Minutes of a meeting of the board of Leicester College Corporation

Held on 20 October 2024

Present: Danielle Gillett (Chair), Shabir Ismail, Sallyann Turner*, Roger Merchant, Kyle james, Neil McDougall, Jackie Rossa, Tom Wilson, Lee Sodan, Zubair Limbada, Sophie Stevens-Robinson*, Robert Radford*, Lesley Giles*, Vipal Karavadra

In Attendance: Louise Hazel - Director of Governance and Policy, Jane Parkinson - Director of Finance, Mark Dawson* - KPMG, Matt Widdowson (minutes) - Governance and Policy Officer

*Joined meeting online via Teams

1. Declaration of Interest

   • 1.1 There was no declarations of interest

2. Apologies for absence

   • 2.1 Apologies for absence were received from Chloe Bakewell, Louisa Poole, Chan Kataria, Kully Sandhu, Della Sewell, and Debi Donnarumma.

   • 2.2 Heather Powell had resigned as staff governor. The process of a new academic staff governor would commence in January 2025.

3. KPMG Audit Completion Report for Year Ended 31 July 2024

   • 3.1. The External Auditor presented the Audit Completion Report for Year Ended 31 July 2024. The following points were highlighted.

     • 3.1.1. The audit was almost complete with the remaining work expected to be completed within the next couple of weeks.

     • 3.1.2. It had been a clean audit with very few issues, so a clean opinion was anticipated on both the accounts and regularity.

     • 3.1.3. Three risks were highlighted during the planning stage although these were not specific to Leicester College. These included the Local Government Pension Scheme (as this was recognised on the balance sheet), management controls, and revenue recognition (the final funding confirmation from the ESFA was still outstanding).

     • 3.1.4. The College was required to obtain a waiver on one of the bank covenants which meant that there had to be additional probing around the ‘going concern’ element of the audit. Work was continuing pending an updated forecast which would need additional challenge. This was expected to be completed within the next couple of weeks.

     • 3.1.5. There were no material corrected or uncorrected issues.

     • 3.1.6. There were no control issues.

     • 3.1.7. There were only minor disclosure issues.

   • 3.2. Governors made a number of comments and asked the following questions: 

     • 3.2.1. Governors thanked the team from KPMG for their work.

     • 3.2.2. Should a draft financial statement have accompanied this report? The draft financial statement would go to the next F&GP Committee before it came before Corporation.

     • 3.2.3. The Audit Committee had made a minor comment about an incorrect page reference. This would be corrected.

     • 3.2.4. The Audit Committee had discussed the pension valuation and how this could skew the balance sheet. The External Auditor had explained some of the work which had taken place on calculating the asset value.

     • 3.2.5. The Audit Committee had been happy that there were no corrections or issues with regularity.

     • 3.2.6. The Audit Committee had discussed the upcoming changes to accounting standards which were due in July 2026.

     • 3.2.7. What had been the reason for the audit being completed much sooner this year? It had been due to the way in which KPMG had planned the audit. It had been intense for the Finance Team for a couple of weeks. The KPMG team members were also already familiar with the College.

     • 3.2.8. Appendix 8 of the report included details of the quality of audits compiled by the Financial Reporting Council. When compared with other auditors, KPMG scored highly in terms of quality. This could assure governors of the accuracy of the audit.

     • 3.2.9. What emerging risks did the External Auditor foresee? In addition to the educational related challenges, there were two risks to be aware of. Firstly, the financial sustainability challenge. Funding rates were challenging and the diversification of income was difficult. Income was under pressure at the same time as cost pressures were increasing. It was reassuring to see that there was a session on financial forecasting on the agenda. Secondly, cybersecurity continued to be a risk, as the number of incidents affecting the education sector were increasing. Governors would need to be assured that there were processes in place to prevent and respond to cyber incidents.

     • 3.2.10. Had an emerging issues paper gone before the Audit Committee? There had been an emerging issues paper issued by RSM. It would be useful to circulate this to all governors.

     • 3.2.11. RSM’s emerging issues report had referred to the ESFA being disbanded. It should be noted that the ESFA published the Audit Code of Practice and any changes to this would have to be taken into consideration.

     • 3.2.12. Mark Dawson was thanked for attending the Corporation meeting.

     • 3.2.13. The Finance Team were thanked for their work.

   • 3.3. Members of the Corporation noted the Audit Completion Report for Year Ended 31 July 2024.

4. Financial Forecasting

   • 4.1. The Acting Principal and Interim Chief Financial Officer gave a presentation on financial forecasting. The following points were highlighted.

     • 4.1.1. Financial forecasting was not an exact science and could be a complex process. The College had many different complex funding streams including 16-19, adult apprenticeships and higher education. There was no algorithm which could automatically produce forecasts.

     • 4.1.2. Forecasts were produced termly:

       • 4.1.2.1. The autumn reforecast was produced in October and based on period three accounts and the recruitment figures following the initial six week period.

       • 4.1.2.2. The spring reforecast was produced in January and was based on the period six accounts.

       • 4.1.2.3. The summer reforecast was produced in May and based on the period ten accounts.

       • 4.1.2.4. Additional reforecasts could be produced. During the Covid-19 pandemic a reforecast had been produced every month.

     • 4.1.3. A two-year financial plan was produced in June which was based on the curriculum plan.

     • 4.1.4. The College adopted a top-down/bottom-up approach to forecasting. The top-down approach used centrally held data, while the bottom-up approach used information gathered through discussions with budget holders.

     • 4.1.5. The top-down approach:

       • 4.1.5.1. Data were analysed right down to individual programme areas and each income stream was compared with 2–3-year trends.

       • 4.1.5.2. Significant policy changes had to be considered, such as new methods of funding. Local issues would need to be considered, such as the impact of devolution in surrounding areas.

       • 4.1.5.3. This analysis was made more difficult due to uncertainty around in-year funding.

       • 4.1.5.4. There was a rolling pay forecast which was updated on a monthly basis to give a 2-year prediction.  All recruitment had to be approved by ELT.

       • 4.1.5.5. Other recent changes were incorporated into the analysis, such as the change to employer national insurance.

       • 4.1.5.6. Non-pay costs were largely non-discretionary and did not tend to change much with the number of students.

     • 4.1.6. The bottom-up approach:

       • 4.1.6.1. The Finance Team had monthly discussions with budget

         holders and, when reforecasting, a series of more focused meetings would be held. Compliance reports would also be discussed at these meetings and there would be conversations around staff utilisation and the use of agency staff. There used to be more flexibility due to the number of variable hour lecturers, however, due to employment law changes the number of these members of staff had reduced.

       • 4.1.6.2. Meetings took place with the directors of support areas as the number of students could impact on exam fees, estates, or IT resources.

     • 4.1.7. Once produced, the forecast was tested against the bank covenants and the level of sensitivity required. If a reforecast breached a covenant it was revisited to see what interventions would be needed (e.g. a freeze on recruitment or non-essential non-pay costs).

     • 4.1.8. The forecast was also put through the financial health model to produce a financial health score.

     • 4.1.9. A two-year daily cashflow forecast was maintained although this was less problematic now that funds were received more evenly throughout the year.

     • 4.1.10. The forecast was presented to the Acting Principal before going to ELT and then onto the F&GP Committee and finally to Corporation. This process included a lot of dialogue and an awareness of the need to maintain quality and the student experience.

   • 4.2. Governors made a number of comments and asked the following questions: 

     • 4.2.1. Did anything happen prior to the autumn reforecast? The budget was produced in June and monitored as the management accounts become available. The autumn reforecast was the first opportunity to make a comparison with the budget.

     • 4.2.2. Was the modelling done on one spreadsheet or lots of spreadsheets? Everything fed into one spreadsheet.

     • 4.2.3. How was it ensured that spreadsheets were accurate? There were various checks and balances built into the process. Each curriculum area added their own contribution rates and the budget was entered into the DfE financial model to calculate financial health.

     • 4.2.4. Did the Finance Team challenge budget holders? There was an experienced team including an experienced management accountant who were able to challenge budget holders. A lot of challenge also took place during curriculum planning.

     • 4.2.5. Was the College looking five to 10 years ahead? It was difficult to plan long-term but there was the need to look forward. The College’s Strategic Plan looked three to five years into the future and considered local needs. 

     • 4.2.6. What would stop the College from recruiting international students who could attend virtually? Hybrid learning did take place; however, this did not include international students. A lot of the College’s provision was necessarily hands-on and, while there was a place for hybrid learning, a lot of students benefited from face-to-face teaching.

     • 4.2.7. How did the College manage a recruitment freeze when it came to ensuring that students continued to be taught? It was not a blanket freeze as the College needed to keep functioning and there were health and safety considerations. Staff requisitions for essential vacancies could still be submitted to ELT.

     • 4.2.8. How could the forecast account for unforeseen issues arising? Sensitivity testing took place to identify the margin of error and the cashflow had built in contingencies. The College took a cautious approach and stuck closely to the data. If there was a big issue it would be likely that this would be national in scope. Clawbacks were a risk, but the Audit Committee oversaw the plans in place to mitigate against this.

     • 4.2.9. The Finance Team were crucial. Was the College confident that the Finance Team had the right people with the right skills? There was a dedicated team responsible for budgeting which had experienced little staff turnover.  These were individuals who were not afraid to challenge budget holders and had built good relationships across the College. Budget holders would often go to the budget team for advice.

     • 4.2.10. Was there succession planning within the Finance Team? A few members of staff had been put through the AAT training and staff members were able to gain experience of working within the budgeting team.

     • 4.2.11. Was there an opportunity for the Finance Team to recruit an apprentice or graduate? This had happened in the past with mixed results, however there were current members of staff who would be able to move into roles should they be required.

     • 4.2.12. The Learning Support Fund was a big issue this year. What steps were being taken to prevent a repeat of this issue? A lot of students applied at the start meaning that the allocation was spent in the first couple of days. The College committed to honouring every successful application up to and including the first Saturday of enrolment, meaning that there was an overspend of £150,000. Every application made after the Saturday had to be taken on merit and some costs were waived for students. The DfE was informed that there had not been enough funding for 16-19. Next year there should be more funding.

     • 4.2.13. How influential was the College when it came to asking for a bigger allocation? This was a national issue and had been raised at a national level.

   • 4.3. Members of the Corporation noted the presentation on financial forecasting.

5. Fraud Prevention

   • 5.1. Roger Merchant gave a presentation on fraud prevention. The following points were highlighted.

     • 5.1.1. While the College’s management bore a lot of the responsibility, governors were ultimately responsible for the prevention of fraud. It was therefore best practice for governors to have an awareness of fraud risk.

     • 5.1.2. Types of fraud:

       • 5.1.2.1. Theft – the College had a lot of expensive equipment

       • 5.1.2.2. Cyber – cybercrime was a growing issue for FE. It was important to ensure that there were enough resources in place to achieve Cyber Essentials Plus.

       • 5.1.2.3. Procurement fraud – collusion between buyers and suppliers. Collusion at any level within an organisation was a major risk.

       • 5.1.2.4. Payroll and Supplier – including fraudulent requests to change bank details.

     • 5.1.3. The College had a Fraud Response Plan which set out how staff should respond to fraud. It would be interesting to know how many people in the College were aware of this plan.

     • 5.1.4. The Whistleblowing Policy was important.

     • 5.1.5. There was an annual fraud risk assessment completed.

   • 5.2. The Acting Principal and Director of Governance and Policy made the following comments.

     • 5.2.1. The College had learned lessons following the major cyber incident at Leicester City Council, and as many controls had been put in place as possible.

     • 5.2.2. Boxphish training was sent out to staff every month. Governors would also receive these emails and be able to access the training.

   • 5.3. Governors made a number of comments and asked the following questions: 

     • 5.3.1. The non-term time theft of PCs had been an issue at another college.

     • 5.3.2. There had been an issue at Leicester College when a member of staff had their bank account details changed.  

     • 5.3.3. Hull College had just experienced a cyber-attack. This would be looked into to find out if there were any lessons which could be learned.

     • 5.3.4. Capital projects presented an opportunity for fraud. The F&GP Committee monitored the tendering process which mitigated against this possibility.

     • 5.3.5. Was there more which could be done to make staff aware of all types of fraud? The Director of Governance and Policy and the Interim CFO had given a presentation to SLT. This would be reviewed and presented again with a request for SLT to cascade this information to their staff.

     • 5.3.6. What was the role of the Internal Auditors? The auditors were not duty-bound to look for fraud but must report if they encountered it. Auditors could be asked to consider fraud risk as part of their checks.

     • 5.3.7. Was there a cybersecurity continuity plan and, if so, how often was this reviewed? There were several business continuity and disaster recovery plans, including one for IT. There had been a recent desktop session with JISC, and there would be a disaster recovery test

       over the Christmas break. The Director of IT had recently prepared a report for the Audit Committee which detailed the College’s approach to cyber security.

   • 5.4. Members of the Corporation noted the presentation on fraud prevention.

6. Any Other Business

   • 6.1 There was no other business.

7. Date of Next Meeting

   • 11 December 2024