Miser institutions 'must spend more on students'

January 8, 1999

Colleges are squirrelling away money unnecessarily instead of spending it on improving their service to students, the Further Education Funding Council has warned.

Publishing full and aggregated 1997 financial accounts for colleges late last month, the FEFC revealed that scores of colleges may be setting aside essential funds instead of using them "to further the mission of the college and to enhance the students' learning experience".

The FEFC has calculated for all colleges a "current ratio". The ratio compares the amount of cash and other assets with the college's level of liabilities. The funding council recommends that colleges should aim for a ratio of between 1.5 and 2.5:1. Colleges with a ratio below 1.5 may not be able to operate safely, while those above the 2.5 threshold may be saving too much, the FEFC said.

Almost a third of colleges - 135 out of 436 whose accounts were filed - have ratios in excess of the upper threshold of 2.5.

Not all of these colleges will be squirrelling, the FEFC said, as many will be holding cash in the short term for reinvestment in buildings.

"But there will be some sitting on a lot of cash," said a spokesman for the FEFC.

The average ratio is 1.7:1, at the bottom end of the safety threshold. A third of colleges have cash levels below what the FEFC considers necessary, and half the sector has an operating deficit.

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