The Public Accounts Committee said this week that it was concerned that colleges might be forced to borrow money to meet day-to-day running costs as a result of deficits totalling Pounds 20 million.
The PAC was reporting on hearings prompted by a National Audit Office report on financial control in the further education sector. It found that 48 colleges had deficits at the end of the latest financial year and expressed concern that about half of the colleges visited by the NAO had weaknesses in financial reporting to governors.
The Further Education Funding Council said in response that although there were some areas in need of improvement, it had been an encouraging year for the sector. In about one third of cases deficits had arisen since independence, while the rest were "inherited" from the days of local authority control. Colleges were now required to get back into the black inside two years.
The FEFC told the PAC that 70 per cent of colleges were operating in an "apparently robust financial state", 25 per cent were performing satisfactorily and 5 per cent had more acute financial difficulties.
The Association for Colleges said that the deficit position could not be taken lightly. "Quite a lot of colleges have inherited real deficits and have done a good job in managing them," a spokeswoman said. "While the sector is strong there are still serious problems of underfunding and more rainy days are ahead."
The PAC said it was concerned that external auditors at a significant number of colleges gave a qualified opinion on financial statements and that the auditor at one college issued a total disclaimer of opinion.
Gagging clauses surrounding severance payments were the subject of lengthy discussion during the hearing and Sir William Stubbs, FEFC chief executive, told the PAC that secrecy clauses designed to keep the details of the cost of severance arrangements from the public gaze were to be firmly opposed.
The PAC also expressed anxiety that college governing bodies could become self-perpetuating and that the process for recruiting new governors was informal, relying on individual contacts.
The committee recommended that the funding council consider making a register of business interests of governors a condition of funding.
The AFC said that it stood firmly against self-perpetuating olig- archies. Its advice to all colleges was to ensure that governing bodies were a mixture of experience and new blood.