Colleges have been self-governing for thirty years since their incorporation in 1992 and their finance staff have developed robust systems to manage their budgets and accounts and a strong supportive network via the College Finance Directors Group (CFDG). Financial oversight rests with college principals or chief executives (who act as accounting officers) and governing bodies.
This section of the AoC website provides information on the information needed by colleges to prepare their 2022-3 financial statements
Information for 2022-3 financial statements
Colleges prepared annual financial statements for a 31 July year end in line with the following rules:
- UK's Financial Reporting Standard 102 (FRS102).
- Further and Higher Education Statement of Recommended accounting Practice (F&HE SORP)
- College accounts direction issued by Education and Skills Funding Agency (ESFA) on behalf of the Education Secretary (the charitable regulator of colleges)
- If they are registered higher education providers, the Office for Students accounts direction
AoC accounting support
AoC assists colleges to prepare their accounts in two ways:
- Casterbridge College model accounts for 2022-3 (version two, with some minor updates Casterbridge College Accounts 2022 3 8 8 23
- an enhanced pension provision calculator. The 2022-3 version issued on 15 August 2023 is here EPP 2023 calculator for issue Association of Colleges FRS102 Report 2023 for issue
AoC's accounts direction handbook (updated in August 2023 with cosmetic changes but substantially the same as the 2020 document) is here. College Accounts Direction Handbook 2023 8 8 23
I would like to emphasise that AoC has adequate but limited expertise when it comes to accounting standards and practice. If you see errors or think you could do better, please either contact me or feel free to present your financial statements in the most suitable way for the college (subject to the rules listed above). Casterbridge doesn't cover all circumstances for colleges.
Reclassification of colleges to the public sector
Between now and 2025, DfE officials will work with college finance staff to consolidate college accounts into government accounts. This is a consequence of the Office of National Statistics (ONS) decision to reclassify colleges to the public sector and consolidation will require various changes including new reporting obligations as at 31 March each year and application of new accounting standards. There is some pressure from HM Treasury officials to change the college accounting year end to 31 March. The view of anyone who works in college finance knows that this would be a disastrous move that would:
- take the accounting year out of line with the academic year, the rest of the education system, the staff recruitment, assessment and DfE funding cycles.
- make it impossible for colleges to close accounts precisely because of uncertainty about recognition of income, resulting in audit qualifications.
- create confusion for college leaders, policy makers and third parties, making it harder to manage £7 billion a year in public revenue funds and £1 billion a year capital spending.
- put college bank loans in default and require costly renegotiation of covenants
- require lots of extra spending on college accountancy, financial systems and audit
College finance record
ESFA collects data from college financial statements via a finance record. The 2021-2 finance record spreadsheet will be issued in the autumn (ie after the year to which is relates).
College finance data
ESFA publishes the data it collects on the college accounts page on gov,uk
Model Management Accounts
The FE commissioner team has worked with a volunteer group of colleges to update the model management accounts for the sector. The 2021 good practice guide is here.
|Impact and risk||Implication and mitigation|
|Colleges consolidated into DfE/ESFA accounts at 31 March||Extra returns, valuations and netting off transactions (eg with academies, CITB etc)|
|College debts would become part of national debt. DfE might ban new commercial borrowing and likely to insist on prior approval of capex, asset sales, leases, indemnities, companies||£1 billion college debt is 0.04% of national debt (£2,300 billion). DFE would need to change the law to ban college borrowing. Thresholds could be set at a high level. DfE will need to help with cashflow and provide higher capital grants|
|College staff would be defined as public sector workers. DfE may introduce new rules on spending, severance, pay etc||200k college staff are 4% of public sector staff (5 million). DfE would need to change the law to introduce restrictions. DfE already uses the college funding agreements to apply several of these staffing rules so there may be no need to bring in new controls.|
|Colleges may secure access to DfE funding denied to them because of their private sector status||Public sector organisations are not entitled to any funding (eg Scottish colleges pay VAT) so change will only happen if DfE or Treasury act|
ONS staff briefed FE representative organisations about the review in September 2022 to explain the way in which the carry out the review. Their main message is that their independence is protected in law, that their work is governed by international statistical standards and that they will consider the evidence carefully. ONS slides are available here
AoC staff have had regular discussions with ESFA. DfE and HM Treasury officials about the reclassification. We are concerned that government might follow up a public sector classification with measures that increase accounting work and that slow colleges down because of the need to obtain approval for transactions. Our overall message in letters to HM Treasury and DfE have been:
- Don’t rush
- Don’t make well-established, well-tested financial oversight worse by introducing new controls because this will slow colleges down when they need to act
- If there’s a decision to control borrowing, do so selectively (eg larger transactions)
- Reduce the need for borrowing by changing revenue and capital funding arrangements
- Use the fact there’s change to remove anomalies and inefficiencies in the funding arrangements (NI, VAT etc) and oversight rules (eg will ESFA still need a 140 page college funding agreement to protect its position)
AoC's chief executive, David Hughes, made a number of suggestions to the DfE permanent secretary in this 7 October 2022 letter
No-one outside ONS knows what the decision will be but, sensibly, DfE officials have been working on plans in case there's a reclassification:
- There will be a post-ONS DfE announcement
- In the case of a public sector classification, DfE will expect the rules in Managing Public Money (a 300 page Treasury manual) to apply but there would be areas where existing arrangements continue. DfE is likely to follow up it initial statement and to follow up with detailed changes over several months.
- Colleges have powers and duties written in law (for example the 1992 Further and Higher Education Act). If DfE goes down the route of bringing in new controls, it may have to consider legislation.
- The ESFA survey and interviews on borrowing carried out in summer 2022 has clarified that colleges use borrowing for two main purposes (condition improvement, working capital). Colleges have cut external debt in half in the last seven years, from almost £2 billion to less than £1 billion.
- Officials know there would be considerable problems involved in changing the college year-end from 31 July to 31 March. Consolidation of accounts would probably take effect in the 2024-5 financial year which would require colleges to be prepared by 1 April 2024 and to make returns as at 31 March 2025.
The central risk associated with a possible reclassification is that it will require colleges to get permission for decisions that currently need go no further than governing bodies. Decision-making in the UK public sector has become more rigid in the last twenty years as a result of Treasury control and more top-down as a result of politics. Colleges would have been in a queue to wait for decisions. Sometimes a second opinion from a government official improves things but colleges currently benefit from the ability from being able to act quickly in response to what they see on the ground.
Deputy CEO, AoC, 15 July 2022 (updated 10 October 2022)
These presentation slides summarises the issues AoC ONS slides 10 10 22 julian gravatt
This document contains a longer list of Q&As AoC draft Q As on ONS reclassification v1 2 6 6 22