Colleges' chiefs face liability for millions

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The Independent Online

Education Correspondent

College governors could be held liable for large sums of money if their institutions faced financial collapse, MPs warned yesterday.

A report on further education and sixth-form colleges from the House of Commons Public Accounts Committee (PAC) notes that in 1994, 48 colleges out of a total of 457 had deficits totalling pounds 20m. New procedures should be put in place to cope with colleges' financial difficulties, the report says.

The committee's recommendations follow a report from the National Audit Office (NAO), published in February this year, which raised concerns about the way some colleges, which had gained independence from local authority control in April 1993, were being run.

The Department for Education, since merged with Employment, said governors would be protected against surcharge unless they acted dishonestly, unreasonably, without care or with ulterior motive. However, the committee said their position should be clarified.

In the main, colleges appeared to be well managed, with the sector as a whole having pounds 238m in reserves. But half those visited by the NAO had weaknesses in financial reporting to governors, and in one case the college's auditor had issued a disclaimer noting that he could give no opinion on its affairs.

The MPs said there should be a register of business interests drawn up for each college's governors, and that this could become a condition of funding.

The report will prompt further fears about the future of the colleges, many of which are in financial trouble. Last December, the management consultants KPMG Peat Marwick said as many as 20 per cent might not survive the next three years in their current form.

While a large number of colleges have had to make staff redundant in order to balance the books, a few have been hit by financial scandals. At Wilmorton College, Derby, last year, the principal and a number of governors left under a cloud after allegations, confirmed in an official report, of irregular land deals and expenses payments.

In June 1994 it was revealed that 42 children attending a college creche in Scarborough had been enrolled as full-time students, qualifying for up to pounds 100,000 in funding.

The PAC report also notes that two colleges in Birmingham allowed outside organisations to run courses which later turned out not to be using their money properly. At one, Bournville college, police investigated community groups that were paid pounds 140,000 to run courses which then failed to materialise.

A spokeswoman for the Further Education Funding Council said that all the points raised in the report were already being addressed. The liabilities of governors were a matter for the Government, she said.

"The NAO report in general has been welcomed and showed an encouraging start for the new sector. However, there is always room for improvement and the issues flagged are all in hand," she added.