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

Held on 22 June 2022

Present: Danielle Gillett (Chair), Ed Marsh* (item 8.2 only), Verity Hancock, Caroline Tote, Jonathan Kerry*

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

*Joined meeting online via Teams

1. Declaration of interests

   • Verity Hancock, Louise Hazel, Shabir Ismail and Della Sewell declared an

     interest in item 8.
     

2. Apologies for absence

   • 2.1 Apologies for absence were received from Chan Kataria. Ed Marsh would join

     the meeting late.
     

3. Minutes of previous meeting and matters arising

   • 3.1 The minutes of the meeting held on 4 May 2022 were received and agreed.
     

   • 3.2 The confidential minutes of the meeting held on 4 May 2022 were received

     and agreed.
     

4. Financial 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 £1,675k compared to the budgeted deficit of £1,308k.

     • 4.1.2 Student numbers were below target and the College was not expecting

       to meet its 16-18 target by the end of the year.

     • 4.1.3 It would fall short of its AEB allocation and was currently expecting to

       achieve around 84%. A further reduction of £775k in income was

       reflected in the summer reforecast. The impact of COVID-19 was still

       being felt but the cost of living crisis was also biting with more people

       prioritising work over study. The ESFA was holding to the 97%

       tolerance but it would now claw back the whole underspend up to

       100% of the allocation; previously it would have clawed back

       underspend up to 97%. This meant there was a potential

       understatement of £300k for the clawback expected. It was not

       proposed to make any changes to the plan at this point as this was still

       well below the materiality threshold. The position would be kept under

       review and mitigated where possible to avoid breaking bank

       covenants.

     • 4.1.4 Apprenticeships income was in line with the reduced spring reforecast

       target of £3.9m, excluding employer incentives. With timely

       achievement, the budgeted figure should be achieved although end

       point assessment achievement was outside the College’s control.

     • 4.1.5 HE income was below the spring forecast target by £39k. This had

       been adjusted in the summer reforecast.

     • 4.1.6 Pay remained a challenge; overtime and PTL costs continued to be

       monitored carefully. Restructuring costs were likely to be lower than

       planned.

     • 4.1.7 Following the summer reforecast, the overall total comprehensive

       income after restructuring costs had decreased from a deficit of £957k

       to a deficit of £1,063k. The EBITDA remained positive.

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

       rating at 170 points. It continued to meet its bank covenants but this

       was very sensitive to any further adverse movements.

     • 4.1.9 A release of £695k had been included within the summer reforecast,

       representing part of the Lennartz creditor, which would now not be

       payable. This amount represented out of time assessments, which

       could not be raised by the HMRC. The College had received written

       confirmation from HMRC that this was the case.
       

   • 4.2 Governors asked a number of questions including:

     • 4.2.1 Whether the 84% AEB achievement was an assumption or a fact?

       It was an assumption; achievement still needed to be added in and

       summer schools were still recruiting.

     • 4.2.2 When would the outturn be known? This was likely to be in October.

     • 4.2.3 Was there more that could be released under the Lennartz line?

       There was the potential for more but this was not out of scope and so

       should not be released yet.

     • 4.2.4 Releasing this now would help reduce the deficit to £1m? Correct.
       

   • 4.3 Governors noted the period 10 finance report and agreed to recommend

     the summer reforecast to Corporation for approval.
     

5. Draft budget 2022/23 and Financial plan 2023/24

   • 5.1 The Deputy Principal presented draft budget 2022/23 and financial plan

     2023/24. The following points were highlighted.

     • 5.1.1 The planned budget for 2022/23 showed an operating deficit of £434k

       with a breakeven budget in 2023/24 of £58k. The EBITDA was

       £1,572k, and 3.5% with financial health at 170 points, Requires

       Improvement, moving to 180 points and Good financial health in

       2023/24, based on the current system.

     • 5.1.2 The key risks facing the College were highlighted and included

       achievement of the planned funding body income levels within the

       resources allocated due to the economic climate, the allocation

       process and a complex funding formula. Any further funding or policy

       changes might also impact adversely on the College.

     • 5.1.3 The College was planning to earn up to 103% of its AEB allocation.

     • 5.1.4 There would continue to be pressures on pay and non-pay including

       inflation rates. A pay award of 2.25% had been included in the budget

       but this would not prevent industrial action.

     • 5.1.5 Achievement of the Apprenticeships budget and the continued

       engagement of employers following the pandemic remained

       challenging.

     • 5.1.6 There remained a further risk that COVID-19 might return more

       aggressively leading to further disruption or more students not wanting

       to engage. The cost of living crisis would also continue to impact on

       people’s willingness to participate in education.

     • 5.1.7 Capital expenditure of £1.2M was assumed in 2022/23.

     • 5.1.8 The risks would be managed throughout the year. A reforecast would

       be undertaken in the autumn term once enrolments were known. The

       College had a revolving credit facility and would draw this down if

       needed.
       

   • 5.2 The Principal commented that the budget was very tight and there were some

     brave assumptions. The proposed budget for 2022/23 relied heavily on the

     College’s ability to achieve its income targets, and increasingly generate

     income within the resources allocated. Staff knew the importance of recruitment

     and ESOL and skills for life summer schools were running now. If recruitment

     did not improve, further efficiencies would need to be identified. Less viable

     classes would be reviewed and the College would need to restructure. This

     would be looked at early in the academic year, after the autumn reforecast.
     

   • 5.3 Governors asked a number of questions including:

     • 5.3.1 Would there be an indication of how recruitment was going by the

       time of the October F&GP? There would be early indications for 16-

       19 and HE by then and some idea of AEB although this recruited

       throughout the year.

     • 5.3.2 What were the main risks associated with the ‘brave

       assumptions’? The assumption of achievement of 103% of the AEB

       was the main risk. The assumption that apprenticeships would

       increase from the current position was also a risk and HE recruitment

       was unknown.

     • 5.3.3 The cost of living crisis was a major risk and was unlikely to

       dissipate quickly. Agreed, inflation at approaching 10% would

       impact adversely in a number of ways.

     • 5.3.4 When would decisions need to be made? By mid-October, it would

       be possible to look at structures where areas were down and any

       proposals would be ready for the December F&GP and Corporation

       meetings so they could be acted on in the second term.

     • 5.3.5 Were the risks identified in the risk register and could a more

       explicit link be made? The risks were included in the risk register but

       they would be identified more clearly in the budget paper and reports.
       

   • 5.4 Governors agreed to recommend the draft budget for 2022/23 and

     financial plan for 2023/24 to Corporation for approval, subject to

     amendment to include a 2.5% staff pay award in 2022/23

6. Bad debt write-off

   • 6.1 The Deputy Principal presented a paper requesting authority to write-off debts

     that were considered uncollectable. The following points were highlighted:

     • 6.1.1 The debts had been chased as far as possible and were now

       considered to be uncollectable.

     • 6.1.2 During the academic year to date, from 1 August 2021, there had been

       previous write offs of £51,499.29. With this recommendation, the

       cumulative total for the year would be £60,222.81.
       

   • 6.2 Governors considered the paper and agreed to approve the write-off of

     uncollectable debts totalling £8,723.52.
     

7. Committee workplan 2022/23

   • 7.1 The Director of Governance and Policy presented the Committee workplan for

     2022/23. The following points were highlighted.

     • 7.1.1 The workplan followed a similar format to the current year.

     • 7.1.2 Additional meetings would be called if it was felt necessary.
       

   • 7.2 Governor approved the Committee workplan for 2022/23 and requested

     that an additional date be found for November should another meeting be

     needed.
     

8. Pay - CONFIDENTIAL
   

9. Waivers of financial regulations

   • 9.1 Governors received and noted the report on waivers of financial

     regulations.
     

   • 9.2 Governors noted that one of the waivers was for £515k for costs of roof

     repairs. This was significant but the reason for the waiver was

     understood.
     

10. Dates of next meetings

    • 5 October 2022

    • 1 December 2022

    • 1 March 2023

    • 3 May 2023

    • 22 June 2023