Public Audit Committee calls for safeguards on college funding foundations

14.03.2014

 A Holyrood committee has called for safeguards to be put in place to protect the financial interests of Scotland’s colleges.

In a report published today, the Public Audit Committee says clarity is required from the Scottish Government on how new ‘Arms-Length Foundations’ (ALFs) will operate, and that safeguards are required to ensure colleges can later access all financial reserves transferred into such foundations.

The audit recommendations follow the UK-wide reclassification of further education colleges for financial and budgeting purposes, a move which has seen the creation of ALFs in Scotland to handle cash surpluses generated by colleges.

As ALFs will be independent of colleges and will sit outside the boundaries of public expenditure, the Committee has expressed reservations that the set-up will not provide the scrutiny and accountability it would expect for the use of public funds.

Hugh Henry MSP, Convener of the Public Audit Committee, said:

“In Scotland, colleges will be able to create ALFs so they can transfer any current accumulated cash reserves and any future annual surpluses to the foundation, for use in future years, without it counting against Scottish Government budget limits.

“ALFs will be required by statute and by Scottish Charity Regulator (OSCR), to operate in their own best interests, but our committee is concerned that this independence may be to the detriment of individual colleges.

“The Public Audit Committee is therefore calling on the Scottish Government for clarification on how it intends to manage the risk that the priorities of ALFs could diverge from the priorities of relevant colleges.”

Mr Henry added:

“We are also calling on the Government and the Scottish Funding Council (SFC) for further information on what safeguards will be put in place to ensure that the trustees of ALFs cannot interpret their articles of associations in a way that is inconsistent with the interests of colleges. Furthermore, the committee wants to know they will ensure that colleges have access to all of the reserves they have transferred to the ALFs.”

Elsewhere in its report on Scotland’s Colleges 2013:

Following mergers and structural reform in Scotland’s colleges:

• The committee welcomed the Auditor General for Scotland’s finding that the overall financial standing of the college sector in 2011-12 continued to be generally sound, especially given the levels of change taking place within the sector.

On college class sizes and quality of education provision:

• The Committee notes that reductions in teaching staff mean that colleges are increasingly looking at delivering learning through balancing increased class sizes whilst maintaining the quality and provision of education

• The Committee welcomes Education Scotland’s and the SFC’s commitment to monitoring the quality and provision of education, but would request an update from the SFC on how it will ensure that increased class sizes and new learning methodologies are not negatively impacting on the quality and provision of college education.

The Scottish Government has two months in which to respond to the committee’s report.