Session 2008/2009

Thirteenth Report

PUBLIC ACCOUNTS COMMITTEE

Report on the Review of Financial Management in the Further Education Sector in Northern Ireland and Governance Examination of Fermanagh FE College

TOGETHER WITH THE MINUTES OF PROCEEDINGS, MINUTES OF EVIDENCE
and written submissions relating to the report

Ordered by The Public Accounts Committee to be printed 18 June 2009

Report: 41/08/09R Public Accounts Committee

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Membership and Powers

The Public Accounts Committee is a Standing Committee established in accordance with Standing Orders under Section 60(3) of the Northern Ireland Act 1998. It is the statutory function of the Public Accounts Committee to consider the accounts and reports of the Comptroller and Auditor General laid before the Assembly.

The Public Accounts Committee is appointed under Assembly Standing Order No. 51 of the Standing Orders for the Northern Ireland Assembly. It has the power to send for persons, papers and records and to report from time to time. Neither the Chairperson nor Deputy Chairperson of the Committee shall be a member of the same political party as the Minister of Finance and Personnel or of any junior Minister appointed to the Department of Finance and Personnel.

The Committee has 11 members including a Chairperson and Deputy Chairperson and a quorum of 5.

The membership of the Committee since 9 May 2007 has been as follows:

Mr Paul Maskey*** (Chairperson)
Mr Roy Beggs (Deputy Chairperson)

Mr Thomas Burns** Ms Dawn Purvis
Mr Jonathan Craig Mr George Robinson****
Mr John Dallat Mr Jim Shannon*****
Mr Trevor Lunn Mr Jim Wells*
Mr Mitchel McLaughlin

* Mr Mickey Brady replaced Mr Willie Clarke on 1 October 2007

* Mr Ian McCrea replaced Mr Mickey Brady on 21 January 2008

* Mr Jim Wells replaced Mr Ian McCrea on 26 May 2008

** Mr Thomas Burns replaced Mr Patsy McGlone on 4 March 2008

***Mr Paul Maskey replaced Mr John O’Dowd on 20 May 2008

****Mr George Robinson replaced Mr Simon Hamilton on 15 September 2008

*****Mr Jim Shannon replaced Mr David Hilditch on 15 September 2008

List of abbreviations used in the Report

List of Abbreviations
Used in the Report

The Department/DEL - Department for Employment and Learning

NIAO Northern Ireland - Audit Office

Deloitte - Deloitte and Touche LLP

FE - Further Education

Westminster PAC - House of Commons Committee on Public Accounts

UK - United Kingdom

Executive Summary

Introduction

1. The Committee takes great interest in the further education sector and its importance to Northern Ireland. In the 2008-2011 Programme for Government, education was highlighted as one of the areas which will stimulate the economy. Further education plays a crucial part in the education process as it reaches down to the schools and up to the universities and seeks to increase the employability of students, of whatever level of ability. Its importance increases in these difficult economic times.

2. The Committee reviewed the financial management of the 16 further education colleges up to 31 July 2007, when they were reorganised into six new regional colleges. The sector as a whole saw declining surpluses in the three years to 31 July 2007 from an overall surplus of £15 million in 2003-04, to an overall deficit of £5 million in 2006-07. Between 1998 and 2007, eight colleges incurred deficits at levels which had not been budgeted for or approved by the Department for Employment and Learning (the Department). As an example, the North East Institute got into significant financial difficulties incurring deficits for three consecutive years. Common reasons for deficits were poor financial controls, inadequate financial systems and insufficient information provided to senior management or Governors.

3. This evidence session was an important opportunity for the Committee to draw out lessons from what went wrong for the new colleges and the Department. As with other areas of the public sector, good governance is vital in ensuring that the colleges are managed in a manner befitting any publicly funded organisation.

4. Fermanagh College was one of the 16 former colleges and was merged with East Tyrone and Omagh to form the new South West College. A series of reviews in Fermanagh College of Further and Higher Education identified serious failings in financial management and concerns over the regularity and propriety in the use of public funds.

5. The Comptroller and Auditor General produced a report in 1999 drawing attention to cases of incompetence, impropriety and serious financial mismanagement that had been found in further education colleges in Great Britain. The report gave advice on the specific lessons to be learned from the experience in Great Britain and the action that needed to be taken to develop proper frameworks of corporate governance and financial management. It is a matter of great concern that so many of the failures found in Fermanagh College are exactly the same type of issues found in the 1999 report.

6. The Committee was very concerned at the extent of the failures identified in a total of nine reports produced on Fermanagh College. The college was required to repay over £1 million of improperly claimed funding. The failures identified largely involved fundamental breaches of public accountability and basic financial management standards. Findings included:

ineffective leadership from the senior management team;
insufficient challenge from Governors;
significant weaknesses in corporate and financial planning;
a serious breach of public sector procurement rules;
an absence of financial controls; and
an unreliable management information system.

Many of these issues were exactly the same as those identified in the Comptroller and Auditor General’s 1999 report. The Committee yet again noted that lessons were not learned from earlier cases.

The Serious Failures Identified at Fermanagh College and the Action Being Taken to Address the Weaknesses

7. The Department had concerns from April 2003 that courses run by Fermanagh College did not meet the necessary conditions for funding. However, it accepted several assurances from the principal over a period of more than two years that there were no issues. It was not until the matter was brought to the attention to the Governing Body in August 2005 that the external auditors were appointed to carry out an investigation.

8. The Committee considers that the Department was much too slow to take the necessary action to allay its concerns or to bring the matter to the Governing Body and was too easily satisfied by the principal’s assurances that there was nothing wrong. It is commendable that the Governors acted very quickly to have the issues investigated, and this emphasises that the failures could have been identified much earlier if they had been informed at the outset.

9. The Department told the Committee that many lessons have been learned from the various reviews and they have all been applied to inform new guidance issued. An action plan has been produced to implement the recommendations and this has been brought forward to all audit committee and Governing Body meetings. The Department explained that this process was still ongoing but all financial controls were now in place. The Committee is concerned that so many lessons had not been learned from similar failures in Great Britain highlighted in the Comptroller and Auditor General’s 1999 report, or indeed from earlier cases of lax financial management in Lisburn, Castlereagh, North West and North East Colleges.

10. The Committee sought assurances that measures have been taken to make certain that all other colleges take account of the lessons and that no similar problems exist. The Department intends to introduce a system of health checks on a rolling basis to ensure that all colleges comply with the rules, regulations and procedures. It also intends to organise a workshop for the senior management teams in order to share the lessons. While this is welcome, the Committee cannot understand why such an important step has not been taken already.

11. One of the underlying problems was that the senior management team was out of its depth and did not have the necessary leadership and management skills to deal appropriately with the problems at the college. The Committee is astonished at the level of failure. The senior management team was dealing with a budget of about £10 million. It was therefore not like running a corner shop. Yet, there was no clear leadership, no decisions or action points were recorded, and there was no clear sense of there being a senior management team at the college. Significant weaknesses in financial management were not resolved. The Committee considered that the Department should have been aware of the extent of these problems much earlier than was the case.

12. Serious concerns were raised in relation to procurement activity. The standards of documentation retained by the College fell far short of what would be required in the award of tenders. There was practically no documentation for review. Some £2.5 million of maintenance expenditure had been awarded to one local building firm over a five year period. The Committee was interested to note that even the Department’s own staff, who had reviewed the maintenance contracts, had failed to identify anything wrong. The Committee is concerned that large amounts of public money had been paid out without following basic procurement procedures and which were not supported by adequate supporting documentation. The Committee is of the view that both the failure to apply proper procedures and the lack of sufficient supporting documentation make it difficult to prove that fraud had not occurred.

13. The Department relied heavily on internal and external auditors to monitor financial management and governance arrangements at the colleges. The Committee was therefore extremely concerned that the problems in Fermanagh College had not been identified by the auditors. A review is underway to examine the internal audit process across all colleges, and legislation was amended in 2008 to enable the Northern Ireland Audit Office (NIAO) to become the external auditor of the six new colleges.

The Weak Governance Arrangements at Fermanagh College

14. A review carried out by Deloitte and Touche LLP identified significant weakness in the corporate governance environment. There was weak leadership from the senior management team, ineffective challenge by the Governing Body and unsatisfactory financial and management information systems and controls. The Accounting Officer admitted that the structures at that time were not efficient or effective and there was a degree of over-reliance by the Department on the governance arrangements at each college. Its monitoring was based on flawed systems of information. The Committee considers that the Department’s involvement with the colleges was totally inadequate at that time.

15. The Department informed the Committee that it is working extremely hard to firm up its framework of control and stewardship and is taking an increasingly strong line in intervention. At the same time, the Department noted that there is a fine balance between stifling the work of colleges and enabling them to be flexible and locally responsible. The Department told the Committee that the reduction to six area colleges has meant that it can be much more closely involved and can do more. The Committee considers that this level of interaction is long overdue and should have taken place when there were 16 colleges.

16. A root-and-branch review of governance arrangements has been initiated that will investigate as far back as incorporation to determine whether the right model was used. It will consider the composition of the Governing Bodies and what they should do. The outcome of this review is expected by the end of June and it is estimated that the report’s recommendations would be implemented in January 2010. It is the Committee’s view that it would have been far more beneficial if it had taken place prior to the formation of the six new colleges.

17. The Department held the view that the Governing Body of Fermanagh College had been operating under a fundamental misunderstanding of its role and responsibilities. However, it accepted that there were lower expectations at that time and perhaps some of that was the Department’s fault in that it did not carry out enough training or dissemination of good practice. New arrangements are now in place for the recruitment of Governors which involve an interview process to select people who have business, industrial and management experience.

18. There is clearly a high level of disagreement between the Department and the Governing Body about the reasons for the problems at the college and why they were not identified earlier. The Governing Body felt its greatest impediment was that they were “kept in the dark” on issues of strategic and operational significance and there was inadequate communication with the Department.

19. The Committee is concerned that a lot of responsibility is placed on individuals serving on Governing Bodies. It has to be remembered that these people are volunteers who are to be applauded for giving their time and energy. It was noted that four of the six Chairpersons of the new area colleges had resigned. Committee members asked whether too much was being expected of them or this was an indication that the Department’s support was deficient. The Accounting Officer said that, on reflection, the Department had probably underestimated what it expected them to do, as a number of Chairpersons who resigned cited workload as their reason. This aspect will be considered as part of the review of governance arrangements.

The Extent of the Department’s Monitoring of Colleges

20. It is clear to the Committee that the Department interpreted the incorporated status of the colleges as meaning that they were totally responsible for their own governance, management and accountability arrangements. While the Department provided guidance and training for Governors, there are many examples to illustrate that the approach was then to let the colleges get on with it. In the Committee’s view the arm’s-length relationship with the colleges was more “hands off” and there was a culture of leaving it to the Governing Bodies to sort out their own problems.

21. The Committee wants to emphasise that the Accounting Officer also has clear, unequivocal responsibilities to the Assembly to ensure that high standards of financial management are in place, public finances are safeguarded and value for money is achieved throughout the further education sector. The Department informed the Committee that the roles and responsibilities of the Accounting Officer, the Department and the colleges are being considered as part of the review of governance currently underway.

22. The Department received two letters alleging a range of deficiencies and inappropriate practices at the college. Despite the fact that serious failures were already emerging from other investigations, and some of the allegations were about the Governing Body itself, the Department passed the letters to the Governors and left it to them to decide what action they should take. The Accounting Officer admitted that, with hindsight, the Department could have undertaken the investigation and the Committee regards the reasons for not doing so as far from compelling. The Committee questioned how bad a situation needed to be before the Department would take a decision to deal with it itself. Whistle-blowing letters are often a very valuable means of exposing potential problems and risk and should therefore be given a high level of attention.

23. The Accounting Officer outlined a number of improvements in systems and procedures that have taken place. These included a new management information system which allows trends, variances and up to date data to be accessed and, as a result, the sector is much better informed.

24. The Committee is surprised that the Department had no role in improving colleges’ annual development plans. These plans provide a crucial link with Government policies and objectives and they enable the colleges to make informed decisions to manage resources in accordance with strategic priorities. The Department has now decided to approve them and meetings are held with the Principals and Chairperson to agree the detail.

25. One reason the senior management team in Fermanagh College was not operating effectively was that there was no procedure for appraising staff against specific objectives and targets. The Committee was amazed that although the need for appraisal had been one of the recommendations in the Comptroller and Auditor General’s 1999, this had still not been implemented some ten years later.

26. The Committee welcomes the recent developments that the Accounting Officer described as a huge journey and considerable transformation from the position ten years ago. It is disconcerting that the Department did not deal with the issues earlier and more decisively and, as the Accounting Officer said, it has taken longer than would have been hoped.

Other Sectoral Issues

27. The Committee is concerned that one of the new colleges, Belfast Metropolitan College, has found itself in financial difficulties. The Committee is extremely concerned that the Department was unable to provide the Committee with a basic explanation on what had gone wrong at the college, even though the Department is directly controlling the review into significant financial concerns at what is the largest college. The Committee must conclude that senior officials at the Department are not taking sufficient “hands-on” responsibility. The Committee would have expected the witnesses to have been better prepared. The Committee is also concerned that, despite the Department’s assertions about stronger governance arrangements at the six new colleges, the causes of this new college’s financial problems may be similar to those arising, time after time, at former colleges, for example, North West, North East and Lisburn.

28. The Committee was concerned at the wide variation in learners attaining qualifications between the 16 further education colleges from 57 to 84 per cent. The Department told the Committee that over the years, particularly in the 16-to-19 year cohort, many more students have come into further education with significant weaknesses in literacy and numeracy which have to be addressed before professional and technical training begins. The success rate is therefore lower among students who are doing lower level courses, for example, Level 1 courses. The Department told the Committee that significant improvements had been made but that it wanted to do more and that it is working with the sector to develop a range of performance indicators. Steps had been taken to improve outcomes, and the Department assured the Committee that it is working closely with the Department of Education on improving levels of literacy and numeracy.

29. The Committee noted that the Department had allowed the former further education colleges to accumulate between them bank balances that rose at one point to £54 million. This figure is much higher than the amount that the Department’s own guidelines allowed colleges to accumulate. The Committee was very concerned that the Department and colleges have allowed such a significant amount of money to lie idle in bank accounts. It has been a long standing and sound principle of public finance that public bodies should not hold more cash than is required to meet their immediate needs. This is particularly the case when the economy is going through a downturn and priorities need to be carefully managed across the public sector. This surplus cash should be used now to develop the skills of the students rather than, as is currently the case, funding commercial banks. If the colleges do not currently need this cash, it should be transferred to other areas of need. The Committee would wish to see faster progress in using these significant funds than the three years currently envisaged by the Department.

Summary of Recommendations

Recommendation 1

1. The Department told the Committee that it would no longer rely only on written assurances from the colleges. The Committee recommends that the Department immediately investigate any case where it is satisfied that a college is acting improperly. The Committee also recommends that Governing Bodies should be informed of any such concerns at the earliest opportunity. (See paragraph 13).

Recommendation 2

2. The Committee recommends that the Accounting Officer must be satisfied that the arrangements now in place for colleges will ensure that there will be no failure to take account of all past lessons. Mere communication of best practice and lessons learned by the Department has clearly not worked to date. The Department told the Committee that it is now introducing a system of health checks on colleges on a rolling basis to ensure that they comply with rules, regulations and procedures. The Committee welcomes this more direct monitoring by the Department and strongly recommends that this should begin right away. (See paragraph 20).

Recommendation 3

3. The Department intends to organise a workshop for all college senior management teams in order to share the lessons of the failures in Fermanagh College. The Committee is surprised that this has not been done already and recommends that it should be organised without delay. (See paragraph 21).

Recommendation 4

4. The Committee recommends that the procurement of all significant expenditure by colleges from third parties should be administered by a Centre of Procurement Expertise. This would not only assist in ensuring that proper procedures are followed but should also lead to economies of scale. Lack of tendering and poor record keeping leaves public procurement open to abuse and fraud. The Committee wants an assurance that the six new colleges now retain full supporting documentation for all procurement activity and recommends that this should be confirmed annually by the internal auditors. (See paragraph 24).

Recommendation 5

5. The Committee notes that every board meeting of every Governing Body now begins with members being asked to declare any conflicts of interest. However, only one college has extended this practice to its senior management team. The Committee recommends that this should be standard practice. The Committee would also draw attention its report on a conflict at the Northern Ireland Tourist Board which recommends that any conflicts that are managed rather than avoided should be reported to audit committees who should ensure that the controls are adequate and have been applied effectively. The Department should ensure that this recommendation is applied at the new colleges. (See paragraph 26).

Recommendation 6

6. The Committee recommends that the current review of internal audit should pay particular attention to assessing the quality and relevance of each college’s audit plan and where the plans are similar, whether this is justified. The Committee considers that there may be advantages in developing an “in-house” internal audit function for the six new colleges and recommends that this option should be considered prior to the completion of the current contracts with the private sector provider. (See paragraph 29).

Recommendation 7

7. The Committee recommends that the Department’s root-and-branch review of governance arrangements should take full account of this report and that the Department should consult with the Audit Office on its recommendations before their implementation. The Committee expects to be informed of the outcome of this review. (See paragraph 36).

Recommendation 8

8. Training and departmental support are essential requirements if Governors are to fully appreciate their role and be properly equipped to discharge their responsibilities. The Department should not underestimate the difficulties faced by these individuals who invest freely of their valuable time in the interests of young people. The Committee recommends that the Department should continually review Governors’ training and support requirements and annually obtain, and proactively respond to, feedback from them on their needs. (See paragraph 41).

Recommendation 9

9. The Committee is extremely concerned that four of the six area college Chairpersons have resigned citing workload as a concern. It is not satisfactory to continue for a long period with acting Chairpersons and the Committee recommends that new appointments should be made as soon as the review of governance has been completed. (See paragraph 44).

Recommendation 10

10. The Committee is clear that the previous arm’s-length arrangements were not efficient, effective or sufficient to enable the discharge of the Accounting Officer’s responsibilities. It has to be emphasised that meaningful oversight and clarity of roles and responsibilities is required and the Committee recommends that this is fully addressed in the current governance review. (See paragraph 48).

Recommendation 11

11. The Committee recommends that the Department ensures that it has the necessary skills and experience within its further education division given the wide range of important activities undertaken in what is a very significant sector of public funding. (See paragraph 51).

Recommendation 12

12. The Committee is convinced that the Department would have inspired more confidence if it had investigated the complaints it received, particularly when some of the whistle-blowing allegations had been about the Governing Body itself. Whistle-blowing is an important means of identifying potential malpractice and it is recommended that the Department should take responsibility for the investigation of any further letters of this type it receives. (See paragraph 54).

Recommendation 13

13. The Committee recommends that the colleges’ internal auditors review the college development plan process and the Department’s internal auditors review the robustness of its approval of college development plans and how they are monitored. (See paragraph 57).

Recommendation 14

14. It is recommended that one of the returns made to the Department each year should include confirmation that satisfactory senior management appraisals have been completed. In addition, given the Accounting Officer status of College Principals, the Committee recommends that the Department should have an input in assessing the performance of Principals, which should involve at least a joint assessment by the Department and the Chairperson of the Governing Body. (See paragraph 61).

Recommendation 15

15. The Committee expects colleges, in line with all other public bodies, to publish timely audited accounts. The Committee recommends that the Department should make sure this is the case for future financial years. (See paragraph 64).

Recommendation 16

16. The Committee recommends that the Department provides the Committee with a summary of the main issues arising from the efficiency review of Belfast Metropolitan College; the actions being taken to resolve the college’s financial difficulties; details of what went wrong and why; and any lessons arising that are of wider benefit to the sector. (See paragraph 67).

Recommendation 17

17. The Committee recommends that the performance indicators being developed with the sector should include challenging targets to reduce the variation in learner outcomes and to improve the employability of those students without sufficient literacy and numeracy skills. The Committee also looks to the Department of Education to make greater inroads into reducing the number of children leaving school without such basic skills. (See paragraph 70).

Recommendation 18

18. The Committee considers that retaining significant cash balances, surplus to current need is unacceptable. The Committee recommends that the Department should only release funding on the basis of need and it should immediately claw back cash balances from those colleges that exceed agreed levels so that the funds can be used where they are most needed. (See paragraph 74).

Introduction

1. The Public Accounts Committee met on 7th May 2009 to consider the Comptroller and Auditor General’s report on the “Governance Examination of Fermanagh College of Further and Higher Education”.

2. The witnesses were:

Dr Aideen McGinley, Accounting Officer, Department for Employment and Learning;
Ms Catherine Bell, Deputy Secretary, Department for Employment and Learning;
Mr Victor Refaussé, Director, South West College;
Mr David Thomson, Treasury Officer of Accounts; and
Mr Kieran Donnelly, Deputy Comptroller and Auditor General.

3. The Committee takes great interest in the Further Education sector and its importance to Northern Ireland. In the 2008-2011 Programme for Government, education was highlighted as one of the main areas which will stimulate the economy. The sector has also recently been through a major reorganisation. Further education plays a crucial part in the education process as it reaches down to the schools and up to the universities and seeks to increase the employability of students, of whatever level of ability. Its importance increases in such difficult economic times.

4. The Committee reviewed the financial management of the 16 further education colleges up to 31 July 2007, when they were then reorganised into six new regional colleges. The former colleges had mixed financial fortunes during this period with some of them, at times, experiencing serious financial problems. The Department is responsible for satisfying itself that systems and controls are in place within the colleges to ensure high standards of financial management, the safeguarding of public finances and the achievement of value for money.

5. This evidence session was an important opportunity for the Committee to draw out lessons for the Department in monitoring the six new colleges. As with other areas of the public sector, good governance is vital in ensuring that the colleges are managed in a manner befitting any publicly funded organisation.

6. Fermanagh College was one of the 16 former colleges and was merged with East Tyrone and Omagh to form the new South West College. A number of reviews of Fermanagh College identified serious failings in financial management and concerns over regularity and proprietary in the use of public funds.

7. The Comptroller and Auditor General produced a report in 1999 drawing attention to cases of incompetence, impropriety and serious financial mismanagement that had been found in further education colleges in Great Britain. The report gave advice on the specific lessons to be learned from the experience in Great Britain and the action that needed to be taken to develop proper frameworks of corporate governance and financial management. It is a matter of great concern that so many of the failures found in Fermanagh College are exactly the same type of issues found in the 1999 report.

8. In taking evidence, the Committee focused on four key areas:

The serious failures identified at Fermanagh College and the action being taken to address the weaknesses;
the weak governance arrangements at Fermanagh College;
the extent of the Department’s monitoring of colleges; and
other sectoral issues: managing financial difficulties; improving outcomes for students; and managing cash balances.

The Serious Failures Identified at Fermanagh College
and the Action Being Taken to Address the Weaknesses

9. The Department began to have concerns in April 2003 that it was providing funding for Work-Based Learning courses that did not meet the necessary eligibility conditions. A report produced by the Education and Training Inspectorate in November 2004 confirmed that the delivery of courses was not consistent with other colleges, but the Department continued to accept a series of assurances from the college that there were no issues.

10. It was not until August 2005 that the Department copied correspondence regarding its concerns to the Governing Body. As soon as the Governing Body was informed, it acted quickly to engage its external auditors to investigate the matter. The outcome was that a number of significant weaknesses in financial control were identified, and the college is to repay funding of £1.14 million by March 2010.

11. The Committee is concerned that the Department was so easily deflected by assurances received from the college Principal and was much too slow to intervene. As noted in this Committee’s report on Brangam and Bagnall and Co.[1], it is never acceptable to pay public money on the basis of trust or rely exclusively on the honesty and integrity of professionals.

12. The Committee is also extremely concerned that there was an unreasonable delay in bringing the problem to the Governing Body and the Accounting Officer accepted this should have been done earlier. It is commendable that the Governors acted quickly to examine the issues, and this serves to emphasise that the problems could have been resolved much earlier if they had been informed when the Education and Training Inspectorate confirmed that all was not well.

Recommendation 1

13. The Department told the Committee that it would no longer rely only on written assurances from the colleges. The Committee recommends that the Department immediately investigates any case where it suspects a college is acting improperly. The Committee also recommends that Governing Bodies should be informed of any such concerns at the earliest opportunity.

14. The Work-Based Learning investigation revealed fundamental breaches of proper financial planning and control. These included payments made in advance in contravention of Government Accounting rules, over-payments and a failure to collect fees. In view of these failures, and concerns that they might extend to other areas of college business, the Governing Body commissioned Deloitte and Touche (Deloitte) in February 2006 to carry out a comprehensive review of financial management within the college. Deloitte’s report highlighted significant weaknesses in corporate governance, corporate and financial planning, financial control and management information systems.

15. The Committee is once again astonished at the level of failure of financial controls in an arm’s length body receiving such large amounts of public funds. One of the underlying problems was that the senior management team was out of its depth and did not have the necessary leadership and management skills. The senior management team was dealing with a budget of about £10 million. It was therefore not like running a corner shop. Yet, there was no clear leadership, no decisions or action points were recorded, and there was no clear sense of there being a senior management team at the college. Significant weaknesses in financial management were not resolved. There was no evidence that the Vice Principal, who temporarily took on the role of Principal on three separate occasions when the Principal was ill, had received any training in his Accounting Officer duties and responsibilities. The Committee considered that the Department should have been aware of the extent of these problems much earlier than was the case.

16. The Committee was informed that the employment status of the Finance Director is subject to ongoing legal negotiations and the Department was asked by the Committee to be informed of the outcome. An investigation is also ongoing into the payment of overtime, at inflated rates, to a member of staff who was not entitled to overtime. The Department was asked to provide a copy of this investigation when it is completed at the end of June.

17. The Department told the Committee that many lessons had been learned and they have all been applied to inform guidance. A total of nine reports had been produced on Fermanagh College and these had resulted in 34 recommendations to address the weaknesses. An action plan has been produced and is brought forward to all audit committee and Governing Body meetings. The Department explained that this process was still ongoing but proper financial controls were now in place.

18. The Committee is disappointed that so many lessons had not been learned from similar failures in Great Britain highlighted in the Comptroller and Auditor General’s 1999 report or indeed from earlier cases of lax financial management in Lisburn, Castlereagh, North West and North East Colleges.

19. The Department considered that the situation would be very different now because it had introduced a more direct monitoring regime. In addition to seeking written assurances from colleges that controls were operating effectively, it was now strengthening the expertise of its staff and introducing health checks on colleges’ governance arrangements.

Recommendation 2

20. The Committee recommends that the Accounting Officer must be satisfied that the arrangements for colleges now in place will ensure that there will be no failure to take account of all past lessons. Mere communication of best practice and lessons learned by the Department has clearly not worked to date. The Department told the Committee that it is now introducing a system of health checks on colleges on a rolling basis to ensure that they comply with rules, regulations and procedures. The Committee welcomes this more direct monitoring by the Department and strongly recommends that this should begin right away.

Recommendation 3

21. The Department intends to organise a workshop for all college senior management teams in order to share the lessons of the failures in Fermanagh College. The Committee is surprised that this has not been done already and recommends that it should be organised without delay.

22. Serious concerns were raised in relation to procurement activity. The standards of documentation retained by the College fell far short of what would be required in the award of contracts. There was practically no documentation for review. Some £2.5 million of maintenance expenditure had been awarded to a building firm over a five year period without going through proper processes. The Accounting Officer told the Committee that the Department’s examination had ruled out fraud and that the problem had simply been poor practice, mismanagement and a lackadaisical approach to the procurement process which was not tolerable. The Committee found this malpractice particularly disturbing and asked for a copy of the Department’s report following the investigation.

23. The Committee has now received this report and is concerned with the report’s conclusion that the breaches of procurement procedure, which had been ongoing for some time, had not been identified until 2007 by those tasked with ensuring compliance. The Department’s own staff had reviewed the maintenance expenditure at an earlier stage and had failed to identify anything wrong. The Committee is concerned that large amounts of public money had been paid out without following basic procurement procedures and which were not supported by adequate documentation. The Committee is of the view that both the failure to apply proper procedures and the lack of sufficient supporting documentation make it difficult to prove that fraud has not occurred.

Recommendation 4

24. The Committee recommends that the procurement of all significant expenditure by colleges from third parties should be administered by a Centre of Procurement Expertise. This would not only assist in ensuring that proper procedures are followed but should also lead to economies of scale. Lack of tendering and poor record keeping leaves public procurement open to abuse and fraud. The Committee expects an assurance that the six new colleges now retain full supporting documentation for all procurement activity and recommends that this should be confirmed annually by the internal auditors.

25. The Committee noted that, in one case, accommodation was leased without any clear contractual documents or information about what space was available for use. A particular concern was that the Principal was one of the Directors of the third party providing the accommodation and there was therefore a worrying conflict of interest. The Department told the Committee that this matter had been investigated and there did not appear to have been any personal gain.

Recommendation 5

26. The Committee notes that every board meeting of every Governing Body now begins with members being asked to declare any conflicts of interest. However, only one college has extended this practice to its senior management team. The Committee recommends that this should be standard practice. The Committee would also draw attention its report on a conflict at the Northern Ireland Tourist Board[2] which recommends that any conflicts that are managed rather than avoided should be reported to audit committees who should ensure that the controls are adequate and have been applied effectively. The Department should ensure that this recommendation is applied at the new colleges.

27. The Department told the Committee that it had relied heavily on internal and external auditors to monitor financial management and governance arrangements at the colleges and that it was extremely concerned that the problems in Fermanagh College had not been identified by the auditors. A review is now under way to examine the internal audit process across all colleges, and legislation was amended in 2008 to enable the Northern Ireland Audit Office to become the external auditors. The Committee expects to be informed of the outcome of the review of the colleges’ internal auditors when it is available in early autumn.

28. One of the weaknesses identified was that, where the same firm was involved in the internal audit of different colleges, the audit plans tended to be the same which suggests that they were not addressing the particular risks of each college. The Committee is extremely concerned that the same firm has won the contracts for all six new area colleges until 2010-11. These contracts were awarded through separate procurement competitions. The Department said it had learned lessons from what had happened previously and it would be careful to ensure that pro-formas were not used. The Department also noted that, now that there are six colleges, it does not rule out an in-house approach, in the form of a shared service centre, being developed at a later date.

Recommendation 6

29. The Committee recommends that the current review of internal audit should pay particular attention to assessing the quality and relevance of each college’s audit plan and where the plans are similar, whether this is justified. The Committee considers that there may be advantages in developing an “in-house” internal audit function for the six new colleges and recommends that this option should be considered prior to the completion of the current contracts with the private sector provider.

The Weak Governance Arrangements
at Fermanagh College

30. When Deloitte was commissioned by the Governing Body to carry out a review of financial management, the terms of reference did not include the role and performance of the Governing Body itself. Deloitte, nevertheless, identified significant weaknesses in the corporate governance environment and included these in its first draft report. This entire section was removed from the final report because the Governing Body did not accept it.

31. The Committee asked the Department why it had not insisted that the standard of governance, which was a key issue, would be a necessary part of the review. The Department said that, at the time of the review, the college was still operating and achieving results. The Governing Body was co-operative, and there was no reason to believe that there were any governance issues until Deloitte reported. When asked if alarm bells had not started to ring when that section of the report was removed, the Department said it had decided that removal of the Governing Body at that time would have completely destabilised the college. In addition, it was in the process of recruiting a new Governing Body and one was about to supersede the other.

32. The review carried out by Deloitte identified significant weakness in the corporate governance environment. There was weak leadership by the senior management team, ineffective challenge by the Governing Board and unsatisfactory financial and management information systems and controls. The Accounting Officer admitted that the structures at that time were not efficient or effective and there was a degree of over-reliance by the Department on the governance arrangements at each college. Its monitoring was based on flawed systems of information. The Committee considers that the Department’s involvement with the colleges was totally inadequate at that time.

33. The Department informed the Committee that it is working extremely hard to firm up its framework of control and stewardship and is taking an increasingly strong line in intervention. At the same time, the Department noted that there is a fine balance between stifling the work of colleges and enabling them to be flexible and locally responsible. The Department told the Committee that the reduction to six area colleges has meant that it can be much more closely involved and can do more. The Committee noted that now, senior departmental officials and college staff meet quarterly, and the Department attends all audit committee meetings. Moreover, at least once a year, the Director of Further Education attends a board meeting of the Governing Body. The Department pointed out that it now has a close working relationship with the colleges. The Committee considers that this level of interaction is long overdue and should have taken place when there were 16 colleges.

34. The Department told the Committee that a review of governance arrangements has been initiated. It will investigate as far back as incorporation to determine whether the right model was used. It will consider the composition of the Governing Bodies and what they should do. The review is also considering the length of appointments and the roles and responsibilities of individual Governors, the Chairpersons and the Department. The Accounting Officer commented that it is a root-and-branch review of governance matters. The outcome of this is expected at the end of June 2009 and it is estimated that the report’s recommendations will be implemented in January 2010.

35. The Committee welcomes this root-and-branch review of governance matters and notes that its timing coincides with the Committee’s examination of FE governance arrangements. The Committee considers that it is long overdue and is concerned that it is only taking place after the restructuring of the sector and the creation of the six new area colleges. It is the Committee’s view that it would have been far more beneficial if it had taken place prior to the formation of the six new colleges.

Recommendation 7

36. The Committee recommends that the Department’s root-and-branch review of governance arrangements should take full account of this report and that the Department should consult with the Audit Office on its recommendations before their implementation. The Committee expects to be informed of the outcome of this review.

37. The Department held the view that the Board of Governors of Fermanagh College had been operating under a fundamental misunderstanding of its role and responsibilities and the Committee asked how this could have happened. The Accounting Officer said that Governing Bodies cannot avoid their role and responsibilities and they had a fairly comprehensive guide that clearly outlined them. Nevertheless, it was accepted that there were lower expectations at that time and perhaps some of that was the Department’s fault in that it did not carry out sufficient training or dissemination.

38. The Accounting Officer explained that new arrangements had been introduced for the recruitment of Governors for the six new area colleges. Over 230 very high quality applications had been received and an interview process was involved to select people who had business, industrial and management experience. Guidance has been strengthened, 93 per cent of Governors have been through an induction process and there is ongoing training. The Accounting Officer emphasised to the Committee how crucial a role these Governors played.

39. It is clear that there is a high level of disagreement between the Department and the Governing Body of Fermanagh College about the reasons for the College’s problems and why they were not identified earlier. The Governing Body felt its greatest impediment was that it was “kept in the dark” on issues of strategic and operational significance and there was inadequate communication with the Department. The Committee had the distinct impression that the Governing Bodies were left to sort out their own problems.

40. The Committee considers that the Department needs to be much more alert and sympathetic to information needs of Governing Bodies. There is a need to recognise the legitimate concerns expressed by a Governing Body because it cannot be expected to operate effectively without full and accurate information from senior management and the Department.

Recommendation 8

41. Training and departmental support are essential requirements if Governors are to fully appreciate their role and be properly equipped to discharge their responsibilities. The Department should not underestimate the difficulties faced by these individuals who invest freely of their valuable time in the interests of young people. The Committee recommends that the Department should continually review Governors’ training and support requirements and annually obtain, and proactively respond to, feedback from them on their needs.

42. The Committee is concerned that a lot of responsibility is placed on individuals serving on Governing Bodies. It has to be remembered that they are volunteers who are to be applauded for giving their time and energy. It was noted that four of the six Chairpersons of the new area colleges had resigned. The Committee asked whether too much was being expected of them, or it was an indication that the Department’s support was deficient. The Accounting Officer said that during the shadow period leading up to the merger, the Chairpersons had to carry a large workload including recruiting the boards and establishing the machinery to recruit the senior management teams. On reflection, the Department noted that it had probably underestimated what it expected the Chairpersons to do and workload was a valid concern. A number of Chairpersons who resigned cited this as their reason.

43. The Department considered that the transition process has been completed and acting Chairpersons are now in place. In light of the resignations and the issues that were raised, Chairpersons have not been formally reappointed pending the outcome of the review of governance arrangements.

Recommendation 9

44. The Committee is extremely concerned that four of the six area college Chairpersons have resigned, citing workload as a concern. It is not satisfactory to continue for a long period with acting Chairpersons and the Committee recommends that new appointments should be made as soon as the review of governance has been completed.

The Extent of the Department’s
Monitoring of Colleges

45. Because of the incorporated nature of the colleges, the Committee believes that the Department regarded them as totally independent bodies, with full responsibility for their own governance, management and accountability arrangements. However, the Committee emphasises that the Accounting Officer has clear, unequivocal responsibilities to the Assembly to ensure that high standards of financial management are in place, public finances are safeguarded and value for money is achieved throughout the sector.

46. There have been a number of cases of lack of oversight by Departments of their arm’s-length bodies. In one of the most serious of these cases, involving the control of Emerging Business Trust by the Department of Enterprise Trade and Investment, the Westminster PAC stated that Departments could not afford to have an insufficiently hands-on relationship with their arm’s-length bodies; rather they needed to engage with Boards and Chief Executives to assure themselves that the requisite management systems are in place. It appeared to the Committee that the Department’s approach in this case was more “hands-off” than “hands-on” and left matters entirely to the Governing Body to sort out its own problems.

47. When asked which of the Committee’s previous recommendations were particularly relevant to the further education sector, the Accounting Officer said there needed to be clarity on roles and responsibilities, clarity on what is meant by incorporation and a question of how the relationship should be balanced. The roles and responsibilities of the Accounting Officer, the Department and the colleges are being reconsidered as part of the review of governance currently under way. The Department acknowledged that its role involves meaningful oversight of the colleges and gave assurances that an increasingly strong line of intervention is now being taken.

Recommendation 10

48. The Committee is clear that the previous arm’s-length arrangements were not efficient, effective or sufficient to enable the discharge of the Accounting Officer’s responsibilities. It has to be emphasised that meaningful oversight and clarity of roles and responsibilities is required, and the Committee recommends that this is fully addressed in the current governance review.

49. The Department pointed out to the Committee that when Northern Ireland colleges were incorporated, a layer of bureaucracy was avoided in that, elsewhere, funding councils are used to distribute and monitor funding of further education colleges. The Department noted that it is therefore in direct contact with colleges, unlike England and Wales central government Departments.

50. The Department told the Committee that its division that deals with college activity, consisting of policy development, funding, corporate governance / accountability and estates management is small, comprising some twenty staff. The division can, at times, draw on resources from other parts of the Department; for example, they can use the support of the general finance team. The Department pointed out that it has made it a priority to bring in qualified staff with the necessary expertise to assess and appraise colleges.

Recommendation 11

51. The Committee recommends that the Department ensures that it has the necessary skills and experience within its further education division given the wide range of important activities undertaken in what is a very significant sector of public funding.

52. The Department received two whistle-blowing letters in August/September 2005 alleging a range of deficiencies and inappropriate practices at the college. These came at a time when serious failures were emerging from the Work-Based Learning investigation, and one of the letters which said that a previous complaint made to the Board had not been investigated. Despite this, the Department left it to the Governors to decide what action should be taken on the allegations.

53. In the Committee’s view the issues raised in the letters were further indications of mismanagement and should have attracted much more direct intervention from the Department. The Department however, clearly preferred to keep its distance and limit its involvement in monitoring the situation. The Committee asked how bad a situation needed to be before the Department would take a decision to deal with it itself. The Accounting Officer admitted that, with hindsight, the Department could have undertaken the investigation, and the Committee regards the reasons given for not doing so as far from compelling.

Recommendation 12

54. The Committee is convinced that the Department would have inspired more confidence if it had investigated the complaints it received, particularly when some of the whistle-blowing allegations had been about the Governing Body itself. Whistle-blowing is an important means of identifying potential malpractice and it is recommended that the Department should take responsibility for the investigation of any further letters of this type it receives.

55. The Deloitte review identified significant weaknesses in the corporate and business planning process and the college development plan was found to be deficient in several areas, particularly in relation to setting objectives and indicators, and monitoring achievement. When asked whether these deficiencies had been picked up by the Department, the Accounting Officer said that the credibility of the management information system had been a major problem at that time. A new system has recently been introduced which allows trends and variances to be reviewed and permits work that would have been previously impossible to be done. There is now access to in-house, up-to-date data within 24 hours, and the sector is much better informed.

56. The Committee finds it surprising that, prior to the merger of colleges, the Department did not have an approval role for the annual development plans. These plans provide a crucial link with government policies and objectives and they enable the colleges to make informed decisions to manage resources in accordance with strategic priorities. The Committee is pleased that the Department now recognises that development plans are extremely important documents and has decided to approve them. The Director of further education now meets with the Principal and Chairperson of each college to agree the details and thereafter the plan is monitored.

Recommendation 13

57. The Committee recommends that colleges’ internal auditors review the college development plan process and the Department’s internal auditors review the robustness of its approval of colleges’ development plans and how they are monitored.

58. One reason the senior management team in Fermanagh College was not operating effectively was that there was no procedures for appraising staff against specific objectives and targets. The Committee was amazed that although the need for appraisals had been one of the recommendations in the Comptroller and Auditor General’s 1999 report, this had still not been implemented some ten years later.

59. The Committee asked what had been done to ensure that competency frameworks and performance appraisal arrangements now existed for all staff in the new colleges. The Accounting Officer said a pilot model on Principals’ pay had failed for several reasons and there is ongoing work to develop a replacement system. This should be completed by June 2009. However, there is now a requirement that the chair of each Governing Body appraises the Principal and sets targets each year. Each Principal in turn carries out reviews with all senior managers. There is also a formal process for the Department to appraise the Chairperson who in turn appraises the members of each Governing Body. The Department said that the Governing Body and the Principal could be removed if the situation was sufficiently urgent or serious.

60. College Principals are appointed as Accounting Officers by the Departmental Accounting Officer and are responsible to the departmental Accounting Officer and the Assembly for the proper stewardship of funds. Deloitte concluded in its report that the Principal at Fermanagh College had failed to deal appropriately as Accounting Officer with the significant financial problems. The Department was asked what part it played in regularly assessing each Principal’s competence. The Accounting Officer noted that if the chair of a Governing Body had concerns about the performance of a Principal, then this would be referred to her as the departmental Accounting Officer. It was clear that the Accounting Officer would expect any concerns about any Principal to be brought to her attention by a Chairperson.

Recommendation 14

61. The Committee recommends that one of the returns made to the Department each year should include confirmation that satisfactory senior management appraisals have been completed. In addition, given the Accounting Officer status of College Principals, the Committee recommends that the Department should have an input in assessing the performance of Principals, which should, at least, involve a joint assessment by the Department and the Chairperson of the Governing Body.

Other Sectoral Issues

Managing financial difficulties in Colleges

62. The Committee was told that four of the former colleges were in financial difficulty when they were incorporated in 1998 with deficits they had inherited from the Education and Library Boards, of which they had formerly been part. Since incorporation, four colleges had been in severe financial difficulties, and since reorganisation in 2007 into six colleges, one has had financial difficulties.

63. The former Belfast Institute of Further and Higher Education and the former Castlereagh College had a combined deficit of £3•5 million in 2006-07. The two colleges have merged into the new Belfast Metropolitan College. The Department was unable to advise the Committee of the college’s financial results for 2007-08, its first year of operation, as final accounts will not be available until November 2009. The Committee was not only concerned that the audited accounts were not yet available but very surprised that the Accounting Officer could give no indication to it of the level of deficit incurred. The Committee was concerned that the Accounting Officer could provide no information about the college’s financial position given its significant financial problems. The Comptroller and Auditor General’s report had noted a worrying situation as the college had forecast a deficit of £6.6 million when its cash reserves were £7.8 million.

Recommendation 15

64. The Committee expects colleges, in line with all other public bodies, to publish timely audited accounts. The Committee recommends that the Department should make sure this is the case for future financial years.

65. The Department told the Committee that it had undertaken a process of due diligence on all the former colleges to ensure that each knew what legacies they had inherited. The Department later decided to conduct an efficiency review of the new Belfast Metropolitan College because it was not satisfied with some information that arose from the due diligence reports on Belfast Institute of Further and Higher Education and Castlereagh College. The Committee asked the Department what had gone wrong at the college. The Department told the Committee that it has only recently received the efficiency review and it did not have the detail of all the reasons for things that have gone wrong.

66. The Committee is extremely concerned that the Department was unable to provide the Committee with a basic explanation on what had gone wrong at the College, even though it is directly controlling the review into significant financial concerns at what is the largest college. The Committee must conclude that senior officials at the Department are not taking sufficient “hands-on” responsibility. The Committee would also have expected the witnesses to have been better prepared. The Committee is concerned that, despite the Department’s assertions about stronger governance arrangements at the six new colleges, the causes of this new college’s financial problems may be similar to those arising, time after time, at former colleges, for example, North West, North East and Lisburn.

Recommendation 16

67. The Committee recommends that the Department provides it with a summary of the main issues arising from the efficiency review of Belfast Metropolitan College; the actions being taken to resolve the College’s financial difficulties; details of what went wrong and why; and any lessons arising that are of wider benefit to the sector.

Improving outcomes for students

68. The Committee was concerned at the wide variation from 57 to 84 per cent in learners attaining qualifications between the 16 further education colleges. The Department told the Committee that over the years, particularly in the 16-to-19 year cohort, many more students have come into further education with significant weaknesses in literacy and numeracy weaknesses which have to be addressed before professional and technical training begins. The success rate is therefore lower among students who are doing lower level courses, for example, Level 1 courses.

69. The Department told the Committee that significant improvements had been made but that it wanted to do more and it is working with the sector to develop a range of performance indicators. Steps had been taken to improve outcomes and the Department assured the Committee that it is working closely with the Department of Education on improving levels of literacy and numeracy.

Recommendation 17

70. The Committee recommends that the performance indicators being developed with the sector should include challenging targets to reduce the variation in learner outcomes and to improve the employability of those students without sufficient literacy and numeracy skills. The Committee also looks to the Department of Education to make greater inroads into reducing the number of children leaving school without such basic skills.

The management of cash balances

71. The Committee noted that the Department had allowed the former further education colleges to accumulate between them bank balances that rose at one point to £54 million. This figure is much higher than the amount that the Department’s own guidelines allowed colleges to accumulate. The Committee was very concerned that the Department and colleges have allowed such a significant amount of money to lie idle in bank accounts.

72. The Committee was told that surpluses had been reduced to an extent by pension and merger costs and in funding part of the colleges’ capital estate. The Department told the Committee that it intends to reduce the surpluses, within three years, to within the ten per cent cap that has been agreed with the Department of Finance and Personnel. Surpluses have been reduced by £10 million already but are still £21 million greater than allowed.

73. It has been a longstanding and sound principle of public finance that public bodies should not hold more cash than is required to meet their immediate needs. This is particularly the case when the economy is going through a downturn and priorities need to be carefully managed across the public sector. This surplus cash should be used now to develop the skills of the students rather than, as is currently the case, lying idle in bank deposit accounts earning minimal interest. If there is no current need for this cash in the sector, it should be transferred to other areas of need. The Committee would wish to see faster progress in using these significant funds than the three years currently envisaged by the Department.

Recommendation 18

74. The Committee considers that retaining significant cash balances surplus to current need is unacceptable. The Committee recommends that the Department should only release funding on the basis of need and it should immediately claw back cash balances from those colleges that exceed agreed levels so that the funds can be used where they are most needed.

[1] Report on Brangam, Bagnall & Co: Legal Practitioner Fraud Perpetrated Against the Health and Personal Social Services, Session 2008/09, Eighth Report, 5 February 2009 (26/08/09R)

[2] Report on Northern Ireland Tourist Board – Contract to Manage the Trading Activities of Rural Cottage Holidays Limited, Sixteenth Report, Session 2007/2008 (35/07/08R)

Appendix 1 Minutes of Proceedings Relating to the Report

Thursday, 7 May 2009
Senate Chamber, Parliament Buildings

Present:
Mr Paul Maskey (Chairperson)
Mr Roy Beggs (Deputy Chairperson)
Mr Jonathan Craig
Mr John Dallat
Mr Trevor Lunn
Mr Mitchel McLaughlin
Ms Dawn Purvis
Mr George Robinson

In Attendance:
Ms Aoibhinn Treanor (Assembly Clerk)
Mr Oliver Bellew (Assistant Assembly Clerk)
Mr John Lunny (Clerical Supervisor)
Mr Darren Weir (Clerical Officer)

Apologies:
Mr Thomas Burns
Mr Jim Shannon
Mr Jim Wells

The meeting opened at 2.00pm in public session.

The Chairperson welcomed Mr Kieran Donnelly, Deputy Comptroller and Auditor General, and Mr David Thomson, Treasury Officer of Accounts (TOA) to the meeting.

2.03pm Mr Beggs joined the meeting.

3. Evidence on the NIAO Report ‘Review of Financial Management in the Further Education Sector in Northern Ireland from 1998 to 2007; and Governance Examination of Fermanagh College of Further and Higher Education’.

The Committee took oral evidence on the NIAO report ‘Review of Financial Management in the Further Education Sector in Northern Ireland from 1998 to 2007; and Governance Examination of Fermanagh College of Further and Higher Education’ from Dr Aideen McGinley, Accounting Officer, Department for Employment and Learning (DEL), Ms Catherine Bell, Deputy Secretary, DEL, and Mr Victor Refauseé, Director of South West College.

Members noted a declaration of interest from Dr McGinley that from 1989-99 she was employed by Fermanagh District Council and was Chief Executive from 1995 to 1999. In that role Dr McGinley was chair of the Fermanagh University Partnership Board (Ref paragraph 2.12 in the NIAO report) and a number of the members of the Senior Management Team of Fermanagh College were known to her. Dr McGinley’s husband was employed by the College as a lecturer on a part-time basis from 1998-04 and as a temporary full-time lecturer from February 04 - June 2006.

The witnesses answered a number of questions put by the Committee.

3.25pm Ms Purvis left the meeting.

3.51pm Mr Craig left the meeting.

Members requested that the witnesses should provide additional information to the Clerk on some issues raised as a result of the evidence session.

4.22pm The evidence session finished and the witnesses left the meeting.

EXTRACT

Thursday, 18 June 2009
Room 144, Parliament Buildings

Present:
Mr Paul Maskey (Chairperson)
Mr Trevor Lunn
Mr Mitchel McLaughlin
Ms Dawn Purvis
Mr George Robinson
Mr Jim Shannon
Mr Jim Wells

In Attendance:
Ms Aoibhinn Treanor (Assembly Clerk)
Mrs Gillian Lewis (Assistant Assembly Clerk)
Miss Danielle Best (Clerical Supervisor)
Mr Darren Weir (Clerical Officer)

Apologies:
Mr Roy Beggs
Mr Thomas Burns
Mr Jonathan Craig
Mr John Dallat

The meeting opened at 1.35pm in closed session.

5. Consideration of the draft Committee Report on Review of Financial Management in the Further Education Sector in Northern Ireland and Governance Examination of Fermanagh FE College.

Members considered a request from the Employment and Learning Committee for a copy of the Hansard transcript relating to this report.

Agreed: Members agreed to release a confidential copy of the Hansard transcript to the Clerk of the Employment and Learning Committee in advance of the publication of the report.

Members considered the draft report paragraph by paragraph.

The Committee considered the main body of the report.

Paragraphs 1 – 10 read and agreed.

Paragraphs 11 and 12 read, amended and agreed.

1.42pm Mr Shannon joined the meeting.

1.42pm Mr Wells left the meeting.

Paragraph 13 read, amended and agreed.

Paragraph 14 read and agreed.

Paragraph 15 read, amended and agreed.

Paragraphs 16 and 17 read and agreed.

Paragraph 18 read, amended and agreed.

Paragraph 19 read and agreed.

Paragraph 20 read, amended and agreed.

Paragraph 21 read and agreed.

Paragraph 22 read, amended and agreed.

Paragraph 23 read and agreed.

Paragraph 24 read, amended and agreed.

Paragraphs 25 and 26 read and agreed.

Paragraphs 27 and 28 read, amended and agreed.

1.48pm Mr Wells rejoined the meeting.

Paragraphs 29 - 32 read and agreed.

Paragraph 33 read, amended and agreed.

Paragraph 34 read and agreed.

Paragraphs 35 and 36 read, amended and agreed.

Paragraphs 37 and 38 read and agreed.

Paragraph 39 read, amended and agreed.

Paragraphs 40 – 42 read and agreed.

Paragraphs 43 – 45 read, amended and agreed.

Paragraph 46 read and agreed.

Paragraphs 47 and 48 read, amended and agreed.

Paragraphs 49 – 52 read and agreed.

2.08pm Ms Purvis joined the meeting.

Paragraphs 53 – 57 read and agreed.

Paragraph 58 read, amended and agreed.

Paragraphs 59 and 60 read and agreed.

Paragraph 61 read, amended and agreed.

Paragraphs 62 – 65 read and agreed.

Paragraph 66 read, amended and agreed.

Paragraphs 67 – 71 read and agreed.

Paragraph 72 read, amended and agreed.

Paragraphs 73 and 74 read and agreed.

The Committee considered the Executive Summary.

Paragraphs 1 – 8 read and agreed.

Paragraph 9 read, amended and agreed.

Paragraph 10 read and agreed.

Paragraph 11 read, amended and agreed.

Paragraph 12 read and agreed.

Paragraph 13 read, amended and agreed.

Paragraphs 14 – 19 read and agreed.

Paragraph 20 read, amended and agreed.

Paragraphs 21 - 24 read and agreed.

Paragraph 25 read, amended and agreed.

Paragraph 26 read and agreed.

Paragraph 27 read, amended and agreed.

Paragraphs 28 and 29 read and agreed.

Agreed: Members ordered the report to be printed.

Agreed: Members agreed to include in the report the Chairperson’s letter to Dr Aideen McGinley, Accounting Officer of the Department for Employment and Learning, together with her response.

Agreed: Members agreed that the report would be embargoed until 00.01am on Thursday, 2 July 2009.

Agreed: Members agreed that they would consider a press release to launch the report at the next meeting.

2.23pm The meeting went into public session.

EXTRACT

Appendix 2 Minutes of Evidence

7 May 2009

Members present for all or part of the proceedings:
Mr Paul Maskey (Chairperson)
Mr Roy Beggs (Deputy Chairperson)
Mr Jonathan Craig
Mr John Dallat
Mr Trevor Lunn
Mr Mitchel McLaughlin
Ms Dawn Purvis
Mr George Robinson

Witnesses:
Ms Catherine Bell ) Department for Employment and Learning
Dr Aideen McGinley )
Mr Victor Refaussé, South West College

Also in attendance:
Mr Kieran Donnelly, Deputy Comptroller and Auditor General
Mr David Thomson, Treasury Officer of Accounts

1. The Chairperson (Mr P Maskey): I welcome the witnesses to today’s evidence session. Dr Aideen McGinley is the permanent secretary of the Department for Employment and Learning (DEL). Ms Catherine Bell is the deputy secretary of that Department, and Mr Victor Refaussé is the director of the South West College. I also welcome Mr David Thomson, the Treasury Officer of Accounts, and Mr Kieran Donnelly, the Deputy Comptroller and Auditor General, and his team from the Audit Office.

2. Mr Refaussé, I understand that you had no responsibility for Fermanagh College of Further and Education prior to the merger. Dr McGinley has made a declaration of interest already, and members have a copy of that and of all witness biographies.

3. Dr McGinley, I know that you have appeared before the Public Accounts Committee previously, so perhaps you would follow the usual procedure by introducing your colleagues.

4. Dr Aideen McGinley (Department for Employment and Learning): Ms Bell is the director in the Department who has responsibility for further education (FE), among other duties. Mr Refaussé is the current accounting officer for the South West College. I am the head of the Department, where I am responsible for FE.

5. The Chairperson: You are all most welcome. As you know, members will have a number of questions to ask you. Given the large number of questions that we have to get through today, perhaps you would keep your answers succinct and to the point without omitting any evidence.

6. Dr McGinley, I refer you to figure 3 in the Audit Office’s report on financial management. That illustrates the decline that there has been in the financial performance of the colleges over the past four years, resulting in an overall net deficit. The trend seems clearly defined. Will it continue?

7. Dr McGinley: It is indeed clearly defined. The first point to highlight is that the FE sector is complex and diverse. Unlike universities or schools, one issue that faces the sector is that many students attend FE colleges for only one year, and some 79% of the student body is part time. Therefore, it is important that the college budgets have a certain amount of flexibility. Hence, there is approval for a 10% surplus and a deficit of not more than 2%, which enables colleges to manage fluctuations.

8. Pre-merger, the funding model was neither effective nor efficient, in that it was retrospective. It used information that was two years’ old, and that made managing the budget difficult for the colleges. Furthermore, the surplus and deficit situation required capital investment for other matters, such as the refurbishment of the estate, and so forth.

9. For the year in question, the deficit was £5·1 million. Eight of the 16 colleges were in deficit that year, but 12 had planned deficits. Of those 12, only four subsequently exceeded their planned deficit. The deficits were planned because in that year, among other things, for example, pension regulations changed. Of the £5·1 million, pension payments accounted for £2·8 million, and the merger a further £1·3 million. Therefore, it was possible to accommodate those extraordinary costs. The Department is committed to reducing the surpluses, and the efficiencies in the current comprehensive spending review (CSR) period are built into our budget for that purpose. In the past year, efficiencies totalled almost £11·8 million, and we intend to reduce them to within the agreed parameters within three years.

10. The Chairperson: Does that look as though it will happen?

11. Dr McGinley: It does. The figures are on a downward trend, and in the past two years, they have been below the normal line.

12. The Chairperson: The report ‘Governance Examination of Fermanagh College of Further and Higher Education’ highlights weaknesses at all levels of management and in governance and departmental oversight of that college. That is my understanding of the report. Is your view the same?

13. Dr McGinley: Yes, but we must remember that the sector has a long history and has provided for the community for over 100 years. The past 10 years have, perhaps, been the most difficult because of the transformation of the sector. However, it has established a good reputation as a driver of the local economy, not least because of a report of a Committee of a previous Assembly mandate into how higher and further education could support industry. Therefore, over the past 10 years, a lot of work has gone into the development of governance structures. At the time that that report was published, those structures were not efficient or effective, but the sector has progressed substantially since then.

14. The Chairperson: Members might want to delve into those questions further to draw out some answers. We will first consider the Comptroller and Auditor General’s report on the review of financial management in the sector, then we will move to the second report on Fermanagh college. Each member will have approximately 12 minutes to ask questions, and there will be an opportunity to ask further questions at the end of the session. Extra questions have been allocated according to the rota. I remind witnesses to keep answers succinct and to the point.

15. Mr Beggs: Figure 4 on page 17 of the first report shows that the former Belfast Institute of Further and Higher Education (BIFHE) and the former Castlereagh college had a combined deficit of £3·5 million in 2006-07. That is not the best start for a new arrangement, and that issue is undoubtedly ongoing. Those two colleges have merged into the new Belfast Metropolitan College. Will you update the Committee on subsequent years’ deficit or surplus? Do you have recent figures that go up to the end of March 2009?

16. Dr McGinley: We must remember that before the merger, when the colleges amalgamated into six colleges — which was a recommendation that emerged from the work on ‘Further Education Means Business: A Programme for Implementation’ — they inherited deficits. We undertook a process of due diligence with the colleges to ensure that each knew what legacies they had inherited. Castlereagh college simply grew too quickly, and there was a number of issues with BIFHE. Ms Bell will outline the details of that. In 2006-07, BIFHE applied for approval to operate a £1·4 million deficit, and Castlereagh applied for and was granted approval for a £637,000 deficit, both of which were well in excess of the figures that we normally allowed.

17. Ms Catherine Bell (Department for Employment and Learning): The Department required due diligence reports to be produced before the merger took place to ensure that the new governing bodies had a complete picture of the colleges’ financial positions, not only in monetary terms, but procedurally. We conducted an efficiency review of the new Belfast Metropolitan College because we were not satisfied with some information that arose from the due diligence reports. Mr Beggs is right about the deficits. However, we are well on our way to managing that situation and to sorting out the problem in Belfast Metropolitan College.

18. Mr Beggs: Do you have more recent figures, or will you send them to the Committee?

19. Dr McGinley: This year’s figures are not available yet because the final audited accounts —

20. Mr Beggs: Are last year’s figures available?

21. Ms Bell: The final audited accounts will not be ready until November 2009.

22. Mr Beggs: Do you have any insight into the problems that led to the new efficiency review? I am conscious that Dr McGinley spoke earlier about how much training and improvement there had been since 1998. However, we must bear in mind that there have been deficits in Belfast in 2005-06 and 2006-07. That is quite a long time into the new process and a long time since all the training began. What insights have you gained to date about why colleges have significant deficits?

23. Ms Bell: First, the deficits in 2005 and 2006 were planned. The Belfast Institute of Further and Higher Education, as it was then, had sufficient money to cover the deficits, and it had sought approval from the Department. The Department has only recently taken receipt of the efficiency review that has just taken place, and we do not have the detail of all the reasons for things that have gone wrong. However, going on past experience, since incorporation in 1998, four of the 17 colleges got themselves into serious financial difficulties. Then, as I said, the due diligence reviews that we carried out on the merged colleges gave rise to some concerns about the Belfast Metropolitan College.

24. We did a lot of analysis of the reasons that the problems in those four colleges occurred. Castlereagh college, for example, grew far too quickly, and it did not have the money in its account.

25. Mr Beggs: Should the college not have known that it should not have grown at that speed?

26. Ms Bell: Of course it should. That is the reason that the Department, when it discovered the problem, required the governing body and the principal, as the accounting officer, to develop a recovery plan. The recovery-plan process is designed, first, to outline clearly the reason that the difficulty has arisen; secondly to analyse the curriculum, the estate, the finances and the staffing; and thirdly, to draw up a plan.

27. In all other cases outwith Castlereagh college — the colleges in the north-east, the north-west and Lisburn — poor financial management was the reason that the colleges got into financial difficulties. The Department intervened as soon as that became apparent, and it required the colleges to draw up a recovery plan. In the case of the north-east, the recovery plan that the Department received was not sufficiently robust and was not accepted. Consequently, legislation was used to institute an efficiency review. The new principal and senior management team then developed a robust recovery plan, and all the colleges have since turned around.

28. Mr Beggs: Paragraph 3.11 states that one of the difficulties that arose for BIFHE in 2005-06 was a reduction of £1·3 million in its budget because of a miscalculation by the Department. What was the cause of that? How is an organisation supposed to manage when £1·3 million is suddenly taken from its budget? What happened?

29. Dr McGinley: That was a one-off technical issue. Around 3% of the part-time provision was funded at the wrong rate. It should not have happened; it was an error on our part. It meant that some colleges did not receive the money that was due to them, whereas others received more. We had to balance that situation. It was a combination of a new application.

30. Believe it or not, 12 million pieces of data are associated with that particular situation, and something went wrong in the data transfer. The error was discovered during the normal course of the Department’s in-year testing, and it was addressed with the colleges and resolved.

31. Mr Beggs: Paragraph 4.4 of the report states that seven of the 16 colleges, which is almost half, have been in financial difficulties in the period in question. Surely it is not acceptable that almost half the colleges should reach a situation that is so critical that outside assistance is needed to rectify it.

32. Ms Bell: Of the 16 colleges — there were 17 before incorporation, when Portrush Catering College merged with the University of Ulster — four were in financial difficulty. In 1998-99, the four colleges that are listed in paragraph 4.4 came into incorporation with deficits that they inherited from the education and library boards. Since incorporation, four colleges have been in severe financial difficulties, and since the merger, we have been assessing two: the Belfast Metropolitan College, to which you referred; and the North West Regional College, which has experienced technical difficulties.

33. Mr Beggs: Are you satisfied that the governors of those colleges realise their responsibilities? Are you satisfied that the principals, who have probably come from academic teaching backgrounds, have the necessary financial training and experience to do their jobs?

34. Dr McGinley: Those two issues are extremely pertinent. Part of our journey over the past 10 years has involved partnership with the sector. The 1999 Audit Office report — ‘Corporate Governance and Financial Management in Colleges of Further Education’ — was an important and seminal document for the Department. It laid down a framework for financial and corporate governance, which the Department embedded. Through training and working with the colleges, the Department made sure that the framework was in the guidance. During that period, however, as I mentioned already, we recognised that the old funding formula, which was known as SPUR (student powered unit of resource), was ineffective and inefficient because it was retrospectively based. It did not make it easy for colleges to plan.

35. The other failing in the system was that the information systems that we had were not good as a consequence. In 2001, the former Committee for Employment and Learning made some 47 recommendations in its report, 26 of which concerned further education. Some Members who are present today were involved in that investigation. The recommendations included the need for better financial management, better and clearer information systems, training for the governing bodies, and a wide range of the issues that you mentioned.

36. We have worked very closely with the governing bodies over the past 10 years. More recently, however, we have brought in a new management information system. We also introduced a new funding formula when the merger took place. Furthermore, we restructured to six colleges, which makes the situation much more manageable, and we have ensured that the governing-body process is one in which the committees now comprise people who have business, industrial and management experience.

37. We received over 230 very high-quality applications for the boards of governors’e recruitment process that we held for the current merger two years ago. Those applicants brought a different skills mix, and when they were appointed, we worked very carefully and were congratulated by the Audit Office for the training that we provided. Ninety-three percent of our governors went through the induction process, and there is ongoing training for them. In conjunction with the Chartered Institute of Public Finance and Accountability (CIPFA) and the Audit Office, we have also provided specific training for the audit committees of the boards of governors.

38. We have also strengthened the guidance very clearly. The guide for governors was updated in 2007-08, and it made it very clear to the governors what their roles and responsibilities were.

39. Mr Beggs: Are you confident that people who have the right knowledge, skills and training are now in place and that we will not hear of more recovery plans?

40. Dr McGinley: I have been very impressed by the governors whom I have met. Obviously, I know all the chairpersons, and I meet them regularly. I was also involved in the training process, so I have met the governors. I have been very impressed by their commitment. I am sure that Mr Refaussé, who has 40 years of experience in the sector, can attest to that commitment in his current board of governors. I think that we have people who have a much clearer sense of their roles and responsibilities.

41. Mr Craig: Thank you. It was interesting to hear the old governors getting a good hammering.

42. Dr McGinley: Can I intervene by saying that it must be remembered that many people made a voluntary commitment to the sector over the past 10 years? I certainly did not mean to undermine that in any way. Learning to be tighter with accountability and to do what is to be expected has been a journey for the Department and the sector. Indeed, some people who were governors in the pre-merger stage have continued in that role, so I apologise if I gave that impression to the Committee.

43. Mr Craig: Yes, they are volunteers. I look forward with interest to how that develops, given that the new college in Lisburn does not have anyone from Lisburn on its board of governors. That will be interesting.

44. Although Roy has investigated certain aspects of the report, I want to look at different elements of it. Paragraph 2.20 shows that in 2004-05, there were difficulties with staff shortages, and, because of that, there was a serious delay — 13 months — in looking at internal audits. When reports, especially internal audit reports, arrive now, are they looked at immediately, or do you wait for feedback from staff? We would all agree that 13 months is not acceptable.

45. Dr McGinley: There was a particular set of circumstances in the Department at that time. One thing to remember about the incorporation in Northern Ireland is that we removed a layer of bureaucracy. There are funding councils in other parts of the UK, but we do not have that layer. The Department is in direct contact with the colleges, meaning that we have an extra piece of the jigsaw. The division that deals with that is relatively small, and, at that time, we were coping with the merger and with the changes in legislation. There were a number of priorities in the Department that diverted attention from the matter. You are quite right to say that it is an important issue. Such a delay would not happen now, because we have brought in qualified staff, which is the other issue. This is not just about administrative work; it is about qualified staff who have the expertise to assess and appraise, and the Department has looked at that as a priority.

46. Mr Craig: An obvious follow-up question is to ask about the number of staff that you have overseeing the FE sector.

47. Ms Bell: Overall, there are 20 staff in the division, and they deal with the development of the policy, the funding, the corporate governance and accountability, and the estates management. They can draw on resources from other parts of the Department; for example, they can use the support of our general finance department. However, the division is small.

48. Mr Craig: Do you pull in additional resources to help out, especially when all the audits start to come in? I would not like to think that they would sit on someone’s desk for six months before anyone gets round to looking at them.

49. Dr McGinley: Due diligence is a good example of one of the things that we have done. Ideally, the Department would have preferred to have carried out the due diligence exercise itself. We were adamant that that was required. The boards of governors were keen that a due diligence exercise was done pre-merger. We knew that the Department would not have the capacity or the capability to carry out such an exercise, so we funded the colleges £30,000 each to get the external expertise necessary. Whenever particular expertise is required, we use it, or we enable the colleges to bring it in. However, we are building up our own internal audit function so that it becomes an automatic part of the work.

50. The other thing to point out is that the Department has a member of staff who attends all the meetings of the audit committees of all the colleges. That member of staff is present, as is the Northern Ireland Audit Office, at those meetings, so we know first-hand what the issues are and what issues are emerging. This is not about prevention: I beg your pardon, that was a Freudian slip. It is about prevention and not intervention, in that we want to avoid some of the issues that we are discussing.

51. Mr Craig: I am glad that you corrected yourself.

52. Dr McGinley: I am glad that I realised it; the Hansard report would have made interesting reading. My apologies.

53. Mr Craig: Paragraph 5.2 includes an interesting section that looks at variations in the qualification gains of people who go through college. The massive variation — somewhere between 57% and 84% — is the element of that that struck me.

54. Has any progress been made on strengthening the success rate? By that I take it that the aim is for colleges to get closer to a success rate of 84%.

55. Ms Bell: At that time, the then Committee for Employment and Learning made recommendations on the management information system and on having a more standardised performance across the sector. We have been working with the sector to develop a range of performance indicators.

56. The success rate is lower among students who are doing lower-level courses. That is because they do not have the necessary skills and have to put in a lot of effort. The success rate is higher among students at level 3, who already have good GCSEs, A levels or the level-3 equivalent qualification. As a matter of course now, when we meet the principal as part of the college development plan process, we look at the students’ results. The inspectorate also includes those results as part of its normal inspection process of the sector.

57. Although not all colleges have reached a success rate of 84%, significant improvements have been made, and we want to make more. Over the years, particularly in the 16-to-19-year-old cohort, many more students have come into further education with significant weaknesses. In many instances, their literacy and numeracy weaknesses must be addressed before professional and technical training begins. The Department has made a commitment in its quality improvement strategy that it will no longer fund poor-quality provision. We have a process to deal with that.

58. Mr Craig: Your comments about the lack of numeracy and literacy skills are frightening. I hope that that is being fed back to the Department of Education.

59. Dr McGinley: We are working closely with the Department of Education on that.

60. Mr Craig: I know that there is a tie-in between colleges and local schools with regard to A levels. I hope that that will improve that situation. Do you have any views on that?

61. Ms Bell: Over the past few years, what we have called the vocational enhancement programme has been one of our most pleasing initiatives. There has been a view that vocational education is of low value, has a low status, and is for people who cannot make it in academic education. In fact, the distinct opposite is the case. We have been working with the Department of Education to try to encourage all 14-to-19-year-olds to take a blend of academic subjects and what we now call professional and technical subjects. That has led to some real successes, and we want much more of that provision.

62. Further education is a key part of supporting the new curriculum entitlement framework, which operates in schools. It operates particularly in the high-skill and high-value end, where we do not want schools to replicate expensive equipment that is available already in colleges or to replicate the expertise of the lecturers in the college. We are working closely with the Department of Education and with the area-planning groups as they take that work forward.

63. Dr McGinley: That is where the value of FE lies. It is part of the latter progression that the Department is trying to create so that, no matter where people are at or what their ability, they have an opportunity to get into education. The middle piece of that ladder is FE, because it reaches down into the schools and up into the universities. That means that it is a vital piece of that agenda.

64. Mr Craig: I could not agree more; I went through both further education and university.

65. Figure 8 on page 31 of the report on the review of financial management shows quite a few PFI projects that are in place, are being developed, or are under way. As a representative for Lagan Valley, I am fully aware that a huge project is being worked on more or less next door to me. Do you have any concerns about those projects? This Committee has had to look into some spectacular failures of PFI projects in the past. Are they all on track, especially the one next door to me? I would like to think that that one is on track. Do you have any concerns about any of the projects on that list that is in the report?

66. Dr McGinley: No. Some members may be aware of Sir Andrew Foster, so they may also know that there is a big worry in the UK about PFI provision. I am glad to be able to assure the Committee that, although there was a £5·7 billion funding shortfall for capital, with the result that 144 colleges in the UK were affected, we were not part of that problem. We work with the Strategic Investment Board (SIB) on the Executive’s 10-year plan for infrastructure investment. All the colleges that are on that list have gone through a very rigorous process. We work with both conventional and PFI procurement, and each project is looked at on its own merits through the economic and green book appraisals.

67. In some instances, we have gone with conventional procurement; in others, we have used PFI. As you can see from that list, quite a few of the projects have been completed. Indeed, the Minister was on site at Belfast Metropolitan College yesterday for the turning of the first sod.

68. One of the issues, which is indirectly not a problem, is that three of the colleges have not yet submitted their accounts this year. There is a technical balance-sheet issue about PFI projects appearing on balance sheets, but Mr Refaussé will talk about that.

69. In the case of the new Lisburn college, there was a delay in that project because the opportunity was taken — rightly, I think — to site it adjacent to the existing college. The original plan placed it elsewhere. That project has taken longer than originally intended, but it is now also on track.

70. The Omagh project was one of the most successful PFI projects, and it won a Beacon award in 2006 as an exemplary sustainability build. Mr Refaussé may wish to say something about that process.

71. Mr Victor Refaussé (South West College): In 2000, when we got the news that Omagh was getting a new college, because of what happened in Omagh in 1998, we could not say no; the project was part of lifting Omagh out of the ashes.

72. I project managed the building, and as far as I am concerned, it was a success story. The simple reason for that is that the college in Omagh is now part of the community there. Everybody uses it, from the Blood Transfusion Service to the Junior Chamber of Commerce — many people use the college. It is seen as a community college that is very much based on the American model.

73. From my point of view, we have marvellous facilities there, and you are all more than welcome to come and visit. I think that if you were to see the quality of the workmanship and the quality of the equipment that we have, which is to industry standards, you would see that the college is as good today as it was when it was built, because the students and people who come there realise that it is theirs.

74. Dr McGinley: We have invested £387 million in the capital infrastructure in the past 10 years. Many of you will remember that when FE was with the education and library boards — before it was incorporated — it was grossly underfunded. There were serious issues about even basic things such as health and safety and disability access, never mind the state of repair of buildings.

75. We now have an estate that is second to none. It is part of building up the confidence of the sector to be a driver in the local economy and to be important in the local community. Part of that for us has been the use of partly PFI and partly conventional procurement.

76. Of that £387 million, £150 million has been levered through private-sector sources. That has enabled us to move quite rapidly with upgrading the estate, which would not have been possible without PFI.

77. Mr Craig: It is good to hear that it is all going to plan.

78. The Chairperson: Thank you for that invitation; I am sure that individual Committee members may take that up.

79. Mr Dallat: To pick up on Victor’s comments, I endorse totally the concept of community colleges. Do you agree that, in recent years, the tendency to cancel courses that are intended for older people is not exactly the way to develop a community college?

80. Mr Refaussé: We do not cancel courses for elderly people. In fact, we have a whole range of programmes for them. The emphasis is very much on supporting the economy, but we also run plenty of recreational courses, for example, not just in the college, but in the community.

81. Mr Dallat: My enthusiasm went over the top; I thought that we were going to hear about a genuine community college, which embraces everyone, including older people, who complain day and daily in the local newspapers that their courses have been cancelled. That is my only reason for asking that question.

82. Dr McGinley: I am sure that you are aware that the issue has arisen because of changes to equality legislation. The Department, the Minister and the colleges are not happy to be in that position, but, ironically, they cannot discriminate on the grounds of age. Therefore, the Department and the colleges have gone out of their way to extend the means by which they can enable people. For example, we have been able to shape things so that pensioners who are in receipt of rate relief or other benefits can claim concessionary fees. However, a cohort of pensioners cannot claim concessionary fees, because they are means tested. We are keeping the matter under review, and the colleges are being creative in how they interact. However, it is a complication of the legislation.

83. Mr Dallat: I am sure that many people will welcome that. Before the Chairperson calls me to order, I had better get on with what I want to say.

84. We have dealt already with the colleges that were in debt, but I want to concentrate for a few minutes on the colleges that had loads of money in the bank — £54 million, according to figure 7 on page 21 of the report. I cannot resist saying that that figure is exactly twice the amount of money that was stolen from the Northern Bank. What, in the name of goodness, were those colleges doing with £54 million stashed away in bank accounts when we have the highest rates of illiteracy and poor numeracy and when there are cries to raise skills in the middle of a complete change in global economics? Why did the Department choose to remain in its ivory tower, sending out an annual letter telling colleges that the situation is not right, but doing nothing about it?

85. Dr McGinley: There is a range of issues to do with surpluses. I explained earlier that, out of necessity, the colleges need to be able to maintain a bit of a surplus as well as a bit of a deficit in order to operate. However, you are quite right in saying that they are running at twice what they should be. The Department intends to start eating into the surpluses. Indeed, as I said, we have started to do so already. I have mentioned already that the colleges absorbed the pension and the merger costs. We did not seek any other public sector resource. The merger was a major process that cost more than £1·3 million.

86. Part of the capital estate that I described was funded through surpluses. In some instances, colleges that decided that they wanted to partake in a capital build programme built up surpluses in order to have the money to enable them to participate in the programme. I know that Mr Refaussé has experience of that through the Omagh project. Therefore, all the money is accounted for, and it is all public money. Part of the new college development plan, which is a three-year plan, is much tighter than plans have been in the past. That means that colleges have to justify the retention of their surpluses, and they have to show how they have planned for them. Therefore, if a college decides that it will have a capital build programme in three years or that it wishes to purchase a major piece of equipment, we have to be assured of, and it has to show us, the purpose for which the money is to be used.

87. Over the next three years, it is our intention to get those surpluses within the 10% cap that has been agreed with the Department of Finance and Personnel (DFP) as being appropriate. We are £21 million over this year, but we are down to £44 million this year from last year’s figure of £54 million. Therefore, we are down 20% from last year, because we have been working with the colleges on their planned surpluses. You are quite right to say that the figures were out of kilter, but we are bringing them back in.

88. Mr Dallat: I know that further education colleges have been through difficult periods in the past decade or so. The previous time that the Public Accounts Committee considered the further education sector, it discovered that some colleges had the same internal and external auditors and, indeed, consultants advising on finance, so I am not entirely surprised. However, I accept your undertaking, and I know that you and Catherine Bell have a long-standing commitment to bring vocational education to the same status as academic education. I do not question that in the slightest. However, it is disappointing that so much money was lying in bank accounts when the 25% of the population who lack skills could not be attended to.

89. I feel strongly about this, because I neither passed nor failed the 11-plus, and I owe my education to FE colleges. A number of staff — I think 52 staff in one year — took redundancies from FE colleges, and they have all been re-employed in the colleges. Given that more than 5,000 young people are trained teachers and have no jobs, and given the need to retrain current staff in new skills, particularly in IT, what was the Department doing while those colleges were doling out redundancy packages with one hand and bringing the same staff in through the back door with the other?

90. Dr McGinley: The redundancy packages were part of the restructuring of the sector when the merger into the six colleges was taking place. It was a necessary part of being able to manage the efficiencies that we needed to gain from the system. Indeed, the business case showed that the redundancies would more than pay for themselves in three years and would thereafter leave the colleges in a better management position. However, in the current year, due to the pressures of getting trained teachers largely in specialist areas and largely on part-time and short-term contracts, some colleges, but not all, advertised posts. Those jobs were advertised publicly and were therefore open to anyone. The legislation does not preclude someone being re-employed, but they would not — I repeat not — be back in their previous jobs. Any redeployment was for a specific purpose, or perhaps for a short course. The Minister is tasked by that and is working with the Department of Education, which is also looking at redundancies for teachers. The Minister is working closely with that Department to prevent a situation in which there is any sort of abuse. However, I assure you, we have double-checked with those colleges that brought staff back, and that was done because of pressure of business and the need to provide classes. It was by no means outside what was allowed.

91. Mr Dallat: Perhaps, just for the record, we should give credit to the Southern Regional College, which did not re-employ any old staff.

92. Mr Refaussé: Neither did we, Mr Dallat.

93. Mr Dallat: For the record, who is “we”?

94. Mr Refaussé: The South West College.

95. Mr Dallat: Thank you. Did the further education colleges engage in any way with the 5,000 or 6,000 young teachers in Northern Ireland to encourage them to enter the FE sector? Clearly, if there is open competition and they do not meet the criteria, they will never get on the ladder, and you will keep re-employing the people who were employed before.

96. Dr McGinley: One of the things that we are very proud of in Northern Ireland is that all teaching staff in the FE sector are qualified to degree level and above. They all undergo training within a certain period of time from their appointment. For example, we are trying to encourage more people with industrial experience, or experience of working in particular sectors, to come in, because we are trying to encourage that hands-on, technical and professional approach. We will train them to be teachers. Therefore, it is quite a broad brush.

97. Ms Bell: You asked about young teachers who have come through the post-graduate certificate route, either in St Mary’s University College, Stranmillis University College, or the two universities. There is nothing to preclude them from applying for further education posts. In the case of business studies, many students from Stranmillis and St Mary’s, who needed teaching experience in that subject, got their experience at a further education college. The difficulty is in finding teachers for technical subjects. The young people who you mentioned have perhaps gone into teaching with an academic background, for example, they may have three A levels. However, we use a lot of teachers for literacy and numeracy subjects who have been trained through the normal route.

98. I suspect that there will be more opportunities for teachers as we expand provision in science, technology, engineering and mathematics — the STEM subjects. However, we do not preclude those teachers from applying for further education jobs; indeed, the opposite is the case. Many teachers want the opportunity to teach in secondary rather than in primary schools. Therefore, we developed a further education provision with the University of Ulster whereby new teachers can train for a further year to get a qualification that allows them to teach in the secondary system as well as the primary.

99. Mr Dallat: That is welcome news.

100. Mr G Robinson: I have a few questions about paragraphs 1.3, 1.4 and 1.5 of the Audit Office report on ‘Governance Examination of Fermanagh College of Further and Higher Education’. Paragraph 1.3 states that in November 2004, the Department identified that the delivery of work-based learning courses at Fermanagh college was not consistent with other colleges. However, paragraph 4.7 of the same report states that the Department had concerns about that back in April 2003. Why did it take the Department until August 2005 to bring the matter to the governing body’s attention?

101. Dr McGinley: The work-based learning programme was introduced in 2001. Fermanagh college was one of the first to take it up with the retail sector. However, as you rightly said, by April 2003 we had some concerns about it. We wrote to the college and received assurances that there was no issue.

102. However, we were sufficiently concerned about the programme to ask the Education and Training Inspectorate to look, on our behalf, at the issue of work-based learning across the entire sector in Northern Ireland. In November 2004, the inspectorate’s report on that said there were issues with Fermanagh college. However, during — and prior to — that time, the college assured us that there were no issues; any concerns were mainly to do with the use of third-party providers. Immediately on receipt of the Education and Training Inspectorate’s report in November 2004, we contacted the college again. We wrote five letters, held a number of meetings and, subsequently, we were given further assurances. A lot of correspondence went back and forward.

103. In June 2005, a meeting was to be held in the college. That was the first time that the Department started to get really worried about the fact that it was not getting the information that it had requested, and it tried one more time. Subsequently, in August 2005, the Department copied the governing body into the correspondence that it was sending to the principal of Fermanagh college.

104. You are right about the fact that we probably should have informed the governing body after we received the Education and Training Inspectorate’s report in November 2004. However, given that the matter was a day-to-day operational one, it was dealt with by officials in the Department and by the senior management team of the college. It is not the case that nothing was happening; rather, it was simply that we were allowing the due process.

105. Mr G Robinson: Why were you not more robust in challenging the college? Has that £1·4 million overpayment, which is noted in paragraph 1.5 of the report, been recovered in full?

106. Dr McGinley: We were robust; however, what happened, unfortunately, was that the college gave us assurances. Our first opportunity to really get below the radar and check whether there were concerns —which were then proven — was when we commissioned the Education and Training Inspectorate report.

107. We met the Education and Training Inspectorate immediately on receipt of its report in November 2004. We then engaged with the college to reiterate our concerns. As soon as the governing body was informed, it acted very quickly and brought in its external auditors to investigate the matters in question. The governing body was very prompt with its response, and, indeed, we could possibly have informed it earlier. We agreed the £1∙14 million for repayment back in January 2006, and Mr Refaussé can confirm that it will be repaid fully by the end of this financial year, 2009-2010.

108. Mr G Robinson: Is it the case that it is still not fully recovered?

109. Dr McGinley: No. The final payment will be made in 2009-2010.

110. Ms Bell: Whenever we are clawing back a large amount of money from any college, it is normal for us to do so over a period of time. The acting principal at that stage agreed a payback. Around £285,000 of the £1∙14 million has still to be repaid, and it will be paid this financial year.

111. Mr Refaussé: For the record, I should point out that it will be repaid completely by March 2010.

112. Mr G Robinson: Paragraph 1.4 lists a number of significant weaknesses and financial controls over work-based learning. Please summarise for us the action that has been taken to date to deal with the problems that are listed in that paragraph. Have those matters been resolved satisfactorily?

113. Dr McGinley: Absolutely. There were many lessons that had to be learned from that exercise, and they have all been applied to inform guidance. I shall ask Mr Refaussé to give assurance on those issues that concern the college.

114. Mr Refaussé: When I took over as director of the South West College, I looked at the whole financial situation. One of the first things that I did was to look at all nine reports that had been written on Fermanagh college. A total of 34 recommendations had been made, many of which related to financial planning and control.

115. We then created an action plan and discussed it with the Department. It was brought forward to all our audit committee and governing body meetings, and that process is ongoing. We spent a lot of time and effort making sure that everything was in place for financial planning and control. Our internal auditors, PricewaterhouseCoopers, went through that plan with a fine tooth comb and gave us substantial assurance. My point is that all those financial procedures and controls are now in place. The Northern Ireland Audit Office acts as our external auditors, and I can tell you that we have a clean audit for 2007-08.

116. Mr G Robinson: That is reassuring. Company A was overpaid at least £31,755, and company B retained fees due to the college’s recovery recruitment costs. Have those contracts been terminated? Given the investigation’s findings, what settlement was reached?

117. Dr McGinley: They were terminated and any moneys involved were recouped. The depth of the investigation was such that any clawback that was required has been made or repayment is being made.

118. Mr G Robinson: Is it being paid back in full?

119. Dr McGinley: It will be paid back fully by March.

120. Mr G Robinson: Does that mean that it has not all been paid back?

121. Dr McGinley: Basically, the Department agrees a schedule of payments. Had we taken the full amount from the college at the time, we would have completely undermined its financial health. Therefore, the college pays the money over an agreed period, and a lot of detail goes into the agreement. Part of the delay in the response that you referred to earlier was due to the fact that we wanted to give the college as much time to negotiate with us and to test what is owed. The process is rigorous, and we are assured that those contracts have been terminated.

122. Mr G Robinson: Does much remain to be repaid?

123. Dr McGinley: Some £285,000 out of £1∙14 million is still outstanding, but it is due to be repaid by the end of March 2010.

124. Ms Purvis: Paragraphs 2.1 and 2.2 state that the governing body of the former Fermanagh college commissioned a comprehensive review of financial management, but the terms of reference did not include the role and performance of the governing body. The standard of governance was a key issue for the Department. Why did you not insist that setting the terms of reference should be a necessary part of the review?

125. Dr McGinley: Pre-merger, we had only one efficiency review, and we have had only one review post-merger. An efficiency review is probably the most draconian of measures, because it involves external independent advisers conducting a forensic audit.

126. At the time of the review in Fermanagh, the college was still operating and achieving results, and, as soon as the governing body became aware of issues, it was co-operative; it dealt with them promptly, and we had no reason to believe that governance was of that ilk. Therefore, the terms of reference focused on financial management, because that was where we believed the issues lay.

127. We are currently undertaking a review of governance throughout the further education sector. The due diligence exercise that we carried out pre-merger concentrated on estate issues, student numbers and finance. However, we recognised the fact that a review of governance procedures was essential. The review group, comprising representatives from the colleges as well as from the Department, is finishing consultations, and its report is due in June 2009. The group will consider broader corporate governance, including incorporation, remuneration, length of appointments and the roles and responsibilities of the accounting officer, the Department and the colleges.

128. Ms Bell: In this case, the governing body was not brought into the investigation of work-based learning until August 2005, but we were extremely pleased by the way in which it reacted. It took ownership of the matter, promised to deal with it and engaged Grant Thornton as its external auditors. Grant Thornton raised concerns about poor financial management, which is why the terms of reference for the second part of the work, which was carried out by Deloitte, did not include corporate governance. It focused only on financial management, and it was only when Deloitte reported that the corporate governance issues came to light. That is why they were not included at the start.

129. Ms Purvis: The Deloitte report identified serious weaknesses in the corporate governance environment, yet that section of the report was removed from the final version. Did alarm bells not start ringing then?

130. Dr McGinley: The timing of the report was an issue. At that stage, we were pre-merger and moving towards a shadow governing body. If the governing body in situ were to have been the same one thereafter, we may have acted differently. However, rather than completely undermining the college at a time when working there was difficult because the principal and the finance director were off sick and some key staff members were missing, we helped the college to source an experienced principal to provide cover.

131. Given that investigations were under way, we took a decision that the removal of the governing body at that time would have completely destabilised the college. In addition, we were in the process of recruiting the new governing body, a shadow format was emerging, and one body was about to supersede the other. Nevertheless, it was regrettable that governance was an issue.

132. Ms Purvis: According to paragraph 2.4, significant weaknesses were identified in the corporate business planning process, and the college development plan for 2005-08 was found to be deficient in several areas, mostly with respect to the linkage between planning and monitoring. Did the Department pick up on any of those deficiencies?

133. Dr McGinley: At the time, the credibility of the information was a major problem, and FE Means Business recognised that fact. I agree with the report’s assertion that structures are merely theoretical unless they are used intelligently or effectively and that management is difficult in the absence of good management information and good financial information. The lack of sound information contributed to the problem.

134. We took that advice on board, and, between 2002 and 2006, we worked with the sector to develop the new management information system, which operates well and allows us to access in-year, up-to-date data within 24 hours. That data allows us to conduct trends analyses and variances and to conduct other work that was previously impossible. The sector has universally welcomed those developments, and we are now much better informed.

135. Ms Bell: Prior to the merger, during the college development planning process, colleges submitted plans to the Department. Thereafter, the Department and the inspectorate analysed the plans and offered feedback to the colleges. However, the Department did not have an approval role. Given that the college development plan is an extremely important document and that we had learned from situations before the merger, we established a new management information system and a new funding structure, and the Department took the decision to approve the college development planning programme.

136. The director of further education now meets the principal and the chairperson of the governing body to agree the detail of the college development plan, based on Government priorities. Thereafter, the plan is monitored, and the same people hold an interim meeting during the year to monitor progress. That process did not exist prior to the merger. However, incorporation was new, and we learned as we went along.

137. Dr McGinley: Ms Purvis mentioned linkage and Government priorities. The new management information system allows us to future-proof. For example, the issues of literacy and numeracy have arisen today. We can now weigh and skew the funding model in a much more refined way, which enables us to begin to fund. The current economic recession is a case in point, and we can allow colleges to begin to address issues that have arisen. For example, the Lisburn campus of the South Eastern Regional College has established a programme to beat the recession, and the South West College has responded quickly to the downturn by addressing apprenticeship issues. The new management information and funding models allow us to do that more readily.

138. Ms Purvis: Paragraph 2.5 refers to the 1999 Audit Office report, which recommended explicit links between development plans and the financial planning process. The Department included that requirement in its guidance to colleges. Did the Department consider the full extent of its responsibility to ensure the achievement of necessary standards?

139. Dr McGinley: The 1999 NIAO report was also a seminal document for the sector. Given that we were moving towards incorporation, it was a timely report. It provided the Department with a framework for corporate governance and financial management and was the template on which we built our guidance. At the beginning of the process, we held a seminar with the sector, the Comptroller and Auditor General and staff of the Audit Office, and a working group was formed to consider and implement the recommendations. The Department publishes the key financial performance measures annually.

140. During the past 10 years, we have held many seminars, and we use the Learning and Skills Development Agency to deliver for the sector. Furthermore, over 1,200 training events have been held in the past 10 years. However, the obvious question is: why have those initiatives not worked? Part of that was an iteration. During that time, the Audit Office produced a report, and the Committee for Employment and Learning conducted some seminal work. Thereafter, the Department undertook the FE Means Business strategy. We were told that a longer-term strategy was required, that we needed to be more focused, that we needed to consider the structure and that we needed to adopt an economic slant.

141. The FE Means Business strategy process ran from 2002 to 2004, and ‘Success through Skills: The Skills Strategy for Northern Ireland’ emanated from that. During that period, the Audit Office report provided a framework, but there was also much developmental and transformational work.

142. Ms Bell: We did not simply rely on sending out guidance. We analysed the college development plan when it was in its early stages, and we commissioned further external analysis. We wrote to each college providing our analysis of their individual college development plan. Subsequently, we analysed the entire sector and outlined to colleges the lessons that had been learned. We consistently told the colleges that they were not particularly good at linking their financial planning to setting budgets. That was one reason that we decided to adopt a much closer approval role, and, therefore, we monitored and distributed circulars. However, recognising that we needed to go a bit further, we introduced a CDP approval, which is a crucial document.

143. Ms Purvis: Paragraph 2.6 identifies:

“significant weaknesses in the financial planning and budgetary process”.

144. Who do you regard as being primarily responsible for those weaknesses: management, the governing body, the massive change or a combination of all three?

145. Dr McGinley: It was a combination of all three factors coming together at the same time. Inefficiencies existed in the senior management team, and a catalogue of issues came to a head. That is why we came to be in that position.

146. Mr McLaughlin: Dr McGinley, you are aware that the oversight by Departments of their arm’s-length bodies has exercised the Committee. Several Committee reports have dealt directly with a series of issues and difficulties. Did you review those publications before today’s meeting?

147. Dr McGinley: Absolutely; indeed our Department has been involved in previous Committee hearings on arm’s-length bodies. It will always be a difficult area, in that the nature of each relationship tends to be unique: for example, the Department for Employment and Learning deals with the universities, training organisations, and bodies such as Ulster Supported Employment and the Construction Industry Training Board. Our relationships with each organisation differ.

148. This year, I introduced an annual meeting with the chairs, chief executives and chairs of the audit committees of all those organisations, and that is held prior to the statement of internal control. That gives me the opportunity to work closely on a one-to-one level with those individuals, which has proved to be most helpful.

149. However, it is a question of how to balance the relationship between the Department and its arm’s-length bodies.

150. Mr McLaughlin: Of all the Committee’s recommendations, most of which were accepted by the relevant Departments, including the Department of Finance and Personnel, which do you regard as vital in its application to your Department?

151. Dr McGinley: In the first instance, to be able to define the relationship requires clarity on roles and responsibilities. The relationship with further education is a good example, and that is being reviewed as part of our review of corporate governance. We need to clarify what is meant by incorporation and what the balance should be. The FE sector moved from corporation status in 1998 to enable the colleges to be much closer to the ground, deliver locally and be flexible in their response to community and employment needs. That move was also designed to enable the Department to ensure that regional priorities were the order of the day, and that is happening. Some 75% of the funding for the FE sector comes from the Department. Therefore, we are taking an increasingly strong line of intervention. However, there is a fine balance between stifling the work of the colleges and enabling them to be flexible and locally responsive.

152. Mr McLaughlin: Paragraphs 2.8 to 2.11 point out serious shortcomings in the former Fermanagh college’s management information systems. Paragraph 2.12 provides horrendous examples of accommodation being leased without any clear contractual documents or information about what space was available to staff for course management and deployment. Is that an indication that the Department is taking the recommendations and lessons learned from previous third-party, arm’s-length relationships seriously?

153. Given the examples that I have seen as a member of the Committee, it may be time to reconsider referring to those bodies as “arm’s-length”, and perhaps “hands-off” bodies would be a more accurate description. Some recommendations were brought to the Department’s attention in 2004. Deloitte went back over the same ground two years later, and those same difficulties remained. How is that explained?

154. Dr McGinley: Colleges are allowed to enter into third-party relationships, because, for example, we want them to be close to the ground in communities. Therefore, the colleges use church halls, schools and other venues. Indeed, there are 47 campuses and 762 outreach centres under the six colleges. There is nothing to stop such agreements, nor would we want to stop them.

155. Mr McLaughlin: Does the duty of management remain?

156. Dr McGinley: Yes, it does.

157. Mr McLaughlin: Does that duty come back to the Department?

158. Dr McGinley: In that instance, the conflict of interest was worrying. The Department has investigated, and the director concerned does not appear to have made any personal gain. However, there was a lack of structure and procedure.

159. Every board meeting of every governing body of every college now begins with committee members being asked to declare any conflicts of interest. A register of members’ interests is also maintained. One college has extended that practice to its senior management team. The Department is encouraging that approach and incorporating it as best practice. Therefore, one lesson learned from the report has been to formalise the issue of conflict of interest.

160. Mr McLaughlin: That is very important, and I accept that reassurance. I hope that we do not encounter that difficulty. It is a no-brainer that should have been blocked off. Internal and external audits should have reflected that there were clear conflicts of interest.

161. Dr McGinley: Another lesson learned is the failure of the internal and external audits, about which the Department, as stated in the report, is extremely concerned.

162. Mr McLaughlin: The Department is also extremely responsible to do something about that.

163. Dr McGinley: Absolutely, and this year the Department has undertaken to use its own internal auditors, DETI, to review internal audit processes in all the colleges. Those findings will be ready in the next month or so.

164. The Department amended legislation last year to enable the Northern Ireland Audit Office to become the sector’s external auditor. A senior official from the Department for Employment and Learning now attends all the colleges’ audit committee meetings, as does a representative of the Audit Office, which increases our sense of being in control and aware of the issues before they emerge and become a problem.

165. Mr McLaughlin: Paragraphs 2.13 to 2.23 deal with the fact that the senior management team, which you referred to as a “structure”, was not operating effectively. Part of the reason for that was that there were no procedures for appraising appointees against specific objectives and targets. What has been done to ensure that competency frameworks and performance appraisal arrangements now exist for all staff in the new area colleges?

166. Dr McGinley: Performance appraisal has been an ongoing issue for the Department. In the academic years 2003-04 and 2004-05, a pilot model on principals’ pay was introduced across the sector, working closely with the governing bodies. However, that model did not work; it failed for several reasons.

167. In 2006, the Department brought in an independent consultant to examine the performance appraisal programme — the Kissman Review. A robust appraisal system should be in place not only for principals but for senior management teams. However, there was a difficulty with the performance pay element.

168. Mr McLaughlin: Is that in place, or is it an ongoing exercise?

169. Ms Bell: The chair of the governing body is required to appraise the principal every year and to set targets. Ongoing work aims to replace performance-related pay, which simply did not work, with a new performance appraisal system. That new system is not yet in place, but it is a requirement that the chair of the governing body appraises the principal and sets targets each year.

170. Mr Refaussé: My appraisal has already taken place. It related to this year’s performance and my targets for next year. I have also carried out reviews with all my senior managers. Their performance targets for this year have been checked, and new targets have been set for next year.

171. Mr McLaughlin: I want to be absolutely clear: who conducts those appraisals?

172. Mr Refaussé: The chairperson of the governing body appraises me, and I appraise my senior managers.

173. Dr McGinley: The Department appraises the chairperson. There is a formal process for that, and an appraisal process for members of the governing body is also undertaken by the chairperson.

174. Mr McLaughlin: When will the balance of that review or restructuring be complete? Is there a timetable?

175. Ms Bell: I think that it will be complete by June 2009, but I am not sure of the actual date. I will have to come back to the Committee to confirm that.

176. Mr McLaughlin: That would be helpful; we want our report to be as accurate as possible

177. Has the employment status of the finance director now been resolved, or is that subject to legal proceedings?

178. Mr Refaussé: That issue is now subject to ongoing legal negotiations. As you will appreciate, I cannot comment any further on that, but we can advise the Committee once those negotiations are completed.

179. Mr McLaughlin: What is the difference between legal proceedings and legal negotiations?

180. Mr Refaussé: We are currently negotiating, but it may end up in legal proceedings. We do not know yet.

181. Mr McLaughlin: There will be no legal proceedings until the negotiations are complete?

182. Mr Refaussé: Not yet.

183. Mr McLaughlin: I would be grateful if you would keep the Committee informed of developments on that issue.

184. Dr McGinley: For your information, the pay appraisal will take place in July.

185. Ms Bell: It is not a pay appraisal; it is a pay review, and it will take place in June or early July.

186. Mr McLaughlin: What arrangements have been made by the Department to ensure that the new area colleges take account of the recommendations in appendix 2 of the Deloitte report?

187. Dr McGinley: We have already embedded those recommendations in the guidance, and, indeed, in any training and development programmes that we have undertaken. For example, we upgraded the guide for governors in 2007-08. We have also upgraded the audit code. Those have been informed by the findings of the Deloitte report.

188. Mr McLaughlin: It is clear from the report that the principal failed in his duties as accounting officer, particularly in his leadership and financial management skills. The Department and the governors eventually recognised that. Given that principals are appointed as accounting officers, what part does the Department play in regularly assessing their competence? That relates to the point that I made about the guidelines.

189. Dr McGinley: If the chair of a governing body had concerns about the appraisal of the principal, that would be referred directly to me as accounting officer. I have the legislative powers to remove accounting-officer status from the principal. In effect, that would mean that the principal could not undertake the duties of the post. We have never had to do that.

190. In one instance in the north-east, we came close to having to do that, although the person concerned resigned prior to the removal of accounting-officer status. However, there is a process by which it can be undertaken. It has not been applied, but it was a close call in the north-east.

191. Mr McLaughlin: If you were not made aware of the situation, how would you know about an undisclosed difficulty in a particular college?

192. Dr McGinley: As I explained, the chairs of the governing bodies have access to me at all times, as have the accounting officers. I have a formal annual meeting with them, and I also meet them informally. As accounting officer of the Department, I would expect either party to bring to my attention any matter, and I would act immediately. I also have the power to remove the governing body and the principal if the situation was felt to be sufficiently urgent or serious. We have never had to do that, but it is one of the more draconian clauses. However, it is within the powers of the Department.

193. Mr McLaughlin: Are there in-year assessments of spending profiles?

194. Dr McGinley: Yes; that is done quarterly, and a process continues throughout the year. A process for the negotiation of the college development plan starts in October and runs through to the following April, and that determines the budgets for the following year. Senior departmental officials and college staff meet quarterly. A member of DEL staff attends all audit committee meetings. On at least one occasion, the director of further education attends the board of the governing body, but the director also attends by invitation, which means that our members attend more than once a year. We have a close working relationship with the colleges.

195. Mr Lunn: I have a question about the letters that were received — the whistle-blowing episode in August 2005 — when the decision was made to pass the matter back to the governing body to investigate. Was it wise to take that action, or should the Department have examined it itself?

196. Dr McGinley: Whistle-blowing is an important part of the corporate governance of any organisation, along with people’s freedom to feel that they can bring those matters to the attention of outside bodies. The first letter received by the Department in August 2005 was anonymous, and the legal advice that we received was that we should bring it to the attention of the governing body, because we had no one to whom to respond. We did that, and the governing body responded extremely quickly and brought in its external auditors to undertake an investigation. The external auditors examined the seven issues, two of which were investigated further, and one of which was found to be valid.

197. Subsequently, in September, an employee of the college contacted the Department. There were several telephone calls, and the employee submitted a letter and was met by a senior official from the Department. Given that the governing body had already instigated an investigation, as many of the instances already featured in the anonymous letter, it was agreed to allow that process to continue. The person who brought the matter to our attention was fully aware that that was how the matter was to be handled and was subsequently informed of the outcome of the investigation.

198. Given that some of the allegations were about the governing body, was it appropriate for that body to hold the investigation? However, because the letter was anonymous, the advice at the time was to let the governing body know that those issues were being raised. Subsequently, when we had a named individual, we discussed the investigation with the governing body. That is how it continued to roll out.

199. With hindsight, the Department could have undertaken the investigation. In the FE sector, where there have been instances of whistle-blowing, we make a judgement on the basis of each individual case as to whether, because of the nature of the allegation, it should be handled by the Department or by the governing body.

200. Mr Lunn: Are you obliged to take legal advice on such a decision?

201. Dr McGinley: It depends on the nature of the allegation. When matters are raised with the Department, we usually seek legal opinion immediately. Some matters obviously need attention. It is good practice to do so to be sure of where one stands. In whistle-blowing situations, it is difficult to deal with anonymous letters. We have no one to whom we can respond, yet we cannot turn a blind eye.

202. Mr Lunn: People write anonymously because they do not trust their future careers to the whistle-blowing procedure. However, this complaint came from a group of lecturing staff. The allegations were serious; the sums involved were not huge, and they are all listed in paragraphs 3.1 and 4.10. They involve overtime payments, lack of accountability in relation to staff finance, inappropriate appointment of, and payment to, consultants and adjustment of enrolment figures to justify increases in payment to the principal. They also allege improper handling of a previous complaint by the governing body. I have the impression that the governing body would have preferred the Department to have dealt with the issue rather than the body. How bad does a situation need to be before the Department will take a decision and, even against legal advice, deal with that type of situation itself? Bear in mind that this happened in the middle of the investigation into the work-based-learning programme.

203. Dr McGinley: It was just at the outset and around the same time.

204. Mr Lunn: The work-based-learning investigation started in 2003, two years later. This situation arose in August 2005.

205. Dr McGinley: The governing body had been alerted to the work-based-learning investigation around the same time as the letters were received. At that time, the principal went off on sick leave, and the environment in the college was not good. Staff motivation and morale were extremely low as a result of that series of issues.

206. The Department had been impressed by the response of the governing body to the work-based-learning investigation: it had responded extremely quickly, and it was prepared to take on the issues. In the past, the Department has decided to undertake whistle-blowing reviews. In this instance, it was decided that the governing body should do so. The Department worked with the body on the terms of reference, identifying the process and keeping it right. It kept us fully informed of what was happening. The inquiry led to only one allegation being substantiated: the overpayment. The Department was also involved in assessing it as the only allegation outstanding. All the other allegations were dealt with. The Department also brought in Mr Kissman to deal separately with some of the specific personal allegations. The Department was kept fully involved by the governing body as to how it was handling the investigation. I do not think the Department would have handled it differently. The Department would have handled it in the same way and would probably have produced the same outcome.

207. Mr Lunn: If the Department had conducted the investigation, would it have inspired more confidence in the process? I know that I ask that question with the benefit of hindsight. The governing body considered the issues with the help of the Department’s guidance and decided that there was only one item out several that merited any consideration. It recommended that the member of staff should repay the overtime that had been claimed. I wonder how the college paid that member of staff overtime when it was not in the contract to receive overtime, paid it at a higher rate than should have been the case and then multiplied that by 50% to give time-and-a-half overtime.

208. Dr McGinley: Mr Refaussé informed me today that that matter is still being investigated by the governing body.

209. Mr Refaussé: An independent investigation is ongoing into that issue and others with respect to that individual.

210. Mr Lunn: Has the amount been written off?

211. Dr McGinley: It has been absorbed.

212. Mr Lunn: Can you recover that money from the college?

213. Dr McGinley: In theory, there is a process by which the money can be recovered whether or not it is an approved payment. That is partly what the college is doing with the independent investigation to see whether it can be recovered from the individual.

214. Mr Refaussé: I call it the integrity of the overtime payment.

215. The Chairperson: Do you have any idea when the investigation will be completed?

216. Mr Refaussé: It should be completed by the end of June 2009.

217. Mr Lunn: The governing body concluded that, aside from the overtime payment, there were no other major issues of concern. In the light of the examples given in part 3 of the report, and the fairly clear opinion of the Audit Office that they were probably incorrect, did you agree with the governing body’s assessment at the time?

218. Dr McGinley: The Department agreed with the assessment.

219. Mr Lunn: Paragraph 4.6 states:

“The Department fully accepts its responsibilities, as set out in paragraph 4.2”.

220. I know that you have been over some of the issues already, but will you explain what you see as the division of responsibility between the colleges and the Department?

221. Dr McGinley: Part 4 of the report outlines the role of the Department’s accounting officer to ensure value for money, to monitor compliance, to control and safeguard public moneys, to ensure that probity and good financial management is in place and to ensure that there is clarity around payments of grants. That is the technical side of being an accounting officer. The sub-accounting officer is the principal of the college. That role concerns meaningful oversight by the Department. The financial memorandum clearly sets out the stewardship, regularity and propriety roles of an accounting officer.

222. I will return to Mr McLaughlin’s questions about when it is an arm’s-length body and the boundaries between the two. From what you have heard in our evidence, I hope that we have moved to being the provider of the resources that are necessary for the colleges to deliver lifelong learning for the benefit of the economy and society and all the subsets therein. We have also worked extremely hard to firm up the framework and the environment in which that is done so that there is an environment of control and of sensitivity to the stewardship and the regularity of how matters are conducted. That was not the case 10 years ago. The report states that there has been a journey in respect of corporate governance in the public service, and the further education sector has been part of that. I would like to think that we have a good relationship with the sector, but it is challenging, and Mr Refaussé can attest to that. Nevertheless, the sector seems to accept and welcome the clarity that now exists, which was possibly lacking in the past.

223. Mr Lunn: I accept that things have moved on, but do you accept that there was an over-reliance on the performance of the governance arrangements at each college?

224. Dr McGinley: There was a degree of over-reliance, and it was based on flawed systems of information. Therefore, it was difficult to know what was happening beneath the surface, and it was easier for the Department to be kept unaware of the details of what was happening.

225. Mr Lunn: There is a feeling running through all the questions and through much of the report that it is more a case, as Mitchel said, of “hands-off” rather than “arm’s-length” bodies. You said that you preferred prevention rather than intervention, and that is fair enough. It seems to me that it was a case of when in doubt, stay out of it and leave it to the governing bodies to sort out their own problems. Do your answers suggest that that is no longer the case?

226. Dr McGinley: Absolutely. The governing bodies are crucial. When we undertook a new recruitment exercise for the current composition of the governing bodies, we robustly clarified their roles and responsibilities. Governors serve in a voluntary capacity, and, as I said at the outset, I am impressed by the level of commitment and expertise that they bring to the table. The governing bodies understand their roles and responsibilities, and the Department holds them to account. We work in a partnership to ensure the best possible control and finance systems, and management information. We educate staff and governors through management and leadership training. The sector has transformed.

227. The sector was different 10 years ago. We now work as an equal partner with companies such as Bombardier, F G Wilson and Michelin. Today, the South West College is represented in Chicago on a sustainable development wind-turbine project. We engage in R&D; for example, one college has developed prototypes for nozzles for Mr Muscle products and has supplied over three million to date. We work on projects that range from engineering to making hairbrushes for Denman. The system has been built on a community college model. FE Means Business inherited that idea from the Committee for Higher and Further Education, Training and Employment — a former Assembly Committee — which suggested that we create an economic focus for the colleges. During the recession, they will prove their worth because, in particular, they will support local indigenous industry.

228. Mr Lunn: I will not be too critical of governors because, first, they are volunteers and, secondly, Jonathan Craig is here. He is touchy about governors, and we work on Lisburn City Council together. Should you conduct a periodic review of governing bodies’ independent performance?

229. Dr McGinley: The recovery-plan process intends to reduce costs and improve colleges’ financial position. Our track record in that area is good. Although efficiency reviews are more robust, I hope that we do not need to use them. We want to create and introduce a system of health checks whereby we conduct health checks on colleges on a rolling basis to ensure that they comply with the rules, regulations and procedures. That is a welcome development.

230. One college has already volunteered to participate in a post-due-diligence exercise to double-check its position after the merger. Moreover, we are developing in-house expertise and are professionalising our staff. The Department has established a quality improvement unit, through which staff are centralised and work on the quality of our contracting with training organisations. We are investing in increasing expertise in the colleges and in the Department.

231. Mr Lunn: Do you accept that, in the past, the Department allowed governing bodies to review their colleges’ performances?

232. Dr McGinley: Yes, I accept that.

233. Mr Lunn: That is probably history now.

234. Dr McGinley: That is how some weaknesses emerged.

235. The Chairperson: Trevor asked a question earlier about the investigation into overtime payments, which is due to be completed at the end of June. Can the Committee obtain a copy of that investigation when it has been completed?

236. Mr Refaussé: It certainly can.

237. The Chairperson: When did that investigation begin?

238. Mr Refaussé: It will begin next week. It has been commissioned, but the work will start next week and will be finished by the end of June.

239. The Chairperson: What drove you to begin the investigation at this stage? Did you do so because of the Audit Office report or because you knew you had to appear before the Public Accounts Committee?

240. Mr Refaussé: Neither; the lady in question had been on sick leave for approximately 20 months and has recently returned to work. We had to undertake several grievance and harassment cases that that person had. This is the first opportunity that we have had to carry out the investigation. We are working our way through a process.

241. The Chairperson: Was there no opportunity to carry out the investigation earlier?

242. Mr Refaussé: There were other issues that we had to address first.

243. Dr McGinley: The governing body that inherited the problem made a conscious decision that the matter should be pursued.

244. The Chairperson: I may want to return to that issue later. I remind members to keep their questions succinct.

245. Mr Craig: I am not quite sure what Mr Lunn was referring to.

246. The Chairperson: Mitchel said, “Hands off.”

247. Mr Craig: You put a lot of responsibility on individuals on governing bodies, more so than in other sectors. I find that quite alarming, because they are volunteers who have full-time jobs to hold down. However, that is just an observation.

248. Paragraph 4.20 refers to audits and internal audits. It states that, if one firm is involved in auditing several colleges — surprise, surprise — every audit ended up exactly the same. The term “copy and paste” comes to mind. Clearly, that does not reflect the intricacies or difficulties in every college, because they are completely different. You were to carry out a review of that internal audit system and how it was being conducted. Has that review been completed, and have there been any outcomes?

249. Dr McGinley: That review is under way. The Department has an annual review of audit, and that is a priority audit for this year. The review is undertaken on behalf of DEL by the Department of Enterprise, Trade and Investment. It will examine the internal audit process across all colleges.

250. Mr Craig: Therefore, it is under way. Is there a timescale for completion?

251. Dr McGinley: We should have the outcome in early autumn.

252. The Department fully recognises the fact that governors are volunteers. We changed the legislation a couple of years ago to enable us to remunerate. We formulated a business case, which, unfortunately, did not stand up, mainly because there is no remuneration in Scotland and England; it had been considered and discounted. It was not even considered in Wales. The remuneration issue would obviously have implications elsewhere in the education sector. Those are some of the reasons that we were not successful in arguing the case for remuneration.

253. Part of the governance review that we are undertaking, which we will report on at the end of June, is examining that issue and the roles and responsibilities of the Department vis-à-vis the governing bodies. We also do our best to underpin governors’ roles, with support from the Department and training to enable them to have the necessary expertise to support them in their work.

254. Mr Craig: You are working from a small unit, as you admitted earlier.

255. Dr McGinley: Yes, we are. We are currently reviewing internal audits. We made the legal changes necessary to bring the Northern Ireland Audit Office in as the external auditor last year.

256. Mr Craig: When you receive the outcomes from that report, I am sure that you could share them with the Public Accounts Committee.

257. There is a disturbing reference in paragraph 4.18 to the level of documentation retained by the college, which fell far short of what would be required in the award of tenders. There was practically no documentation for review. From our perspective, that is absolutely frightening.

258. Did your investigation rule out fraud, and is there any suggestion of malpractice in the award of contracts? Are there any suspicions, or has anything arisen that would lead you to believe that something was wrong?

259. Dr McGinley: Our first thought on that matter was whether it was masking anything fraudulent. However, the matter was examined, and that was ruled out. It was simply poor practice and mismanagement in not maintaining records, and a lackadaisical approach to the procurement process, which was not tolerable.

260. Mr Craig: Were there any real outcomes from that investigation? Could the Public Accounts Committee receive a copy of the report, because it might help in our investigation?

261. Dr McGinley: Some 33 different reports have been undertaken. The Department helped to identify a retired, experienced principal to oversee the various reviews. When the acting principal came in, he carried out a robust investigation. As Mr Refaussé said, when he first took up post as the new principal of the merged college, he went through every report that was available and identified all the recommendations. He has thoroughly investigated at what stage they are all at. There was a process prior to merger with the acting principal and post-merger with the new principal to ensure that anything that arose from those reports was examined. In some instances, the amount of clawback was reduced because supporting documentation was found. The principal was able to bring some records to bear. However, there was poor record keeping and poor procedural arrangements.

262. Mr Craig: Are you and the Department satisfied that not only is there nothing untoward but that you are satisfied that that has been rectified? You would not want it to continue.

263. Dr McGinley: Yes, absolutely.

264. Mr Dallat: The governing body of the former Fermanagh college appeared to have a complete lack of understanding of what its roles and responsibilities were. You have covered part of my question already, but how could that happen? To what extent was the Department responsible for overseeing governors who did not know what their responsibilities were?

265. Dr McGinley: Governors have a fairly comprehensive guide, and, in 2007-08, we updated it extensively. It is a substantial document that clearly outlines the roles and responsibilities of governing bodies. To give governing bodies their place, at that time, there were fewer expectations. Some of that was, perhaps, the Department’s fault, in that it did not carry out enough training or dissemination. However, at the same time, the governing bodies cannot avoid the fact that they are in that role. There was an underestimation. The lack of leadership at senior management level, alongside a governing body that was not fully au fait or aware of what level of accountability it should have had, led us to the position that we found ourselves in.

266. The Department has examined the issue of governance and governing bodies, and those are now a vital part of the delivery of further education. Indeed, the sub-role of an audit committee vis-à-vis the governing body and alignment, and the review of governance, will further elaborate on what we will do. We put prospective governors through an approved recruitment process so they know what is expected of them, and there is also induction training. The new body of governors know much more clearly what they are applying for. People are to be lauded for giving their time and energy. Most governors have a genuine commitment to the possibilities of what further education can bring to the wider community and the economy.

267. Ms Bell: At the start of incorporation, this was a completely new model, and, subsequently, a new group of governors engaged. Even in 1998, the guide for governors was extensive, and it was proofed by the Northern Ireland Audit Office. The Department also provided training at that time, some of which was conducted by the Chartered Institute of Public Finance and Accountancy (CIPFA).

268. In addition, departmental officials visited every governing body to reiterate the Department’s expectations and to explain the documentation that those bodies should request from colleges and what questions they should be asking of principals.

269. When there were 16 colleges, it was more difficult, because there was no legislative basis for the Department to attend an audit committee meeting or a governing body meeting. Now that there are six colleges, it is much easier for the Department to attend meetings. Indeed this time, interview panels were used in the selection of governors. An independent assessor helped the Department in the previous selection process, which was more of a paper exercise than interview-based, as it is now.

270. Members of the governing body of the former Fermanagh college did not appear to understand their duties to the degree expected by the Department. Training means that that would not happen now, because the Department is much more closely involved with the six colleges and can do more.

271. Mr Dallat: However, a board of governors is only as good as the information that it receives. Given the past culture in FE, what has been done to ensure that people do not check their own work: the internal auditors also being the external auditors? I would not make comparisons with Brangam Bagnall and Co, but it would be useful to know that the consultants used by the colleges are from across a wide spectrum, that they have proper procurement procedures and that they are completely independent. That would certainly inform the Committee’s report. Is that the case?

272. Dr McGinley: That is the case. The internal audit was tendered widely by each college’s governing body, which is responsible for that process. Internal audit can be provided in three ways: in-house, a shared service or externally procured. In Northern Ireland, internal audits have always been externally procured. In the past, that was mainly because the 16 colleges were too small to sustain their own in-house units.

273. Now that there are six colleges, I do not rule out a shared-service-centre approach being developed further down the line. The Department has not investigated that thoroughly, but it may come out of the current review of the internal audit. However, PricewaterhouseCoopers won the contract for all six colleges and is the current auditor.

274. The Department has learned lessons from one internal auditor providing the same approach for seven of the previous colleges, so it will be careful to ensure that pro formas are not used. What the Department tests and what the audit committee of each college tests will be specific to those colleges. It is only fair to inform the Committee that the tendering exercise led to the same auditor being appointed for the six colleges. We hope that that builds into a strength by improving expertise that develops consistency in benchmarking, performance indicators, and so on. Both sides of that coin must be carefully managed.

275. Mr Dallat: That certainly worries me. As well as audits being about finance, they also concern educational and training outcomes. Who evaluates those? Will it be the same people?

276. Dr McGinley: The Education and Training Inspectorate (ETI) has a vital role in that, and there is a rolling programme of investigations and inspections by the ETI on the Department’s behalf.

277. Mr Dallat: Given the content of this report, we have tended to focus on finance. However, it is clear that money that was squandered should have been invested in people, but it was not. Given our present dilemma and our serious failings towards all those who do not have skills, the FE colleges have a serious responsibility.

278. When I look at the CVs of young people from Poland and eastern Europe, I often find that not only do they have basic degrees, but they have further qualifications in, for example, traffic management and many other areas. I do not say this to condemn FE — I made it clear at the beginning of the meeting that I think the world of it — but what is going on that so many people are still without those basic skills? I accept that that situation starts long before they go to FE colleges.

279. Ms Bell: Since the FE Means Business programme began, all 16-to-19-year-olds who come full time to the college receive a commitment that they will leave with the essential skills of literacy, numeracy and information and communication technology (ICT). They will be accredited in those, so an employer will know that they have been assessed and accredited. They also leave with employability skills, such as problem solving, managing their own learning, working together, and understanding how business operates. They leave FE as much more fully rounded individuals. I agree that employability skills should be taught and developed throughout their primary education and into their secondary education. As schools have expanded their sixth forms, many more young people are staying in school or are going into apprenticeships. We want to encourage that. We have also seen many more adults attending college on a part-time basis, and we want to encourage that as well.

280. Dr McGinley: Links to higher education are also greatly improved.

281. Mr Dallat: We all wish you great success in that.

282. The Chairperson: I should say that in question-and-answer sessions, we should stick to the report rather than stray into policy areas.

283. Mr Dallat: I could not resist.

284. The Chairperson: You never miss an opportunity — fair play to you, John.

285. Mr McLaughlin: I will concentrate on the same general area. According to paragraph 4.19 of the report on the Fermanagh college, the Department was concerned about the failure of internal and external audits to flag up the problems at the college. I am interested in the follow-up to that. To hear that the same company has won the six contracts worries me. I should point out, however, that I am making no comment about the competence of the company concerned. Did you take any action on what, on some occasions, seem to have been conflicting judgements from those internal and external audit exercises? Did you raise those concerns with the regulatory bodies? I want to know how it is possible that the companies concerned are still engaged in contracts on behalf of FE.

286. Dr McGinley: We did not raise it formally with the regulatory bodies or the companies; we dealt with the issues that had emerged. I felt that it was only fair to inform the Committee about the current situation because, had we not done so and it came out later, it would have looked as though we did not say anything. On paper, it appears concerning that one of the criticisms of the report is that one set of auditors was operating a common template across a number of colleges.

287. I assure you that, in the procurement exercise, we were involved fully with the colleges in ensuring that procurement was appropriate and that contracts were tendered and won individually. However, it happened to be the case that the same company that was involved.

288. Mr McLaughlin: What period of time was involved?

289. Dr McGinley: It was three years, from the time of the merger in 2007 until 2010-2011. The contracts were all appropriately and independently procured, and companies won them accordingly. Importantly, the fact that the report highlighted that area as a weakness in the past means that we will ensure that we manage, and make a strength of, the process.

290. Mr McLaughlin: The report states specifically that the common-template approach did not serve the process well, which begs the question of whether the present contract holder figured in that unfortunate experience.

291. Dr McGinley: No. Are you asking me who the seven former contract holders were?

292. Mr McLaughlin: Yes.

293. Dr McGinley: I would need to check, but, as far as I am aware, the answer to your question is no; it was a different company.

294. Mr McLaughlin: Will you let us know?

295. Dr McGinley: Certainly, although I am nearly sure that it was a different company.

296. Mr McLaughlin: We discussed the role of governors and what is expected of them, and we heard about the Fermanagh college governing body’s vehement defence of its role and that its understanding of that role was at complete variance with the Department’s perspective. I will not go back to the measures that have been introduced subsequently, including the more rigorous appointment and interview process; however, paragraph 5.17 of the first report states that four of the six chairpersons of the newly merged further education colleges have resigned. What questions does that raise for the Department? I am sure that explanations were given for the resignations and that due allowance has been made for the diplomatic nature of the correspondence. Nonetheless, has the Department asked itself any questions about the matter? Are we expecting too much of people who are engaging in providing such public services, or are the resignations an indication that the Department’s support for governors is deficient to a degree?

297. Dr McGinley: It should be remembered that the chairpersons’ resignations happened at a unique time. One vacancy was the tragic result of the death of one person who was in post, and a number of the other chairpersons who resigned cited workload concerns as their reason. During the shadow period leading up to the merger, the chairpersons had to carry a large workload, including recruiting the boards and establishing the machinery to recruit the senior management teams. It was a transition period, and, on reflection, the Department probably underestimated what it expected the chairpersons to do. Therefore, I think that workload was a valid concern at the time.

298. I am glad to say, however, that we are now in a much steadier state, and we have acting chairpersons in place. In the light of the resignations and the issues that were raised, we did not formally reappoint chairpersons and we initiated the governance review, which I mentioned already, the outcome of which we hope to have by the end of June 2009. The review will be comprehensive, and it will investigate as far back as incorporation to determine whether the right model was used; hence, the relationship of arm’s-length bodies with the Department is an issue.

299. The review will also consider the composition of the governing bodies. Indeed, the new competition purposely brought in much more industrial-, business- and private-sector management expertise. In addition, we are investigating how students can best be represented, the composition of the committee and what it should do. We are also considering remuneration.

300. As I said, we looked at that area before, but we are considering it again. We are reviewing the length of appointments and the roles and responsibilities of individual governors, the chairpersons of the bodies, committees and the Department. It is a root-and-branch review of governance matters.

301. We have instructed the Learning and Skills Development Agency (LSDA) — which has, in turn, commissioned the Learning and Skills Improvement Service (LSIS) because of its expertise in that area — to do that work for us. A reference group, comprising departmental officials, representatives of the Association of Northern Ireland Colleges (ANIC) and representative principals of the governing bodies, is overseeing the work, and that group will report back to us. We will share what comes out of that report with the Committee. However, legislative change might be required if, for example, remuneration become an issue or there are changes to the board of governors. Some of that might involve changes to the current articles —

302. Mr McLaughlin: Is there a timeline for the review of the report?

303. Dr McGinley: We hope to do that by the end of June. We will obviously have to consult the Committee and other stakeholders, but we intend to implement the report’s recommendations in January 2010.

304. Mr McLaughlin: Can we have a copy of that, given the Committee’s interest in the matter?

305. Dr McGinley: Yes; that is absolutely no problem.

306. Mr Lunn: My question follows on from Mitchel’s and some of the others that have been asked. Paragraph 2.9 of the first report lists 10 issues that the external auditors raised over the past few years. Those include: poor management; an absence of strong financial management; inaccurate reporting; a failure to reconcile bank accounts; outstanding debtors not being reviewed or pursued; and a lack of robust business continuity. Figure 2 sets out the internal auditors’ financial assurances, and it shows that almost all the colleges have received substantial or high assurance from the internal auditors over the years. However, paragraph 2.7 states that: “Since the incorporation of the colleges in 1998 none of the colleges’ accounts have been qualified.”

307. I know that an independent company did the accounting, but how bad does the situation have to be for colleges not to be given a high level of assurance?

308. The tendering process for the accounting work is competitive, and it has been suggested that the company involved may not have been able to carry out that work in full, to put it bluntly. That company highlighted a lot of faults that could have led to much wider issues being raised. Within its budget, the company was not able to take the process right through, and, therefore, it did not qualify the accounts. Given the list of problems that was identified and everything that we have talked about today, it amazes me that both the internal and external auditors have effectively given the colleges a clean bill of health.

309. Dr McGinley: We have upgraded and tightened our audit code substantially. The audit code gives a clear sense of what is expected of internal and external audits, and we hope that that will help to avoid some of the issues that arose previously. A substantial or high assurance is very credible; it is not easy to achieve and is given only after a robust and rigorous process has been gone through. It is not easy for any college — or organisation — to achieve that level of assurance. Four colleges were given substantial or high assurance in 2002, and 12 colleges achieved it in 2007. That shows that we are moving on the right trajectory and getting colleges to the right place.

310. In response to your query about the extent to which we can rely on the validity of what is being done, all that I can say is that we have become more robust and that our audit code outlines clearly what we expect. Experienced senior staff are on the audit committee, and the Audit Office now oversees the external audit process. All that gives me greater assurance that the issues that we have discussed will not arise as readily now.

311. Mr Lunn: That is all part of a more hands-on approach that is being taken.

312. Dr McGinley: Yes.

313. Mr Beggs: I was a member of the Committee for Employment and Learning during a previous Assembly mandate. In 2002, Lisburn college came forward as needing an emergency injection of £1 million due to financial mismanagement. If my memory serves me correctly, a financial director had been off on long-term sick leave, and temporary cover had been arranged. The period that is covered in the report was around that time or perhaps even afterwards. It is painful to think that the lessons that were to be learned at that point were not taken on board.

314. The senior management team of Fermanagh college was managing £10 million a year, so it was not like running a corner shop. Nevertheless, when reading the list of issues that are highlighted, it struck me that it was more like ‘Fawlty Towers’. Meetings were held on an ad hoc basis, and minutes were either not kept, not produced or were vague. No decisions or action points were recorded, and there was no clear sense of there being a senior management team in the college. The principal was the accounting officer, but he failed to deal with the college’s significant weaknesses in financial management. The vice-principal had to cover because the principal was absent on several periods of sick leave. There was no evidence that the vice principal had received any training — I assume that that refers to his accounting officer duties. The Department should, presumably, have been aware of that. Although his contract stated that his performance could be appraised, he never received an appraisal.

315. The finance director had been a finance officer previously, but no records were available in the college to support her salary. The process and tendering of promotion for the role of director was poor, and it was not even possible to find an agreed job description. Given that the college receives £10 million a year of public-sector money, I am astonished at that series of failings. Will the Department ensure that a similar situation will not happen again? Will you use that case to ensure that existing colleges do not repeat those glaring weaknesses and failings? As has been said earlier, if money is wasted, less will be spent at the coalface on training people and improving skills. Will you use that information to ensure that existing senior management teams and governors are aware of the huge pitfalls that occurred in the past, so that they will not be repeated?

316. Dr McGinley: Definitely. We intend to organise a workshop on the report’s outworkings for senior management teams in the colleges in order to share the lessons that we have learned. Mr Beggs referred to the principal and the finance director in Fermanagh college. Both individuals transferred with the jobs from a pre-incorporated scenario. Therefore, issues such as a lack of job description were inherited. That would not happen now. At the time of the merger, we conducted a rigorous recruitment process, and people applied for the jobs that were available, because the merger meant that we lost several senior posts in particular. Staff have been appointed through the current process.

317. Mr McLaughlin: Have all the legacy issues been eradicated in the six merged colleges?

318. Dr McGinley: Some issues remain in the six merged colleges. I am always loath to assure members that I will never return to the Committee, because, ultimately, the issue is complex and involves 200,000 students and £240 million a year — it is a big “industry”. I said already that I hope that we can prevent similar problems, but I cannot put my hand on my heart and say that I will never return to the Committee to discuss such serious issues. We will embed the lessons that we learn from the reports to ensure that people are aware of them. Often, such situations are about good communication; we need to examine the situation, consider the reasons that it arose, consider how to avoid a reoccurrence, and outline what we should be doing. We are very much at the stage of outlining what we should be doing.

319. Ms Bell: After the failings of Lisburn college, Castlereagh college, the North West college and the North East college, the Department held seminars with the principals and the chairpersons of the governing body. The situation would be different now, because we have analysed the problems and sought reassurance from the respective colleges that those failings will not happen again.

320. We no longer rely only on written assurances from the colleges. As Dr McGinley said, we are strengthening the expertise of our own people and introducing health checks to ensure that the Department has more involvement with the colleges. Like Dr McGinley, I do not want to say that there will never be similar situations again. The due diligence report on the Belfast Metropolitan College has raised issues. The Department’s monitoring was vital in that and in all cases. I hope that we can be quicker than we have been in the past at preventing such situations happening.

321. Mr Beggs: How does the Department deal with people who are acting up to accounting officer? If someone takes on that role temporarily, can there be an assurance that they are aware of their responsibilities?

322. Dr McGinley: Even if someone is acting up, it is expected automatically that they will receive basic training for the role of accounting officer, either from the chief executives’ forum’s on-board training involving the Northern Ireland Audit Office, which offers on-board training, or from the college. If that training is not taken up, there is also training in the UK for accounting officer responsibilities. We use local training that is organised here.

323. We feel that someone who is acting up needs as much support as a new principal would get. It is written into the accounting officer’s letter of appointment that we expect them to confirm that they will undertake that training, and it is checked whether they have done so.

324. The Chairperson: What have been the main accountability and financial lessons that have been learned and implemented from going from 16 FE colleges to six area-based FE colleges?

325. Dr McGinley: This has been a huge journey in that we have a made a considerable transformation from our position 10 years ago to where we are now. We have taken steps to improve the accountability framework. The corporate governance framework is more robust. In some instances, it is in its early stages, but some of the work that we have implemented, such as the management information systems and the financial modelling, has been done with the sector. We are hopeful of the outcomes there.

326. There has been ongoing training and support, recruitment and support of governing bodies, and the implementation of quality senior management teams, who are managed and challenged by their governing bodies and are also supported in their learning. There has been a professionalisation of the sector.

327. The bottom line is that we have a sector that I think Northern Ireland can be proud of. It has huge potential for further growth and for helping us in the current climate. We are not going to rest on our laurels. This is not a process of ticking boxes, saying that we have done x, y or z; it is an ongoing, iterative part of our relationship with the colleges to make sure that the corporate governance requirements, good financial management and stewardship of resources is undertaken. At the same time, we must also enable and allow them to continue to respond to what they need to do in their communities.

328. That is the direction in which we are heading, and it is the right one for Government and for the community in Northern Ireland.

329. The Chairperson: On that note, I thank you all for coming in. There may be some other questions that we may need to ask you, and we will put those in writing. Some members asked for information that can be forwarded to us. Those issues will be included in the Hansard report, but I cannot remember all of them at the minute.

330. This has been an appropriate time to look at FE and the lessons that have to be learned. Our report will be out in due course, and you will receive a copy of that. We will make some recommendations as a Committee, and we hope that you do not have to come before the Committee again.

331. Dr McGinley: Thank you. I think that you are right about this meeting being timely. The 1999 Audit Office report gave us an excellent framework on which to build. It took us longer than we had hoped. This exercise has been very important at the outset of the merger, and it is important that we continue that journey.

332. The Chairperson: Thank you.

Appendix 3 Correspondence

Chairperson’s Letter of 15 May 2009
to Dr Aideen McGinley

Assembly Public Accounts Committee
Room 371
Parliament Buildings
BELFAST
BT4 3XX
Tel: (028) 9052 1208
Fax: (028) 9052 0366
Email: Aoibhinn.Treanor@niassembly.gov.uk

Date: 15 May 2009

Dr Aideen McGinley
Accounting Officer
Department for Employment and Learning
Adelaide House
39-49 Adelaide Street
Belfast
BT2 8FD

Dear Aideen

Re: Public Accounts Committee Evidence Session 7 May 2009

Further to the evidence session of the Public Accounts Committee on 7 May, please provide the following additional information which was requested at the meeting:

1 Members asked for an update on Belfast Metropolitan College deficit/surplus in 2006-07 and 2008-09 when its audited accounts are finalised.

2 Members requested confirmation of the completion date of the performance appraisal system review.

3 Members wished to receive a copy of the investigation report into overtime payments to the finance officer when it is completed; to be advised when the legal negotiations are completed in relation to this officer; and to be advised of any outcomes from these actions.

4 Members requested a copy of the Department’s investigation into procurement practice and the award of contracts.

5 Members requested that a copy of the report on the governance review should be copied to the NIAO and to the Committee.

6 Members wished to know who the seven former audit contract holders were.

I should appreciate your response by Monday, 27 May 2009.

Yours faithfully

Paul Maskey
Chairperson
Public Accounts Committee

Correspondence of 28 May 2009
from Dr Aideen McGinley

From the Permanent Secretary
Aideen McGinley

Department for Employment and Learning logo
Adelaide House
39-49 Adelaide Street
Belfast BT2 8FD
Tel: 028 9025 7833
Fax: 028 9025 7878

Mr Paul Maskey
Chairperson
Public Accounts Committee
Room 371
Parliament Buildings
Belfast
BT4 3XX

28 May 2009

Dear Paul

Re: Public Accounts Committee Evidence Session 7 May 2009

Thank you for your letter of 15 May 2009 in which you provided details of the additional information which was requested at the above meeting. The information requested is set out below.

1 Update on Belfast Metropolitan College deficit/surplus in 2006-07 and 2008-09 when its audited accounts are finalised.

The 2006/07 financial year was the final year of the previous 16 Colleges prior to merger. In that year, the colleges which merged to form Belfast Metropolitan College, viz Belfast Institute and Castlereagh College, posted historic cost deficits of £2,451k and £1,022k respectively.

The Department awaits the submission of the final audited accounts for 2007/08 from the college. In respect of the accounts for 2008/09, as the college financial year runs from 1 August to 31 July, the accounts will not be completed until the autumn of this year. The Department will provide details of the college performance, as recorded in these accounts, to the committee once they are received.

2 Confirmation of the completion date of the performance appraisal system review.

A pilot performance related pay (PRP) scheme was introduced to assess Directors’ Performance in the 2003/04 academic year. The Department ended the pilot scheme in September 2005. It was considered that there had been a lack of rigour in the performance objectives set by the Governing Bodies and a lack of evidence in the completion of the subsequent assessments. The Scheme was subject to an independent review and a report was published in February 2006.

3 Investigation report into overtime payments to the finance officer when it is completed; to be advised when the legal negotiations are completed in relation to this officer; and to be advised of any outcomes from these actions.

Overtime Payment (Finance Officer) – An investigation into this matter is presently taking place by an arbitrator from the Labour Relations Agency. A full report will be available in mid June 2009 and it will then be considered by the South West College Governing Body.

Legal Negotiations (Finance Director) – A case conference with the college’s solicitors will take place in early June 2009 and, following this meeting, the South West College will have a timetable to take this case to completion.

The Committee will be kept informed of the outcomes.

4 Copy of the Department’s investigation into procurement practice and the award of contracts.

An electronic copy of the report is attached.

5 Report on the governance review should be copied to the NIAO and to the Committee.

The final report of the review of governance within the FE Sector is due to be delivered to the Department in mid July 2009. A copy will be issued to the Committee and NIAO, when it becomes available.

6 The seven former audit contract holders.

The contractor for the provision of an Internal Audit service to seven of the former FE Colleges, as referred to in paragraph 2.22 of the Review of Financial Management in the FE Sector in Northern Ireland from 1998 to 2007, was PricewaterhouseCoopers (PWC). The seven colleges involved were, Armagh College, East Antrim Institute, East Down Institute, Limavady College, Newry & Kilkeel Institute, North Down and Ards Institute and Upper Bann Institute.

I trust this is the information you require and apologise for the short delay in compiling our response.

Yours sincerely

AIDEEN McGINLEY

Fermanagh College: Review of Procurement Arrangements for Capital Maintenance

Introduction

1. Fermanagh College provided their annual audited accounts for the 2004/05 and 2005/06 academic years to the Department on 28 March 2007. In the management letter accompanying them, the auditors (Grant Thornton) had highlighted two areas of concern in relation to procurement procedures for building maintenance:

a. No documentation could be found to support the procurement process;

b. One invoice for £28k, for works carried out to the rear entrance of the college, could not be verified.

2. On receipt of the accounts, the Department flagged up the issues as potential frauds, in line with Departmental procedures, and wrote to the Governing Body to highlight its concerns and ask for details of the enquiries that the College were undertaking as a result of the issue being reported to them.

3. The Department considered that an independent investigation of the matter was warranted and approached the DETI Internal Audit service in order to ascertain if they shared the concerns of the Division over the matter and if they would be able to assist with the investigation.

4. The IAS Head of Internal Audit agreed that there did appear to be indicators that a fraud could have occurred, but was unable to devote any resources to assist. However, he offered to provide advice and guidance in the course of any review.

5. The use of FAST was also considered, however, as the issues identified indicated potential for fraud having occurred, it was considered that the initial review would be conducted by the FECGA G7 and DP Accountant as they were qualified professional internal and external auditors respectively, and if there were other issues emerging, they could be consulted once more information had been ascertained.

Terms of Reference

Objective

Ascertain, record and evaluate the system for procurement of capital maintenance programmes during the two periods in question in order to assess whether or not there is evidence of impropriety or irregularity in the use of public funds.
Form an opinion on, and identify any weaknesses that have contributed to, the issues highlighted in the external audit management letter.

Scope

A review of all documentation and interviews with all relevant staff in relation to the procurement process
A review of Internal Audit records
Interview with Internal Audit
Interview with consultant architect responsible for commissioning all work
A review of financial records

Approach

A review of the accounting and administrative controls around procurement
Interview all relevant individuals involved in the process – both internal and external

Outcome

Prepare a report for senior management setting out the procurement system in place, identifying any weaknesses and providing an opinion on whether there is any evidence of impropriety in the use of public funds.

Ascertain, record and evaluate the system for procurement of capital maintenance programmes in order to assess whether or not there is evidence of impropriety in the use of public funds

6. In order to identify what the procedure was for the identification, approval, commissioning and monitoring of capital maintenance, we:

Carried out interviews with college staff, including the acting Principal, the Head Caretaker and finance staff.
Discussed the role played in the process with individuals within a private architectural firm who identified and commissioned all work on behalf of the college
Reviewed all available documentation in the college relating to procurement of capital works
Reviewed Internal Audit reports to identify what review of procurement practices was carried out previously
Reviewed the findings of FE Division review of funding
Assessed the findings of a FAST review into the performance of maintenance projects

Procurement Procedures per Financial Memorandum

7. Paragraphs 88 – 94 of the financial memorandum set out the following requirements for procurement.

Economic appraisals should apply to all capital expenditure decisions as per DAO(DFP) 16/97, unless otherwise agreed in writing to the Department.
The college must comply with all public sector purchasing policies and requirements.
The college shall have regard to value for money considerations in all purchases of works, equipment, goods and services. Except where there is good reason to the contrary, contracts should normally be placed on a competitive basis. Where this is not the case, the reasons for this decision should be clearly documented. Contracts should be reviewed and renegotiated at regular intervals.
In a situation where colleges do not use the Government Purchasing Agency’s (GPA) list of approved contractors, the following procedures and thresholds should apply:
for expenditure less than £1,500 - minimum of 1 quotations;
for expenditure £1,501-£10,000 - minimum 3 formal tenders;
for expenditure £10,001-£20,000 - minimum 4 formal tenders;
for expenditure over £20,000 - public advertisement.
The thresholds are all inclusive of VAT. Any purchases above the European Purchasing thresholds must comply fully with Public Procurement procedures.
The college may from time to time wish to appoint consultants to assist the college in the exercise of a particular function or activity. The Department will require an annual return setting out details of all consultancy assignments completed during the year.
The college should consider how best to organise the purchasing function within the college so as to ensure value for money and compliance with best practice and legal obligations. This may include an in-house operation or a service level agreement or contract with a third party such as an Education and Library Board or the Government Purchasing Agency.
The Governing Body should approve a document setting out the purchasing procedures to operate within the college. This document should list those post-holders with delegated authority, specifying the types of purchases that they can authorise together with any maximum value. Staff engaged on purchasing must be properly supervised with adequate separation of duties to ensure, for example, that staff responsible for placing orders with suppliers are not also responsible for checking in delivery of goods. The procedure for the seeking, consideration and award of tenders should also be specified.
Colleges should pay all bills in accordance with contractual conditions. Where no such conditions exist, payments should be made within 30 days of receipt of goods or services, or on presentation of a valid invoice.

Procurement Process in College (Prior to October 2005)

8. As a result of our review, we identified the following procedures and practices for the provision of building work and maintenance in the college.

9. Up until the appointment of the acting Principal, in October 2005, the procedure for procuring building maintenance projects, as ascertained from an interview with the college architects, were as follows.

10. Maintenance, improvement and health and safety work had been identified in the course of a survey carried out by a private architectural consultant in 2000. The architect had been employed by the WELB to carry out this work prior to incorporation and continued in this role afterwards although no formal contract was in place.

11. Following that review, the college received details from the Department each year as to the likely level of resources which would be available for maintenance work. Following receipt of this information, the College advised the architects of the amount of money available for that year and sought from them an outline of what work from the schedule identified should be carried out. Following approval of this work by the college – normally the Finance Director - the architects would then draw up the necessary plans and complete the pro forma business case in association with college staff and would commission the building contractors to carry out the work which they monitored through to completion.

12. In order to facilitate easier planning, the architects gave all work to a single building contractor to carry out all maintenance work. The rationale was that the safest and most effective means of carrying out maintenance work was over the summer holiday as there were no students on site. This allowed most effective use of time and allowed access to all areas at all times with reduced potential for health and safety problems. However, this meant that this period of time needed to be used most effectively and it was the opinion of the architects that this would best be achieved by using a single contractor to oversee and perform all work.

13. Accordingly, and in line with WELB procedures, in 1999/2000, they had run a competition to let a competitive measured term contract. A number of companies applied and it was awarded to a local building firm who had been used each year since. As a result, the architects were of the opinion that they had achieved a system which allowed the most effective use of the college holidays to maximise the amount of work which could be carried out in the safest environment. By competitively letting the initial contract, they had also included an element of competitive market testing to ensure value for money.

14. They confirmed to us that they had been involved with carrying out work for the college prior to incorporation and this system was that which had, and still, existed in the Western Education and Library Board. The architects would then submit invoices for their fees – invoices from the building firm for the building works would have been submitted separately to the college.

15. In the course of our interview with the acting Principal, he confirmed to us that, soon after his appointment, he became aware of the informal arrangement that had been in place between the college and the architect for the provision of building maintenance and that there was no formal contract in place. Other finance and administrative staff were interviewed but none could provide any information in relation to the procurement of building or maintenance services – we were informed that all matters pertaining to this work were handled by the Finance Director who had been responsible for estates. The Finance Director has since ceased employment with the college and we were unable to discuss the matters with her. As a result, there is no assurance that the procurement of services was in line with required public sector/college procedures.

16. The Acting Principal advised that, shortly after he took up post, he had a meeting with the architect and advised him that they would not be able to use his services as there was no formal contract in place. Since then, each individual piece of work to be carried out has been subject to a competitive tender process.

Procedures and documentation

17. Following interviews with all key staff available, a search was carried out of all relevant or potentially relevant information relating to procurement within the college. All information was reviewed, but no documentation was identified which related to the procurement or tendering of building maintenance projects in the period under review, other than copies of purchase orders issued to the architect and building firms involved. No records of economic appraisals, business cases, costings, tenders, specifications or any other documentation was identified within the college.

Internal and External Audit

18. A review of the records of the college internal audit assignments indicated that building procurement was not an area which they had reviewed in the previous 5 years as a separate and discrete audit. Some elements had been included in the completion of other audits but none had been carried out into the full procurement process. As expenditure in this area was significant, totalling £2.5m over 5 years, and given that procurement would be generally considered a high risk area it is disappointing that the process was not subject to a full review. In addition, whilst the external auditors did identify the issue for 2005/06, it is a concern that this weakness had not been identified earlier as the procurement practices, which were criticised, had been operating since 1999/2000 and, presumably, should have been reviewed in the course of previous years audits.

Financial Records

19. We have carried out a review of the financial records of the college pertaining to building maintenance. In the 5 year period from 2001/02 – 2005/06, records show that almost all funds paid out for building work were made to the architect and one building firm:

Year	Architect	Builder
2001/02	£45,868.34	£254,425.70
2002/03	£88,823.82	£414,771.76
2003/04	£116,332.43	£718,058.49
2004/05	£94,858.88	£605,140.47
2005/06	£12,114.39	£141,188.50
Total	£357,997.86	£2,133,584.92

College Investigations

20. With respect to the specific project highlighted by external auditors (at 1b, above), the college Acting Principal met with the building company who carried out the work on the rear of the building and has submitted a report to the Department, which is attached, and is satisfied that the work carried out and attributed to the rear entrance is bona fide. We also discussed this particular project with the architects and were satisfied that significant work was carried out to the area identified; however, it was difficult to verify if the value of the work carried out was in line with the invoice submitted.

Departmental Reviews

21. Further Education Division carries out a review of each project funded through direct capital maintenance grants. This involves the completion of a pro forma following a review of all relevant documentation by the funding branch. In the case of the project identified by the external auditors (at 1b above), the Branch review found that advertisements had been placed in two local papers and the building contractor had been selected as the lowest tender based on an assessment of the hourly rate and other costs.

22. The tendering process described during this review, however, referred to the original tendering process for the measured term contract described above which was carried out in 1999/2000 and did not refer to a tendering exercise for this specific individual project.

23. A copy of the economic appraisal was retained on file, however, it was submitted by the architect to the auditor electronically some months after the work had been completed and, hence, not signed or dated by the college Principal. The pro forma requires details of the tendering process for the project to be documented, however, no tender documentation was retained during the reviews and it would be difficult to assess, therefore, whether proper tendering procedures were carried out.

FAST Review

24. In the course of our review, we identified that the Department’s Financial Audit and Support Team (FAST) undertook an examination of minor works, health & safety and SLDD/ABE funding in 2005 in a random sample of colleges, one of which was Fermanagh. FAST have advised that the examination was limited to a compliance check against FE Circular 18/01 ’Capital Development Payments Procedures’ which did not include procurement requirements as outlined in the Financial Memorandum nor did it include a visit to the Architect’s premises.

25. In conclusion to their sampled work, FAST provided the following assurance to the Department:

26. “FAST would comment that, although the overall budget (for all colleges) for each fund is significant, when viewed in terms of individual colleges the budgets are not significant relative to other areas of government capital expenditure. Also, each contract represents a multiple of varied job undertakings most of which must be completed over a short duration – between end of an academic year and beginning of the next (June-Sept). Without exception, Estates Managers expressed satisfaction with the current contract holders, the standard of workmanship and the efficient, problem-free manner in which work is carried out (across the sector generally).

27. In FAST’s view, these factors are sufficient to indicate that the current contracting process is cost-effective and gives value for money. FAST also gave consideration to the risk of irregularity and/or fraudulent exploitation. In our opinion, the potential for this is low given the control / monitoring by the Branch, segregation of functions in the management and supervision of the contract and the discipline within existing systems procedures. FAST would therefore give a level of assurance which goes beyond ‘the accuracy and completeness of data’ as recommended by IAS.”

28. The conclusion of FAST in this case would appear to be at variance with the findings of this review of the process for advertising and awarding of contracts within Fermanagh College for building and maintenance work.

Conclusion and Opinion

29. As a result of the issues identified in the Auditors report on the Fermanagh College accounts for 2004/05 and 2005/06, a notification was issued under Departmental Procedures as to the potential for fraud to have been committed. Based on the information reviewed and the interviews with college and departmental staff, auditors and contractors, there is no indication that any fraudulent activity has occurred, although, given the lack of documentation available in the college, it would not be possible to categorically state that this could not have occurred.

30. The standard and level of documentation retained by the college fell far short of what would be required in relation to the award of tenders for the value of such significant sums of public monies, indeed, there was practically no documentation available at all for review.

31. It is clear that procedures for the procurement of building maintenance work were not followed by college staff in line with paragraph 54 and paragraphs 88 to 94 of the financial memorandum. Individual contracts were not let for each building project. Competitive tendering is an important discipline and procedure to ensure that maximum value is obtained in the use of public monies. Rather than competitively tender each project, the college had an informal arrangement whereby a single consultant was tasked with identifying, arranging, monitoring and completing all building work within the college.

32. As a result, it is not possible for the college to demonstrate that maximum value for money was achieved for the public purse for any of the work carried out. In addition, without a formal contract in place, there was a risk that if work was not completed to appropriate standard/quality, within cost or to time, there would have been no recourse to legal action or any other form of remedy.

33. It is important to point out that, throughout this process, the architect and building contractors who carried out the work did so in good faith and accorded with the requirements required of them by the college. In addition, they have been open and helpful in providing information and access to their records to all those who have carried out reviews of their work.

34. Since the appointment of the acting Principal in October 2005, the practice described above has ceased and all building and maintenance work was carried out by competitive tender. Latterly, following merger of all 16 FE Colleges, Fermanagh College now operates as part of South West College.

35. I consider, however, that the most concerning issue relating to these breaches of procedure, which had been ongoing for some time, was that they were not identified, by those individuals and agencies which are tasked with ensuring that controls and procedures are adequate and operating effectively, until 2007, including college staff and management, the college external and internal auditors and the Department’s own staff who reviewed elements of these operations.

36. Overall, therefore, whilst there is no indication that fraud took place in these instances, there is clearly an opportunity for it to occur where established processes and procedures are not operating effectively and are not being monitored or reviewed on a regular basis.

37. Procurement of goods and services is potentially a high risk area as there are often large sums of money involved and it is reasonable to expect that a robust review of this area should take place on a regular basis. As a result of this investigation, we (FE Corporate Governance and Accountability Branch) have advised colleges that we would expect procurement procedures and practice to be reviewed on a regular and frequent basis as a discrete specific area for review. This will be followed up by a review of college audit needs assessments to ensure it is included within audit plans and is given adequate coverage by college internal auditors.

38. In addition, as noted above, the procurement process was subject to review by Departmental staff who failed to identify that the procedures being operated within the college were at variance with those required by the Financial Memorandum.

39. As a result, the Department needs to ensure that those who carry out reviews of procurement, or indeed of any activity involving the use of public funds, are aware of the formal procedures and controls and have the necessary knowledge, skills and experience to effectively carry out the review to the required professional standards.

Richard Monds
Head of FE Corporate Governance & Accountability Branch

March 2008

Appendix 4 List of Witnesses
who gave Oral Evidence
to the Committee

List of Witnesses who gave Oral Evidence to the Committee

1. Dr Aideen McGinley, Accounting Officer, Department for Employment and Learning.

2. Ms Catherine Bell, Deputy Secretary, Department for Employment and Learning.

3. Mr Victor Refaussé, Director, South West College.

4. Mr Kieran Donnelly, Deputy Comptroller and Auditor General, Northern Ireland Audit Office.

5. Mr David Thomson, Treasury Officer of Accounts, Department of Finance and Personnel.

Session 2008/2009

Thirteenth Report

PUBLIC ACCOUNTS COMMITTEE

Report on the Review of Financial Management in the Further Education Sector in Northern Ireland and Governance Examination of Fermanagh FE College

Membership and Powers

Table of Contents

Report

Appendix 1:

Appendix 2:

Appendix 3:

Appendix 4:

List of Abbreviations Used in the Report

Executive Summary

Introduction

The Serious Failures Identified at Fermanagh College and the Action Being Taken to Address the Weaknesses

The Weak Governance Arrangements at Fermanagh College

The Extent of the Department’s Monitoring of Colleges

Other Sectoral Issues

Summary of Recommendations

Recommendation 1

Recommendation 2

Recommendation 3

Recommendation 4

Recommendation 5

Recommendation 6

Recommendation 7

Recommendation 8

Recommendation 9

Recommendation 10

Recommendation 11

Recommendation 12

Recommendation 13

Recommendation 14

Recommendation 15

Recommendation 16

Recommendation 17

Recommendation 18

Introduction

The Serious Failures Identified at Fermanagh College and the Action Being Taken to Address the Weaknesses

Recommendation 1

Recommendation 2

Recommendation 3

Recommendation 4

Recommendation 5

Recommendation 6

The Weak Governance Arrangements at Fermanagh College

Recommendation 7

Recommendation 8

Recommendation 9

The Extent of the Department’s Monitoring of Colleges

Recommendation 10

Recommendation 11

Recommendation 12

Recommendation 13

Recommendation 14

Other Sectoral Issues

Managing financial difficulties in Colleges

Recommendation 15

Recommendation 16

Improving outcomes for students

Recommendation 17

The management of cash balances

Recommendation 18

Appendix 1

Minutes of Proceedings Relating to the Report

Thursday, 7 May 2009 Senate Chamber, Parliament Buildings

3. Evidence on the NIAO Report ‘Review of Financial Management in the Further Education Sector in Northern Ireland from 1998 to 2007; and Governance Examination of Fermanagh College of Further and Higher Education’.

Thursday, 18 June 2009 Room 144, Parliament Buildings

5. Consideration of the draft Committee Report on Review of Financial Management in the Further Education Sector in Northern Ireland and Governance Examination of Fermanagh FE College.

Appendix 2

Minutes of Evidence

7 May 2009

Appendix 3

Correspondence

Chairperson’s Letter of 15 May 2009 to Dr Aideen McGinley

Re: Public Accounts Committee Evidence Session 7 May 2009

Correspondence of 28 May 2009 from Dr Aideen McGinley

1 Update on Belfast Metropolitan College deficit/surplus in 2006-07 and 2008-09 when its audited accounts are finalised.

2 Confirmation of the completion date of the performance appraisal system review.

3 Investigation report into overtime payments to the finance officer when it is completed; to be advised when the legal negotiations are completed in relation to this officer; and to be advised of any outcomes from these actions.

List of Abbreviations
Used in the Report

The Serious Failures Identified at Fermanagh College
and the Action Being Taken to Address the Weaknesses

The Weak Governance Arrangements
at Fermanagh College

The Extent of the Department’s
Monitoring of Colleges

Thursday, 7 May 2009
Senate Chamber, Parliament Buildings

Thursday, 18 June 2009
Room 144, Parliament Buildings

Chairperson’s Letter of 15 May 2009
to Dr Aideen McGinley

Correspondence of 28 May 2009
from Dr Aideen McGinley

Richard Monds
Head of FE Corporate Governance & Accountability Branch

List of Witnesses
who gave Oral Evidence
to the Committee