OPERATING AND FINANCIAL REVIEW. South Thames College. Report and Financial Statements For the Year Ended 31 July 2010

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1 OPERATING AND FINANCIAL REVIEW South Thames College Report and Financial Statements For the Year Ended 31 July 2010 Version 30 th November 2010

2 Contents Page number Operating and Financial Review 1 Statement of Corporate Governance and Internal Control 10 Statement of Responsibilities of the Members of the Corporation 15 Independent Auditors Report to the Corporation of South Thames College 16 Independent Auditors Report on Regularity to the Corporation of South Thames College and the Skills Funding Agency 18 Income and Expenditure Account 19 Statement of Historical Cost Surpluses and Deficits 20 Statement of Total Recognised Gains and Losses 20 Balance Sheet as at 31 July Cash Flow Statement 22 Notes to the Financial Statements 23

3 OPERATING AND FINANCIAL REVIEW The members of the Corporation present their report and the audited financial statements for the year ended 31 July NATURE, OBJECTIVES AND STRATEGIES Legal status South Thames College Corporation was established under the Further and Higher Education Act The College is an exempt charity for the purposes of the Charities Act 1993 as amended by the Charities Act 2006 and accordingly is not liable to Corporation Tax. On 1 August 2009, South Thames College merged with Merton College. At that date all assets, liabilities and activities of Merton College transferred to South Thames College and Merton College was dissolved. All activities are continuing within the merged College. Mission The College s mission is: To be the leading provider of educational and training opportunities in the region - identified by learners and employers alike as their gateway to an economically viable future. Implementation of the Strategic Plan In July 2007 the Corporation adopted a strategic plan for the period 1 August 2007 to 31 July The plan set out the priorities and objectives that the College will pursue to deliver the government agenda for FE and to meet the national and local priorities of the Learning and Skills Council. The Strategic Plan reflects the College s own unique character and its aim to be the leading provider of quality education and training to enable its learners and employers to achieve an economically viable future. Our values underpin our high expectations for service delivery to enable the achievement of our strategic priorities. The staff at South Thames College are committed to being: Ambitious focusing on producing results that make an impact on our learners, our employers, our College and our future; Supportive going the extra mile to help learners and employers develop the skills they need and always involving staff through collaboration and communication; Professional treating learners and employers as the customers they are and continually challenging ourselves to be excellent; Inclusive maintaining a culture which is open and accessible; Responsive continually adapting and improving our services both on site and in the work place to meet the needs of our rapidly changing environment; Excellent stimulating and inspiring learners and employers to ensure success and help them achieve their ambitions. 1

4 OPERATING AND FINANCIAL REVIEW (CONTINUED) During the year the Corporation monitored performance of the College against the plan in terms of top level College performance indicators. The College s strategic priorities for were to: Deliver high quality in all areas of work and embed a culture of continuous improvement; Build a reputation for being responsive to employers and learners needs; Create an ethos of Business Excellence; and Ensure the long term financial stability of the College and deliver value for money. The College s specific objectives for 2009/10 and achievement of those objectives are addressed below: High Quality Teaching and Learning The Learner Responsive contract was exceeded during the year, including a successful bid to the LSC in January for additional provision. The College exceeded its maximum contract value for Adult Learner Responsive funding. International income continued to increase, with income for this provision exceeding target. The College has been successful in the validation of two new Higher Education courses through Cumbria University. The re-inspection of Health and Social Care provision resulted in a strong grade 3, with many elements within that graded as good, building on the overall grade of Good from the College s previous OFSTED inspection. The College s ACL provision was inspected as part of the Wandsworth Borough inspection for ACL, resulting in a mixture of Good and Outstanding OFSTED grades. The College s Initial Teacher Training provision was inspected as part of the Canterbury Christchurch University Inspection, contributing to a mixture of Good and Outstanding inspection grades. The College has seen excellent progression for students during the year, with 3 students from the Finance and Professional Studies School being accepted onto Business Degree courses at Kings College London. This year 12 students from the College Nurse Cadet scheme graduated as fully qualifed nurses. Being Responsive Train to Gain had timely success rates for the year with overall success rates at 88.7%, 5.6% above 08/09 national benchmarks and 2.7% above current national benchmarks. The Business Development Unit was independently Matrix accredited for its advise and guidance and has achieved the Training Quality Standard. The unit has delivered a number of successful programmes with St George s Hospital, the Wandsworth Primary Care Trust and the boroughs of Lambeth, Kingston and Wandsworth. The new Apprenticeship Team have won the opportunity to delivery a Civil Engineering Technicians Apprenticeship. This will be a new qualification for the College. Business Excellence The College staff celebrated and recognised its success through STAR awards and awards at the College Conference. Awards included Teacher and Runner Up Teacher of the Year, Curriculum Team of the Year, Support Staff Member of the year, Support Team of the Year, and Unsung Hero award. The College s student football team won the Cup and League double. Music, IT and Hairdressing students were successful in national competitions. Following the opening of the new building at Wandsworth at the start of the year, the refurbishment of existing buildings at Wandsworth High Street neared completion during the year. Art students at Merton Campus won a Borough poster competition helping advertise the Metropolitan Police Integrated Offender Management teams. Individual students won awards in national skills competitions including the Learning through Engineering Construction and Technology award as part of Adult Learners Week The Prince s Trust teams completed 21 community projects in seven local Boroughs including decorating local community centres and landscaping gardens 2

5 OPERATING AND FINANCIAL REVIEW (CONTINUED) Financial Stability and Value for Money To maintain the financial stability of the College by maintaining a current ratio of not less than 1:1, an operating surplus of not less than 1.5% of total income. At 31 July 2010 the current ratio was 2:1 and there was an operating surplus for the year of 0.8%. The surplus included 1.5m of interest and other costs associated with the redevelopment of the Wandsworth Campus and 191k of expenses associated with the merger with Merton College. Financial Objectives The College s financial objectives for the period to 31 July 2010 were: To diversify sources of income To reduce the pay-to-income ratio To procure goods and services of good quality at the best prices To optimise staff and space utilisation whilst maintaining high quality provision To establish an investment strategy to support curriculum and staff development To complete the redevelopment of the Wandsworth Campus on time and within budget To ensure funds are deployed to deliver funding body priorities Performance Indicators The Framework for Excellence has three dimensions: Responsiveness Effectiveness Finance each of which has two or three Key Performance Areas. These Areas are further broken down into Performance Indicators supported by Performance Measures which are absolute measures of performance such as the outcome from a learner survey or a qualification success rate. In deriving the overall performance rating, the Framework gives equal weighting to each of the three dimensions. The College is committed to observing the importance of the measures and indicators within the Framework and is monitoring these through the completion of the annual Finance Record for the Skills Funding Agency. The current rating of satisfactory for financial health and good for financial management and control are considered an acceptable outcome. FINANCIAL POSITION Financial Results The College generated an operating surplus of 393k ( k deficit) after depreciation of assets at valuation and tax and an overall surplus after property gains and write off of property costs of 568k ( ,231k deficit). At the start of the year the College acquired from Merton College net assets (including pension liability) of 14,322k. At the end of July 2010, the College had accumulated reserves excluding the pension liability of 51,885k and cash balances of 11,128k (July ,143k and 9,495k respectively). The Pension Liability as at 31 July 2010 is 14,116k (July ,023k). The College Total Reserves including the Pension Liability at the end of the year are 42,637k (July ,049k). Tangible fixed asset additions during the year amounted to 27,158k. This was split between land and buildings development of 25,806k and equipment purchased of 1,352k. 3

6 OPERATING AND FINANCIAL REVIEW (CONTINUED) The College has significant reliance on the LSC and its successor organisations for its principal funding source, mainly from recurrent grants. In 2009/10 the LSC and its successor organisations provided 85% of the College s total income. Treasury policies and objectives Treasury management is the management of the College s cash flows, its banking, money market and capital market transactions; the effective control of the risks associated with those activities; and the pursuit of optimum performance consistent with those risks. The College has a separate treasury management policy in place. Short term borrowing for temporary revenue purposes is authorised by the Principal. Such arrangements are restricted by limits in the College s Financial Memorandum previously agreed with the LSC and subsequently transferred to the Skills Funding Agency. All other borrowing requires the authorisation of the Corporation and shall comply with the requirements of the Financial Memorandum of the LSC. Cash flows At 7,045k (2008/09 4,174k), operating cash inflow was strong. During the year loans of 20,204k were repaid and capital grants received of 14,765k, offset by construction costs of 25,806k Liquidity During the year the College drew down 2,648k of its loan facility to support the development of the Wandsworth and Merton Campuses. 20,204k of loan balance was repaid during the year including 20,000k from proceeds from the sale of the Putney site. The size of the College s total borrowing and its approach to interest rate risk have been calculated to ensure a reasonable cushion between total cost of servicing debt and operating cash flow. During the year the margin was comfortably achieved. CURRENT AND FUTURE DEVELOPMENT AND PERFORMANCE Student Numbers In 2009/10 the College has delivered activity that has produced 34,993k in recurrent funding from the LSC and its successor bodies (2008/09 21,816k). The College had approximately 12,000 LSC and 6000 non LSCfunded students. Student Achievements Students continue to prosper at the college. In 2009/10 College success rates are expected to be 75%. Curriculum Developments The College continues to build its capacity and reputation for delivering high quality Apprenticeships, with a new Higher skills apprenticeship programme in Civil Engineering. The College is committed to building apprenticeship provision in a number of areas include construction, engineering and hairdressing. During these financially difficult times, the College is embarking on the development of its full cost evening and weekend provision. This provision will help to maximise the use of College facilities at traditionally nonpeak times and help the College to diversify its income streams. 4

7 OPERATING AND FINANCIAL REVIEW (CONTINUED) The College has moved its Tooting based HE provision to the newly refurbished Wandsworth site in order to allow for the planned growth in International HE. The Tooting centre now houses the Colleges Trade Union Studies and the Business Development Unit which were previously sited at the Carlton House site. The College is building on its reputation for developing programmes that enable our students to reach their full potential. It has introduced new courses in 2010/11 in response to learner and employer needs and fostered new partnerships. Future Developments In line with the College Property Strategy, the redevelopments that have been completed at the Wandsworth and Merton Campuses have resulted in significantly improved facilities for students, staff and other stakeholders. However, given the withdrawal of capital funding for future developments, the final stages of the strategy will need to be completed using the College s own resources. The Corporation remains committed to undertaking these works and are currently investigating how this might be achieved. The current economic climate and commitment to curtailing public sector spending will undoubtedly impact upon the future financing of the College. Announcements to be made through the Comprehensive Spending Review are likely to result in real term cuts to the College s mainstream funding over the next four years and the College will therefore continue to implement its income diversification strategy and continue to seek further efficiencies in all aspects of its operations. 5

8 OPERATING AND FINANCIAL REVIEW (CONTINUED) RESOURCES The College has various resources that it can deploy in pursuit of its strategic objectives. Financial The College has million of net assets (after deducting a 14.1 million pension liability) and debt of 21.4m of which 13m is long term. People The College employs 848 people (expressed as full time equivalents), of whom 501 are teaching staff. Reputation The College has a good reputation locally, nationally and internationally. Maintaining a quality brand is essential for the College s success at attracting students and developing external relationships. PRINCIPAL RISKS AND UNCERTAINTIES: The College has undertaken further work during the year to develop and embed the system of internal control, including financial, operational and risk management which is designed to protect the College s assets and reputation. Based on the strategic plan, the College Executive Team undertakes a comprehensive review of the risks to which the College is exposed. They identify systems and procedures, including specific preventable actions which should mitigate any potential impact on the College. The internal controls are then implemented and the subsequent year s appraisal will review their effectiveness and progress against risk mitigation actions. In addition to the annual review, the College Executive Team will also consider any risks which may arise as a result of a new area of work being undertaken by the College. A risk register is maintained at the College level which is reviewed at least annually by the Audit Committee and more frequently where necessary. The risk register identifies the key risks, the likelihood of those risks occurring, their potential impact on the College and the actions being taken to reduce and mitigate the risks. Risks are prioritised using a consistent scoring system. This is supported by a risk management policy being embedded through management teams throughout the College. Outlined below is a description of the principal risk factors that may affect the College. Not all the factors are within the College s control. Other factors besides those listed below may also adversely affect the College. 1. Effect of change to LSC funding methodology The single largest element of the College s income is from the LSC and its successor bodies. The College is aware of several issues which may impact on future funding, - The demand led funding system which applies a series of factors such as guided learning hours and success rates to calculate an amount of funding to be received for each learner. Such funding cannot be guaranteed though. - The Machinery of Government changes which came into force from April 2010 and which saw the LSC dissolved and replaced with successor agencies such as the Young Peoples Learning Agency and the Skills Funding Agency (part of the DBIS). This risk is mitigated in a number of ways: active participation in regional and national funding committees and groups which provides early warning of developments; pro-active planning of course profile to meet priorities and develop appropriate delivery methods; improved analysis of data; Ensuring the College is focused on those priority sectors which will continue to benefit from public funding; continuous review of resources to transfer support where needed and achieve efficiency. 6

9 OPERATING AND FINANCIAL REVIEW (CONTINUED) 2. Detrimental impact of Machinery of Government changes The LSC ceased to exist from 31 March There is a risk that the move to new planning and commissioning bodies has a disadvantageous impact on funding settlements for future years. This risk is mitigated in a number of ways: active participation in regional and national funding committees and groups which provides early warning of developments; active participation in planning liaison with local boroughs; and appropriate membership on all planning and commissioning groups. STAKEHOLDER RELATIONSHIPS In line with other colleges and with universities, South Thames College has many stakeholders. These include: students; funding Councils; staff; local employers (with specific links); local authorities; government offices/ Sector Skills Councils; the local community; other FE institutions; trade unions; professional bodies. The College recognises the importance of these relationships and engages in regular communication with them through the College Internet site and by meetings. Equal Opportunities and Employment of Disabled Persons South Thames College is committed to ensuring equality of opportunity for all who learn and work here. We respect and value positively differences in race, gender, sexual orientation, ability, class and age. We strive to remove conditions which place people at a disadvantage and we will actively combat bigotry. This policy will be resourced, implemented and monitored on a planned basis. The College s Equality and Diversity Policy, including its provisions for Equality, Diversity, Disability and Race Relations, is published on the College s Internet site. The College considers all applications for employment from disabled persons, bearing in mind the aptitudes of the individuals concerned. Where an existing employee becomes disabled every effort is made to ensure that employment with the College continues. The College's policy is to provide training, career development and opportunities for promotion that are, as far as possible, identical to those for other employees. An equalities plan is published each year and monitored by managers and governors. 7

10 OPERATING AND FINANCIAL REVIEW (CONTINUED) Disability Statement The College seeks to achieve the objectives set down in the Disability Discrimination Act 1995 as amended by the Special Needs and Disability Acts 2001 and 2005, and will publish an annual Disability Statement, which details the support services and facilities available to students with Learning Difficulties and/or Disabilities. In particular the College makes the following commitments: a) subject to financial constraints the College will continue to make reasonable adaptations to its buildings and facilities to meet the needs of students with Learning Difficulties and/or Disabilities; b) there is a list of specialist equipment that the College can make available for use by students; c) the admissions policy for all students is described in the College Student Charter. Appeals against a decision not to offer a place are dealt with in the Student Guide. Specialist programmes for students with Learning Difficulties are available where these are appropriate to the students needs but students can access the full range of programmes according to capability; d) the College employs specialist staff to support students with Learning Difficulties and/or Disabilities, medical conditions and mental health issues. These include lecturers with qualifications in Learning Disability, Specific Learning Difficulties and speech and language problems, enablers and key workers. In addition, through links with other agencies, the College purchases specialist support such as communication support and visual impairment support. There is a continuing programme of staff development to ensure the provision of a high level of appropriate support for students who have learning difficulties and/or disabilities; e) achievements and destinations are recorded and published in the standard College format; f) counselling and welfare services are described in the Student Guide. Disclosure of Information to Auditors The members who held office at the date of approval of this report confirm that, so far as they are each aware, there is no relevant audit information of which the College s auditors are unaware; and each member has taken all the steps that he or she ought to have taken to be aware of any relevant audit information and to establish that the College s auditors are aware of that information. Buzzacott LLP has been re-appointed as the external auditors of the financial statements for the forthcoming year. Approved by order of the members of the Corporation on 16 December 2010 and signed on its behalf by: Godfrey Allen Chair Date 8

11 OPERATING AND FINANCIAL REVIEW (CONTINUED) PROFESSIONAL ADVISORS Financial statements and regularity auditors: Buzzacott LLP 12 New Fetter Lane London EC4A 1AG Internal auditors: Mazars Tower Bridge House St Katherine s Way London E1W 1DD Bankers: Barclays Bank PLC Education Sector Team London and South East PO Box 544 Lombard Street London EC3V 9EX Solicitors: Eversheds Senator House 85 Queen Victoria Street London EC4V 4JL 9

12 STATEMENT OF CORPORATE GOVERNANCE AND INTERNAL CONTROL The College is committed to best practice in all aspects of corporate governance. This summary describes the manner in which the College has applied the principles set out in the revised Combined Code on Corporate Governance issued by the London Stock Exchange in July Its purpose is to help the reader of the accounts understand how the principles have been applied. In the opinion of the members of the Corporation, the College complies with all the provisions of the Combined Code in so far as they apply to the Further Education Sector, and has complied throughout the year ended 31 July The Corporation The Corporation members during the year and up to the date of signature of this report were: Date of Term of Date of Status of Committees served appointment office resignation appointment Mr Godfrey Allen 1 Apr years Governor Chair of Corporation, Chair of Finance & Resources Committee, Chair of Remuneration Committee, member Search and Governance Committee. Ms Saadiya Ahmad 15 Dec Years 31 July 2010 Governor Member of Search & Governance Committee. Mr A Beardall 1 Dec years 31 Dec 2008 Staff Governor Audit and Redevelopment Ms M Debono 1 Feb years 1 Feb 2010 Staff Governor Quality & Performance Ms Moray Heal* 1 Aug Years 31 Dec 2009 Staff Governor Audit Committee, Search & Governance Committee Mr Hassan 1 Aug Years 31 July 2010 Student None Naqshbandi* Governor Mr D Ilyas 1 Apr 2006 Reappointed 1 Apr years Governor Member of Finance & Resources Committee to 31 Dec Chair of Audit Committee from 1 January 2010 Prof Martyn Jones 1 Apr years Governor Quality and Performance Mr John Kedge* 1 Aug Years Governor Member of Audit Committee and Quality & Performance Committee Mr Peter Lambert* 1 Aug years Governor Vice Chair of Corporation from 1 Aug 2009, Member of Finance and Resources Committee and Redevelopment Sub Committee Mrs Sue Macdonald 15 Dec years Governor Audit Committee, Quality & Performance Committee, Remuneration Committee. Cllr J Maddan 1 Jan years Governor Chair of Search & Governance, Member of Finance & Resources, and Remuneration Committees. Miss Dayna Mills 13 Nov Years 30 June 2010 Governor None Ms Diane Morgan 1 Sep years 31 July 2010 Governor Chair of Quality and Performance Committee Ms S Rimmer 1 Sep 2001 Principal & Chief Executive Mr P Robinson 1 Jul 2006 Reappointed 1 Apr 2009 Finance & Resources, Quality & Performance, Redevelopment, Search & Governance 3 years Governor Chair of the Redevelopment Committee. Member of Finance & Resources Committee. Mr P Sunderland 1 Jan years 31 Dec 2009 Governor Chair of Audit Committee and Member of Redevelopment Ms Linda Taylor* 1 Aug years Governor Member of Finance & Resources and Quality & Performance Committees Mrs Louise Evatt 31 Dec years Governor Audit Committee Mr Adedamola Aminu 14 July years Academic Staff Governor Quality & Performance Committee 10

13 STATEMENT OF CORPORATE GOVERNANCE AND INTERNAL CONTROL (CONTINUED) Mrs Penny Lower 14 July Years Support Staff Governor Miss D Whittingham 1 Apr years External Co- Appointed as External Governor Co-opted Governor Search & Governance Committee Redevelopment Sub Committee *Corporation members appointed as a result of the merger with Merton College It is the Corporation s responsibility to bring independent judgement to bear on issues of strategy, performance, resources and standards of conduct. The Corporation is provided with regular and timely information on the overall financial performance of the College together with other information such as performance against funding targets, proposed capital expenditure, quality matters and personnel-related matters such as health and safety and environmental issues. The Corporation meets each term. The Corporation conducts its business through a number of committees. Each committee has terms of reference, which have been approved by the Corporation. These committees are Finance and Resources, Remuneration, Search and Governance, Redevelopment, Remuneration, Quality and Performance, and Audit. Full minutes of all meetings, except those deemed to be confidential by the Corporation, are available from the Clerk to the Corporation at: South Thames College Wandsworth High Street London, SW18 2PP The Clerk to the Corporation maintains a register of financial and personal interests of the members of the Corporation. The register is available for inspection at the above address. All members of the Corporation are able to take independent professional advice in furtherance of their duties at the College s expense and have access to the Clerk to the Corporation, who is responsible to the Corporation for ensuring that all applicable procedures and regulations are complied with. The appointment, evaluation and removal of the Clerk are matters for the Corporation as a whole. Formal agendas, papers and reports are supplied to governors in a timely manner, prior to meetings. Briefings are also provided on an ad hoc basis. The Corporation has a strong and independent non-executive element and no individual or group dominates its decision-making process. The Corporation considers that each of its non-executive members is independent of management and free from any business or other relationship which could materially interfere with the exercise of their independent judgement. There is a clear division of responsibility in that the roles of the Chair and Principal are separate. Appointments to the Corporation Any new appointments to the Corporation are a matter for the consideration of the Corporation as a whole. The Corporation has a Search and Governance Committee, consisting of four members of the Corporation, which is responsible for the selection and nomination of any new member for the Corporation s consideration. The Corporation is responsible for ensuring that appropriate training is provided as required. Members of the Corporation are appointed for a term of office not exceeding three years. 11

14 STATEMENT OF CORPORATE GOVERNANCE AND INTERNAL CONTROL (CONTINUED) Remuneration committee Throughout the year ending 31 July 2010, the College s remuneration committee comprised three members of the Corporation. The Committee s responsibilities are to make recommendations to the Board on the remuneration and benefits of the Principal and other senior post-holders. Details of remuneration for the year ended 31 July 2010 are set out in note 6 to the financial statements. Audit committee The Audit Committee comprises three members of the Corporation (excluding the Principal and the Chair). The Committee operates in accordance with written terms of reference approved by the Corporation. The Audit Committee meets termly and provides a forum for reporting by the College s internal, regularity and financial statements auditors, who have access to the Committee for independent discussion, without the presence of College management. The Committee also receives and considers reports from the main FE funding bodies as they affect the College s business. The College s internal auditors monitor the systems of internal control, risk management controls and governance processes in accordance with an agreed audit plan and report their findings to management and the Audit Committee. Management is responsible for the implementation of agreed audit recommendations and internal auditors undertake periodic follow-up reviews to ensure such recommendations have been implemented. The Audit Committee also advises the Corporation on the appointment of internal, regularity and financial statements auditors and their remuneration for both audit and non-audit work. Internal control Scope of responsibility The Corporation is ultimately responsible for the College s system of internal control and for reviewing its effectiveness. However, such a system is designed to manage rather than eliminate the risk of failure to achieve business objectives, and can provide only reasonable and not absolute assurance against material misstatement or loss. The Corporation has delegated the day-to-day responsibility to the Principal, as Accounting Officer, for maintaining a sound system of internal control that supports the achievement of the College s policies, aims and objectives, whilst safeguarding the public funds and assets for which she is personally responsible, in accordance with the responsibilities assigned to her in the Financial Memorandum between South Thames College and the LSC and its successor bodies. She is also responsible for reporting to the Corporation any material weaknesses or breakdowns in internal control. The purpose of the system of internal control The system of internal control is designed to manage risk to a reasonable level rather than to eliminate all risk of failure to achieve policies, aims and objectives; it can therefore only provide reasonable and not absolute assurance of effectiveness. The system of internal control is based on an ongoing process designed to identify and prioritise the risks to the achievement of College policies, aims and objectives, to evaluate the likelihood of those risks being realised and the impact should they be realised, and to manage them efficiently, effectively and economically. The system of internal control has been in place in South Thames College for the year ended 31 July 2010 and up to the date of approval of the annual report and accounts. 12

15 STATEMENT OF CORPORATE GOVERNANCE AND INTERNAL CONTROL (CONTINUED) Capacity to handle risk The Corporation has reviewed the key risks to which the College is exposed together with the operating, financial and compliance controls that have been implemented to mitigate those risks. The Corporation is of the view that there is a formal ongoing process for identifying, evaluating and managing the College's significant risks that has been in place for the period ending 31 July 2010 and up to the date of approval of the annual report and accounts. This process is regularly reviewed by the Corporation. The risk and control framework The system of internal control is based on a framework of regular management information, administrative procedures including the segregation of duties, and a system of delegation and accountability. In particular, it includes: comprehensive budgeting systems with an annual budget, which is reviewed and agreed by the Corporation; regular reviews by the Corporation of periodic and annual financial reports which indicate financial performance against forecasts; setting targets to measure financial and other performance; clearly defined capital investment control guidelines; and the adoption of formal project management disciplines, where appropriate. South Thames College uses an internal audit service, which operates in accordance with the requirements of the LSC s Audit Code of Practice. The work of the internal audit service is informed by an analysis of the risks to which the College is exposed, and annual internal audit plans are based on this analysis. The analysis of risks and the internal audit plans are endorsed by the Corporation on the recommendation of the audit committee. At minimum annually, the Head of Internal Audit (HIA) provides the governing body with a report on internal audit activity in the College. The report includes the HIA s independent opinion on the adequacy and effectiveness of the College s system of risk management, controls and governance processes. Review of effectiveness As Accounting Officer, the Principal has responsibility for reviewing the effectiveness of the system of internal control. Her review of the effectiveness of the system of internal control is informed by: the work of the internal auditors; the work of the executive managers within the College who have responsibility for the development and maintenance of the internal control framework; comments made by the College s financial statements and regularity auditors in their management letters and other reports. The Principal has been advised on the implications of the result of her review of the effectiveness of the system of internal control by the Audit Committee, which oversees the work of the internal auditor, and a plan to address weaknesses and ensure continuous improvement of the system is in place. The senior management team receives reports setting out key performance and risk indicators and considers possible control issues brought to their attention by early warning mechanisms, which are embedded within the departments and reinforced by risk awareness training. The senior management team and the Audit Committee also receive regular reports from internal audit, which include recommendations for improvement. The Audit Committee's role in this area is confined to a high-level review of the arrangements for internal control. The Corporation's agenda includes a regular item for consideration of risk and control and receives reports thereon from the senior management team and the Audit Committee. The emphasis is on obtaining the relevant degree of assurance and not merely reporting by exception. At its December 2010 meeting, the Corporation carried out the annual assessment check for the year ended 31 July 2010 by considering documentation from the senior management team and internal audit, and taking account of events since 31 July

16 STATEMENT OF CORPORATE GOVERNANCE AND INTERNAL CONTROL (CONTINUED) Going concern After making appropriate enquiries, the Corporation considers that the College has adequate resources to continue in operational existence for the foreseeable future. For this reason, it continues to adopt the going concern basis in preparing the financial statements. Approved by order of the members of the Corporation on 16 December 2010 and signed on its behalf by: Godfrey Allen Chair Sue Rimmer Principal 14

17 STATEMENT OF RESPONSIBILITIES OF THE MEMBERS OF THE CORPORATION The members of the Corporation are required to present audited financial statements for each financial year. Within the terms and conditions of the Financial Memorandum agreed between the Skills Funding Agency and the Corporation of the College, the Corporation, through its Principal, is required to prepare financial statements for each financial year in accordance with the 2007 Statement of Recommended Practice Accounting for Further and Higher Education Institutions, with the Accounts Direction issued jointly by the Skills Funding Agency and the Young Peoples Learning Agency, and which give a true and fair view of the state of affairs of the College and the result for that year. In preparing the financial statements, the Corporation is required to: select suitable accounting policies and apply them consistently make judgements and estimates that are reasonable and prudent state whether applicable Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements prepare financial statements on the going concern basis, unless it is inappropriate to assume that the College will continue in operation. The Corporation is also required to prepare a Members Report which describes what it is trying to do and how it is going about it, including the legal and administrative status of the College. The Corporation is responsible for keeping proper accounting records which disclose with reasonable accuracy, at any time, the financial position of the College, and which enable it to ensure that the financial statements are prepared in accordance with the relevant legislation of incorporation and other relevant accounting standards. It is responsible for taking steps that are reasonably open to it in order to safeguard the assets of the College and to prevent and detect fraud and other irregularities. Members of the Corporation are responsible for ensuring that expenditure and income are applied for the purposes intended by Parliament and that the financial transactions conform to the authorities that govern them. In addition, they are responsible for ensuring that funds from the LSC and Skills Funding Agency are used only in accordance with the Financial Memorandum with the LSC and Skills Funding Agency and any other conditions that may be prescribed from time to time. Members of the Corporation must ensure that there are appropriate financial and management controls in place in order to safeguard public and other funds and to ensure they are used properly. In addition, members of the Corporation are responsible for securing economical, efficient and effective management of the College s resources and expenditure, so that the benefits that should be derived from the application of public funds by the LSC and Skills Funding Agency are not put at risk. The maintenance and integrity of South Thames College website is the responsibility of the Corporation of the College; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. Approved by order of the members of the Corporation on 16 December 2010 and signed on its behalf by: Godfrey Allen Chair 15

18 INDEPENDENT AUDITORS REPORT TO THE CORPORATION OF SOUTH THAMES COLLEGE We have audited the financial statements of South Thames College for the year ended 31 July 2010, which comprise the income and expenditure account, the balance sheet, the cash flow statement, the statement of total recognised gains and losses and the related notes. These financial statements have been prepared under the historical cost convention as modified by the revaluation of certain fixed assets and the accounting policies set out therein. This report is made solely to the Corporation, as a body, in accordance with statutory requirements. Our audit work has been undertaken so that we might state to the Corporation, as a body, those matters we are required to state to them in an auditors report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Corporation, as a body, for our audit work, for this report, or for the opinions we have formed. Respective Responsibilities of the Members of the Corporation of South Thames College and the Auditors As described in the Statement of Responsibilities the College s Corporation is responsible for preparing the Members Report and financial statements in accordance with the 2009/10 Accounts Direction, the 2007 Statement of Recommended Practice Accounting for Further and Higher Education, applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice). Our responsibility is to audit the financial statements in accordance with relevant legal and regulatory requirements and International Standards on Auditing (UK and Ireland). We report to you our opinion as to whether the financial statements give a true and fair view and are properly prepared in accordance with the 2007 Statement of Recommended Practice Accounting for Further and Higher Education. We also report to you if, in our opinion, the Members Report is not consistent with the financial statements, if the College has not kept proper accounting records, or if we have not received all the information and explanations we require for our audit. We read the Members Report and consider the implications for our report if we become aware of any apparent misstatement within it. Basis of Audit Opinion We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board and the Audit Code of Practice issued by the Learning and Skills Council. An audit includes examination, on a test basis, of evidence relevant to amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgements made by the College s Corporation in the preparation of the financial statements, and of whether the accounting policies are appropriate to the College s circumstances, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give us reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements. 16

19 INDEPENDENT AUDITORS REPORT TO THE CORPORATION OF SOUTH THAMES COLLEGE (CONTINUED) Opinion In our opinion; the financial statements give a true and fair view, in accordance with UK Generally Accepted Accounting Practice, of the state of affairs of the College as at 31 July 2010 and of the College s surplus of income over expenditure for the year then ended; and The financial statements have been properly prepared in accordance with the 2009/10 Accounts Direction issued jointly by the Skills Funding Agency and the Young Peoples Learning Agency and the 2007 Statement of Recommended Practice Accounting for Further and Higher Education. Buzzacott LLP Chartered Accountants and Registered Auditors 12 New Fetter Lane London EC4A 1AG Date 17

20 INDEPENDENT AUDITORS REPORT ON REGULARITY TO THE CORPORATION OF SOUTH THAMES COLLEGE ( THE CORPORATION ) AND THE SKILLS FUNDING AGENCY In accordance with the terms of our engagement letter dated 2 April 2008 and further to the requirements of the Skills Funding Agency, we have carried out a review to obtain assurance about whether, in all material respects, the expenditure and income of South Thames College ( the College ) for the year ended 31 July 2010 have been applied to the purposes identified by Parliament and the financial transactions conform to the authorities which govern them. This report is made solely to the Corporation and the Skills Funding Agency. Our review work has been undertaken so that we might state to the Corporation and the Skills Funding Agency those matters we are required to state to it in a report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Corporation and the Skills Funding Agency, for our review work, for this report, or for the opinion we have formed. Respective responsibilities of the Members of the Corporation of South Thames College and the Auditors The College s Corporation is responsible, under the requirements of the Further & Higher Education Act 1992, subsequent legislation and related regulations, for ensuring that expenditure and income are applied for the purposes intended by Parliament and the financial transactions conform to the authorities which govern them. Our responsibilities for this review are established in the United Kingdom by our profession s ethical guidance and the audit guidance set out in the Audit Code of Practice and the Regularity Audit Framework issued by the Skills Funding Agency. We report to you whether, in our opinion, in all material respects, the College s expenditure and income for the year ended 31 July 2010 have been applied to purposes intended by Parliament and the financial transactions conform to the authorities which govern them. Basis of opinion We conducted our review in accordance with the Audit Code of Practice and the Regularity Audit Framework issued by the Skills Funding Agency. Our review includes examination, on a test basis, of evidence relevant to the regularity and propriety of the College s income and expenditure. Opinion In our opinion, in all material respects the expenditure and income for the year ended 31 July 2010 have been applied to purposes intended by Parliament and the financial transactions conform to the authorities which govern them. Buzzacott LLP Chartered Accountants and Registered Auditors 12 New Fetter Lane London EC4A 1AG Date 18

21 South Thames College Financial Statements for the Year ended 31st July 2010 Income and Expenditure Account Notes INCOME Funding body income 2 42,309 25,601 Tuition fees and education contracts 3 6,484 3,827 Other income Investment income Total income 49,370 29,959 EXPENDITURE Staff costs 6 29,550 20,035 Exceptional restructuring costs Other operating expenses 7 12,409 7,972 Depreciation 10 4,408 1,219 Interest and other finance costs 8 2,147 1,547 Total expenditure 48,977 30,887 Surplus/(deficit) on continuing operations after depreciation of assets at valuation and before tax 393 (928) Write off of property related costs - (303) Gain on disposal of assets Surplus/(deficit) for the year retained within General Reserves 568 (1,231) The income and expenditure account is in respect of continuing activities 19

22 South Thames College Financial Statements for the Year ending 31st July 2010 Statement of Historical Cost Surpluses and Deficits Notes Surplus/(deficit)on continuing operations before tax 568 (1,231) Difference between historical cost depreciation and the actual charge for the year calculated on the revalued Historical cost surplus/(deficit) for the year before and 629 (1,170) Statement of Total Recognised Gains and Losses Notes Surplus/(deficit) on continuing operations after depreciation of assets at valuation and disposaltax 568 (1,231) Past Service gain in respect of pension scheme 23 2,104 - Actuarial loss in respect of pension scheme 23 (406) (4,540) Net assets of Merton College aquired 24 14,322 - Total recognised gains/(losses) for the year 16,588 (5,771) Reconciliation Opening reserves 26,049 31,820 Total recognised gains/(losses) for the year 16,588 (5,771) Closing reserves 42,637 26,049 20

23 South Thames College Financial Statements for the Year ending 31st July 2010 Balance Sheet as at 31 July Notes Fixed assets Tangible assets ,182 78,897 Total fixed assets 132,182 78,897 Current assets Debtors 11 8,466 24,763 Cash at bank and in hand 11,128 9,495 Total current assets 19,594 34,258 Less: Creditors amounts falling due within one year 12 (9,185) (28,340) Net current assets 10,409 5,918 Total assets less current liabilities 142,591 84,815 Creditors falling due after one year 13 (28,654) (20,114) Provisions for liabilities 14 (2,454) (2,299) Net assets excluding pension liability 111,483 62,402 Net pension liability 23 (14,116) (11,023) NET ASSETS INCLUDING PENSION LIABILITY 97,367 51,379 Deferred capital grants 15 54,730 25,330 Reserves Income and Expenditure Reserve excluding pension reserve 16 51,885 32,143 Pension Reserve 23 (14,116) (11,023) Income and expenditure account including pension 16 37,769 21,120 Revaluation Reserve 17 4,868 4,929 42,637 26,049 Total reserves 42,637 26,049 TOTAL 97,367 51,379 The financial statements on pages 19 to 39 were approved by the Corporation on 16 December 2010 and were signed on its behalf on that date by: Godfrey Allen Chair Sue Rimmer Principal 21