Minutes of a meeting of the board of Leicester College corporation: Finance and general purposes committee

Held on 22 June 2023

Present: Danielle Gillett (Chair), Lee Soden*, Verity Hancock, Robert Radford, Chan Kataria

In Attendance: Louise Hazel - Director of Governance and Policy, Shabir Ismail - Deputy Principal/CEO, Della Sewell - Director of HR

* Joined via Teams

1. Declarations of interest

   • 1.1 Members of staff declared an interest in agenda item 5 (pay award).

2. Apologies for absence

   • 2.1 Apologies for absence were received from Nicola Gonsalves.

3. Minutes of previous meeting and matters arising

   • 3.1 The minutes of the meeting held on 3 May 2023 were received and agreed.

   • 3.2 The confidential minutes of the meeting held on 3 May 2023 were received and agreed.

4. Finance report (Period 10) and Summer reforecast

   • 4.1 The Deputy Principal presented the finance report (period 10) and summer

     reforecast. The following points were highlighted.

     • 4.1.1 The year to date result was an operating deficit after restructuring

       costs of £2,465k compared to the budgeted deficit of £2,128k.

     • 4.1.2 16-18 learner responsive learner numbers were above allocation by 98

       students. However, due to the mix of students recruited, the allocation

       had been reduced in year by £161k.

     • 4.1.3 Indications from the R10 data return and discussions with curriculum

       directors suggested that the College would fall short of the spring

       reforecast AEB target. The expected income had been reduced by

       £531k in the summer reforecast.

     • 4.1.4 Apprenticeship income was currently in line with the autumn reforecast

       target. However, there would need to be a significant number of

       achievements over the remainder of the year and there remained risks

       over the completion of end-point assessments which were out of the

       College’s control.

     • 4.1.5 Tuition fee income was below target. A decrease in income of £80k

       had been factored into the summer reforecast.

     • 4.1.6 A summer reforecast had been undertaken. Overall, the expected

       Total Comprehensive Income after restructuring costs had decreased

       from a deficit of £1.986m to a deficit of £2.361m.

     • 4.1.7 The College would breach two of its bank covenants. At a recent

       meeting, Santander had confirmed that the two covenants would either

       be suspended or waived for 2022/23. Final written confirmation of this

       was awaited.

     • 4.1.8 The College’s financial health remained in the ‘requires improvement’

       category at 140 points.

     • 4.1.9 The cash position was still strong.

   • 4.2 Governors asked a number of questions including:

     • 4.2.1 The accounts showed a deficit of £2.46m but the summer

       reforecast showed £2.361m. Was the College past the forecast

       deficit and in a dip; what accounted for the difference? There

       would be some balance sheet releases so the deficit would reduce for

       period 12.

       4.2.2 The cash position was strong but were there any concerns in

       terms of potential clawbacks? The cashflow took into account any

       expected clawbacks which would be taken in December. Cash would

       dip to £3.4m but would pick up after that. It also included all capital

       projects. The DfE had made changes to smooth the payment profile

       which also helped with cashflow which would previously have dipped

       in January/February.

       4.2.3 Was this being done for all colleges? It was.

       4.2.4 How was some of the shortfall in adult being compensated for,

       referenced in the paper? The ESFA had announced at Easter that

       colleges in non-devolved areas could add 2.2% on any AEB earned.

       4.2.5 What did this equate to? It would be between £250k and £350k and

       would effectively be a one-off non-consolidated bonus in 2022/23 and

       2023/24. There was a lot of movement between now and the end of

       the year so the final figure was not yet known.

       4.2.6 Had this been factored into the 2023/24 budget? Not yet.

       4.2.7 There were no changes included in respect of FRS17 although

       this could be a significant adjustment. The College presented the

       figures without this and then at the end of the year presented figures

       including it with a note in the accounts. It made no difference in terms

       of financial health, bank covenants, or the view of the bank.

       4.2.8 Given that this was period 10, what more, if anything could be

       done in terms of findings efficiencies; what were the options now

       or was it a case of focussing on next year’s budget? There was

       not much more that could be done in this year. Part-time staff and

       overtime budgets would need to be managed carefully and funding

       claims maximised. There might be some additional small savings from

       slowing down pay expenditure.

       4.2.9 Was Santander still supportive? It was. The College had an email

       confirming that the bank would waive/suspend covenants for this year;

       formal confirmation was awaited from the credit team. There was a

       new relationship manager. For 2023/24, the bank had indicated that it

       would want to continue to support the College and would

       waive/suspend covenants for that year as well. It had requested sight

       of the reforecast paper and the plan which would show the College

       going back into balance in 2024/25.

       4.2.10 That was helpful. The strategy was essentially that there would

       need to be a deficit next year but a better result was needed in the

       following year.

       4.2.11 Might the deficit go above £2.5m; were there any more surprises

       which could impact? There were still some unknowns at the end of

       the year including EPA and achievement but barring no major funding

       or other issues outside of the College’s control, this was likely to be the

       final position. The assumption would be that the College would earn

       close to what it had achieved this year for adult delivery; inflation and

       interest rates were impacting on participation.

       4.2.12 Was marketing taking place in the city and wider County to try to

       attract students? It was. 16-18 applications were looking strong

       particularly in some areas. HE and adult recruitment was much

       harder. Adults were having to prioritise work over training in the

       current climate; travel costs from out of the city would be an additional

       barrier. The College could not afford to deliver in other towns in the

       County. Part-time and evening provision was a potential area of

       growth although the issue would be finding staff willing to work to

       different patterns.

   • 4.3 Member noted the Period 10 finance report and agreed to recommend the Summer reforecast to Corporation for approval.

5. Pay Awards - CONFIDENTIAL

6. Draft Budget 2023/24 and Two-year financial plan

   • 6.1 The Deputy Principal presented the draft budget for 2023/24 and two-year

     financial plan. The following points were highlighted:

     • 6.1.1 Overall, the proposed budget for 2023/24 showed an operating deficit

       of £1.448m. The plan was to bring it back into balance in 2024/25.

     • 6.1.2 Total income for 2023/24 was forecast to increase by £948k to £45.7m

       compared to 2022/23. This was mainly due to increases in 16-19

       income. If the College recruited over 100 students above allocation it

       could make a case for additional funding. Applications were up in

       some areas but down in others reflecting government policy. The

       College was looking at what could be done to accommodate more

       constructions students as applications were at capacity already.

     • 6.1.3 Apprenticeship income was budgeted to increase marginally.

       However, other income streams such as AEB, Higher Education and

       fees in general were being held at 2022/23 levels as a result of the

       cost of living challenges on recruitment that were expected in 2023/24.

     • 6.1.4 Total forecast pay expenditure in 2023/24 would decrease by £238k

       before restructuring costs. This was the net impact of the identified

       efficiency savings and the proposed pay rise. Pay costs assumed

       ongoing vacancy savings of around £2.4m but a further £1.4 m of

       savings was needed going into 2024/25.

     • 6.1.5 The College would not meet the financial objectives relating to

       operating breakeven, cash inflow and adjusted current ratio although

       this was close to 1.1:1 but was very sensitive. Planned maintenance

       had been reduced in year but work was underway to try and meet as

       much of this as possible through funded capital projects.

     • 6.1.6 The capital budget was £13.8m of which the College would contribute

       £2.2m (17%).

     • 6.1.7 The College’s loan with Santander was on a fixed rate and the other

       loan with the DfE was fixed annually so increases in inflation should

       not impact on these.

     • 6.1.8 The financial health was requires improvement at 130 points. The

       deficit would need to reach £3.5m and 110 points for the College to fall

       into inadequate financial health.

     • 6.1.9 The assumptions and sensitivities were highlighted. The College

       would breach bank covenants and was working to get the

       suspension/waiver finalised, as discussed earlier.

   • 6.2 The Deputy Principal then updated the Committee on the fabrication and

     welding project. A decision to cease the project had previously been made on

     the basis of tender costs of £1.1m against a budgeted cost of £300k. However,

     around £300k of income was at risk if the College ceased the provision; there

     would be reputational damage and potential impact on other apprenticeship

     income. There were around 30 employers affected; they were very pleased

     with the quality of provision having moved from Loughborough College because

     of quality issues. The provision was not offered by anyone else locally. The

     College had worked with a builder to produce a lower cost project of £765k; this

     would have a two-year payback. It was recommended that this be included in

     the capital programme. The ESFA and LLEP had been approached for support

     but this might be difficult to secure.

   • 6.3 Governors made the following comments and asked a number of questions

     including:

     • 6.3.1 £400k was at risk if the fabrication and weld project was

       commissioned? If agreed, which it should be, the College would

       need to revisit what the red lines would be in terms of the

       financial position and plans to address it early in the new

       academic year. This would be revisited once enrolment was known.

       The earliest would be around October half term after the data return

       and would feed into the Autumn reforecast. The latest date to start

       consultation on efficiencies would be Easter.

     • 6.3.2 Why Easter? This was in order that savings could be made and staff

       leave the College by 31 July. It could be done earlier but this could

       impact on staff morale and engagement and would affect the student

       experience.

     • 6.3.3 How much of the budget information was shared with staff? The

       big picture was shared with staff but not details. The Principal’s end of

       year presentations would focus on priorities for next year but would

       also highlight some of the challenges.

     • 6.3.4 Could staff impute the need for efficiencies from the figures?

       Figures would not be shared but it would be explained that there would

       be a deficit budget. The trades unions and senior leadership team

       would also be advised.

     • 6.3.5 The budget looked prudent although there was still some

       optimism in the assumptions. A review of the position was

       needed as early in the new term as possible; if there were

       implications which might affect organisations external to the

       College, these would need to be taken into account early. Agreed;

       conversations about potential implications for next year were already

       taking place internally and would continue though the planning

       process.

     • 6.3.6 Proposing a deficit budget was not a comfortable position; it

       suggested that the College did not have control of the finances.

       Contribution rates had been discussed at the away day but it was

       not possible to see which courses were making a loss and which

       made a profit. How quickly was it possible to make changes if

       the numbers did not come in as planned? It was only possible to

       make changes on an annual basis because if students enrolled, the

       College was expected to teach them. It was possible to flex the part-

       time and overtime budget and vacancies were managed carefully. In

       terms of the deficit, it depended on how it was looked at; EBITDA

       showed a positive figure although the operational position was a

       deficit. It would be an Ofsted year and the importance of maintaining

       morale and not making major changes needed to be taken into

       account. In terms of contribution rates, even if all costs were

       apportioned, it did not necessarily provide any more information

       needed to make decisions about provision; the ways in which

       contribution was calculated provided sufficient information to do this.

     • 6.3.7 For several years, the College had faced this existential debate;

       the FE sector was unique and very difference from the private

       sector when it came to setting budgets. However, if the financial

       objectives could not be achieved, should they be reviewed to

       reflect reality?

     • 6.3.8 The College was away from an inadequate financial health

       grade and must not get near that. Although it was not meeting

       the bank covenants and the bank was comfortable with this, it

       would be important to manage finances as tightly as possible.

       Agreed.

     • 6.3.9 Was it wise to include all of the narrative in the version that was

       sent to the ESFA? It was right to remind the ESFA of how well the

       College had managed the position. The College was recognised for

       having a clear and helpful narrative by the ESFA.

     • 6.3.10 Was there a formal recovery plan; if not, was this needed?

     • 6.3.11 Documenting the plan would be useful in counterbalancing and

       explaining the strategic decision to set a deficit budget.

     • 6.3.12 Would there be any financial penalties to breaching the

       covenants? No.

   • 6.4 Members requested that a recovery plan be developed and brought back

     for consideration.

   • 6.5 Members agreed to recommend to Corporation that it:

     • 6.5.1 Approve the financial plan for submission to the ESFA.

     • 6.5.2 Approve of the 2023/24 budgeted Income and Expenditure.

       Account, Balance Sheet and Cash Flow contained within the plan.

     • 6.5.3 Approve the Capital Expenditure Budget for 2023/24.

     • 6.5.4 Include the revised fabrication and welding project in the capital

       programme. Other sources of funding should be sought but if not

       forthcoming, this should be funded from reserves.

     • 6.5.5 Note the 2024/25 financial plan and its assumptions.

7. Financial regulations

   • 7.1 The Deputy Principal presented the revised Financial Regulations. The

     following points were highlighted.

     • 7.1.1 The amendments reflected the changes required as a result of the

       ONS decision to reclassify colleges as public sector organisations and

       other changes from the Accounts Direction.

     • 7.1.2 These included changes around write-offs, senior pay controls, special

       payments, asset disposal, novel, contentious of repercussive

       transactions, indemnities, borrowings, and fees for non-College related

       services.

   • 7.2 Members approved the revised Financial Regulations

8. Committee terms of reference and workplan

   • 8.1 The Director of Governance and Policy presented the proposed revised Terms

     of Reference and Workplan for the Committee. The following points were

     highlighted:

     • 8.1.1 Amendments had been suggested to reflect the changes to approvals

       required by the reclassification of colleges. These included the

       requirements to seek DfE approval for severance, ex gratia and

       compensation payments over set amounts.

     • 8.1.2 Further changes proposed following discussion by the Search and

       Governance Committee about the Scheme of Delegation included

       delegated approval of the Digital and Sustainability Strategies and

       monitoring of those strategies, and removal of approval of the

       Strategic Plan which had historically been a Corporation decision.

   • 8.2 Members agreed to recommend the revised terms of reference to

     Corporation for approval and agreed the workplan for 2023/24.

9. Any other business

   • 9.1 The Deputy Principal informed the Committee of a recent RIDDOR reportable

     event involving a student who had fallen through the stairwell at the Abbey Park

     Campus and suffered a fractured skull. The health and safety team was

     investigating. Staff were in contact with the student’s mother and the hospital;

     he was making progress and would be OK although was being kept in for a few

     more days. CCTV showed the impact of the fall but not what had caused it.

   • 9.2 Governors asked a number of questions including:

     • 9.2.1 What might the liability be to the College? The insurers had been

       informed; there were no structural issues with the staircase or

       bannister and nothing that suggested the College was liable.

       9.2.2 Would it be RIDDOR? It would be reported to the HSE. A governor

       had been onsite at the time; he had reported that staff had acted

       promptly and managed the situation very well.

       9.2.3 Were staff on the scene affected? Support was being provided by

       the HR team to staff who had dealt with the incident; students were

       being supported by the Student Services team.

       9.2.4 No doubt the H&S team would investigate and produce any

       recommendations that were needed. They would.

   • 9.3 Governors thanked staff involved and wished the student a speedy recovery.

10. Waivers of financial regulations

    • 10.1 Members received and noted the report on waivers of financial

      regulations.

11. Dates of next meetings

    • 26 September 2023

    • 7 December 2023

    • 7 March 2024

    • 9 May 2024

    • 27 June 2024