Guidance

College requirements for write-offs and losses

Updated 12 April 2023

Applies to England

Purpose

1: This document is to help colleges understand:

• what they must consider before writing off a debt
• when and how to seek approval from the Department for Education (DfE) for write-offs and losses

2: It is one of a series of guides issued by the Education and Skills Funding Agency (ESFA) following the decision of the Office for National Statistics (ONS) in November 2022 to classify the English further education (FE) college sector as central government.

Status

3: This guide explains the requirements for colleges and their subsidiaries, which arise from their status as central government bodies, as well as providing guidance in respect of those requirements. The overall requirements for all central government bodies are set out in HM Treasury’s Managing Public Money (MPM). This guide seeks to explain those requirements in the context of the FE college sector.

4 The requirements set out in this guide will remain in force until such time as it is withdrawn or superseded.

Who is this publication for?

5: This guide is primarily for use by:

• college finance directors and accounting officers, and
• college governors as charity trustees.

6: Colleges include further education colleges, sixth form colleges and designated institutions under the Further and Higher Education Act 1992. This guidance also covers their subsidiaries (i.e. references to “colleges” in this guide should be taken to mean “colleges and their subsidiaries”).

7: College internal and external auditors may also find it helpful in planning their work.

Background

8: When ONS determined that English FE colleges were to be classified to the central government sector, this decision meant that colleges would be required to follow the overall financial control framework for all central government bodies, HM Treasury’s Managing Public Money. MPM provides a flexible framework of financial oversight, whereby the majority of financial decision-making is delegated to operational leadership in government bodies. However, there are certain classes of transactions where additional controls apply. Losses and write-offs fall into this category.

Write-offs and losses

9: As Parliament does not agree or approve advance provision for potential future losses when voting money or passing specific legislation, when such transactions arise, they are subject to greater scrutiny and control than other transactions.

10: Colleges should only consider accepting losses and write-offs after careful appraisal of the facts, including whether all reasonable action has been taken to effect recovery, and should be satisfied that there is no feasible alternative.

11: In dealing with individual cases, colleges must always consider the soundness of their internal control systems, the efficiency with which they have been operated, and take any necessary steps to prevent any failings recurring.

12: You can read more in annex 4.10 of Managing Public Money.

What to consider before making a write-off

13: Before proposing a write-off, colleges must consider and clearly document (with legal advice as appropriate):

• The circumstances - the nature of the case, the amount involved and the circumstances in which it arose.
• Reasons – the rationale for the proposed write-off, including any legal advice.
• Cost effectiveness - of further action. Colleges should take decisions about their tactics in seeking recovery in particular cases on the strength of cost benefit analysis of the options. Decisions not to pursue recovery should be exceptional and taken only after careful appraisal of the relevant facts, taking into account the legal position. The option of abating future payments to the recipient should always be considered.
• Good/bad faith – in the case of an overpayment, whether the recipient accepted the money in good or bad faith, consistency of approach and timing:
  • Where recipients have acted in good faith, e.g. genuinely believing that the payment was right, they may be able to use this as a defence, though good faith alone is not a sufficient defence to not result in recovery of public funds.
  • Where recipients of overpayments have acted in bad faith, recovery of the full amount overpaid should always be sought. Recipients may be inferred to have acted in bad faith, if they have wilfully suppressed material facts or otherwise failed to give timely, accurate and complete information. Other cases, e.g. those involving recipients’ carelessness, may require judgement. And some cases may involve such obvious error, e.g. where an amount stated is very different from that paid, that no recipient could reasonably claim to have acted in good faith. If an overpayment involved bad faith on the part of the recipient, you should automatically consider the possibility of fraud in addition to recovery action, taking legal advice, where appropriate.
  • Consistency - the need to deal equitably with overpayments to a group of people in similar circumstances, and/or to adjust to individuals’ relevant personal circumstances.
  • Timing – the length of time since the overpayment in question was made.
• Fraud (suspected or proven) - If there is evidence of fraudulent intent, legal and/or disciplinary action should be considered, taking legal advice where appropriate. A criminal conviction in such a case will not eliminate the public debt which had resulted, and so recovery of the debt should also be pursued by any available means.
• Internal controls - whether the investigation has shown any defects in the college’s systems of control and, if so, what action will be taken.

14: Controls, including approval / delegation arrangements, and procedures should be documented in the college’s financial procedures manual.

15: Colleges should maintain an up-to-date record of losses, which includes:

• the nature, gross amount and cause of each loss, and
• the action taken, total recoveries and date of write-off, where appropriate.

DfE approval process

16: Colleges have delegated authority to write-off amounts up to certain individual and cumulative limits. Beyond these limits, write-offs and losses must be referred to DfE for approval in advance. Most sums written off by colleges are likely to be relatively small. Consequently, DfE consent to a write-off will only be required if:

• the write-off exceeds 1% of annual income or £45k individually (whichever is smaller), or
• the write-off takes the college’s cumulative total write-offs for the academic year beyond 5% of its annual income or £250k (whichever is the smaller).

17: For these purposes, income will be the budgeted total income for the current year as approved by the college corporation’s board.

18: Examples of approval levels are set out in the annex to this guide.

19: Additionally, irrespective of the amount of money involved, colleges must always consult DfE if they identify losses and write-offs which may:

• involve important questions of principle
• raise doubts about the effectiveness of existing systems
• contain lessons which might be of wider interest
• are novel, contentious or repercussive
• might create a precedent for other colleges in similar circumstances, or
• arise because of obscure or ambiguous instructions issued centrally.

20: In turn DfE may need to consult HMT.

21: Colleges should use the DfE college approvals form to request permission for any write-off beyond their delegated limits. The proposed write-off must not be entered into until the college has received documented permission from DfE.

22: Where prior approval is not required by DfE, you still must be able to show you applied the same level of scrutiny to the case. DfE expects colleges to have a business case for any write-offs and to provide this to DfE in a timely manner if requested.

Annex: examples of approval thresholds for write-offs

Illustrative standing data

		Approval required as in excess of individual limit?	Approval required as in excess of annual limit?
College’s annual income	£1,000,000	-	-
1% of annual income	£10,000	-	-
5% of annual income	£50,000	-	-
Cumulative value of college’s write-offs in financial year to date (before scenarios below)	£35,000	-	-

Illustrative scenarios

Example	Amount	Approval required as in excess of individual limit?	Approval required as in excess of annual limit?
Case 1: value of proposed write-off	£1,000	No. Individual write-off doesn’t exceed £45K or 1% of income.	No. Individual write-off doesn’t take cumulative write-offs beyond £250k or 5% of income.
Case 2: value	£10,000	No. Individual write-off doesn’t exceed £45k or 1% of income	No. Individual write-off doesn’t take cumulative write-offs beyond £250k or 5% of income
Case 3: value	£15,000	Yes. Individual write-off is under £45k but exceeds 1% of income	No Individual write-off doesn’t take cumulative write-offs beyond £250k or 5% of income
Case 4: value	£40,000	Yes. Individual write-off is under £45k but exceeds 1% of income	Yes. Individual write-off doesn’t take cumulative write-offs beyond £250k but does take them beyond 5% of income