the costs and savings achieved through the merger process • encourage college board members to attend, and monitor take-up of, the training on severance that is being developed by the SFC and the College Development Network • monitor colleges’ compliance with requirements, guidance and good practice relating to severance arrangements. The SFC should: • publish a clear and concise annual summary of colleges' progress against outcome agreements. Summary | 7 Colleges should: • continue to review workforce plans in the light of reductions in staff, and as part of curriculum reviews, to identify any gaps in the skills, knowledge and resources required to deliver high-quality learning. Regional bodies should: • work with colleges in their region to develop appropriate accountability structures to ensure effective governance of the use of public money and management of the performance of the colleges. College boards should: • comply with existing Scottish Government and SFC requirements and guidance, and wider good practice when considering and approving senior staff severance. In particular, they should base their decisions on full business cases to support severance proposals, and clearly record how they have considered and taken decisions on those proposals • monitor student participation and satisfaction to help them plan future learning provision • complete the remaining merger activities, including standardising terms and conditions of service for all staff, curriculum reviews and integration of ICT systems • work towards developing ten-year financial plans. About the audit 1. This report comments on the various reforms under way in the college sector and how well they have been managed and delivered. It also provides an update on the financial standing of the sector between 2011-12 and 2013-14. It is based on: • An analysis of information held by the SFC including performance and activity data, and documents relating to the structural reforms. • Fieldwork interviews and review of relevant documentation at four colleges: Ayrshire; Dundee and Angus; Edinburgh; and Glasgow Clyde. We undertook the fieldwork to examine how the merger process is being managed locally. All college mergers were different, but selecting four (out of the nine mergers that have taken place since 2012) gave us a broad basis on which to draw wider conclusions. We chose these particular colleges as they were all at different stages of the merger process and to ensure a geographical spread. We also wanted to include a college that forms part of a multi-college region (Glasgow Clyde College). 8 | • A review of how the four fieldwork sites complied with the recommendations in our 2012 report Learning the lessons of public body mergers [PDF] . The key recommendations in that report were: – appoint the chair and chief executive at the earliest possible opportunity (ideally at least six months before the start date of the new organisation) to allow them to progress important decisions and contribute to establishing a clear and strong vision, structure and plan for the new organisation – identify the skills, knowledge and expertise needed to lead the new organisation and, with merging bodies, use this to assess, and if necessary supplement, board and senior management c apability – identify, when planning the merger, the specific improvements it expects each merged body to deliver and the criteria it will use to assess this – develop robust cost and savings estimates for future mergers and, with merging bodies, regularly review and revise these as necessary as the merger proceeds.
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