Guidance

Financial accountability arrangements for colleges planning a merger

Information on the introduction of a number of special financial accountability arrangements to support colleges merging as part of the area review programme.

Financial accountability arrangements for colleges planning a merger

We are keen to support colleges merging as part of the area review programme with the introduction of a number of special financial accountability arrangements.

These arrangements may not apply in all cases, and we reserve the right to alter our requirements subject to the specific circumstances of each merger. Please keep your local ESFA (Education and Skills Funding Agency) lead informed about any planned merger so we can consider how these arrangements apply to your circumstances.

Financial health or control notices immediately following merger

We issue financial notices to colleges where we have significant concerns with college financial health or internal control. Colleges with a notice must undertake the remedial actions set out within the notice.

Where a college has an open financial health or control notice prior to merger, it may not always be appropriate for the merged college to inherit the notice.

Where a college corporation dissolves following a merger

A merger may involve the dissolution of college corporation/s either:

  • where the activities of all college come together in a new college corporation (a ‘Type A’ merger) or
  • where the activity of one college corporation it is acquired by another (a ‘Type B’ merger)

All financial health or control notices will close if the relevant college corporation dissolves. Notices do not transfer to the receiving college corporation or any other body.

Where a college corporation continues in operation following a merger

In ‘Type B’ mergers, one of the college corporations continues in operation.

Where this college has a financial control notice, it should expect the notice to remain open until such time that the merged college meets any remaining conditions.

Where this college has a financial health notice, it should expect that notice to remain open until such a time that ESFA considers that is no longer relevant to the merged college. This will be at ESFA’s discretion following assessment of the merged college’s financial plan and/or financial statements.

Financial health or control notices subsequent to merger

If we determine that the merged college’s financial plan and/or financial statements show inadequate financial health, we would ordinarily issue a financial health notice. We may decide not to issue and publish a financial health notice for up to 18 months following a merger. This will allow a merged college time to organise itself and achieve financial sustainability. During this period, we will monitor financial issues in line with our intervention monitoring arrangements.

We will continue to issue financial control notices to merged colleges in line with the standard approach. We would close this notice only once we are satisfied that the merged college has complied with the relevant conditions.

Financial plan requirements prior to merger

Colleges must submit a financial plan by 31 July each year. Ordinarily, this plan includes 3 years of financial information:

  • estimated outturn for current year
  • budget for next year
  • forecast for following year

For colleges planning to merge within the next 12 months, we may not need 3 years of financial information.

If planned merger dates are not met, you must notify your local ESFA lead who may ask for a 3-year financial plan from all standalone colleges.

For mergers scheduled from July to November 2017

For both ‘Type A’ and ‘Type B’ mergers, dissolving college corporations should submit a 1-year financial plan to include the estimated outturn for the current year.

For ‘Type A’ mergers a designated lead should submit a 2-year financial plan to include the budget and forecast for the merged college.

For ‘Type B’ mergers the continuing college corporation should submit a 3-year financial plan. This plan should include the estimated outturn of the continuing college corporation along with the budget and forecast for the merged college.

For mergers scheduled from December 2017 to June 2018

All colleges involved should submit a 2-year financial plan to include the estimated outturn for the current year and the budget for next year for their standalone college. This is in place of the standard 3-year financial plan.

This 2-year financial plan will stand until the first 3-year plan is due for the merged college. In exceptional circumstances, the agencies may request the submission of specific financial information regarding the merged college.

Financial statements requirements subsequent to merger

Any dissolving college must submit its accounts, in accordance with current requirements, within five months of dissolution.

Published 10 April 2017