It is the responsibility of the board to oversee the college’s financial performance and it must ensure financial sustainability and solvency. The board should:
- ensure that financial strategies are affordable and consistent with its strategic plans and objectives
- manage strategic risk
- monitor financial performance using key performance indicators
- ensure it receives reliable and timely financial information, including cash flow forecasting, so it can recognise any difficulties at an early stage
- ensure there are robust financial controls, especially in high risk areas such as payroll systems
- ensure delegated authority to staff is clearly documented
- ensure financial policies and procedures are regularly reviewed
- take immediate action and professional advice when it thinks insolvency is a possibility
The corporation is accountable for ensuring the financial viability of the college, and must regularly assess financial health, resilience and threats to insolvency, considering all relevant information. The corporation must approve the Integrated Financial Model for College submission to the ESFA.
The FE Code of Good Governance states that expected behaviours include, 'the board monitors the use of resources and ensures value for money'.
More information on Financial Strategy and Audit is available on the AOC's website.
Further education and sixth-form colleges are operated by statutory corporations which are responsible for the effective and efficient use of resources, the solvency of the college and the safeguarding of its assets. The DfE regulatory framework administered by ESFA, which includes DfE’s funding agreement with colleges, the college accounts direction and the post-16 audit code of practice, underpins the statutory responsibilities of college corporations. The regulatory framework sets out expectations of governing bodies for oversight of regularity (i.e. what the college spends money on), propriety (i.e. the manner in which decisions are made), and value for money (i.e. the basis for making decisions).
College Corporation Financial Management Good Practice Guides
The Role of Finance and Resources Committee in Further Education Colleges in England: Best Practices and Requirements
Funding - How it works
The ESFA funds sixth-form colleges, further education (FE) colleges, sixth-forms in schools, sixth-forms in academies, special schools, special academies, independent learning providers (ILPs), local authorities (LAs), special post-16 institutions (SPIs) and some higher education institutions (HEIs). We fund these institutions to provide study programmes for young people.
- students aged 16 to 19
- students up to the age of 25 when they have an education, health and care (EHC) plan
- 14 to 16 year-olds who are directly enrolled into eligible FE institutions
- home educated students of compulsory school age at any FE college
They use a national funding formula to calculate an allocation of funding to each institution, each academic year. The details of how funding works can be found here.
The insolvency regime for colleges came into effect on 31st January 2019. Details of the regime and its implications for governance, can be found here.
Value for Money & Public Benefit
Corporations are responsible for delivering value for money from public funds, and are required to make a statement on such in the college's annual financial statements. In practice, the responsibility for VfM is mostly delegated to management. Therefore, the governing body (primarily through the Audit Committee), should ensure that processes are sufficient for it to be assured that management is adequately discharging its responsibility for VfM.
'Value for money' (VfM) is a term used to assess whether or not an organisation has obtained the maximum benefit from the goods and services it both acquires and provides, within the resources available to it. Some elements may be subjective, difficult to measure, intangible and misunderstood. Judgement is therefore required when considering whether VfM has been satisfactorily achieved or not. It not only measures the cost of goods and services, but also takes account of the mix of quality, cost, resource use, fitness for purpose, timeliness, and convenience to judge whether or not together, they constitute good value.
Primarily, VfM involves a commitment to achieving efficiency, economy and effectiveness. Such aims are usually encapsulated in a Value for Money strategy, as well as being specified in the Financial Regulations of the college.
In addition, the Office for Students has a clear focus on ensuring students are receiving value for money. The concept of what value for money means in this context is not always easy to grasp, but will likely involve quality of teaching; progression outcomes; extra curricula activities and any course cost against perceived benefit. These can be broadly divided into value to the economy, and value to the individual both in a non-monetary and monetary sense.
Remuneration Committee Reporting
There has been a significant amount of focus, both in the corporate sector and the education sector, regarding the size of executive's pay - the academy sector in particular, has received significant press over payments made to some of its CEOs.
In the light of the high-profile examples of questioning trustee, governor and
other boards’ oversight, the AOC's Governor Council has drawn up a Remuneration Code for senior post-holders. This Remuneration Code aligns with and is equivalent to the Committee of University Chairs (CUC) Remuneration Code. This supports colleges in meeting the requirements for registration with OfS, ESFA reporting requirements and ensuring efficient and consistent practice across educational sectors.
The Remuneration Code and Guidance is available on the AOC's website.
An example Statement of non-compliance with the CUC Remuneration Code is available to download below.
Risk Management - the role, responsibility and oversight of the board
The pervasiveness of risk in the workings of everyday college business means that boards must factor risk as an integral part of the college’s strategy. College boards today are being held accountable for an ever-more diverse range of risks that can include financial, safety, environmental, technological, regulatory and reputational risks, among others.
Both the law and practicality determine that the board cannot and should not be involved in actual day-to-day risk management. Governors should instead, through their risk oversight role, satisfy themselves that the risk management policies and procedures designed and implemented by the college’s senior executives are consistent with the college’s strategy and risk appetite; that these policies and procedures are functioning as directed; and that necessary steps are taken to foster a college-wide culture that supports appropriate risk awareness, behaviours and judgments about risk and recognises and appropriately escalates and addresses risk-taking beyond the college’s determined risk appetite.
A guidance note on the role of governors in setting risk appetite and oversight, including a checklist, sample risk appetite statement and suggested questions and considerations for governors, is available for download below.
Board Assurance Frameworks
The Corporation has the overall responsibility for ensuring that systems and controls are in place which are sufficiently robust to mitigate risks which may threaten the achievement of a college’s Strategic Objectives. The Board achieves this primarily through the work of its Audit Committee, the use of Internal Audit and other independent inspection and by the systematic collection and scrutiny of performance data to evidence the achievement of the college's objectives. The Audit Committee is a mandatory requirement as has (according to the Audit Code of Practice), to 'assess and provide the corporation with an opinion on the adequacy and effectiveness of the corporation’s assurance arrangements, framework of governance, risk management, and control processes for the effective and efficient use of resources, solvency of the institution and the safeguarding of its assets'.
Board assurance frameworks have been developed to provide corporate boards with structured and systematic models for the provision of assurance over the management of organisational risk and the operation of internal controls. Since the relaxation on the requirements for internal audit, colleges are increasingly adopting similarly structured approaches to assurance to complement established internal audit provisions.
A Board Assurance Framework produced by RSM in conjunction with AoC and Stone King, is available for download below.
The scope of work of audit committees and internal auditors in college corporations
Audit committees are a legally required committee for colleges. The core role of audit committee is to scrutinise the robustness of the control framework and to assess its application in practice. The corporation entrusts this control framework to management; it is their executive role to maintain and act within it. It is the governing body’s role through its delegation to the audit committee to ensure this happens.
All college corporations are required by their funding agreement with ESFA to have an audit committee. ESFA does not limit the scope of work of a corporation’s audit committee, but it does set out certain requirements in the P16ACOP. This details what the terms of reference for audit committees must include and summarises its key responsibilities.
The government has provided this guidance to support boards in the meeting of the requirements of the P16ACOP.
Governance Reporting (Annual Governance & Financial Statements)
Following the evolution of governance from being a back-office support function to an enabler of organisational strategy, and the increasing requirements around strengthening governance flowing from the Skills for Jobs White Paper and subsequent Skills Bill, it seems opportune to revisit reporting on governance, primarily within the Annual Report and Financial Statements. To date, much governance reporting is boilerplate, with limited disclosure and the use of generic text. Annex A of the College Accounts Direction sets out the ESFA's requirements for the statement of corporate governance and internal control, with an example in the AoC’s model Casterbridge Accounts for colleges. The Governance Statement is provided to enable readers of the annual report and accounts of a college to obtain a better understanding of its governance and legal structure.
This reporting requirement is an ideal opportunity to build trust with an ever-increasing number of stakeholders that organisations now engage with. Whilst annual reporting requirements in the FE & Skills sector fall below those expected of public companies, there is much good practice that can be learnt from the corporate sector. One of the key elements, is how good governance reporting can act as a significant contributor to stakeholder assurance – be that funders, regulators, partners, or the communities in which the organisation is active. For this reason alone, organisations should seek to report with honesty, openness, and transparency, as required by the Nolan Principles of Public Life. In addition, such reporting acts as a means of accountability to the organisation itself, through publicly declaring targets and ambitions set by the Board. To add real value, reporting should not only disclose governance processes, but also show how governance activities underpin the effective execution of strategy.
A guide to good practice governance reporting within the annual report and financial statements, is available for download below.