FURTHER EDUCATION RISK MANAGEMENTEnsuring risks are managed effectively, efficiently and proportionally - a commentary for governors

FOREWORD

As governors in the further education sector, you are faced with a number of challenges, including providing the best education while generating sufficient funds to ensure future sustainability and determining the best way of doing that in your community and area.

You need assurance that the vision and strategic objectives you have set can be achieved and that risks have been identified and mitigated.

Ensuring that risks are managed effectively, efficiently and proportionately can, and does, help to mitigate the potential for a risk to materialise and negative events to unfold. It can also help you pursue new opportunities designed to develop the educational offer provided to students. All institutional risks should be taken into account and considered collectively, rather than in isolation. Many risks are interlinked and it is important for the governing body, including the audit committee, to manage the entire risk profile, which will include both exceptional and business as usual risks.

Colleges undertake risk management in a variety of ways, and several groups of people have roles to play, including governing bodies, different levels of leadership and management, as well as professional advisors.

RSM provides advisory and assurance services to a large number of institutions and we are increasingly being asked for comparative data in relation to the types of risk to which further education institutions are exposed. Governing bodies in particular are keen to understand, ‘how do we compare?’ and ‘are we missing any significant risks?’.

This report provides an analysis of the ‘top three risks’ reported across over 70 of our further education clients along with up to date commentary on events and government initiatives.

We encourage you, as governors, to compare your own understanding of the current risks that your institution is facing and make sure you, and your teams, are considering and managing these risk exposures in a suitable manner.

Stephanie MasonNational Head of Further Education and Skills

Dominic BlytheAudit Director

2

INTRODUCTION

With the ongoing process of area reviews, continued real term funding cuts and significant changes to apprenticeship funding, to mention only a few, the risks facing the sector are arguably as great as they have ever been.

The initial focus of our analysis was to understand the key risks further education colleges had identified and what was most concerning governors, covering both general further education colleges and designated sixth form colleges.

This document, which is based on a review of the ‘top three risks’ (based on the colleges’ risk assessment scores) identified over 70 colleges, is intended to provide an insight into the identified key risks that colleges face, and to enable colleges to compare them to their own risk profile when considering risk management. It is not intended as a commentary on, or evaluation of, the approaches used by the colleges to identify or mitigate risks.

Colleges use a variety of formats and presentation in their risk registers so direct comparison is difficult, but the risks fell in to these eight broad categories.

• Area reviews.

• Commercial/operations.

• Government policy.

• Quality.

• Recruitment.

• IT.

• Competition.

• Reputation.

We then considered and reviewed these risk assessments in more detail, putting in context for the sector at large and the ever changing landscape.

At the end of each section we set out three specific questions for governors to ask themselves.

One of the most notable findings from our review was that the descriptions of many of the risks were quite generic and did not always elaborate on how exactly they would have an impact on the college and, hence, how they could be addressed. This could also lead to different interpretations of the same risk by management and governors. We have, therefore, also given further consideration to this and would urge colleges to ensure that they have clear actions to address all of the risks they have identified.

Colleges should be asking the question, ‘does your risk register list all of the significant risks that the institution faces?’

With the ever changing further education landscape, coupled with increased competition, it is vital that colleges ensure all of their risks are appropriately identified. Most colleges know the risks they face but there is merit in tracing risks that are interlinked and ensuring that risks are not considered in isolation. The governing body, including its audit committee, will then be better placed to assess the entire control environment, challenge the identified risks and opportunities the institution faces and be assured that the risk management arrangements are sufficiently robust.

3

Qua

lity

Recr

uitm

ent

Area

revi

ews

Repu

tatio

n

Gov

ernm

ent p

olic

y

Com

petit

ion

Com

mer

cial

/ op

erat

ions

IT

All risks

(% of all top three risks by category)

Top risk

(% of all top three risks by category)

25.35%14.08% 16.90% 11.74% 1.88% 24.41% 2.82% 2.82%

19.74%9.21% 19.74% 27.63% 0% 21.05% 2.63% 0%

4

19.74%9.21% 19.74% 27.63% 0% 21.05% 2.63% 0%

Top three risks

(% of all top three risks by category)

Qua

lity

Recr

uitm

ent

Area

revi

ews

Repu

tatio

n

Gov

ernm

ent p

olic

y

Com

petit

ion

Com

mer

cial

/ op

erat

ions IT

25.00%11.84% 13.16% 3.95% 1.32% 35.53% 5.26% 3.95%

32.79%22.95% 18.03% 1.64% 4.92% 14.75% 0% 4.92%

Risk 1

Risk 2

Risk 3

5

AREA REVIEWS

Since the announcement of the area review process in July 2015, the potential impact of area reviews has, not surprisingly, become a top risk for a number of colleges.

33 per cent of the risk registers reviewed included this as a specific top three risk with the majority of these (eight in ten) ranking it as the number one risk. On top of this, some colleges highlighted more general ‘government policy’ risks (see later in this document), which could also include the impact of area reviews.

In July 2015 the National Audit Office (NAO) published a report entitled “Overseeing financial sustainability in the further education sector”. As part of its assessment process the NAO interviewed key oversight bodies including the Skills Funding Agency (SFA) and the FE Commissioner, a sample of 14 further education colleges and a selection of other stakeholders, lenders and consultants in the sector. There are three key areas to the report: financial health, identifying key risks and intervention.

In respect of financial health, the report noted that in 2013-2014, the sector was in deficit for the first time and that the SFA anticipates that the number of colleges it rates as financially inadequate will continue to grow.

The area of risks highlighted particular concerns with regard to the optimism of college forecasts, meaning problems are not being identified promptly. It also raised concerns that the SFA had not always tested/challenged these forecasts sufficiently.

With regard to intervention, concerns were noted over the effectiveness of the SFA’s involvement.

It is no surprise that BIS and the DfE published the ‘Reviewing post-16 education and training institutions’ document, which announced the area based reviews, on the same day as the issue of the NAO report.

The SFA and EFA have also set up a single ‘transaction unit’, which has been established to assess applications to the restructuring facility (see further details on this below). In many cases little detail was given as to the specific risk envisaged, seeming to simply highlight the issue and potential uncertainty it brought. This is potentially indicative of the fact that little detailed guidance was initially issued.

Where colleges did elaborate further, the main issues highlighted were:

• risk of the college failing to prepare appropriately;

• management focus being taken away from core activities;

• governors not being appropriately prepared; and

• risk to continued independence of the college.

6

Area review guidanceIn March 2016, the government published long awaited updated guidance on the area review process ‘reviewing post-16 education and training institutions’.

As well as identifying a number of lessons learned from the first wave of area reviews, there are two interesting new areas picked up on.

• Restructuring facility: Following concerns in the sector about funding any changes resulting from the area review process, the document sets out guidance about a restructuring facility which will be available for this purpose. The expectation of the government is that most colleges will be able to fund the costs themselves, for example through private lending or asset sales. Where this is not possible, application for funding from the restructuring facility is possible. Whilst applications will be considered by the transaction unit, approval of HM Treasury will be required. The document is also clear that no further Exceptional Financial Support will subsequently be available.

• Insolvency: The document picks up on a proposal to introduce an insolvency regime for the sector for the first time, though no detail on this has yet been provided and further guidance is awaited. The primary objectives stated are to ensure protection of learners and equitable treatment for creditors.

The existence of the restructuring facility may go some way to easing the financial burden on colleges, but does not address the specific risks noted from our review of risk registers.

As independent bodies, the decision as to whether to accept recommendations from the area review process will be one for the governing body of each college. Being able to support the long term financial viability of the college, including considering their obligations as charity trustees, will be key for governing bodies in this decision making. These obligations include the need to act in the interests of the college and its beneficiaries, to protect and safeguard the assets of the college and to act with reasonable care and skill, taking steps to ensure that its funds can continue to be used for the purposes for which they were given.

Preparing for area reviewNone of the area reviews in the first wave announced in September 2015, have, at the time of writing, had their conclusion formally published by the government.

It is important the colleges are entering the area reviews with a clear understanding of their position and that there is early engagement with other stakeholders, such as Local Enterprise Partnerships (LEP).

We have been working with a number of colleges to provide them with a benchmark of how prepared they are for an area review, assisting them with producing an action plan to ensure that they are ready for when their wave commences.

StructuresA key focus of the area review process is on collaborative working and in many areas of the country discussions have already commenced, outside of the area review process, between local colleges about how they can work together. Whilst in some cases this may simply result in informal arrangements, in many this may lead to changes in legal structure, including:

• soft federation, with shared services but separate management;

• hard federation, two or more entities with a shared management;

• formal merger;• sixth forms converting to academies or joining multi-

academy trusts;• expanded college groups, including private training

providers and academies; and• creation of Community Interest Companies.

It is important that governors are exploring the options and that they seek appropriate advice to help understand the implications. For example, where new shared services arrangements or cost sharing groups are proposed there are potential VAT implications.

Where a change of structure is proposed it is expected that due diligence will be necessary. It will be important to ensure that any due diligence undertaken (financial, legal or other) does not just focus on the needs of external bodies, such as government or banks, but also gives governors the information that they need to help support their decisions. The due diligence should add real value, rather than just being a process that has to be undertaken, and governors should carefully consider who is best placed to perform this work. As noted in the area review guidance, the forward looking element of any due diligence will be key.

What does this mean for your college? Building on our review of further education area review related risks, governors may find it useful to consider the following questions:

• Where your review has not yet commenced, have you prepared appropriately?

• Are you engaged with employers, other similar providers and key local bodies such as the LEP?

• Where a merger or other formal collaboration is being pursued, have you considered the detailed scope for due diligence needed to give the governors sufficient information?

7

COMMERCIAL/OPERATIONS

Commercial/operational risks are those most consistently recorded in the top three.

At least 20 per cent of each of the top three risks related to commercial / operations. These can be broken down into the following areas:

• strategy - the colleges’ business strategy, organisational change/ vision, and leadership;

• finances - these are general concerns over the overall financial health of the college; and

• infrastructure - this relates to infrastructure projects and underutilisation of facilities.

StrategyThe main risks identified here related to area based review issues and potential changes in structure, with a number of colleges highlighting the risk of failure of new arrangements or adverse impact on the focus of the organisations.

Strong leadership, from both governors and management, and a clear strategy will be more critical than ever to the ongoing success of colleges at this time of significant change for the sector.

FinancesIssues around finances featured heavily in the top three risks.

The types of risks identified included:

• failure to meet income targets;

• cash flow management;

• performance against budget;

• bank policy on lending; and

• most commonly, just general reference to the failure to maintain financial viability.

Failure to control staffing costs was another risk highlighted here although a minority of colleges also noted concern over the risk of not being able to make pay awards.

The funding bodies have recently issued guidance on their revision of the calculation of financial health and this shows that, based on 2014-15 data, there will be a decrease in the number of colleges graded as having outstanding financial health and an increase in those having inadequate financial health.

Reductions in funding and increases in costs, such as pensions and national insurance, continue to put significant pressure on the financial position of colleges. The change to the apprenticeship funding, the imposition on the apprenticeship levy on all colleges with pay bills in excess of

£3 million, reductions in funded qualifications, as well as the ongoing real terms cut in core funding, will also impact the sector in the short and medium term.

Not surprisingly, the latest annual report from the FE Commissioner highlights financial health as one of the key areas of concern. The Commissioner acknowledged that the majority of providers have managed to adjust to meet the sector’s new requirements but it is clear that the pressures to maintain this continue.

So what can colleges do to mitigate the risks here? Below are some examples from our recent experience in the sector.

• Maximising funding income: Never has it been more important for colleges to ensure accuracy of their funding data. Not only can this help to ensure that income is not lost due to data errors, but it is also critical that decisions are being taken based on accurate data, including so that any problems can be addressed promptly.

• Staff utilisation: The ratio of staff costs to income is a key ratio for the sector and maximising utilisation of teaching staff is vital to controlling this. Many in the sector have increased the level of contact time in recent years but we still see significant variations across the sector. Independent teaching staff utilisation reviews can help colleges to identify issues and give practical recommendations of how these can be addressed.

• Efficiency reviews: Cost savings have clearly been a key focus for many in the sector in recent years, but reductions in costs can often lead to reductions in the level of services provided and potentially impact adversely on quality of the education provided. A change of emphasis to focus on ‘efficiency reviews’, which are wider than just consideration of value for money, can help colleges to work more effectively and eliminate waste at the same time.

Colleges are also looking at maximising other income streams, outside of the core student funding. Some themes included overseas income and geographical expansion in the UK, which clearly bring their own risks. What was most notable, however, was that a number of colleges highlighted the failure to diversify income streams as a risk but gave little detail as to what they were doing specifically in this area. Indeed, a number referred to the risk of failing to develop commercial income streams, or similar, suggesting a lack of clear focus in this area. This raises concerns that institutions

8

are not positioning themselves appropriately to enable them to create or seize new opportunities as they arise.

Despite all of these pressures, the need for institutions to be financially viable and sustainable has never been greater. The area review guidance is clear that Exceptional Financial Support will no longer be available in an area once the changes from the relevant area review recommendations have been implemented; this adds to the need for colleges to have very robust plans and financial forecasts.

InfrastructureThese risks predominantly related to estates, although there was a small overlap with IT infrastructure issues.

Whilst there has been little capital funding in the sector in recent years, and a number of college estates remain in need of development, no colleges had this as their number one risk.

The estate risks highlighted included:

• management of ongoing projects;

• failure to deliver intended project outcomes;

• delay in the implementation of the estates strategy;

• failure to generate sufficient surpluses to enable reinvestment in the estates; and

• insufficient accommodation of appropriate quality.

What does this mean for your college? Building on our review of further education commercial / operations related risks, governors may find it useful to consider the following questions:

• Does your college have a clear strategy which is understood and embedded throughout the organisation?

• How reliable is the college’s forecasting? Do regular variations in the management accounts give cause for concern?

• Has your college considered options for diversifying funding?

9

GOVERNMENT POLICY

Nearly a quarter (24 per cent) of all risks centred on government policy/pressure. Uncertainty and funding issues were by far the most prevalent.

This was also the area that accounted for the second highest number of top risks (21 per cent).

The risk is often not articulated in detail, but there is concern that as public sector spending austerity continues, the funding bodies’ budgets, and therefore funding to colleges, will continue to be cut.

This impact of uncertainty over funding came through in a number of the risks. The November 2015 comprehensive spending review and autumn statement announcements that the funding base rate for 16-19 year olds will remain the same until 2020, and that there would be no cuts in adult skills budget funding in cash terms in the same period, go some way to reducing this uncertainty. There will, however, remain real terms decreases in funding and hence continued significant challenges in the sector.

This will lead to further financial pressures on colleges, may jeopardise participation, and have curriculum design implications.

Rather than focussing on the potential loss of funding, some colleges looked at the risk in a different way, highlighting the potential over-reliance on government funding, and hence the need to diversify, but again lacking detail on how this would be achieved.

For one college with a significant international offering, the potential loss of their tier four licence was their top risk. As colleges look to expand their income streams, this risk is likely to become more prevalent.

Interestingly, only one case specifically highlighted the change in apprenticeship funding and the introduction of the apprenticeship levy as specific risks. This is considered further in the section on competition.

• What does this mean for your college? Building on our review of further education government policy related risks, governors may find it useful to consider the following questions:

• Are all governors kept appraised of changes in Government policy on a sufficiently regular basis?

• Is sufficient time devoted at board meetings to considering the implications for the college of changes?

• What steps are being taken to mitigate the reliance on government funding/policy?

10

IT

Technology risks are now very common amongst all organisations, given the reliance placed upon IT in so many areas. However, only three per cent of all the top three risks identified related to IT and no colleges identified it as the number one risk.

Where IT related risks were identified by institutions, these related to:

• the impact of a major IT disaster;

• failure of IT;

• loss of key data which is held on servers;

• accuracy of student data; and

• inability to use new technologies.

As can be seen, the vast majority of these IT risks are concerned with the business disruption that may be experienced following an unwelcome episode.

Concerns were noted that systems will not meet the needs of the organisation and, therefore, may have an impact on the quality of management information. There are risks identified with regard to the inability of an institution to provide the IT investment that it would like, which may result in the organisation failing to maximise new technologies.

Interestingly, there was no specific reference to the threat of cyber terrorism and e-crime. The absence could indicate that the threats are already well mitigated in most colleges, however, these are areas of increasing risk for all organisations and having a robust cyber security policy in place, which is regularly tested, is critical.

The Office for National Statistics (ONS) released information earlier this year suggesting cybercrime incidents are becoming more prevalent in British society than traditional criminal incidents, with more than seven million incidents estimated to have occurred within the last year, noting that this may be due to more criminal enterprises transitioning to the digital world.

The December 2015 Distributed Denial of Service (DDoS) cyber-attack on the JANET network, the UK government-funded educational network, only serves to highlight the practical risks here.

Colleges may benefit from seeking external IT specialist support, including targeted reviews of this area, as part of their overall assurance framework.

A major overhaul of the EU data protection laws is also going to come in to force in 2018. The risk of fines and compensation claims will be increased and there will potentially be much higher financial penalties for breaches of the rules. The requirement to gain consents, an area that has provided practical problems in the past, is only set to increase in the new regulation. Colleges need to ensure they understand the full implications now and take appropriate action to help protect themselves.

What does this mean for your college? Building on our review of further education IT related risks, governors may find it useful to consider the following questions:

• Is the college reliant on one or two key individuals in the area of IT?

• Does the college have a specific cyber-security policy in place?

• Is the robustness of the IT systems formally tested on a sufficiently regular basis?

11

COMPETITION

Whilst only representing a small proportion of total risks, a common concern was highlighted in this area.

Colleges generally referred to increased competition from other educational establishments but go into little detail on the nature and effect of the competition. Whilst it will vary by location, and partly depend on demographics, there are clearly a number of potential competition risks to colleges including from:

• University Technical Colleges (UTCs);

• Institutes of Technology (IoTs); and

• Academy and school sixth forms.

These do, however, also represent potential opportunities for colleges. The area review guidance has a number of references to collaboration and, whilst not all competitors are in the scope of area reviews, there will be opportunities for colleges to work in partnership with other organisations or to expand their offering. We have, for example, seen an increasing number of acquisitions of private training providers in recent years.

ApprenticeshipsAnother competition risk not falling in the top three as much as we might have expected is around apprenticeships. Indeed, only one case specifically highlighted the change in apprenticeship funding as a specific risk.

The government’s document on English apprenticeships ‘Our 2020 vision’, published in December 2015, clarified the timescale for the previously announced three million apprentices and included certain detail on other areas, such as how they would be funded.

The 2020 document indicated that from April 2017 colleges will no longer receive funding for apprenticeships as part of their annual grant allocation from the SFA. The control is moving to employers who will have the choice of whether to use a college, another provider, deliver the apprentices themselves or just not to take on any apprentices.

The announcement in March 2016 that only levy paying companies will have access to the new digital funding system at the time of its launch (April 2017) came as somewhat of a surprise, but does give colleges more time to engage with small and medium sized enterprises (SMEs) and hence reduce the risk in the short term.

There will, however, remain a number of questions as to exactly how the apprenticeships will work and further guidance, promised by the government, is still awaited at the time of writing.

With every challenge comes an opportunity. For most colleges the adult apprenticeships funding in 2015-16 is still a relatively small proportion of their total adult skills budget allocation, so the scope for growth in the sector is significant. Successful engagement with employers will be critical to taking advantage of this.

• What does this mean for your college? Building on our review of further education competition related risks, governors may find it useful to consider the following questions:

• Have you identified your key competitors and do you have clear strategies to address the risks?

• Has the college built strong, collaborative relationships with other local providers?

• Do all governors have a clear understanding of the changes in apprenticeship funding and how that will affect the college?

12

13

REPUTATION

Relatively few cases highlighted reputation as a top three risk (just two per cent of all risks). With competition increasing, this is a little surprising and perhaps due to a greater focus on the cause, rather than consequence of risks.

Interestingly sixth form colleges were more concerned with their reputation with approximately ten per cent of all risks relating to reputation.

Managing the brand is important. Institutions are, in the main, concerned with the erosion of their reputation and how actions, particularly in terms of student engagement, may have a key impact. Ultimately, a poor reputation will affect the ability to recruit students.

As noted in the previous section, the emergence of UTCs and IoTs, the increasing number of academy sixth forms and the change in apprenticeship funding all serve to increase competition. Maintaining a strong reputation across all of a college’s services is arguably therefore more important than ever before.

The core reputation risks noted centred upon the ability of the institution to manage its reputation in respect of:

• perception by the local community;

• decline in standard of education;

• not being valued by local employers; and

• safeguarding issues / inadequate arrangements for supporting young people and adults.

We explore these in a little more detail below.

Perception by the local community/decline in standard of educationA key contributor to the local perception is the Ofsted rating. A poor Ofsted assessment has the potential to have far reaching impacts and can adversely affect an organisation’s reputation. The related risks identified by institutions included: poor Ofsted result (English and Maths); failure to deliver outstanding teaching, learning and assessment; poor assessment of students. The potential decline in the standard of education is also considered further in the section on quality.

Another area where the support of those within the community is an important factor is when a redevelopment is planned and planning permission needed.

The threat of industrial action could also have an impact on the perception by the local community.

Not being valued by local employersThe change in apprenticeship funding, with the introduction of the levy, brings a significant change in this area and makes a strong relationship with local employers key. The control will now rest with employers and colleges will have to work harder than ever to deliver apprenticeships.

14

Safeguarding issues “Tone at the top” is fundamental to the effectiveness of a college’s safeguarding. It should be actively led by principals and other senior management but with clear and strong support from governors.

The provision of regular training to governors and staff, procedures for identifying vulnerable learners, consideration of arrangements where there is off-site learning, and robust security checks on staff are just some of the good practices seen to help mitigate the risks here.

Inadequate arrangements for supporting young people and adults, in particular in regard to the prevent agenda, was another issue highlighted in the registers.

Under the current Ofsted inspection framework, review of the area of ‘leadership and management’ will include a judgement by Ofsted on ‘the effectiveness of safeguarding practice, including the prevention of radicalisation of learners and compliance with the prevent duty’ and governors will be held to account on this. The risk to governors is that if Ofsted deemed this area to be inadequate or requires improvement it will have an impact on the overall judgement made by Ofsted. This in turn could impact on the recruitment of learners through, for example, poor publicity if graded three or four.

More generally in respect of reputation risks, there are clearly links with ensuring effective marketing and press coverage as a means of actively managing brand and reputation. For example, in seeking to maximise the potential of technology to reach large numbers of people quickly, we would expect to see colleges fully utilising social media as a mechanism for further developing their brand.

For those colleges with international students from outside the European Economic Area, a key risk is the retention of the Tier four licence. Each year, institutions must pass an annual assessment in order to retain their Tier four sponsor licence. In recent years there have been a number of institutions where the application to renew the highly trusted sponsor status has been refused, pending further investigation. During an investigation, the Home Office may remove the institution from the Tier four Register of Sponsors, thus preventing the institution from sponsoring any new international students. The loss of the licence will not only have a direct adverse impact on a college financially from the loss of funding, but can have a significant impact on a college’s wider reputation.

What does this mean for your college? Building on our review of further education reputation related risks, governors may find it useful to consider the following questions:

• Is the perception of the college held by the local community and employers clearly understood?

• Are active steps being taken to build/cement relationships with employers?

• Is there a clear and consistent message, from governors down, on the importance of safeguarding?

15

16

QUALITY

The quality of courses and how they may be recognised locally, nationally and, increasingly, internationally has clear links with the student experience.

The risks in relation to quality featured highly on the registers, with 14 per cent of all risks relating to this area. This was, however, most prevalent for general further education colleges with sixth form colleges rating this as a lower risk area.

Student satisfaction is intrinsically linked to quality. In terms of quality there are risks identified in relation to:

• standards of teaching and learning inconsistent;

• deterioration in student success rates; and

• staff morale issues having an impact on improvement and success.

The subject of quality could not be covered without mentioning Ofsted, and for some colleges there is a specific concern highlighted about Ofsted inspection outcomes. After two years of improvements, the total per cent of colleges graded good or outstanding, as set out in the latest annual Ofsted report, decreased to 77 per cent. Worryingly, 65 per cent of general further education colleges inspected in 2014-15 were judged to be requiring improvement or inadequate. The quality of apprenticeships was a particular area of concern highlighted by Ofsted.

The need for quality improvement is also a key area highlighted in the FE Commissioner’s latest annual report, which notes issues of:

• poor student management leading to low attendance and retention well below the national average;

• inadequate initial advice and guidance;

• slowness in addressing performance management issues;

• quality improvement plans lacking specific milestones / weak monitoring of progress;

• basic lack of understanding of what needs to be done to improve quality; and

• subcontracted provision receiving less attention than necessary.

Turning back to the risks identified, as noted above, the risk around deterioration of success rates was a common theme, with specific reference to English and maths being prevalent. This is unsurprising, but particularly important, given government policy of requiring young people who do not have at least a C-grade GCSE or equivalent to incorporate such a qualification aim in their study programme, with

consequent adverse funding implications for those colleges where students do not. There is also a similar requirement in relation to apprenticeships, where there is a requirement for learners who do not already hold a Level two qualification in English and maths to participate in an appropriate qualification.

Other core risks noted include: the curriculum not being aligned to employer’s needs; quality affected by issues such as adverse attendance, punctuality and poor assessment of students.

One area of higher risk for colleges is in ensuring the quality of subcontracting provision. This has been widely recognised in the sector for many years and the SFA’s funding agreements for 2015-16 contained a new clause regarding an annual subcontracting assurance requirement, needing providers with over £100k of subcontracted provision to provide assurance to the SFA on the arrangements in place to manage and control their subcontractors.

The recent announcement by the SFA that provision paid for by advanced learner loans will have to be delivered directly by lead providers (from 2017-18) will reduce, but not totally remove, this risk.

All of these matters link to the overall student experience, which is a fundamental factor in the delivery of quality provision and the achievement of student success.

What does this mean for your college? Building on our review of further education quality related risks, governors may find it useful to consider the following questions:

• Are procedures in place to ensure consistency of teaching throughout the college, with a culture of underperformance not being tolerated?

• How robust are your controls over the delivery by subcontractors? Do you have this independently reviewed on a regular basis? What volume of your provision is subcontracted?

• Are individuals assigned clear responsibilities and actions to improve success rates? Is there regular and timely reporting to governors on the effectiveness of these measures?

17

What does this mean for your college? Building on our review of further education recruitment related risks, governors may find it useful to consider the following questions:

• Does the college understand why student acceptances are not converted into starters? Are steps being taken to address this?

• How regularly are staff and student surveys undertaken and are the findings acted upon promptly?

• Are staff recruitment processes sufficiently robust to identify and appoint individuals of the appropriate calibre?

RECRUITMENT

It is not just the recruitment of students that is concerning college, recruitment and retention of staff is also a key concern in the sector.

The recruitment risks identified can be broken down into the following broad areas:

• students, split between: - 16-18; and - other including adult learning, apprenticeships,

higher education, etc

• staff.

StudentsThe risks identified included:

• enrolments targets not met;

• lack of conversion of acceptances; and

• increased competition from schools, academies and studio schools;

In some cases, there was a clear link to the potential impact of these risks, ie, the adverse effect on the college’s ability to achieve its financial plan, reducing margins and deterioration in the financial position.

There were also concerns raised that failure to provide sufficient, appropriate accommodation would adversely affect the overall student experience and hence future recruitment.

There will be natural factors, such as demographics, which a college cannot directly control, but it is still important to understand the impact and to take steps to mitigate the risk to the college.

With increasing competition, student satisfaction becomes ever more important and a number of the risks identified face this issue head on.

As has already been noted in this document, new strategies for the recruitment of apprenticeships learners will be needed to react to the changes in funding and shift in the balance of control to employers.

In recent years the introduction of 24+ advanced learning loans, which the government has announced is being extended to 19+ for certain courses, means learners are likely to want to receive more value for money than ever before and colleges are going to need to demonstrate they will provide this, and hence the long term benefits for the learner, if they are to recruit the learners.

From our experience in the sector, the take up of learning loans to date has been limited and the expansion to a wider learner base brings an increased risk of loss of income. We have recently been discussing with some colleges about how their curriculums are structured and whether that places them in the best position to promote loans

StaffThere are risks identified in relation to how colleges recruit staff, and how recruiting members of the right calibre, particularly senior hires, is sometimes difficult.

Staff retention and turnover is also a specific cause for concern for colleges as it has an impact on the overall support available to students. There is a clear understanding in the sector that a failure to attract and retain experienced staff members will have an impact on the ability of the organisation to deliver high quality programmes and teaching excellence. The ability of the institution to grow and achieve key success measures is thus severely hampered.

The risks to staff morale were also raised, with, for example, the potentially adverse impact from increasing restrictions and targets highlighted as a concern.

We would also have expected to see concerns regarding the college’s ability to develop staff and their careers, particularly in times of financial constraint. We are aware from our work in the sector that colleges are very mindful of the need to maintain effective staff communication, especially in times of change, and they are concerned with ensuring plans and priorities are understood by the whole staff population so that all are working towards the same goals. Actively engaging with employees, creating a sense of enthusiasm and a supportive infrastructure, is also key to the success of a college.

18

19

The UK group of companies and LLPs trading as RSM is a member of the RSM network. RSM is the trading name used by the members of the RSM network. Each member of the RSM network is an independent accounting and consulting firm, each of which practices in its own right. The RSM network is not itself a separate legal entity of any description in any jurisdiction. The RSM network is administered by RSM International Limited, a company registered in England and Wales (company number 4040598) whose registered office is at 50 Cannon Street, London EC4N 6JJ. The brand and trademark RSM and other intellectual property rights used by members of the network are owned by RSM International Association, an association governed by article 60 et seq of the Civil Code of Switzerland whose seat is in Zug.

RSM UK Consulting LLP, RSM Corporate Finance LLP, RSM Restructuring Advisory LLP, RSM Risk Assurance Services LLP, RSM Tax and Advisory Services LLP, RSM UK Audit LLP and RSM UK Tax and Accounting Limited are not authorised under the Financial Services and Markets Act 2000 but we are able in certain circumstances to offer a limited range of investment services because we are members of the Institute of Chartered Accountants in England and Wales. We can provide these investment services if they are an incidental part of the professional services we have been engaged to provide. Baker Tilly Creditor Services LLP is authorised and regulated by the Financial Conduct Authority for credit-related regulated activities. RSM & Co (UK) Limited is authorised and regulated by the Financial Conduct Authority to conduct a range of investment business activities. Whilst every effort has been made to ensure accuracy, information contained in this communication may not be comprehensive and recipients should not act upon it without seeking professional advice.

© 2016 RSM UK Group LLP, all rights reserved. 1858

rsmuk.com

FOR FURTHER INFORMATION CONTACTStephanie MasonNational Head of Further Education and SkillsT +44(0)121 214 3263 stephanie.mason@rsmuk.com

Dominic BlytheAudit DirectorT +44(0)1293 591740 dominic.blythe@rsmuk.com