Guidance

ESFA oversight of Independent Training Providers: operational guidance

Updated 26 May 2021

Applies to England

1. Summary

In April 2019 we published our approach to identifying risk of failure by independent training providers (ITPs) and the action we will take to protect learners and to ensure public funds are not wasted. The key measures we introduced were:

• strengthened contract management, with requirements for further information and assurance, where data and analysis suggest a risk to learners or public funds
• enhanced assurance review, intervention, and investigation arrangements, targeting specific areas of risk
• more proactive use of provisions in contracts to require specific actions to remedy breaches within defined timescales which will be closely monitored
• use of sanctions, such as suspension of recruitment or restricting growth, to mitigate the potential impact on learners while assurance is being gained or remedial actions undertaken

We will continue to take this strengthened approach and to terminate funding agreements, contracts and /or apprenticeship agreements (all referred to hereafter as contracts) early, for the circumstances set out in your contract.

1.1 Expiry date

This guidance will be updated to reflect any changes and will be reviewed before December 2022 at the latest.

If you have this guidance in a saved, offline or hard copy format, you are advised to check on GOV.UK to ensure that you are using the most up to date version of the publication.

1.2 Who is this publication for?

This publication provides operational guidance for ITPs, which includes a range of different legal entities with which ESFA contracts. In this document we use the terms “ITPs” or “providers” to mean:

• Independent Learning Providers
• Independent Specialist Providers
• Special post-16 institutions (note that in this case the term “contract” in this document refers to the grant funding agreement)
• employer providers

2. Changes since publication in April 2019

Since the first publication of this guidance in April 2019, the following changes have been introduced:

2.1 Register of apprenticeship training providers:

Changes have been introduced include:

• widening the current set of targeted entry conditions to allow more training providers to apply to the register
• providers currently on the register that have not actively delivered for a period of 6 months, may be considered for removal from the register
• refreshing the register of apprenticeship training providers whilst strengthening the application process for those active providers that remain
• giving notice that the conditions of acceptance have been updated and will be effective 10 May 2021

For further details please see register of apprenticeship training providers.

2.2 Subcontracting reforms

Reforms to subcontracting education for learners over 16 have been put in place to ensure learners receive the best possible education and training and that we have oversight of the use of public funds, ensuring these are spent appropriately, providing value for money.

It is a contractual requirement that accurate and timely sub-contractor declarations are submitted, failure to do so may result in sanctions and potentially, termination of contracts.

2.3 Funding high risk organisations

The funding higher risk organisations and subcontractors policy sets out the circumstances under which ESFA would define a provider to be high risk and sets out the various courses of action that may be taken as a result, including termination of contracts.

3. Future changes

Please note that the Skills and Post 16 Education Bill introduced on 18th May 2021 which encompasses the reforms set out in the Skills for Jobs White Paper, will further inform our future approach to the provider infrastructure and we will communicate more on this over the coming months.

We are currently considering how provider performance will be measured in the delivery of apprenticeships. We will publish our approach later this year.

4. Prevention

We expect providers to respond proactively to issues and areas identified for improvement, whether self-identified through use of the tools and information we provide, identified by us through assurance or compliance reviews, or identified by other external regulators such as Ofsted. Where we think it is necessary, we will seek further information or assurance from a provider that issues are being addressed, and where we are not assured we will take action to enforce contractual requirements.

5. Assurance regime

Our assurance regime encompasses a range of assurance activities, including but not limited to:

• funding rules monitoring
• apprenticeship compliance checks
• a combination of random and risk-based funding assurance reviews;
• new provider controls assessments
• targeted and/or thematic funding assurance reviews
• financial health checks (including in-year monitoring)

We have an annual assurance programme, which comprises a number of the activities outlined above. A random and risk-based sample of providers are selected for funding audits on an annual basis and audits are carried out throughout the year. In addition, we monitor providers exhibiting outlier learner and financial data characteristics, target higher risk funding streams and those providers considered to be higher risk providers.

Our assurance regime assesses, amongst other things, provider compliance with contractual obligations, verifying data with individualised learner records (ILR), to ensure that providers have claimed funding correctly, complying with contract conditions and relevant funding rules. Where funding overclaims are identified and/or funding conditions have been breached we will recover funding from current and/or prior years.

Where significant issues or funding overclaims are identified we may apply appropriate sanctions or penalties commensurate with the seriousness of the breach.

Our assurance and accountability requirements for providers are set out in our post-16 audit code of practice.

In combination with our assurance regime described above, the financial health of the post-16 non-college sector is reviewed and measured either on a recurring annual basis in the case of those organisations we regularly contract with, or on a periodic / entry point basis for other organisations. This can be dependent on the nature of training delivery but applies to all existing and prospective training providers and is not subject to sampling.

We conduct assessments to understand the degree of risk to ESFA in contracting with organisations in the sector, either directly or indirectly. We use financial health as a measure of an organisation’s financial status, in terms of its financial performance and its ability to meet ongoing financial commitments and to this end, mitigate risk by establishing a maximum recommended value of contracts appropriate to the financial resources of organisations that have a direct contract.

More information on our approach to the assessment of financial health is available on GOV.UK.

6. Post-16 monitoring

We monitor in-year data submissions from the Individualised Learner Record (ILR) and other sources, such as the Earnings Adjustment Statement (EAS), Schools Census (SC) and the Student Loans Company (SLC) to:

• identify possible errors in the funding claimed for post-16 delivery that require further investigation
• improve the overall quality of the data reported
• assure us that the provision we buy meets our published funding rules
• support the development of policy

Our work currently covers the majority of post-16 funding streams, and ensures we have full population oversight of 16 to 19 study programmes, T Levels, traineeships, apprenticeships, loans and the adult education budget. We contact providers in-year in collaboration with policy, assurance and territorial leads to better understand issues and ensure data errors are corrected by the close of the R14 ILR data return. For certain reports we publish externally, we will recover adult and apprenticeship funding for ITPs after R14 by offsetting any overclaim against future delivery. Loans errors are shared regularly with SLC for them to investigate further and action.

ESFA expects that providers will proactively consider and review contract compliance, for example, by running regular provider data self-assessment toolkit (PDSATs) reports and by reviewing the post-16 monitoring reports dashboard.

For further information please see post-16 audit code of practice and View your education data

7. ILR data accuracy and reliability

It is important that we and our stakeholders such as Ofsted can have confidence in the data submitted to us. We expect providers to properly and accurately maintain individualised learner record (ILR) data and other learner documents and evidence, as required by contract and funding rules. Changes to the ILR, including learner withdrawals and breaks-in-learning must be recorded promptly and accurately, so that provider ILR data accurately reflects the providers’ learner population at any point in time. Changes made to ILR data may have implications for funding reconciliation therefore providers must ensure that their data is correct before close of R14 ILR data return.

The funding rules monitoring process set out above provides us with a view on the accuracy of data submitted to us, and we also expect providers to regularly review their own data for accuracy. We already publish tools which we expect providers to use to test the credibility of their data, for example the funding information system (FIS), provider data self-assessment toolkit (PDSAT) and post 16 monitoring reports dashboard in view your education data.

To support providers we have built the Analyse FE Data tool, introduced a live validation service, improved internal monitoring on collection services and have improved the ILR supporting guidance.

8. Investigations

Where information received by ESFA indicates suspected fraud and/or a provider has breached the funding rules an investigation may be launched by ESFA Counter Fraud and Investigations (CF&I) team. The decision to launch an investigation is not taken lightly and a rigorous governance process is followed to ensure consistency.

A CF&I Investigation Officer is assigned to an investigation and the work may include (but not be limited to):

• following up with whistle-blower/complainants
• gathering and analysing information
• interviews with provider staff
• feedback and information obtained from affected apprentices/learners
• feedback and information obtained from employers or other interested parties

Where the investigation findings have indicated evidence of fraud or irregularity, ESFA will take steps to recover funds, take contractual action and initiate other appropriate and proportionate enforcement actions or sanctions.

Further details can be found at how ESFA handles allegations of suspected fraud or financial irregularity.

9. Risk-based contract management

We take a risk-based approach to managing contracts. We will focus our resource on providers where their financial accounts and other relevant data suggest that there is a risk of failure. We also consider the potential impact of failure on learners and have established a specialist large provider team to contract manage those that with the highest value contracts. This means that we will work more closely with those providers delivering to large numbers of learners where sudden market exit might lead to significant disruption or disadvantage to learners.

We will use specific triggers in our risk assessment to indicate where there may be areas of concern. While this will be predominantly data driven, contract managers will also consider intelligence gathered from day-to-day dialogue with providers and other relevant sources. The areas of concern may be adjusted over time however their initial focus is as follows:

• financial concerns (relating to the provider and parent company/wider group structure if relevant), including a financial health assessment score that is only marginally above the threshold for inadequate, decline in financial health, cash flow issues, late submission of accounts, reliance on DfE funding coupled with significant change (increase or decrease) in DfE funding
• quality concerns based on Ofsted Inspections and visits or other data and intelligence
• assurance and compliance concerns, including outcomes of audits and assurance reviews, outcomes of funding rules monitoring, data quality, complaints and whistle-blowers and compliance with subcontracting requirements

Our contracts require providers to deliver value for money and financial probity, and contract managers will raise concerns in relation to a provider’s delivery model or operations, where there is a concern about value for money.

10. Contract management function

The role of the contract manager is to act on behalf of ESFA to ensure effective use of public funds against the terms of the contract. The contract (and associated specific documentation for each funding stream) sets out the contractual obligations that must be adhered to. The contract and associated documentation also set out the available routes to remedy and mitigate risks and issues arising through delivery.

The contract manager will have regular dialogue with the provider to review performance and compliance. The contract manager role is not one of an assurance or audit function, however, the contract manager may seek assurance that audit, funding rule, contract compliance and awarding organisation requirements are being met.

The contract manager may request additional information on a range of different areas, including financial, qualitative, compliance and assurance. Such requests are part of day-to-day contract management however, contract managers will have specific reasons for requesting additional information to ensure this is not unduly burdensome on a provider.

The purpose of any contract management action is to minimise the risk to learners and employers of potential failure, by challenging the provider where appropriate, seeking additional information or assurance, and utilising specialist teams to support. This may include, but not limited to:

• where required/appropriate, virtual and/or face-to-face meetings to review contract performance, compliance, financial position, quality, capacity, or other risk factors
• consideration of risk mitigations that the provider has put in place or that ESFA can deploy
• requirement to provide additional financial or other appropriate information which may include for example:
  • in-year financial information as prescribed by ESFA
  • management accounts and/ or a rolling 12-month cash flow forecast
  • in-year qualitative key performance indicators
  • information to support contract performance in terms of learner profile of recruitment, in-learning, retention, progress and achievement
• actions taken in response to Ofsted Visit findings
• evidence of audit or self-assessment findings including outcomes from regular PDSATs, feedback from learners, staff and/or employers.

For large or complex cases there may be a number of ESFA teams involved with the provider, but the contract manager will be the main point of contact.

11. Contract enforcement action

The contract enables ESFA to request the provider to take/cease action or provide information in several areas, however, additional contractual obligations may be used to require improvement actions not covered by existing clauses and will set out the required improvement, the specified timeframe, and appropriate evidence to support this, which may include third-party assurance. Existing clauses can be applied by letter, but additional conditions will be applied through a variation.

Where a provider does not comply with contractual obligations this would be considered a breach of the contract and the provider would have a reasonable opportunity to remedy the breach in line with the contract. If the breach cannot be remedied we would consider termination of the contract.

In addition, the contract identifies specific circumstances that would be considered a breach of contract and which may result in termination of the contract.

12. Sanctions

We may initiate sanctions through the contract where there is a breach and this is necessary to improve performance, protect public funds or the interests of learners and employers. Depending on the nature of the breach, these sanctions include but are not limited to recovery of funds, restrictions on recruitment of learners, restrictions on increases to contract values, or withholding payments. In most cases, we expect to be able to lift sanctions once the associated conditions of funding have been met and/or a breach has been remedied.

13. Termination

The contract sets out the full range of circumstance which may result in termination.

Where a provider does not comply with the obligations in their contract this would be considered a breach and the provider would have an opportunity to take remedial action. If the breach cannot be remedied we may consider termination of the contract.

14. Change in name and change in ownership

It is a contractual requirement that ESFA must be notified in writing of any change in provider name, ownership, or control. Prior written consent of ESFA must be obtained to novate any contracts to another organisation. Providers must refer to the clauses within their contracts for notice period required.

Failure to notify could result in termination of provider contracts.

15. Market exit and learner protection

Contracts can be terminated by either party (ESFA/provider) for different reasons. Providers may wish to stop delivering ESFA funded provision and request to terminate their contracts. In this instance, they should formally notify ESFA in writing, giving at least the notice period set out in their contract.

Alternatively, circumstances may arise that require ESFA to terminate some, or all, of its contracts with a particular provider.

ESFA has established controls and processes in place to support learners, employers and providers affected when contracts are terminated. We aim to ensure that learners can continue with their apprenticeship or other training programme with as little disruption as possible, whilst ensuring appropriate use and protection of public funds.

We require providers to produce an Exit Plan setting out how the provider will ensure it performs its obligations to assist in the orderly transition of the services from the contractor to the department and/or any replacement supplier in the event of a termination (including partial termination) or expiry of the contract. The Exit Plan will cover such areas as learner’s information, data and evidence (including for sub-contracted delivery). We expect that those providers that take the welfare of learners seriously will produce a comprehensive Exit Plan and ensure it is regularly updated.

ESFA has produced guidance for providers, learners, and employers when contracts are terminated. This document should be read in conjunction with provider contracts and funding rules.

16. New providers

We recognise that new providers remain a potentially higher risk due to lack of familiarity with our requirements. Contract managers will therefore closely monitor performance and delivery and may visit new providers within the first 6 months of them starting delivery to consider premises, resources, systems and processes.

17. Funding, data & access support

Providers should use ESFA enquiry service for funding and data queries, and issues regarding access to providers’ ESFA contracts on manage your education and skills funding (MYESF). The contract manager will refer a provider back to the enquiries service if this is the most appropriate avenue to resolve a query.

The enquiry service support includes:

• data queries including support with ILR completion and error resolution, funding reports and submission of grant funding claims
• system access issues
• funding rules queries including bursary and high needs funding
• Learning Aims Reference Service
• freedom of information requests
• allocations, payments, remittance advice and reconciliation

For queries relating to the apprenticeship service or apprenticeship funding rules providers should contact apprenticeship service support.

Providers are responsible for ensuring any information submitted as part of a query is protected in compliance with the Data Protection Act.