Public Audit Committee
Scotland's colleges 2020 Additional Information from the Auditor General for Scotland
Letter from the Auditor General for Scotland to the Convener, on additional information on Scotland's colleges 2020, 4 October 2021
Dear Richard
I welcomed the opportunity to participate in the Public Audit Committee’s roundtable discussion on Scotland’s Colleges on 23 September.
I committed to provide members with further information on three areas. Colin Beattie asked about the treatment of depreciation in the college sector, and Craig Hoy asked about course completion rates and reliance on other income in colleges and universities.
Depreciation arrangements
Before the reclassification of colleges as public bodies in April 2014, the Scottish Government included an amount for depreciation within its funding allocation to colleges (reflecting the loss of value over time of assets such as equipment). As depreciation did not require a cash spend in the year of allocation, colleges could spend this funding or set it aside to meet future needs.
Following reclassification, the Scottish Government provided a non-cash budget to cover depreciation. But the cash allocation to colleges still included a sum equivalent to the amount previously set aside for depreciation. Colleges were therefore potentially left with an amount of unspent funding (referred to as ‘net depreciation cash’) but required Scottish Government approval to spend it. The money was typically spent on student support funding, loan repayments, regional priorities and donations to Arms-Length Foundations.
Scottish Government approval of spend was not received until mid-way through the college financial year, which created uncertainty for colleges in determining how to spend their allocation. Reclassification also led to a mismatch between Scottish Government accounting rules and the further and higher education Statement of Recommended Practice (SORP).
In 2016, Audit Scotland recommended that the Scottish Government and Scottish Funding Council (SFC) identify and implement a better approach to allocating depreciation budgets to colleges. It also recommended that the SFC require colleges to report how they have spent depreciation cash funding in their accounts.
The Scottish Government and SFC introduced changes to address these recommendations. The SFC now allocates each college a fixed amount of cash each year, which they can spend on loan repayments, staff pay awards or student support funding. This is known as cash budget for priorities (CBP). Since 2017, CBP spending and the impact of the depreciation budget have been set out in the SFC’s accounts direction, so that colleges can produce a consistent adjusted operating position (AOP) and comply with the further and higher education SORP accounting rules. The AOP makes an adjustment for technical accounting factors that are beyond a college’s immediate control, such as net depreciation and pensions, and helps to provide a clearer picture of a college’s short-term financial health.
Course completion rates
The SFC publishes information on course completion rates in colleges each year. The latest college performance indicators 2019-20 were published in July. They show that:
• Completion rates for Further Education students enrolled on full-time recognised qualifications have steadily increased from 58.8% in 2008-09 to 65.7% in 2019-20 (Figure 1, page 16).
• Completion rates for Higher Education students enrolled on full-time recognised qualifications have steadily increased from 63.9% in 2008-09 to 73.4% in 2019-20 (Figure 4, page 20).
The results for 2019-20 are not directly comparable to previous years due to alterations to exam and assessment arrangements due to the Covid-19 pandemic.
This information is not comparable with the university sector, due to the differing nature and duration of courses. The Higher Education Statistics Agency (HESA) calculates and publishes UK-wide performance indicators on behalf of the UK higher education funding bodies. This includes an indicator on the proportion of full-time entrants who do not continue in higher education beyond their first year. HESA also reports on projected learning outcomes, including the proportion of full-time first-degree students expected to qualify with a degree from the higher education provider at which they started.
Reliance on other income
The way that colleges and universities are funded and generate income is very different. There are also variations between individual institutions in the proportion of income derived from various sources.
Scottish Government funding, provided through grants from the SFC, is the largest source of income for colleges. For the last few years, Audit Scotland has reported that colleges are increasingly reliant on this funding as the proportion of income from other sources is gradually falling. There are limited opportunities for colleges to generate commercial income. In 2019-20, Scottish Government funding accounted for 77% of total income for the sector. Tuition fees and education contracts accounted for 15% of total income, and other income (such as commercial income) accounted for 8%. This compares to 74.6% (Scottish Government funding), 16% (tuition fees and education contracts) and 9.4% (other income) in 2017-18.
The sources of income for universities is set out in of Audit Scotland’s report on the finances of Scottish universities, published in September 2019 (Exhibit 2, page 13). In 2017-18, tuition fees accounted for 32% of total income for the sector, replacing SFC grants (30%) as the single largest source of income. Other income (including income from services to industry and public bodies, consultancy work and student residences) accounted for 15% of total income.
I hope that members find this additional information helpful.
With best wishes
Stephen Boyle Auditor General for Scotland