ESFA – A Lesson in Reading Accounts

We have been inundated in the past few weeks since setting up promote-ed.co.uk by providers who have either applied for RoATP registration or gone through the refresh process yet have been rejected and indeed some providers removed off the register due to ‘financial health’ issues. 

Examination of their accounts, put through the ESFA model, some do not have outstanding financial health, but they are certainly in the satisfactory category at worst. 

There are many Colleges who have received notices of concern regarding financial health and have the intervention of the Commissioner, a result of financial deficits on their income and expenditure accounts, high gearing from debt often taken on for capital building projects and poor liquidity but why there are not similar notices in the private provider market. 

That got us looking at Companies House.

If we look at the top 10 providers in 2019/20 in terms of enrolments for Apprenticeships, six of them have a financial health rating that would result in the issue of a notice of financial concern, yet none of them has received one. With the impending Achievement rates being published in the next three weeks, with a rumoured significant decline in overall achievements it will be interesting how the ESFA react. 

However, it is clear to us, the ESFA struggle to read a set of accounts or at least do it properly. One provider has nine levels of ownership before you get to understand who actually owns the business and the full picture of its finances and when you run those accounts through the ESFA’s own model, the financial score is 0/300 – certainly in the category of concern. The ESFA will argue that they assess the accounts of the company with the ESFA registration – yes, and that looks quite healthy but the other 8 levels of hierarchy hide the real position – where the debt sits, the interest charges are levied and ultimately where the risk sits for the business and ultimately the ESFA.

It is the same picture for all but one of the six providers – one provider has a much simpler structure but again scores 0/300 from the ESFA’s own model but no notice of financial concern. 

History tells us that the risk sits with the large providers, not the small ones but there appears to be a rule for the few and a different one for the many. I recall with Learndirect the challenge that could a provider ‘be too big to fail?’. 

It is clear the financial evaluation of providers across the sector is not operating on a level playing field, indeed Colleges are being treated more harshly and certainly the smaller providers. 

It is time for the ESFA team to improve their skills on how to read a set of accounts and more importantly really understand where the actual risk and ultimate control sits with providers, particularly the largest providers.  

We must get better at this – the process of financial health assessment is archaic and not fit for purpose!

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