Guidance

College financial handbook 2026: effective from 1 August 2026

Updated 8 July 2026

Applies to England

Introduction

This handbook provides an overarching framework for implementation of effective financial governance, management and other controls, consistent with colleges’ obligations as public sector bodies.

It makes a number of references to specific statutory obligations. However, it should not be taken as offering legal advice. Where a college needs advice, it should take it from its appointed legal advisers.

Who this publication is for

Read this handbook if you have responsibility for governing, managing or auditing a college or college group.

This guidance is for:

• college governors
• accounting officers
• chief financial officers
• directors of human resources
• governance professionals
• auditors

It may also be of interest to sector and representative organisations such as:

• the Association of Colleges
• the Sixth Form Colleges Association
• the Catholic Education Service
• mayoral combined or strategic authorities
• the Greater London Authority
• the Office for Students
• the Chartered Institution for Further Education
• Landex
• combined or local authorities
• employers

Using this handbook

This handbook sets out the Department for Education’s (DfE’s) financial governance, management and control requirements for:

• further education and sixth-form college corporations
• bodies designated as being in the further education sector

We use the term ‘college’ to refer to:

• further education and sixth-form college corporations, established under the Further and Higher Education Act 1992, and any institutions they conduct
• institutions designated under Section 28 of the Further and Higher Education Act 1992 (“designated institutions”), and entities that conduct such institutions
• any subsidiary companies forming part of the parent college group

Colleges are not the only providers of post-16 education and training in England.

The handbook does not apply to:

• sixth-form provision by academy trusts
• 16 to 19 free schools
• local authority-maintained schools
• independent training providers

This handbook is part of a group of publications forming the financial governance, management, and assurance framework for colleges, which they must comply with as a condition of their accountability agreement.

The other components include:

• college accounts direction
• college financial planning handbook
• framework and guide for external auditors and reporting accountants of colleges
• college oversight, improvement and intervention

What the handbook covers

The handbook:

• describes the financial responsibilities of colleges, reflecting their status as charities acting in the public interest and classified as central government bodies
• explains when colleges must obtain advance approval for certain financial transactions – colleges must ensure they are familiar with these requirements, as described in part 5
• balances the need for effective financial governance and management with the freedoms that colleges need over their day-to-day business
• reflects the Seven Principles of Public Life – selflessness, integrity, objectivity, accountability, openness, honesty and leadership – to which public office holders must adhere
• must be complied with as a requirement of colleges’ accountability agreements with the Secretary of State for Education
• sets out the key elements of Managing Public Money that we require colleges to comply with
• sets out that DfE may take action, in accordance with the framework for college oversight, improvement and intervention, where there are concerns about a college’s compliance with all handbook requirements

Where this handbook refers to ’we’ or DfE taking action or making a decision, this means officials in DfE and, potentially, ministers, working together, unless stated otherwise. Where teams are referred to specifically, the expectation is that those teams will be leading on that specific aspect of work.

What has changed in the 2026 edition

The main changes are that we have:

• added a requirement, from 1 August 2027, that recruitment processes for a chief financial officer (CFO) must specify that the person should hold a professional accountancy qualification and be a member of a professional accountancy body (paragraph 1.10)
• added a requirement to inform DfE in advance if planning to appoint a CFO without an accountancy qualification for recruitment processes beginning from 1 August 2027 (paragraph 1.10)
• emphasised that the board of governors should have sufficient and effective financial knowledge and expertise, including training for members of committees (paragraph 1.12)
• updated information on senior pay when approval is required for pay increases that take a salary over the senior pay threshold in some scenarios – this reflects updated HM Treasury (HMT) guidance (paragraph 2.26)
• confirmed that colleges can operate electric vehicle (EV) salary sacrifice schemes without requiring prior DfE approval, provided they have comprehensive mitigations in place to ensure there are no liability risks or costs to the college, including if there is a change of circumstances to the employee’s position (paragraph 2.30)
• emphasised the requirement for colleges to comply with pension scheme regulations and the ‘new fair deal’ and have added a requirement for colleges to consult with DfE, if considering introducing a new pension scheme that is not the Teachers’ Pension Scheme (TPS) or Local Government Pension Scheme (LGPS) (paragraph 2.31)
• recommended that colleges use board assurance frameworks to assist with managing risk and have included a good practice list for risk registers (paragraph 2.33)
• removed the UK Corporate Governance Code from the selection of governance codes that colleges can choose to comply with – as forewarned in the 2025 handbook (paragraph 2.43)
• aligned special severance payments requirements with HMT guidance, published since the last edition – this includes clarification that the use of confidentiality clauses linked to special severance payments must be approved by DfE (paragraphs 5.7 to 5.14)
• deleted the summary table of delegations to safeguard it from becoming outdated during the life of the handbook and have incorporated the information into relevant sections where appropriate
• included additional information on cyber security, including the requirement for maintaining cyber essential certification on an annual basis (paragraph 6.15)
• added a requirement that colleges must not pay any kind of ransom or extortion demands including in relation to ransomware (paragraph 6.16)
• removed the ‘further reading’ section of the handbook and incorporated relevant links into the body of the handbook

Terminology

In the handbook:

• ‘must’ means statutory, contractual and other regulatory requirements such as, but not limited to, charitable rules and public sector spending rules
• ‘should’ means minimum good practice that colleges should apply, unless they can demonstrate that an alternative approach better suits their circumstances

Governors and trustees

Throughout the handbook, the term ‘governors’ is used to refer to those forming the board of the college. Given colleges’ charitable status, the board of governors are also colleges’ charity trustees.

However, in the context of Catholic sixth form colleges, the term ‘trustee’ refers to diocesan trustees and so the term ‘trustee’ has not been used, except where it is necessary to consider governors’ charity trustee duties specifically.

Likewise, in the case of designated institutions with the legal character of a company limited by guarantee, the board members are also directors of the company, but the term ‘directors’ is not used in this handbook.

Principal and chief executive

Colleges generally refer to their senior executive leader as a ‘principal’, but the term ‘chief executive’ is sometimes used as well, or as an alternative.

The handbook refers to the senior executive leader of a college primarily in relation to that person’s responsibilities as the accounting officer. However, it is not prescriptive concerning the job title.

Chief financial officer

The handbook references the role and responsibilities of the member of the senior leadership team with lead responsibility for financial management. This role is referred to as ‘chief financial officer’, though alternative job titles may be used in practice.

Governance professional

The handbook refers to the college’s governance professional as the role to lead and support governance within the organisation. Alternative job titles may be used in practice.

Part 1: Roles and responsibilities

The duties of key people responsible for running colleges.

The accounting officer

Who is the accounting officer?

1.1. In compliance with the college’s accountability agreement, the board of governors must appoint, in writing, a named individual as accounting officer. This should be the senior executive leader (principal or chief executive) and must be a suitable person for the role. The accounting officer should be employed by the college and may be a member of the board. The college must obtain prior approval from DfE if it is proposing, in exceptional circumstances, to appoint an accounting officer who will not be an employee. The accounting officer of the parent college must discharge their responsibilities as accounting officer in respect of all entities within the college group, including any subsidiary companies.

1.2. The appointment of an accounting officer does not remove the governors’ ultimate legal responsibility for the proper conduct and financial operation of the college.

Find out about the automatic disqualification rules for individuals acting as senior managers or charity trustees.

What does the accounting officer do?

1.3. The accounting officer role carries specific responsibilities for financial matters. It includes a personal responsibility to Parliament, and to DfE’s accounting officer, for the college’s financial resources. Accounting officers must be able to assure DfE’s accounting officer, Parliament, and the public, of high standards of probity in the management of public funds, particularly regularity, propriety, feasibility and value for money, including economy, efficiency and effectiveness – the 3 elements of value for money.

The following definitions are set out in Managing Public Money.

Regularity

The proposed transaction is compliant with the framework of authorities of the department or the body concerned. That the transaction under consideration has:

• sufficient legal basis
• parliamentary authority and Treasury authorisation

The transaction is also compatible with the:

• agreed spending budgets
• wider legal framework – for example, subsidy control and procurement law
• requirements regarding spending set out in this document

Propriety

The proposal meets high standards of public conduct and relevant parliamentary control procedures and expectations, including compliance with any conventions or commitments made to Parliament and cross-cutting government policies or standards. It must also meet the standards of conduct and good governance, as set out in this document.

Feasibility

The proposal can be implemented accurately, sustainably and to the intended timescale with the resources available and without incurring wasteful or nugatory spend.

Value for money

In comparison to alternative proposals or doing nothing, the proposal delivers the stated policy objectives in a way that represents good value for the Exchequer as a whole, taking into consideration the chances of different degrees of success or failure.

The 3 key aspects of value for money, drawn from the previous edition of HMT’s Green Book, are:

• economy – reducing the cost of resources used for an activity, while maintaining quality
• effectiveness – achieving the intended outcomes or objectives
• efficiency – achieving maximum output for given inputs, or minimum inputs for a given input

1.4. Accounting officers must adhere to the Seven Principles of Public Life.

1.5. The accounting officer must have oversight of financial transactions, by:

• ensuring that the college group’s property and assets are under the governors’ control, and measures exist to prevent losses or misuse
• ensuring bank accounts, financial systems and financial records are operated by more than one person
• keeping full and adequate accounting records to support the college’s annual report and accounts

The accounting officer’s annual statement

1.6. The accounting officer must complete and sign a statement of regularity, propriety and compliance each year and submit this to DfE with the college’s audited annual report and accounts, as set out in the college accounts direction.

The accounting officer’s duty to raise concerns

1.7. The accounting officer must take personal responsibility (which must not be delegated) for assuring the board that there is compliance with the accountability agreement, this handbook and the college’s governing document, including ensuring regularity, propriety, value for money and feasibility. Although it should be noted that this obligation on the part of the accounting officer does not remove or reduce the responsibility of the governors for oversight of compliance. The accounting officer must apply candour and transparency in discussions with the board relating to, but not limited to, financial assurance, financial management, financial reporting and irregularity, and has an overriding responsibility to raise concerns with DfE where their obligations to the board conflict with their role as accounting officer.  

1.8. The accounting officer must formally advise board members in writing if action the board is considering is incompatible with the governing document (for example, instrument and articles of government or articles of association), accountability agreement or this handbook. The accounting officer must also formally advise board members in writing if the board fails to act where required by the instrument and articles, accountability agreement or this handbook. Where the board is nevertheless minded to proceed, the accounting officer must consider the board’s reasons as provided in writing. If the accounting officer is required to implement the board’s decision, but still considers the action proposed by the board is in breach of the instrument and articles of government, the accountability agreement or this handbook, the accounting officer must notify DfE’s accounting officer in writing as soon as practical, via their DfE case manager.

Find out more about:

• the role of the accounting officer
• the accounting officer role in chapter 3 of Managing Public Money, including further information on the accounting officer’s duty to raise concerns and where directions may be given to them
• the consequence of these directions for the governance statement in the accounts as set out in annex 3.1 of Managing Public Money

The chief financial officer

Who is the chief financial officer?

1.9. The college must appoint a named individual to whom authority for financial management is delegated. This may be a CFO or finance director (FD), though the college may combine the financial leadership role with responsibility for other support functions and the job title itself may vary. The CFO should play both a technical and leadership role, including attendance at finance committee and audit and risk committee meetings to assist effective financial oversight. The CFO should be employed by the college, and the college must notify DfE in advance if it proposes, in exceptional circumstances, to appoint a CFO who will not be an employee, even if the contract is temporary.

Skills and experience

1.10. The CFO and their finance staff must be appropriately qualified or experienced. Colleges must assess whether the CFO, and others holding key financial posts, should have a business or accountancy qualification and hold membership of a relevant professional body, dependent on the risk, scale and complexity of financial operations. For colleges with over 3,000 students, the CFO should hold a professional accountancy qualification from a professional body such as the ICAEW, ACCA, CIMA or CIPFA or equivalent:

• for colleges with over 3,000 students, any CFO recruitment exercise commencing on or after 1 August 2026 should specify that the person should be a qualified accountant, and a member of the relevant professional accountancy body
• for colleges with over 3,000 students, any CFO recruitment exercise commencing on or after 1 August 2027 must specify that the person should be a qualified accountant, and a member of the relevant professional accountancy body. If a college is planning to appoint a new CFO who is not a qualified accountant, DfE must be informed in advance, including an explanation of why the college is not appointing a qualified accountant

The governance professional (clerk to the board)

1.11. The college must appoint a suitably qualified or experienced governance professional to support the board, who is someone other than a governor, principal or chief executive of the college.

The governance professional provides advice to the board with regards to:

• the operation of its powers
• procedural matters
• the conduct of its business
• matters of governance practice

Board of governors

1.12. The board of governors should identify and ensure it has the skills and experience it needs, including sufficient and effective financial knowledge and expertise to hold the executive to account. The board of governors must also consider the development of the members of relevant committees operated within the college, such as finance committees and audit and risk committees, to ensure they are appropriately trained to fulfil that role.

Disqualification

1.13. Colleges must not appoint or retain in post governors or senior managers who are disqualified under the Charity Commission’s automatic disqualification rules.

Part 2: Main financial requirements

The financial management requirements for colleges.

Financial oversight

2.1. Governors, the accounting officer and executive management must maintain robust oversight of the college’s finances.

2.2. The college’s board must take responsibility for the college’s financial affairs and for stewardship of assets and must use resources effectively, efficiently and economically to maximise outcomes for learners.

Scheme of financial delegation

2.3. The board cannot delegate overall accountability for the college’s funds. However, authority to make financial commitments will usually be delegated to various leaders within the college and, if so, the board must approve a written scheme of financial delegation (which may be, or may form part of, the college’s financial regulations) that maintains robust internal controls.

The scheme of financial delegation must be approved and reviewed by the board:

• regularly
• at least once every 3 years
• when there has been a change in college management or organisational structure, such as a college merger, that would impact the effectiveness of any existing scheme of delegation

2.4. The college’s governance model must ensure effective financial scrutiny and oversight. The board may delegate scrutiny and oversight to a finance committee, though responsibility for approval of budgets, the safeguarding of assets and the financial sustainability of the college cannot be delegated.

Basic control principles

2.5. The college must have a sound internal control, risk management and assurance framework, comprising:

• clearly communicated procedures, structures and training of staff
• appropriate day-to-day supervision and checks by management
• risk management procedures
• a programme of internal review overseen by an audit committee, ideally supported by an internal auditor
• external audit and assurance

2.6. The internal control framework will cover both financial and non-financial elements, but the financial elements of the framework must:

• ensure delegated financial authorities are complied with
• maintain appropriate segregation of duties
• coordinate the planning and budgeting process

• apply discipline in, but not limited to, financial management, including managing:

  • debtors
  • creditors
  • cash flow
  • monthly balance sheet control
  • account reconciliations
  • payroll
  • procurement
  • submission of individualised learner records (ILRs) and other funding returns and claims
• plan and oversee capital projects
• manage the estate, taking note of the further education estates planning guide, as appropriate
• manage and oversee the existence of all assets (estates and non-estates) and maintain a fixed asset register
• ensure regularity, propriety and value for money in the college’s activities
• ensure a risk register is maintained and reviewed by the board, drawing on advice provided to it by the audit committee
• reduce the risk of error, fraud and theft
• deliver independent checking of controls, systems, transactions and risks

Find additional guidance in Internal financial controls for charities (CC8).

Financial planning

Responsibilities of the board

2.7. The board must:

• ensure that financial plans are prepared and monitored, satisfying itself that the college or college group remains financially sustainable
• take a longer term view of the college’s financial plans, consistent with the requirement to submit budget and forecast information to DfE in accordance with the college financial planning handbook
• set and regularly review the college policy for holding reserves

Find out more in:

• Charity reserves: building resilience (CC19)
• Further education and sixth-form college corporations: governance guide

Setting a budget

2.8. The board, and any separate committee responsible for finance, must ensure rigour and scrutiny in budget management, taking into account both recurrent and capital budgets.

2.9. In accordance with the college financial planning handbook, the board must approve a budget, and any significant changes to it, for its financial year. The board must consider the impact the budget will have on the college’s future financial sustainability.

2.10. The board must ensure budget forecasts for the current year and beyond are compiled accurately, based on realistic assumptions, including any in relation to the sustenance of capital assets, and reflect lessons learned from previous years.

2.11. The board should challenge the learner number estimates on which the budget is based, as these underpin revenue projections.

Sending your budget forecast to DfE

2.12. The college must submit its budget forecast to DfE, in a form and manner specified by DfE in the college financial planning handbook and in accordance with deadlines published annually. This is necessary for DfE to be able to formally assess the financial health of individual colleges, and of the sector as a whole.

Financial health and intervention

2.13. The college’s budget information is used by DfE to formally assess its financial health on the basis of the methodology set out in the college financial planning handbook.  

2.14. Colleges should consider the FE Commissioner benchmarks: definitions set out by the Further Education Commissioner (FEC) when setting budgets.

Monitoring the budget       

2.15. The board must ensure appropriate action is being taken to maintain financial viability, including addressing variances between the budget and actual income and expenditure, through monthly management accounting and reporting.

Find out more in the Further Education Commissioner’s college management accounts good practice guide.

2.16. Should signs of financial difficulty emerge, either as an immediate issue or anticipated risk, the college must engage with DfE (via their DfE case manager initially) and DfE may be able to offer advice and support and, where appropriate, work with the college on reprofiling and financial restructuring options. Governors have a duty as charity trustees to ensure good financial management of their college. This duty is all the more important in the event that a college encounters financial difficulty that could result in insolvency. Colleges should not rely solely on DfE’s financial health assessment, or other review ratings, to give an indication of solvency. These will be based on either historical data, which may not reflect the college’s current financial performance and position, or on forecasts, as an indicator.

2.17. The college must select key financial performance indicators and measure its performance against them frequently and regularly, including analysis in its annual strategic report as explained in paragraphs 3.24 to 3.28 of the further and higher education statement of recommended practice (SORP).

Cash and working capital management

2.18. The college group must manage its cash position robustly, taking into account the working capital requirements of the whole group. It must not undertake any new borrowing, including overdrafts, without DfE consent. It may be required to report on its cash position to DfE where there are concerns about financial management or financial health. The college must advise DfE in good time of any projected shortfall in working capital that might indicate a requirement for support from DfE. The college must also have accounting processes in place that allow for the separate identification of capital grant receipts, as well as the proceeds of asset disposals.

Investments

2.19. Subject to any restrictions in its instrument and articles of government, a college may invest to generate further income, provided this is in the best interests of the college. DfE has provided further information on investing for colleges in the FE and sixth-form college corporations: governance guide. The Charity Commission has also produced Investing charity money: guidance for trustees (CC14) to help charities make the right decisions about investing funds.

Procurement and spending decisions

2.20. As a public sector entity bound by the requirements of public sector procurement, the college must be able to show that public funds have been used as intended by Parliament when sourcing goods and services. This means that steps must be taken to ensure that the letting of any contract follows due process, and that appropriate contract monitoring is in place, once a contract has been awarded. This includes when DfE-funded delivery is subcontracted to a third party. Colleges are accountable for all funded delivery, whether that is delivered directly or through a subcontractor.

Procurement basics

2.21. The college must ensure that:

• spending has been for the purpose intended
• there is propriety in the use of college funds
• spending decisions represent value for money
• internal delegation levels exist and are applied
• a competitive tendering policy is in place and incorporated into the financial framework of the college
• procurement rules and thresholds in the Procurement Act 2023 (if the agreement or contract is in scope) and its associated regulations are followed
• the Find a Tender service is used
• there are appropriate due diligence arrangements
• there is proper monitoring and assurance when the delivery of learning is subcontracted to a third party
• professional advice is obtained when appropriate

To achieve these ends, the board should consider approving a procurement policy and keeping it under regular review or building these requirements into the college financial regulations.

Sub-contracting

2.22. DfE has produced a subcontracting standard to provide colleges and other providers with a clear and consistent approach for the delivery of funded provision through subcontracting arrangements. Colleges must ensure that any delivery for which they are funded, whether delivered directly or through a third party, meets the necessary standards. All colleges that subcontract £100,000 or more within any funding year must engage a reporting accountant to obtain a report which complies with the assurance reviews of the subcontracting standard for post-16 providers: framework and guide for reporting accountants.   

Find additional guidance on subcontracting in the DfE subcontracting standard, and on procurement in annex 4.6 of Managing Public Money.

Colleges planning to undertake major capital projects should have due regard to HMT’s Green Book on project appraisal.  

Managing Public Money sets out that public sector organisations shall not engage in tax evasion, tax avoidance or tax planning. HMRC’s Introduction to tax avoidance provides further guidance.

Setting executive pay

2.23. Colleges must adopt one of the following remuneration codes or explain in their annual report and accounts why they have not done so:

• the Colleges’ senior post holder remuneration code, developed by the Association of Colleges (AoC)
• for colleges that are registered with the Office for Students (OfS), the Higher education senior staff remuneration code issued by the Committee of University Chairs

Any college not adopting one of the codes must set out how its alternative arrangements meet the principles of transparency, accountability, proportionality, understandability, value for money and the extent to which remuneration for senior people is evidence-based. Colleges must also follow the requirements to disclose certain matters relating to executive pay set out in the college accounts direction.

Senior pay controls

2.24. Colleges are subject to central government senior pay controls for any role that meets HMT’s senior pay thresholds. Since 1 May 2023, DfE must support remuneration proposals, as noted in paragraph 2.25, prior to applications being reviewed and agreed by Chief Secretary to the Treasury (through HMT). Further details are provided in apply for FE senior pay approval.

2.25. For new appointments with proposed remuneration above £174,000, or the pro rata equivalent for part-time staff or performance-related pay above £25,000, approval is required before the post is advertised. For existing staff approval must be sought in relation to any adjustment of total remuneration or terms and conditions which takes an individual above the defined threshold. There are exemptions to this for existing staff as set out in paragraph 2.26.

2.26. New approval does not need to be sought for existing staff if the role has had previous approval from HMT and:

• the total remuneration and performance related pay are the same or below what the incumbent receives, or involves an increase of 5% or less
• the previous HMT approval placed no conditions on the incumbent or subsequent recruitments (see paragraphs 2.3 to 2.6 of the HMT guidance for approval for senior pay

Colleges must notify the department of their use of this flexibility within one month of the appointment being made.

2.27. For existing employees where remuneration already exceeds £174,000, approval is required for any pay award above 6%, through the senior pay controls application process, before the pay increase is confirmed.

2.28. Before submitting applications, colleges should familiarise themselves with:

• HMT’s guidance for approval for senior pay
• DfE guidance on senior pay controls for colleges
• the DfE process for FE senior pay approval

Tax arrangements for senior employees

2.29. The college must ensure its senior employees’ payroll arrangements fully meet their tax obligations and comply with HMT’s guidance about the employment arrangements of individuals on the avoidance of tax. This is described in HMT’s review of the tax arrangements of public sector appointees, which explains that senior managers with significant financial responsibilities should be exclusively on payroll, and therefore subject to Pay As You Earn with income tax and NI contributions deducted at source.

Electric vehicle salary sacrifice schemes

2.30. Electric vehicle salary sacrifice (EVSS) schemes do not need prior DfE approval provided that the college has comprehensive mitigations in place to ensure no cost or liability falls on the college if an employee does not fulfil their contractual obligations with the scheme provider. Colleges choosing to offer an EVSS scheme must clearly document their comprehensive mitigations. Colleges must also follow the electric vehicle salary sacrifice guidance for academy trusts and colleges.

Pension schemes

2.31. FE colleges must comply with TPS and LGPS regulations, and with the new fair deal for staff pensions guidance published by HMT. This includes ensuring all eligible staff have access to either TPS or LGPS, as relevant to their role. This extends to access for any staff transferring to the college from another employer. With effect from 1 August 2026, any college proposing to introduce a new pension scheme, which is not TPS or LGPS must consult with DfE before any details are shared with their employees. 

Income generation

2.32. The college should set fees for its chargeable services at full cost but can apply an additional rate of return when in a commercial environment. The college must also comply with its subsidy control obligations and should refer to the UK subsidy control statutory guidance to assist with this. The subsidy control rules are designed to prevent, or at least significantly curtail, the extent to which public authorities, such as colleges, provide financial assistance to businesses in a way that could distort competition.

Risk management

Oversight of risk and the risk register

2.33. The college must manage risks to ensure its effective operation. The department recommends board assurance frameworks are used to enable a strategic overview of risks and, as a minimum, a risk register must be developed and regularly maintained.

Overall responsibility for risk management, including ultimate oversight of the risk register, must be retained by the board of governors, drawing on advice provided to it by the audit committee. However, other committees may also input into the management of risk, at the discretion of the board. Aside from any review by individual committees, the board itself should review the risk register frequently and must conduct a full review at least annually. The board of governors must have ownership of risk management in respect of all entities in the college group, drawing upon appropriate advice, including that of the audit committee.

Good practice for risk registers includes:

• ensuring risks are linked to strategic objectives and are not just a list of things that might go wrong
• using data and metrics to identify risks
• ranking risks using a consistent scoring mechanism for likelihood v impact
• assigning an owner to each risk
• distinguishing clearly between existing controls and mitigating actions, as well as risk and residual risk after mitigation
• keeping the register clear, concise and readable
• regularly reviewing and updating risks and removing those which are no longer relevant

The Education Training Foundation offers training to chairs and governors on the role of board assurance frameworks in effective college governance.

2.34. The college’s risk management should cover the full operations and activities of the college, not only financial risks. The management of risks must include contingency and business continuity planning. Colleges should also consider any risks associated with delivery of funded provision through a subcontracting arrangement, and whether adequate and regular contract monitoring is in place to mitigate such risks.

Insurance

2.35. The college must have adequate insurance cover in compliance with its statutory and contractual obligations, including that required by its accountability agreement with DfE.

Find out more about management of risk: principles and concepts, including HMT’s suggested structure for a risk register, and the Charity Commission’s guidance on how charity trustees can identify, assess and manage risks in Charities and risk management (CC26).

Whistleblowing

2.36. The Public Interest Disclosure Act protects workers from detrimental treatment or victimisation from their employer if, in the public interest, they blow the whistle on wrongdoing. The college must have procedures for whistleblowing to protect staff who report individuals they believe are doing something wrong or illegal.

2.37. The governors must approve the whistleblowing procedure, review it regularly and publish it on the college’s website.

The board should:

• state in its policy the process for reporting concerns

• ensure all staff are aware of:

  • the whistleblowing process
  • how concerns will be managed
  • what protection is available to them if they report someone
  • what areas of malpractice or wrongdoing are covered in the policy
  • who they can approach to report a concern, including reporting directly to DfE

2.38. The board must ensure all concerns raised by whistleblowers are responded to properly and fairly.

Find out more in:

• Whistleblowing for employees, including a definition of whistleblowing
• the whistleblowing charity Protect (formerly Public Concern at Work), which provides confidential independent advice about wrongdoing in the workplace

Provision of information – general information requests

2.39. The college must provide DfE, or its agents, with information required to meet funding and other regulatory requirements. This information must be of sufficient quality and provided when, and in the form, requested.

2.40. College managers and their staff must ensure information submitted to DfE that affects funding, including learner number returns and funding claims (for both revenue and capital grants), completed by the college and (for college groups with multiple colleges) by constituent colleges, is accurate and complies with funding criteria. This includes when funded delivery is through a subcontracting arrangement.

2.41. Occasionally DfE will require urgent information from the college, usually because of requests to DfE to fulfil its duties to provide information to the Secretary of State and account to Parliament. DfE will act reasonably in requests for information and have regard to costs and timescales of providing it, and its confidentiality. In requesting information, DfE will consider information previously supplied by the college to DfE, or other stakeholders with whom DfE is able to share information.

Governance

2.42. DfE has produced the FE and sixth-form college corporations: governance guide, which sets out the key governance requirements for colleges.

2.43. All colleges must comply with at least one of the following governance codes:

• Charity Governance Code (endorsed by the Charity Commission)
• Further Education Code of Good Governance (developed by the Association of Colleges)

2.44. Colleges must adopt the code that best reflects their legal structure and operations. If a college does not fully comply with the code adopted, it must have due regard to its principles and disclose in its annual report and accounts which aspects of the code it does not comply with, and the reasons for non-compliance.

 Avoiding conflicts of interest with related parties

2.45. This part of the handbook deals with goods or services provided by, or to, individuals or organisations related to the college.

Related parties include persons and entities with control or significant influence over the college, and members of the same group, such as parent and subsidiary companies, key management personnel and close family members.

The above description is not comprehensive. Find the full definition in:

• section 33 of Financial Reporting Standard 102
• section 25 of the further and higher education SORP

The ‘related party transactions’ section of DfE’s college accounts direction provides further information.

Principles applying to related party relationships

2.46. Colleges must be even-handed in their relationships with related parties and must ensure that:

• governors comply with their duties as charity trustees to avoid, or appropriately manage, any conflicts of interest so that they act only in the best interests of the college, rather than in their personal or private interest
• governors and senior employees do not accept benefits from third parties and declare any interest in proposed transactions or arrangements
• all governors and senior employees complete the register of interests, in accordance with sections 2.51 to 2.54 of this handbook
• no governor, employee or related individual or organisation uses their connection to the college for personal gain, including payment under terms that are preferential to those that would be offered to an individual or organisation with no connection to the college
• no governor, or party related to a governor, will receive payment for goods or services provided to the college except as provided for by section 185 of the Charities Act 2011
• there are no payments or other personal benefits to governors, or anyone closely related to them, by the college, other than reasonable out-of-pocket expenses, unless approved in advance by the Charity Commission, and any such payments comply with any relevant agreement with the Secretary of State for Education – colleges will need to consider these obligations where payments are made to other business entities that employ, or are owned by, the governor (or someone closely connected with them), or in which the governor (or someone closely connected with them) holds a controlling interest

2.47. The board must comply with the Charity Commission’s guidance for trustees: Trustee expenses and payments (CC11). It should also be aware of the Charity Commission’s guide to managing conflicts of interest: Conflicts of interest: a guide for charity trustees and Managing conflicts of interest in a charity.

2.48. The board must ensure requirements for managing transactions with related parties are applied across the college group, including any subsidiaries. The board chair and the accounting officer must ensure their capacity to control and influence does not conflict with these requirements. They must manage personal relationships with related parties to avoid both real and perceived conflicts of interest, promoting integrity and openness in accordance with the Seven Principles of Public Life.

2.49. Colleges must recognise that some relationships with related parties may attract greater than usual public scrutiny, such as:

• transactions with individuals in a position of control and influence, including the board chair and accounting officer
• payments to organisations with a profit motive, as opposed to those in the public or voluntary sectors

2.50. The college must keep sufficient records and make sufficient disclosures in its annual report and accounts, to show that transactions with these parties, and all other related parties, have been conducted in accordance with the high standards of accountability and transparency required within the public sector.

Managing conflict of interest

2.51. The board must have a policy for managing actual and potential conflicts of interest and keep it under regular review.

2.52. The board’s register of interests must capture relevant business and financial interests of governors and senior employees, including:

• ownership, directorships, partnerships and employments with businesses, including with subsidiaries and joint ventures of the college
• trusteeships and governorships at other educational institutions and charities

• for each interest, the:

  • name and nature of the business
  • nature of the interest
  • date the interest began

2.53. The register must be reviewed at least annually and must identify relevant interests arising from governors’ and employees’ close family relationships. ‘Close family relationships’ means a close member of the family, or member of the same household, who may be expected to influence, or be influenced by, the person. This includes, but is not limited to, a child, parent, spouse or civil partner.

2.54. Colleges should consider whether other interests should be registered, and, if in doubt, should do so. Colleges must keep their register of interests up to date.

Part 3: The audit committee and internal review

The need for colleges to establish processes to ensure systems are effective and compliant.

The role and responsibilities of the audit committee

3.1. The college must establish an audit committee, appointed by the board, to provide independent assurance to the board that its financial and non-financial controls are operating effectively. In a college group comprising a parent college and other entities such as wholly owned subsidiary companies, the audit committee of the parent college may discharge the audit committee obligations in respect of every entity in the group. Colleges that are themselves subsidiaries of registered higher education providers must have their own audit committee, separate to that of their parent.

The college audit committee must do the following.

Oversee the internal control environment:

• advise the governing body on the adequacy and effectiveness of the college’s assurance framework
• play a robust role in good stewardship and risk management
• oversee the college’s programme of internal review
• ensure that risks are being addressed appropriately
• report to the board on the adequacy of the college’s internal control framework, including financial and non-financial controls and risk management
• have right of access and scrutiny of all information and activities it considers necessary to fulfil its remit

Oversee external audit:

• advise the governing body on the appointment, reappointment, dismissal and remuneration of the external auditor and reporting accountant, internal auditor (as applicable) and other assurance providers (as applicable)
• inform the governing body of any additional services provided by the external auditor, reporting accountant, internal audit (as applicable) and other assurance providers (as applicable) and explain how independence and objectivity are safeguarded
• review and consider the reports of the external auditor, reporting accountant, internal audit (as applicable) and other assurance providers (as applicable), and monitor the implementation of recommendations to agreed timescales

Oversight of counter-fraud measures:

• oversee the college’s policies on and processes around fraud, cyber security, irregularity, impropriety and whistleblowing, and ensure:

  • the proper, proportionate and independent investigation of all allegations and instances of fraud and irregularity
  • investigation outcomes are reported to the audit committee
  • the external auditor (and internal auditor if applicable) is informed of investigation outcomes and other matters of fraud, irregularity and impropriety, and that appropriate follow-up action has been planned and actioned
  • all significant cases of fraud or suspected fraud, theft, bribery, corruption, irregularity, cybercrime, major weakness or breakdown in the accounting or other control framework are reported to DfE and other relevant funding authorities, as soon as possible (see paragraphs 6.9 to 6.10 for more information)
  • risks around fraud have been identified and controls put in place to mitigate them

Report and advise:

• in accordance with the college accounts direction, provide DfE with an annual report on its activities with the college’s annual accounts
• advise and support the governing body in explaining, in its annual accounts, the measures taken to ensure it has fulfilled its statutory and regulatory responsibilities

Membership of the committee

3.2. Employees of the college should not be audit committee members. Governing bodies seeking to appoint staff governors to the audit committee should consider whether such appointments meet good practice standards of independence and objectivity. The accounting officer and CFO must not be audit committee members, but may attend, at the invitation of the committee, to provide information and participate in discussions.

3.3. The audit committee must have a minimum membership of 3, a majority of whom must be non-staff governors, and must not include the chair of the governing body, principal or chief executive officer (CEO).

3.4. Audit committees must include individuals with an appropriate mix of skills and experience to allow the committee to discharge its duties effectively. Collectively, members of the committee should have recent, relevant experience in risk management, finance, accountancy and assurance. The abilities of the membership of the audit committee should reflect the needs of the college and should extend to expertise in all relevant financial and non-financial areas. Audit committees will be most effective when they are staffed by individuals who are prepared to support, challenge and warn the board of governors.

3.5. The governing body must consider the development of members and arrange appropriate training to ensure their skills and knowledge are up to date. Where the audit committee identifies a gap in its existing skillset, training and development should be provided to address this in the first instance.

Operating the committee

3.6. The committee must:

• have written terms of reference – HMT’s Audit and Risk Assurance Committee Handbook may be a useful reference point
• agree an annual programme of review work
• agree who will perform the programme of internal review work
• review the ratings and responses on the risk register to inform the programme of work
• consider reports from those carrying out the programme of internal review
• consider progress by management in addressing recommendations and follow-up audits
• consider outputs from other assurance activities by third parties, including funding audits and investigations
• have access to the external auditor, as well as those carrying out internal review, evaluate their plans and reports and also consider their quality

3.7. The audit committee should meet at least 3 times a year. Where 3 meetings are not held, an explanation, such as when it was not possible to achieve a quorum, must be provided within the audit committee’s annual report. 

3.8. The committee’s oversight must extend to the financial and non-financial controls and risks at all constituent colleges, subsidiary companies and any subcontractors, where relevant. This includes controls relating to learner data and funding claims. It must also ensure that all recommendations arising both from the programme of internal review and from external audit are followed up effectively.

3.9. Audit committees should take a holistic view with all aspects and systems – financial and non-financial – being in scope depending on their impact and effect on the college. In addition to the mandatory responsibilities of an audit committee outlined above, as best practice, audit committees may also oversee additional matters such as data breaches, General Data Protection Regulations issues and health and safety incidents, if such matters are not otherwise dealt with by other committees.

Audit committee annual report

3.10. The committee must produce an annual report for the board and accounting officer, summarising the committee’s activities relating to the financial year under review, including:

• a summary of the work undertaken by the committee during the year
• the number of the meetings held in the year, and attendance records for each audit committee member
• any significant issues arising up to the date of preparation of the report
• any significant matters of internal control included in the reports of audit and assurance providers
• details of the date of appointment of the external auditors and, if appropriate, internal auditors, and the remaining term of their contracts
• the committee’s view of its own effectiveness and how it has fulfilled its terms of reference
• the committee’s opinion on the adequacy and effectiveness of the college’s assurance arrangements, assurance over subcontracting, framework of governance, risk management and control processes for the effective and efficient use of resources, solvency, and the safeguarding of assets

3.11. The annual report to the board must be submitted to the board before the statement of corporate governance and internal control in the annual accounts is signed.

3.12. The committee must also provide a statement which draws upon that annual report, and where appropriate, the work of internal review, and submit it to DfE with the college’s audited annual report and accounts. The statement should include an opinion on the effectiveness of the college’s framework of internal control.

Internal review

3.13. Colleges must have a process in place to deliver a programme of internal review to enable the audit committee to discharge its responsibilities, but there is flexibility for colleges regarding how this is delivered. Having an internal audit service, which may be supplemented by specialists in particular areas, will assist audit committees in ensuring they have effectively discharged their responsibilities.

3.14. When a college has chosen not to appoint internal auditors, the audit committee must explain in its annual report to DfE how it has discharged its responsibilities to oversee a programme of internal review and obtain the necessary assurances concerning internal control and risk. If internal auditors have been appointed, then they should be members of a relevant professional body.

3.15. Colleges should note that the Financial Reporting Council’s Ethical Standard states that a firm providing external audit to an entity shall not also provide internal audit services to it.

Further information on internal audit is available from the Chartered Institute of Internal Auditors and Internal Audit Code of Practice.

Part 4: Annual accounts and external audit

How colleges must report on their finances to give assurance to Parliament and the public about their use of resources.

Preparation and audit of accounts

4.1. The college must maintain adequate accounting records and prepare an annual report and accounts in line with the further and higher education SORP and DfE’s college accounts direction.

4.2. The annual accounts must be audited in line with the requirements of the framework and guide for external auditors and reporting accountants of colleges. The college must allow the external auditor unrestricted access to all records, information and assets, which the auditor considers necessary to fulfil their responsibilities.

4.3. The accounting period of a college will end on 31 July as described in DfE’s college accounts direction and its accountability agreement.

4.4. The audited report and annual accounts must be: 

• submitted to DfE by 31 December
• published on the college’s website as soon as possible after the accounts are signed and no later than 31 January
• provided to anyone who requests a copy

4.5. The college accounts direction sets out the requirements for and provides guidance to colleges on the preparation of their annual accounts and the Casterbridge model accounts and college accounts direction handbook, published by the Association of Colleges, provide further guidance.

4.6. Colleges, registered with OfS, are subject to the OfS regulatory framework, including the OfS accounts direction.

External auditors

Appointment of external auditors and reporting accountant

4.7. Colleges must appoint an external auditor to give an opinion on whether their annual accounts present a true and fair view of the college’s financial performance and position.  

4.8. The external auditor must also perform the role of reporting accountant and provide a conclusion on regularity in accordance with a separate engagement to the opinion on the annual accounts, the scope of which is set out in the framework and guide for external auditors and reporting accountants of colleges. Since the provisions of this handbook form part of the regularity framework for colleges, the regularity review performed by the reporting accountant will encompass, but will not be limited to, consideration of whether the college has complied with the provisions of this handbook.

Letter of engagement

4.9. The external audit contract and regularity engagement must be in writing and must not cover other services. If additional services are provided, a separate letter of engagement must be obtained specifying the work and the fee.

Changing external auditors

4.10. One of the key roles of the college audit committee is the appointment and dismissal of external auditors. The college does not routinely need to notify DfE of a change in external auditor at the expiry of their agreed term in office. However, the audit committee must notify DfE immediately of the resignation of external auditors mid-term, or in the rare circumstance where the governing body removes the external auditors, before the expiry of their term of office. Where auditors have resigned, other than at the end of their agreed term, the audit committee must copy to DfE an explanation from the auditors. Where the governing body elects to remove the auditors, the audit committee must notify DfE of these reasons.

4.11. The audit committee must ensure that there is a policy for regular retendering of the external audit service. The audit committee should consider the quality of the audit service required as well as the price. Colleges should ensure that the external audit contract is put out to tender at least every 5 years, though this does not necessarily require a different firm of auditors to be appointed.

Review of regularity

Accounting officer’s statement

4.12. The accounting officer’s statement of regularity, propriety and compliance must be included in the college’s annual report and accounts. The statement is a declaration by the accounting officer that they have met their responsibilities to Parliament for the resources under their control during the year. The format of the statement is included as an annex in the college accounts direction.

Regularity self-assessment questionnaire

4.13. The corporation must prepare an annual regularity self assessment questionnaire (RSAQ) to support college accounting officers in drafting their statement of regularity, propriety and compliance. Colleges must provide a copy of their completed RSAQ to the reporting accountant, signed by the accounting officer and counter-signed by the chair of governors on behalf of the board.

Reporting accountant’s review of regularity

4.14. In accordance with the framework and guide for external auditors and reporting accountants of colleges, a review of the accounting officer’s statement of regularity, propriety and compliance must be included within the remit of the regularity engagement of the reporting accountant. The reporting accountant’s conclusions on regularity must be addressed jointly to the college and DfE.

External audit oversight and findings

4.15. The external audit process can support colleges by identifying areas of financial management, control and oversight that may require improvement. The board of governors, taking advice from the audit committee, must ensure there is an appropriate, reasonable and timely response by the college’s management team to findings by external auditors, taking opportunities to strengthen systems of financial management and control.

4.16. The audit committee must also assure itself as to the quality of the service being provided by the external auditors and, in accordance with the framework and guide for external auditors and reporting accountants of colleges, and produce an annual report of the committee’s conclusions to advise the board on the reappointment or dismissal of the external auditors, and their remuneration.

Part 5: Delegated authorities

The financial freedoms and limits applying to colleges.

Requirement to obtain DfE approval

5.1. The college has autonomy over financial transactions arising in the normal course of business. However, some transactions have delegated authority limits beyond which colleges must obtain prior approval, regardless of the source of funds.

5.2. Certain transactions require approval in advance by either DfE or the Charity Commission, or by both of these bodies. Should this be the case, a college should not make separate applications to DfE and the Charity Commission. DfE may need to refer some matters to HMT, but DfE will arrange liaison between all the necessary parties. Colleges should allow sufficient time for proposals to be considered.   

5.3 Colleges should use the DfE FE transaction approval request form to request permission for any transactions beyond their delegated limits.

Disclosure

5.4. Irrespective of whether DfE approval is required, in accordance with the college accounts direction, the college must disclose aggregate figures for certain transactions in its audited annual accounts. Other than what is required under financial reporting standards, the SORP and the college accounts direction, such disclosure can be anonymised.

Novel, contentious and repercussive transactions

5.5. Novel, contentious or repercussive transactions must always be referred to DfE for approval, and the request must be made to, and approved by, DfE before the transaction occurs or any commitment is made.

More about the transaction types:  

• novel transactions are those of which the college has no experience or are outside its range of normal business
• contentious transactions are those that might cause criticism of the college by Parliament, the public or the media
• repercussive transactions are those likely to set a precedent or cause pressure on other colleges or the wider public sector to take a similar approach and hence have wider financial implications, including where a proposal could cause additional costs to arise for other parts of government

Find out more in:

• novel, contentious and repercussive transactions and consents in section 2.3.7 and Annex 2.2 of Managing Public Money
• DfE’s good practice guidance for colleges and academy trusts on novel, contentious and repercussive transactions

Special payments

5.6. Certain transactions by public bodies may fall outside the usual planned range of activity and may exceed statutory and contractual obligations. These are referred to as special payments (see annex 4.13 of Managing Public Money), and they are subject to greater control than other payments. They include:

• special staff severance payments
• compensation payments
• other types of special payment, including ex gratia payments and extra contractual payments

Special staff severance payments

5.7. Special staff severance payments are paid to employees, contractors and others outside statutory or contractual requirements when leaving employment in public service, whether they resign, retire, are dismissed or reach an agreed termination of employment. They are different to ex gratia and compensation payments which tend to arise in circumstances other than leaving employment.

5.8. Special severance payments for staff leaving college employment should be exceptional. They can appear to reward failure and set a poor example for the public sector generally. Colleges must not use special severance payments as an easy alternative to proper management action, to avoid difficult decisions, disciplinary processes, unwelcome publicity, or reputational damage. Colleges have a responsibility to ensure that special severance payments are only made when there is a clear justification for doing so. They must also ensure that all relevant internal policies and procedures are followed, and all alternative actions are fully explored and documented.

5.9. Additionally, colleges must obtain prior DfE approval before making a special staff severance payment where any of the following apply:

• an exit package of £100,000 or above includes a special severance payment
• the employee earns over £174,000

• a payment is novel, contentious or repercussive – section 3.4 of HMT’s guidance on public sector exit payments contains examples including where:

  • the college has legal advice that the chances of successfully defending the matter in court or tribunal is more than 50%
  • an exit package includes a confidentiality agreement (see 5.14)

5.10. Where the college is considering a staff severance payment including a non-statutory or non-contractual element of £50,000 or more (gross, before income tax or other deductions), DfE’s approval must be obtained before making any offer to staff.

5.11. If a college is considering a staff severance payment above statutory or contractual entitlements, irrespective of whether its value falls within its financial delegation for such payments, it must consider the following issues before making a binding commitment.

Consider whether the special staff severance payment is appropriate

A severance payment may not always be the right approach. For example, severance payments should not be made to staff with poor performance or in cases of misconduct, as such cases may give rise to an impression of ‘rewards for failure’. DfE and HMT are unlikely to approve such payments. Any payments should always be in the interest of the college, but especially in the interest of the learners.

Take and document legal and HR advice

Appraise any course of action with the associated costs and the likelihood of successfully defending the case at tribunal or through arbitration. If legal advice says there is a greater than 50% chance of the college successfully defending any claim, the college must seek approval from DfE to offer a settlement as the matter would automatically be considered contentious. Colleges would need to demonstrate why they are recommending a payment to the employee rather than defending the case. If the chance of losing the case is 50% or more, a settlement may be justified.  

Clearly document the management and approval process, the rationale for the decision and the evidence that supports the decision.

This must take account of the college’s own internal processes and employment law.

Consider the appropriate level of payment

Following any legal advice, can a change from the settlement value be justified? A severance payment is made from the public purse and therefore value for money must be demonstrated.

Ensure you can support any non-financial considerations with evidence

For example, that learner performance is being negatively impacted.

5.12. Colleges should demonstrate value for money by applying the same scrutiny to a payment under £50,000, as those over this limit, and have a justified business case. Settlements must not be offered unless they satisfy the conditions in this handbook.

5.13. Colleges must also follow the guidance below, when considering any special severance payment:

• DfE’s special severance payments guidance, to be published in due course
• HMT’s guidance on public sector exit payments

Use of confidentiality clauses 

5.14. In respect of special severance payments, confidentiality clauses are always novel, contentious or repercussive, and so must not be used unless the college has obtained prior DfE approval . 

In addition, for any severance payment (special or otherwise) any confidentiality clause:

• must not prevent an individual’s right to make disclosures in the public interest (whistleblowing) under the Public Interest Disclosure Act 1998
• must not be used to prevent DfE from obtaining sufficient information from colleges to fully assess such payments under its regulatory role

Compensation payments

5.15. Compensation payments provide redress for loss or injury, for example personal injuries, traffic accidents or damage to property, and are unlikely to arise in the context of leaving employment. If a college is considering a compensation payment, it must base its decision on a careful appraisal, including legal advice where relevant, and ensure value for money.

5.16. Colleges have delegated authority to approve individual compensation payments, provided any non-statutory or non-contractual element is under £50,000. Where the college is considering a non-statutory or non-contractual payment of £50,000 or more, DfE’s prior approval must be obtained.  

5.17. Colleges should consider whether cases reveal concerns about the effectiveness of internal control systems and take steps to correct failings.

Other types of special payments including ex-gratia and extra contractual

5.18. Other types of special payment which go beyond statutory or contractual cover, or administrative rules, include ex-gratia, extra-statutory, extra-contractual and extra-regulatory payments. Such payments are essentially voluntary and are sometimes made as a gesture of goodwill rather than from any formal obligation. Annex 4.13 of Managing Public Money provides examples including, in the case of ex-gratia, payments to meet hardship caused by official failure or delay, and to avoid legal action due to official inadequacy.  

5.19. These other types of special payments must always be referred to DfE for prior approval, irrespective of the amount. If colleges are in doubt about a proposed transaction, they should seek DfE advice.

Write-offs and entering into liabilities

5.20. The college must obtain DfE’s prior approval for the following transactions beyond the following delegated limits:

• writing-off debts and losses
• entering into guarantees or letters of comfort
• entering into indemnities which are not in the normal course of business

5.21. It is important to note that the requirement to obtain such permission by a college extends to any such write-off, guarantee, letter of comfort or indemnity offered to or by any of the college’s subsidiaries.

5.22. The delegated limits are exceeded when:

• the write-off, loss or liability exceeds 1% of annual income or £45,000 individually (whichever is smaller)
• the write-off, loss or liability takes the college’s cumulative total write-offs or losses for the academic year beyond 5% of its annual income or £250,000 (whichever is smaller)

For these purposes, annual income is defined as the forecast total income for the current year as approved by the college board. The delegated limits are gross, such as before the impact of any insurance claim that could mitigate the impact of a loss. The write-off value itself should be considered to be the gross debt before any impairment calculations (for example, provisions for bad debt) are considered.

5.23. In relation to these limits:

• the college should always pursue recovery of amounts owed to it, including overpayments or erroneous payments
• the college should only consider writing-off losses after careful appraisal, including whether all reasonable recovery action has been taken with the debtor
• if the loss or write-off is covered by insurance, the college should first assure itself that the insurers are content that there is no feasible alternative to ceasing recovery action and obtain this in writing from the insurers.

5.24. In dealing with individual cases, the college must always consider the soundness of their internal control systems, the efficiency with which they have been operated, and take any necessary steps to prevent any failings recurring.

5.25. The college must keep an accurate record of all amounts lost or written off regardless of value.

5.26. Before accepting liabilities by issuing guarantees, a letter of comfort or indemnity, the college should secure value for money by appraising the proposal through assessment of the costs and benefits of relevant options. Boards of governors also need to consider the legal and regulatory requirements of issuing a guarantee or letter of comfort to support a loss-making subsidiary company.  

Find out about ICAEW advice to charities on loss-making subsidiaries, guarantees and letters of comfort.

The Charity Commission has also provided guidance on how charities can engage in trading to raise funds and how to apply income on trading profits in Trustees trading and tax: how charities may lawfully trade (CC35).

Disposal of fixed assets

5.27. Colleges can dispose of fixed assets without DfE’s approval, subject to the proposed disposal not being novel, contentious or repercussive.

5.28. Except when the college transfers any assets to another charity with the same or similar purposes, it must achieve the best price that can reasonably be obtained, while maintaining the principles of regularity, propriety and value for money. However, there are restrictions regarding how a college may use the proceeds of any fixed asset disposal, depending upon the type of asset.

5.29. In the case of moveable fixed assets (for example, non land and buildings, such as vehicles and IT kit) the college must consider:

• whether the asset or assets concerned may have been acquired with the assistance of a grant or donation from a third party, including (but not limited to) DfE, and whether the conditions of any such grant or donation set terms relating to disposal or the proceeds of disposal, or when an overage arrangement is in place

• whether disposal of such assets is consistent with its asset management policy and that there are plans in place to ensure that:

  • investment in moveable fixed assets is sufficient to ensure the ongoing ability of the college to deliver appropriate provision for learners is not depleted
  • moveable fixed assets can be replaced or upgraded when they reach the end of their economic life

5.30. Subject to addressing the above, the college may apply the proceeds of disposal (if any) at its own discretion, subject to the usual considerations as set out above. 

5.31. In the case of land and buildings, the college must consider the Charity Commission guidance on sales, leases, transfers or mortgages: what trustees need to know about disposing of charity land (CC28). The college should also have an estates strategy that underpins the long-term sustainability of the operation. However, it is recognised that over time certain elements of the estate may become redundant, and it may make business sense to disinvest in certain elements of the estate and thereby unlock funds to invest in more relevant capital provision. For that reason, in the case of land and buildings (whether freehold or leasehold), the proceeds of disposal must be used for capital reinvestment in further fixed assets or to:

• repay loans, to DfE and to banks
• repay any overpayments of DfE grants, or satisfy grant conditions where a repayment to DfE is due – for example, overage
• exceptionally, provide working capital for colleges to avoid the risk of insolvency – see paragraph 5.32

5.32. If a college wishes to use the proceeds from the disposal of land and buildings for the purposes of avoiding insolvency (for example, to fund a restructuring programme), then it must first seek the approval of DfE. In accordance with the framework for college oversight, improvement and intervention, colleges should engage with DfE at the earliest practical opportunity to consider available options. However, given that sale of land and buildings can be particularly protracted, colleges should seek permission to use the proceeds in this way in good time and well in advance of the disposal itself.

5.33. In the case of any fixed assets that form part of an endowment fund, the college may be under an obligation to re-invest disposal proceeds in another endowment asset. In such cases the college should take professional advice.

5.34. Colleges must consider whether any particular disposal could be considered novel, contentious or repercussive. DfE has produced good practice guidance for colleges and academy trusts on novel, contentious and repercussive transactions which stresses that it is not practical to set out an exhaustive list of examples. But in the case of asset disposals, such instances could include (but are not limited to) sale and lease-back arrangements, disposal of sites that are considered a community amenity and are not intended to be replaced, disposals to a related party, gifts or disposals that are below market value. The perception of the transaction may be as important as its substance and, in such cases, the college must ask DfE for permission for the disposal itself, as well as for the application of the proceeds.

5.35. By disposal we mean any process whereby an asset passes to a third party, such as sale, the granting of a long lease, scrappage, gifting, etc. By proceeds we mean net proceeds, that is after the costs of sale (for example, professional fees) and, when relevant, the settlement of any finance secured on the asset, have been deducted.

Leasing

5.36. Colleges do not require DfE’s prior approval for entering into either finance or operating leases, though colleges must ensure any lease maintains the principles of regularity, propriety and value for money.

Gifts

5.37. Colleges must have a policy and register covering the acceptance of gifts, hospitality, awards, prizes or other benefits that might compromise their judgment or integrity and should ensure all staff are aware of the requirements. As a charity, there are limited circumstances in which a college can make gifts which are not in direct furtherance of its charitable purposes. When making any such gifts, the college must ensure the value is modest, is within its financial regulations and scheme of financial delegation, the decision is documented and achieves propriety and regularity in the use of public funds. If the college is contemplating making a gift to a member of staff, then it should consider potential tax implications. If a college intends to make a gift to a governor, it must comply with the guidance set out in the Charity Commission publication Charities paying a trustee or a connected person: understand the rules (CC11).

Borrowing

5.38. Colleges and their subsidiaries must obtain DfE’s prior approval, regardless of the interest rate chargeable, for:

• new borrowing from the private sector (including instances where the college is a subsidiary of a registered higher education provider and that body plans to lend to the college)
• amendments to existing private sector borrowing

5.39. Such borrowing will only be approved in exceptional circumstances. Borrowing which increases private sector interest costs is unlikely to be approved, as private sector lenders face higher financing costs than government which would be passed on to lenders.

5.40. Private sector borrowing refers to any borrowing from commercial lenders and also loans from local authorities or any non-public sector organisation. Existing and future lending from DfE to colleges is excluded.

5.41. Amendments to existing borrowing which may be considered include, but are not limited to:

• changes relating to the term of a loan
• requests to change the length of time to repay the loan
• interest rate change outside the existing agreement terms (including any move between a variable and a fixed interest rate)
• providing additional security
• any other changes to the terms of existing facilities, including covenant changes, which incur a fee by the lender

If the college is in doubt as to whether any proposed change is within scope or not, it should submit a consent request.

5.42. Amendments which do not require DfE consent include:

• providing periodic standard written representations to lenders
• any other changes to the terms of existing facilities, including covenant changes, which do not incur a fee by the lender and are not amendments within the scope of Managing Public Money, as defined above

Credit cards must only be used for business expenditure, and balances cleared before interest accrues.

Part 6: The regulator and intervention

How DfE oversees colleges and may intervene where concerns arise in accordance with the college oversight, improvement and intervention framework.

DfE oversight

6.1. DfE’s accounting officer is accountable to Parliament for how DfE uses its funds and is personally responsible for the regularity, propriety and value for money of its expenditure and, by extension, for that of the sector as a whole. Consequently, DfE’s accounting officer may issue a ‘dear accounting officer’ letter to college accounting officers on an ‘as required’ basis in relation to emerging issues concerning accountability, regularity, propriety, value for money and accounting matters.

Access rights

6.2. DfE or its agents may carry out audits and investigations at a college. The college must provide DfE with access to all books, records (paper and electronic), information, explanations, assets, premises and staff, and DfE may take copies of relevant documents.  

Investigations: third party documentation

6.3. Where DfE has concerns about financial management or governance at a college, it may wish to obtain information or documentation from third parties about the college, which DfE considers relevant for the purposes of its investigation. Colleges must provide DfE with written authority giving permission for any third party to provide such information and documentation to DfE or its agents on request of DfE.

Retention of records

6.4. The college must retain records to verify provision delivered by it, or its subcontractors, in relation to this handbook and its accountability agreement, for at least six years after the period to which funding relates. The college must retain accounting records as per statutory guidance provided by HMRC, and if they are registered with Companies House, they must also follow its record-keeping requirements.  

Find out more about retention and disposal of records in:

• Keeping your pay and tax records – overview
• Running a limited company: your responsibilities – company and accounting records
• Secure sanitisation and disposal of storage media

Funding audits

6.5. As set out in college accountability agreements, DfE funding audits provide assurance to DfE on learner data, provided by a college via its ILR, to calculate its recurrent funding and establish whether the data is accurate and supported by evidence. The scope and timing of funding audits are determined annually. Funding audits may be performed directly by DfE or by its agents.

Fraud, theft, irregularity and cybercrime  

6.6. As set out in accountability agreements, the framework and guide for external auditors and reporting accountants of colleges and contracts with DfE (and, where relevant, with mayoral combined or strategic authorities and the Greater London Authority), colleges must establish and maintain an adequate system of internal control, to ensure compliance and to prevent and detect error, irregularities and suspected fraud (including theft, bribery and corruption). To achieve this, a college must establish and keep up to date an effective and proportionate counter-fraud policy, which sets out the approach to raising awareness, prevention, detection, investigation and sanction (including seeking redress where appropriate) of suspected fraud.

6.7. In developing a counter-fraud policy, colleges should consider the nature of the threat faced. The following non-exhaustive list contains suggestions for the main components of such a framework:

• a fraud risk assessment to identify areas most vulnerable to suspected fraud – DfE has developed a list of potential fraud indicators to support a review
• robust and well-designed internal control systems to address vulnerability to fraud, and the testing of internal controls to ensure that they are operating as intended
• policies and procedures (such as a whistleblowing policy and a fraud response plan), detailing how to report suspected fraud and the processes to follow when reports are received. The fraud awareness good practice guide provides suggestions
• a fraud loss measurement exercise to evaluate the scale of suspected fraud

6.8. The policy should also provide for regular and frequent review of its own effectiveness. The fraud threat is constantly evolving, and so colleges must ensure that they keep themselves up to date with the risks.

6.9. Colleges must have procedures to ensure any suspected or discovered instance of fraud, cybercrime, theft, bribery, corruption, irregularity, major weakness or breakdown in the accounting or other control framework are identifiable. Where identified, colleges must inform the chair of the audit committee, external auditors and internal auditors (if applicable) as soon as practically possible. DfE, and any other relevant college funder, must also be informed as soon as possible when the fraud, or suspected fraud, is significant.

Contact DfE at allegations.mailbox@education.gov.uk.

6.10. Significant fraud is where there is one or more of the following factors (though this list is not exhaustive):

• the gross amount of loss to fraud (that is before any insurance claim) is more than £5,000 either for an individual case or cumulatively in a financial year
• there is likely to be public interest because of the nature of the fraud or the people involved, especially when the fraud is committed by a governor or senior employee, regardless of the amount
• the particulars of the fraud are novel or complex
• the fraud is unusual in nature

6.11. With regard to the reporting of funding error, colleges must continue to adhere to the requirements of their accountability agreement and the funding rules.

6.12. The inherent nature of fraud means that any fraudulent transaction must be irregular and improper. The accounting officer must include any significant fraud in their statement of regularity, propriety and compliance.

6.13. Fraud, including any suspected or attempted fraud, should be reported to Report Fraud to help identify systematic risks potentially affecting whole sectors – for example, cybercrime.  

6.14. DfE reserves the right to conduct investigatory work in respect of any college when there are reasonable grounds to believe that fraud or other financial irregularity has occurred. Such grounds may include a notification from the college itself or from other information received. DfE may involve other authorities, including the police. If such a college is also funded by another public authority, then DfE and that authority will co-operate to determine which authority will lead the investigation. DfE publish reports on its investigations at colleges in line with its publication policy.

Cybercrime

6.15. Colleges must also be aware of the risk of cybercrime, put in place proportionate controls, and take appropriate action where a cyber security incident has occurred. Colleges must achieve Cyber Essentials certification and this must be renewed annually to maintain certification status as per the college accountability agreement.

Ransom and extortion demands

6.16. Colleges must not pay any ransom or extortion demands, including cyber ransomware. DfE supports the National Crime Agency’s recommendation not to encourage, endorse, or condone the payment of ransom or extortion demands. Payment of ransoms or extortion demands has no guarantee of restoring access or services and is likely to result in repeat incidents.

Find out more about cybercrime and IT heath checks in:

• Cyber security – core standard (schools and colleges) – this sets out the governance structures colleges should have in place to enhance cyber security and is not an alternative to Cyber Essentials certification.
• National Cyber Security Centre
• IT Health Check: supporting guidance
• CHECK penetration testing

College oversight, improvement and intervention

6.17. The framework for college oversight, improvement and intervention sets out how DfE will work with colleges to identify, at an early stage, any financial and quality issues that might hinder their success. It sets out the support and advice available to colleges when they need it, including from DfE and the Further Education Commissioner. The framework provides that, where there are concerns about financial management or governance in a college, DfE may issue the college with a notice to improve.

Find out more about the oversight, support and intervention framework, and intervention notices and reports in:

• College oversight, improvement and intervention
• Further education intervention notices and reports

The Secretary of State for Education’s statutory intervention powers

6.18. The Secretary of State for Education’s intervention powers are set out in sections 56A and 56E of the Further and Higher Education Act 1992, as amended by the Skills and Post-16 Education Act 2022. The Act sets out the circumstances in which the powers can be exercised, and the actions that the Secretary of State for Education can take.    

6.19. Where the Secretary of State for Education has serious concerns about the management of a college, the Secretary of State for Education may take statutory intervention action to address those concerns.

6.20. Where one or more of the circumstances for intervention have been met, the Secretary of State for Education can take a number of actions, including removal or appointment of members of the governing body. The Secretary of State for Education can also give the governing body a direction, as the Secretary of State considers expedient, relating to the exercise of their powers and performance of their duties.

Find out more about the Secretary of State for Education’s statutory intervention powers in Statutory intervention powers for the FE sector.

DfE’s work with the Charity Commission for England and Wales

6.21. Where there is a relevant concern, we may refer colleges to the Charity Commission, reflecting the Commission’s interest in addressing non-compliance with legal or regulatory requirements or misconduct or mismanagement in the administration of any charity, and in ensuring individuals running the charity (in particular, but not limited to, the charity trustees) do so in compliance with their legal duties. The Commission may use its regulatory powers as described in its Memorandum of Understanding with DfE.

Find out more about the Memorandum of Understanding between DfE and the Charity Commission.

National Audit Office and Public Accounts Committee

6.22. The National Audit Office (NAO) has the right to access the accounts and relevant records of a college for inspection, or for value for money studies. The college must cooperate with NAO and their contractors and provide help, information and explanation as is reasonable and necessary. NAO’s findings are considered by the Public Accounts Committee (PAC). The PAC has the power to call anyone, including past and current accounting officers of a college, to account for the proper use of public funds.