Audit Committee, 16 Sep 2003

Meeting date: Tuesday, September 16, 2003

Official Report 253KB pdf

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Scottish Further Education Funding Council

We are ahead of schedule. I invite the Auditor General for Scotland to report on the Scottish Further Education Funding Council and to introduce members of his team.

The Audit Committee first took evidence on managing costs in further education colleges back in 2000. Later, the committee took evidence on my overview reports on the FE sector and on Moray College, where there were governance and financial management problems. Therefore, the report on today's agenda is the latest in a series in which the recurrent theme has been the way in which the Scottish Further Education Funding Council seeks to influence the performance of further education colleges in Scotland.

As the committee knows, the funding council was established in 1999 and is responsible for securing further education in Scotland, mainly by distributing some £400 million in funding each year to Scotland's 46 further education colleges. The funding council does not manage individual colleges directly, but its chief executive, as accountable officer, has a duty to promote economy, efficiency and effectiveness in colleges' use of the resources allocated to them.

Ministers have set four broad priorities for the funding council: skills for tomorrow's jobs; quality improvement and modernisation; widening access; and improving financial health. The funding council aims to influence the response of individual colleges to those policy objectives by, first, requiring them to provide regular information on activity; secondly, developing a funding model based on expected activity levels for each college; thirdly, setting quality standards and applying quality-assessment procedures; and fourthly, monitoring initiatives that are designed to improve the provision of further education.

The funding council has improved some of its indicators, to provide for the first time reliable information on the quality of further education and how efficient colleges are at delivering it. The funding council is continuing to develop its quality measures through college reviews undertaken by Her Majesty's Inspectorate of Education and through surveys of students and employers. It considers that the HMIE reviews provide the most comprehensive and reliable information on the quality of FE provision.

Overall, the funding council is now able to report performance against three of the four ministerial priorities that I mentioned. Less progress has been made on the priority of equipping students with skills for tomorrow's jobs. However, the funding council has in hand plans for research to identify the supply of and demand for further education. It intends that that should provide information to assess progress in matching skills to jobs.

There is evidence of improvement in college performance, but I believe that the funding council could do more to help colleges to compare their costs per student and their retention rates.

There are continuing questions about how colleges are held to account for some aspects of their performance. The funding council sets clear standards for performance in areas such as student activity and quality. Where performance falls short of those standards, the funding council may take action. In other areas, such as college efficiency, the funding council seeks to influence performance through the funding regime and other mechanisms, but its ability to take action is less clear.

In the first session of the Parliament, the Audit Committee made recommendations for the funding council to improve: benchmarking across the sector; targets for efficiency; the speed of completion of initiatives on FE provision, in particular in relation to the relationship between supply and demand; the link between ministerial objectives and the funding council's performance information; and accountability arrangements. I suggest that my report provides an opportunity for the committee to examine the progress that the funding council is making in those areas.

As always, we are happy to answer any questions that members may have.

Thank you very much.

As you know, the committee has decided to discuss the approach that it will take to your report under item 6, but this is a good opportunity for members to clarify matters that are raised in the report. I invite questions from members.

When was your work on the report undertaken and how does that relate to the period in which bodies such as Future Skills Scotland have been in operation?

Can a member of the team help with an answer on the timing?

Most of our work was done last summer. Future Skills Scotland is still relatively new. The funding council has been working with Future Skills Scotland on survey work with employers, but that is still evolving.

What is your perception of the on-going changes in the interaction between the Scottish Higher Education Funding Council and SFEFC? How do you see the parameters between SFEFC and SHEFC? Will the interaction between those organisations be examined?

Our report did not examine that matter; it concentrated on SFEFC's statutory role. There are some important questions about the interaction between the roles of SFEFC and SHEFC, but our report did not examine any of those—I am sorry.

I have a question about methodology, which is touched on in the report. Will you elaborate on the nature of your engagement with the sector in developing the report? I am particularly interested in the performance indicators. I recognise that striking a balance between the number of indicators and getting them right, so that people feel they are useful and do not put an unfair burden on the sector, is a fraught issue. In preparing the report, what was the nature of the dialogue with the sector and what continuing dialogue is there?

I ask Bob Leishman to give you a sense of the exchanges that have occurred.

Our methodology for producing the performance indicators involved engagement with the sector in two ways. We visited six colleges to have detailed discussions with senior members of college staff about the indicators. We heard many views from them about the quality of some of the indicators, the importance of others and the need for information in areas where they did not have it. We also set up an advisory group, which included two college principals and a college director of finance. We discussed with them the early stages of the draft report.

Exhibit 14 on page 39 of the report refers to

"Financial indicators including efficiency indicators".

What are the terms of the efficiency indicators? Do they cover the use of electricity, energy and water?

We tended to concentrate on efficiency indicators such as unit costs and staying-on rates. The weighted sum is a technical formula that relates to the provision of training to individual students and how much that costs. We had considerable discussion with SFEFC on the significance that it attaches to unit-cost information relative to the significance that the Audit Committee has previously attached to such information. When the Audit Committee discussed that in the previous session of Parliament, it took the view that it would be appropriate for SFEFC to facilitate the development of unit-cost data as an efficiency measure. The funding council has taken the view that, through the funding regime, it will make an assumption about the weighted sum, but that is different from examining the cost of provision. Therefore, there are issues that might well merit further consideration.

Currently, the unit cost is a broad measure. The cost divided by student activity produces a measure for each college. SFEFC has plans to develop the measure further and break down the costs into constituent parts. That might well cover energy costs, but I do not know the details of the plans.

Is there currently no access to such a breakdown of figures?

That is right.

It would be reasonable for the committee to ask questions on those matters of the funding council's accountable officer if it so wishes.

You have indicated that there is not much information there and that it is not terribly robust, yet it takes 14 or 15 months for the information that is available to be produced. It would seem relatively simple to calculate the total number of students, retention rates and the financial cost of running a college. That calculation does not tell us an awful lot. Why does it take so long to produce the information if it is quite simple?

I agree that that is an important question. The point might well be put to the chief executive of SFEFC when the committee meets him.

I will give the committee a general sense of the position as we understand it. There is no doubt that when the funding council was formed in 1999 the quality of information that was available to measure and manage the performance of the sector was rather poor. The funding council has attempted to improve that situation over the past few years. There might be questions about whether the speed of change has been all that might be expected, but that would be a matter for the committee to pursue.

How was the calculation of the funding that is required for each college done if the unit cost of production was not known? Was money just flung at them?

The existing funding formula is based on a unit price that is decided by the funding council.

If we did not know that, how could we—

We have—

It is a pretty simple question, is it not?

Each of the colleges produces accounts and the funding council has a financial appraisal monitoring team that visits the colleges regularly to assess trends in the amount of funding that they have available. The committee would have to discuss the matter in detail with the funding council because the assessment of the unit price is a bit mystical.

That would be a really interesting proposition to put to a bank manager.

That suggests more food for thought.

As there are no further questions, I thank the Auditor General and Bob Leishman for answering those points on the report.

Our evidence-taking session is due to start at five past 10. I am conscious that we have quite a long day ahead of us so I suggest that the committee takes five minutes to get a cup of tea or coffee and to allow the witnesses to take their places. I see nods of agreement.

Meeting suspended.

On resuming—