Further Education in Crisis – Are You Prepared?

Fri 22 Jul 2016

Headline Stats

• FE Budget slashed by 14% since 2010
• Almost half of all colleges in the UK are in deficit
• 141% increase in number of colleges rated “financially inadequate” between December 2013 and 2015

The financial problems currently facing the further education sector have been well publicised. Institutions have been battered by a swathe of funding cuts, with overall budgets slashed by 14% since 2010 alone. 

Highlighting the difficulties faced, last year a report from the National Audit Office showed that almost half of all colleges in the UK were in deficit in 2013-14 and in a report issued by the Public Accounts Committee in December 2015, 70 colleges were rated as “financially inadequate” – up from just 29 in 2013.

For all stakeholders, the uncertainty of what the future may bring is concerning, especially considering the complex issues that institutions face:

• Changes to government funding – Colleges primarily rely on government funding.  There is no assurance that government policy or practice will remain the same or that public funding will continue at the same levels or on the same terms 
• Outcome of Area Based Review – this could lead to mergers and the acadamisation of many smaller General  and Specialist Further Education colleges
• Outcome of adult skills sector review – may lead to reduced public funding for adults, particularly those in the workplace.
• Impact of new younger learners funding system
• Full impact of introduction of 24+ Advanced Learning Loans
• Ability to service existing debt

As a financial stakeholder, these issues require immediate evaluation and planning. If funding does continue to dwindle and colleges merge or acadamise consider:

• What impact will a continued reduction in funding have? Will it pose liquidity problems?
• Will changes result in covenants being breached?
• Can existing debt levels continued to be serviced?
• How will a merger affect your financial interest? Consider impact of a merger with both good performing and non-performing colleges.
• How will acadamisation affect your financial interest? Consider the complex process it entails.
• If insolvency is likely, is there an opportunity for a turnaround strategy to be implemented? Are the Governors aware of their potential personal liability?

How Mazars can support you

Mazars has teams of specialist education and restructuring advisors who, by working either individually or collaboratively where appropriate, can advise on restructuring and turnaround, helping to develop a plan for long term success.  If necessary our teams can also provide insolvency support.

Highly experienced, Mazars Education Teams are based around the UK and work with higher education institutions, further education institutions and academies and schools in the independent and public sectors. Our education teams are currently external and internal auditors to over 60 higher education institutions and further education institutions as well as numerous other organisation.

Mazars specialist Restructuring Team has a national team of over 100 reorganisation and recovery professionals dedicated to helping businesses in difficulty. Working alongside our clients we can help to find the best possible solution for all stakeholders, whether it’s putting a recovery plan in place for a long-term future or winding operations down.

Case Study – Closure of adult training organisation

In this example, the Company had been spun out of an FE College but which retained its position as parent company/majority shareholder and thus funder of last resort.

This increasingly strained the parent FE College’s resources as its subsidiary’s own revenues were threatened by funding changes.

The subsidiary entity was placed into Administration and we assisted the Skills Funding Agency (“SFA”) in their reallocation of learners to successor training firms.

Through our joined- up approach with the SFA, they were prepared to pay the due debt to the Company, which enabled the parent FE College to recover some of its outstanding loans.

Footnote for stats

• National Audit Office, Department for Business, Innovation & Skills: Overseeing financial sustainability in the further education sector.  20 July 2015