BIRMINGHAM Report and Financial Statements for … and CITY COLLLEGE BIRMINGHAM Financial Statements...

SOUTH AND CITY COLLEGEBIRMINGHAM

Report and Financial Statementsfor the year ended 31 July 2017

SOUTH and CITY COLLLEGE BIRMINGHAMFinancial Statements for the Year Ended 31 July 2017

CONTENTSPage numbers

Strategic Report 2-10

College Advisers 11

Statement of Corporate Governance and Internal Control 12-16

Statement of Regularity, Propriety and Compliance 17

Statement of Responsibilities of the Members of the Corporation 18

Independent Auditors’ Report to the Corporation ofSouth and City College Birmingham 19-20

Independent Reporting Accountant’s Assurance Report on Regularityto the Corporation of South and City College Birmingham 21-22

Consolidated Statements of Comprehensive Income 23-24

Consolidated and College Statement of Changes in Reserves 25-26

Balance Sheets as at 31 July 27

Consolidated Cash Flow Statement 28

Notes to the Accounts 29-55

1


Strategic Report

NATURE, OBJECTIVES AND STRATEGIES:

The members present their report and the audited financial statements for the year ended 31 July 2017.

Legal status

South Birmingham College combined with City College Birmingham on 1 August 2012 and South BirminghamCollege was renamed South and City College Birmingham. The legal status of the College has not changed. Itremains a Corporation established under the Further and Higher Education Act 1992. The College is an exemptcharity for the purposes of the Charities Act 2011.

Mission

The College’s mission statement is as follows:

“to provide outstanding education and training, which is primarily vocational, in response to the needs of learnersand employers.”

Public Benefit

South & City College Birmingham is an exempt charity under the Part 3 of the Charities Act 2011 and followingthe Machinery of Government changes in July 2016 is regulated by the Secretary of State for Education. Themembers of the Governing Body, who are trustees of the charity, are disclosed on pages 10 and 11.

In setting and reviewing the College’s strategic objectives, the Governing Body has had due regard for theCharity Commission’s guidance on public benefit and particularly upon its supplementary guidance on theadvancement of education. The guidance sets out the requirement that all organisations wishing to berecognised as charities must demonstrate, explicitly, that their aims are for the public benefit.

In delivering its mission, the College provides the following identifiable public benefits through the advancementof education:

• High quality teaching;• Widening participation and tackling social exclusion;• Excellent employment record for students;• Strong student support systems;• Links with employers, industry and commerce;• Links with Local Enterprise Partnerships (LEP5).

Implementation of strategic plan

The strategic aims of the College are outlined below.

• Provide excellent teaching and learning to all learners and put learners at the heart of all we do;• Ensure learners achieve their full potential;• Be responsive to the education and training needs of learners, staff, employers and local communities;• Proactively promote Safeguarding and Every Child Matters;• Be responsive to the education and training needs of employers both at a local and regional level;• Achieve high overall achievement rates and improve these each year;• To ensure financial robustness, stability and safeguard the College’s assets;• Promote equality in all we do;• Develop education and training opportunities and specialist provision for young people, pre and post 16;• Provide excellent physical accommodation and learning resources for our learners;• Ensure a safe working environment for our learners and staff;• Work collaboratively with other organisations and companies where it is in the interests of our learners

and the local workforce;• Develop provision for overseas students to generate income.

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Strategic Report (continued)

NATURE, OBJECTIVES AND STRATEGIES (continued)

Implementation of strategic plan (continued)

The College set itself broad objectives and achievement of those objectives is addressed below.

• Achieve high standards in terms of student outcomes.Overall achievement rates for 2016/17 were above national benchmarks for both long and short courses.

• Achieve all Education and Skills Funding Agency (ESFA) funding targets.The College did not achieve all of its ESFA funding targets for 201 6/1 7. The College was 55 learnersshort of its 16-18 year old learner number target of 3,090 learners. ESFA adult learner income of£17,668,000 was generated in 2016/1 7, which fell short of the College’s allocation of £18,816,000.

• Maintain a strong financial position.The College’s financial health at the end of 2016/17 is rated as satisfactory under Education and SkillsFunding Agency ratings.

• Improve the College’s physical environment, both in terms of buildings and equipment.The College’s expenditure on new equipment and improvements to its estate exceeded £1,700,000 in201 6/1 7, which has brought about significant improvements to the College’s operational capacity.

Financial objectives

The 2017/18 financial objectives, for the College are to achieve a financial performance that will meet both Lloydsand Barclays bank proposed covenants. These objectives are

• Maximum Leverage of borrowing to EBITA of 5.8• Minimum cash flow cover of 1.0.• Maximum income gearing of 40%• Maintaining cash balances of £3.5m

FINANCIAL POSITION

Financial results

The College produced an operating deficit in the year of £1,882,000 (2015/16 — surplus of £360,000). Under FRS102 guidance, movements in the pension fund liability are added to the deficit and for 2016/17 this movement wasa positive movement of £10.4m. With the inclusion of this movement, the College’s Comprehensive Income for2015/16 was a positive amount of £10.Om.

The College’s reserves show a negative position of £10,178,000, with a negative I & E reserve of £16,224,000.The I & E reserve incorporates the pension liability of £36,471,000 and without this liability the I & E reserve wouldbe £20,097,000 positive.

The College held cash and investment balances of £6,761,000 as at 31 July 2017. The College wishes to continueto accumulate cash balances in order to create a contingency fund.

Tangible fixed asset additions during the year amounted to £1,715,000. This was wholly equipment purchased.

The College has significant reliance on the ESFA for its principal funding source, largely from recurrent grants. In2016/17 the ESFA provided 81% of the College’s total income.

The College has one subsidiary company, FESSA (Projects) Limited. The principal activity of FESSA (Projects)Limited was to provide reprographic services to the College. However, the College made a decision not to utiliseFESSA (Projects) Limited as trading company, as the administration costs of the company outweighed any costadvantages. Therefore, there is no trading result to report.

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FINANCIAL POSITION (continued)

Treasury policies and objectives

Treasury management is the management of the College’s cash flows, its banking, money market and capitalmarket transactions; the effective control of the risks associated with those activities; and the pursuit of optimumperformance 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 Accounting Officer. Such arrangementsare restricted by limits in the Financial Memorandum previously agreed with the Skills Funding Agency. All otherborrowing requires the authorisation of the Corporation and shall comply with the requirements of the FinancialMemorandum.

Cash flows

Cash and Investments held by the College increased by £1,989,000.

The College currently has £15,693,000 of loans outstanding with bankers on various terms for up to 15 years andsecured on College assets. The College’s forecasts and financial projections indicate that it will be able to operatewithin this existing facility for the foreseeable future.

The College has agreed a new set of financial covenants with both Lloyds and Barclays banks. These covenantsapply from 2nd August 2017. However, the College was in breach of the financial covenants that applied to loansat 31st July 2017 and has followed the appropriate accounting treatment for a breach of banking covenant i.e. allloans are presented as being repayable within 1 year. The College has produced financial forecasts whichdemonstrate that it will be able to meet the new banking covenants and therefore does not consider the breachat 31 July 2017 to present a going concern issue.

After making appropriate enquiries, the Corporation considers that the College has adequate resources tocontinue in operational existence for the foreseeable future. For this reason, it continues to adopt the goingconcern basis in preparing the financial statements.

Cash Flows and Liquidity

The College had a current ratio of 0.39 at the end of 2016/1 7, (2015/16 0.70). However, this ratio is affected byhaving the Lloyds bank loans classified as “amounts falling due within one year”. If the relevant loans wereclassified as “amounts falling due after more than one year”, the College would have a current ratio of 1 .04.

The College reduced its long term liabilities by £951,000 (after adjusting for the reclassification of the Lloydsbank loans) in 2016/17 and has a number of mechanisms in place to manage the uncertainties in interest rates.

Reserves Policy

The College has no formal Reserves Policy but recognises the importance of reserves in the financial stability ofany organisation, and ensures that there are adequate reserves to support the College’s core activities. As atthe balance sheet date the Income and Expenditure reserve (excluding the impact of the pension scheme)stands at £20,247,000 (2016: £20,402,000). It is the Corporation’s intention to increase reserves over the life ofthe strategic plan through the generation of annual operating surpluses.

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FINANCIAL POSITION (continued)

CURRENT AND FUTURE DEVELOPMENT AND PERFORMANCE

Student numbers

In 2016/17 the College has delivered activity that has produced £37,956,000 in ESFA main allocation funding(2015/16 — £39,670,000).

The College had approximately 13,000 students funded by ESFA.

Student achievements

Students continue to prosper at the College. Whilst the achievement rates for 2016/17 have yet to be finalised, theCollege expects high standards in terms of achievement rates, with overall achievement rates to be over 85% andno areas to be below benchmark in terms of their achievement rates.

Curriculum developments

In 2010/lithe College was awarded Beacon status in recognition of the outstanding training that it delivers. TheCollege is determined to maintain Beacon status and sees outstanding provision as crucial to the success of theCollege. A number of controls have been implemented to ensure the quality of teaching and learning at leastremained or improved upon the high standard set in previous years. These controls will remain in place forforthcoming years and will be updated where necessary.

The College is fully aware of the need to be constantly updating and changing its curriculum offering, in responseto the ever changing needs of both its learners and employers. The main ways in which the College adapted itcurriculum offering in 2016/17 are as follows.

• The College further expanded its Higher Education provision to include a Higher National Diploma(HND) in Creative Media Production.

• The College now offers level 3 Diplomas in Residential Childcare.

• In apprenticeship provision has continued to grow and has done so in line with the Greater Birminghamand Solihull LEP ‘Skills for Growth’ areas, including apprenticeships in the Engineering and Logisticssectors.

Payment Performance

The Late Payment of Commercial Debts (Interest) Act 1998, which came into force on 1 November 1998, requirescolleges in the absence of agreement to the contrary, to make payments to suppliers within 30 days of either theprovisions of goods or services or the date on which the invoice was received. The target set by the Treasury forpayment to suppliers within 30 days is 95%. The College supports the achievement of this target.

Events after the end of the reporting period

Birmingham and Solihull Colleges were amongst the first Colleges in the country to take part in the area basedreview process. This process looks at post 16 provision in an area with the purpose of establishing financiallyviable, sustainable, resilient and efficient Colleges which deliver maximum value for public investment. The keyrecommendation of this review was that South and City College merge with Bournville College and that thismerger be a type B merger, which would involve the Corporation of Bournville College dissolving and its assetsand liabilities being transferred into South & City College. The merger was completed on 2 August 2017.

Future prospects

As one college with a one set of governance and management groups, South and City College (incorporatingBournville College) will focus on excellence in working with students, employers and communities to improve theskills and life chances of the people of Birmingham.

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CURRENT AND FUTURE DEVELOPMENT AND PERFORMANCE (continued)

The merged college will provide a joined up approach to the provision of further and higher education acrossBirmingham. A greater networks of expertise will be forged involving students, staff and employers will allow themto share best practice and innovation across all curriculum areas. Stronger partnerships with schools anduniversities will be created to raise students’ aspirations. Combining resources of both colleges offers the prospectof developing specialist facilities, working closely with employers.

Resources:

The College has various resources that it can deploy in pursuit of its strategic objectives.

The College has land and buildings with a net book value of £65,733,000 (201 5/16 - £67,104,000).

Expenditure on equipment exceeded £1,700,000, (2015/16 -£1,100,000) as the College continued its policy ofreinvesting in equipment and facilities that benefit students.

The College had cash reserves and investments of over £6,661,000 at the end of the year (2015/16 - £4,773,000),which it intends to use to further resource the college.

Financial

The Group has a negative reserve position of £10,028,000 of net assets (2015/16 - £18,606,000). The positivechange in the reserve position is due to a decrease in the defined pension obligations from £45.3m to £36.5. Longterm loans stood at £14,712,000 (after adjusting for the reclassification of the Barclays bank loans which werepayable on demand at year end but subsequently became long term loans after year end) (2015/16 -

£15,682,000).

People

The College employs 812 people (expressed as full time equivalents), of whom 359 are teaching staff (2015/16—837 people and 383 teaching staff).

Reputation

The College has a good reputation locally and nationally and was awarded Beacon status in 2010/11. The Collegewas rated “Good” in its Ofsted inspection in 2015 and the College operates a nursery that was rated “Outstanding”at a separate Ofsted inspection (2014). Maintaining a quality brand is essential for the College’s success atattracting students and 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 andreputation.

Based on the strategic plan, the College’s Senior Management Team (SMT) undertakes a comprehensive reviewof the risks to which the College is exposed. It identifies systems and procedures, including specific preventableactions which should mitigate any potential impact on the College. The internal controls are then implementedand the subsequent year’s appraisal will review their effectiveness and progress against risk mitigation actions.In addition to the annual review, the SMT will also consider any risks which may arise as a result of a new areaof work being undertaken by the College.

A risk register is maintained at the College level which is reviewed at least three times per annum by the AuditCommittee. The risk register identifies the key risks, the likelihood of those risks occurring, their potential impacton the College and the actions being taken to reduce and mitigate the risks. Risks are prioritised using aconsistent scoring system.

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CURRENT AND FUTURE DEVELOPMENT AND PERFORMANCE (continued)

Outlined below is a description of the principal risk factors that may affect the College. Not all the factors arewithin the College’s control. Other factors besides those listed below may also adversely affect the College.

1. Government funding

The College has considerable reliance on continued government funding through the ESFA. In 2016/17, 81% ofthe College’s revenue was ultimately public funded and this level of requirement is expected to continue.

The College is aware of several issues which may impact on future funding:• Changes to funding rates may result in the College receiving less income per student.• More funding will be based on a commissioning model as greater amounts of funding is set to go direct

to employers and Combined Authority.• The College is likely to face greater competition from new academies and school sixth forms for 16-18

year old students and demographics means that there will be fewer 16-18 year olds in the forthcomingyears.

This risk is mitigated in a number of ways:• By ensuring the College is rigorous in delivering high quality education and training.• Considerable focus and investment is placed on maintaining and managing key relationships with the

various funding bodies and local authorities.• Ensuring the College is focused on those priority sectors which will continue to benefit from public funding.• Reducing the level of dependence upon public funding.• Efficiency gains to reduce expenditure in line with income.

2. Merger with Bournville College

Bournville College has experienced extreme financial difficulties and has one of the highest debt to turnover ratiosin the sector. The College has worked with the ESFA/Transaction Unit to agree a deal, which reduces the debt ofBournville College and therefore the risk of merging with a college with high debt has been reduced. In additionthe ESFA has agreed to underwrite certain future liabilities. It also has a number of unresolved issues which couldgenerate future liabilities. The risk to South and City College is that it will inherit unsustainable debt levels via amerger. In order to mitigate this risk the College has negotiated grant funding from the ESFA to settle existingdebts and the underwriting of future liabilities.

At 31 July 2017 the College was in breach of the financial covenants that applied to Barclays’ loans at 31 July2017. As a result the College has followed the appropriate accounting treatment and the loans are presented asbeing repayable within 1 year at 31 July 2017. As a result, the College balance sheet at 31 July 2017 shows netcurrent liabilities of £13,908,000 (201 5/1 6: £3,771,000).

Since 31 July 2017 the College has agreed new terms with Barclays and Lloyds in respect of the newly mergedCollege (following the merger of SCCB and Bournville College on 2 August 2017). The new terms include a newset of financial covenants with both Lloyds and Barclays banks. These covenants apply from 2nd August 2017.

The College has produced financial forecasts that demonstrate that it will be able to meet the new bankingcovenants, but the cash cover covenant that applies to both the Barclays’ and Lloyds’ loans will require little or noworsening from the forecast position. In the event that actual cashf lows are expected to adversely deviate fromthe forecast position, the College has the ability to revise the timing of planned capital expenditure programsand/or manage working capital to meet the cash cover covenant. So while there is a risk that the College mightnot meet this banking covenant in future years, the College considers this risk to be manageable. Furthermore,the College has built up strong working relationships with both banks and both banks have reaffirmed theircommitment to the College by maintaining loans in the merged College and therefore the College does notconsider this risk of breach of covenant to present significant uncertainty about the College’s ability to continueas a going concern issue. For this reason, the College continues to adopt the going concern basis in preparingthe financial statements.

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PRINCIPAL RISKS AND UNCERTAINTIES (continued)

3. Maintaining Achievement rates above benchmark

The College’s overall achievement rates, which are basically the percentage of students gaining a qualification,currently stand at over 85%. This is well above the national average or benchmark for FE Colleges. However, in

recent years the benchmark for achievement rates has been rising faster than the College’s achievement rates.The risk to the College is that if this trend continues, its achievement rates will become at or below benchmark,which could have implications for the future funding of the College.

This risk is mitigated in a number of ways:• A very robust self-assessment process.• Comprehensive Management Information System (MIS)data on the performance of all courses.• Every course undergoes a 6 week review to ensure standards of a high quality are maintained.

4. Ensuring the College’s curriculum meets the needs and aspirations of students and funding agencies.

Students have a wide choice in terms of FE education providers as school sixth forms, new academies and privateproviders compete with FE Colleges for students. Where a College does not offer courses which meet the needsand aspirations of students, it will find it difficult to compete in this type of environment and struggle to maintainits current student numbers. In addition to this, Colleges also need to compete for funding and Colleges which donot deliver courses which meet the priorities of funding providers risk a reduction in funding. The College thereforeneeds to ensure that its curriculum offering is attractive to students and meet the priorities of funding bodies orrisk a substantial reduction in its income.

This risk is mitigated in a number of ways:• Incorporation of targets for new provision within curriculum plans.• Systems in place to test the views of students with regard to the College’s curriculum offering.• Regular contact and meetings with funding bodies to ensure the College is meeting their priorities.

5. Maintain adequate funding of pension liabilities

The financial statements report the share of the Local Government Pension Scheme deficit on the College’sbalance sheet in line with the requirements of FRS 102.

This risk is mitigated by an agreed deficit recovery plan with the West Midlands Pension Fund.

6. Failure to maintain the financial viability of the College

The College’s current financial health grade is classified as Satisfactory as described above. The continuingchallenge to the College’s financial position remains the constraint on further education funding arising from theongoing cuts in public sector spending whilst maintaining the student experience.

This risk is mitigated in a number of ways:• By rigorous budget setting procedures and sensitivity analysis• Regular in year budget monitoring• Robust financial controls• Exploring ongoing procurement efficiencies

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STAKEHOLDER RELATIONSHIPS

In line with other colleges and with universities, South and City College Birmingham has many stakeholders.These include:

- Students;

- Education sector funding bodies;

• FE Commissioner

• Staff;

• Local employers (with specific links);

• Local Authorities;

• Government Offices/Regional Development Agencies/Local Enterprise Partnerships;

• The local community;

• Other FE institutions;

• Trade unions; and

• Professional bodies.

The College recognises the importance of these relationships and engages in regular communication with themthrough the College Internet site and by meetings.

Equality

The College is committed to ensuring equality of opportunity for all who learn and work here. We respect and valuepositively differences in race, gender, sexual orientation, disability, religion or belief and age. We strive vigorouslyto remove conditions which place people at a disadvantage and we will actively combat bigotry. This policy isresourced, implemented and monitored on a planned basis. The College’s Equality Policy is published on theCollege’s Internet site.

The College publishes an Annual Equality Report and Equality Objectives to ensure compliance with all relevantequality legislation including the Equality Act 2010. The College undertakes equality impact assessments on allnew policies and procedures and publishes the results. Equality impact assessments are also undertaken forexisting policies and procedures on a prioritised basis.

The College considers all applications from disabled persons, bearing in mind the aptitudes of the individualsconcerned. Where an existing employee becomes disabled, every effort is made to ensure that employment withthe College continues. The Colleges policy is to provide training, career development and opportunities forpromotion, which are, as far as possible, identical to those for other employees. An equalities plan is publishedeach year and monitOred by managers and governors.

The College has also implemented an Equality & Diversity training programme which all staff complete online.Refresher training and training for new starters is carried out on an ongoing basis.

Disability statement

The College seeks to achieve the objectives set down in the Disability Discrimination Act 1995 as amended by theSpecial Education Needs and Disability Acts 2001 and 2005.

a) As part of its accommodation strategy the College updated its access audit. Experts in this field conducteda full access audit during 2006/07, and the results of this formed the basis of a bid to the Learning SkillsCouncil (LSC) for funding capital projects aimed at improving access.

b) The College has appointed an Access Co-ordinator, who provides information, advice and arranges supportwhere necessary for students with disabilities.

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STAKEHOLDER RELATIONSHIPS (continued)

c) There is a llst of specialist equipment, such as radio aids, which the College can make available for use by

students and a range of assistive technology is available in the learning centre.

ci) The admissions policy for all students is described in the College charter. Appeals against a decision not to

offer a place are dealt with under the complaints policy.

e) The College has made a significant investment in the appointment of specialist lecturers to support

students with learning difficulties and/or disabilities. There are a number of student support assistants who

can provide a variety of support for learning. 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.

f) Specialist programmes are described in College prospectuses, and achievements and destinations are

recorded and published in the standard College format.

g) Counselling and welfare services are described in the College Student Guide, which is issued to students

• together with the Complaints and Disciplinary Procedure leaflets at induction.

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.

Approved by order of the members of the Corporation on 5 December 2017 and signed on its behalf by:

Ceeron )V

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College Advisers

Financial statement and regularity auditors:PricewaterhouseCoopers LLPCornwall Court19 Cornwall StreetBirminghamB3 2DT

Internal auditors:RSM UK LLPSt Phillips PointTemple RowBirminghamB2 5AF

Bankers:Lloyds Bank114-116 Colmore RowBirminghamB3 3DP

Barclays BankOne Snowh illSnow Hill QueenswayBirminghamB4 6GN

Solicitors: GeneralSGH MartineauNo 1 CoIm ore SquareBirminghamB4 6AA

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Statement of Corporate Governance and Internal Control

The following statement is provided to enable readers of the annual report and Financial Statements of theCollege to obtain a better understanding of its governance and legal structure. This statement covers the periodfrom 1st August 2016 to 31st July 2017 and up to the date of approval of the annual report and financialstatements.

The College endeavours to conduct its business:

i) in accordance with the seven principles identified by the Committee on Standards in Public Life(selflessness, integrity, objectivity, accountability, openness, honesty and leadership);

ii) in full accordance with the guidance to colleges from the Association of Colleges in The Code of GoodGovernance in English Colleges (“the Code”); and

iii) having due regard to the UK Corporate Governance Code 2016 insofar as it is applicable to the furthereducation sector.

The College is committed to exhibiting best practice in all aspects of corporate governance and in particular theCollege/Board has adopted and complied with the Foundation Code. We have not adopted and therefore do notapply the UK Corporate Governance Code. However, we have reported on our Corporate Governance

arrangements by drawing upon best practice available, including those aspects of the UK Corporate GovernanceCode we consider to be relevant to the further education sector and best practice.

In the opinion of the governors, the College complies with all the provisions of the UK Corporate governance

code insofar as it is applicable to FE Colleges, and it has complied throughout the year ended 31 July 2017.The Governing Body recognises that, as a body entrusted with both public and private funds, it has a particularduty to observe the highest standards of corporate governance at all times.

The College is an exempt charity within the meaning of Part 3 of the Charities Act 2011. The Governors, who are

also the Trustees for the purpose of the Charities Act 2011, confirm that they have had due regard for Charity

Commission’s guidance on public benefit and that the required statements appear elsewhere in these financial

statements.

The Corporation

The members who served on the Corporation during the year and up to the date of signature of this report wereas listed in Table 2.

Table 2: Governors serving on the College Board during 201 6/1 7.

Date of Term Date of Status of Committees Attendanceappointment of resignation appointment served August 2016 —

office July2017(9 meetings)

Prof. P Re-appointed: 4 years 10 June Independent Search 0Walkling 29 February 2017 Governor & Governance;

2016. Senior StaffRemuneration

Gerald Re-appointed: 4 years Independent Audit; 8Bermingham 12 May2017 Governor Employment &

EqualitiesFouzia 7 October 2015 3 years Teaching Staff 8Choudhry GovernorJohn Gemmell 10 February 4 years Independent Chair: Audit 8

2016 GovernorClive Re-appointed: 4 years Independent Chair: Corporation; 9Henderson 11 June 2017 Governor Search

Re-appointed as & Governance;Chair: Chair: Senior Staff20 September Remuneration2016

Mike Hopkins N/A N/A Principal N/A 9

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Table 2: Governors serving on the College Board during 2016/17 (continued).

Lucy Jeynes Re-appointed: 4 years Independent 511 December Governor2016

Paul Johal Re-appointed: 4 years Independent Employment & 47 April2015 Governor Equalities;

Search &Governance

Heather Jones Re-appointed: 4 years Independent Audit; 911 June2017 Governor Senior Staff

Remuneration;Search& Governance

Dr Zahoor Re-appointed: 4 years Independent Audit; 7Mann 20 February Governor Employment &

2016 Equalities;Senior StaffRemuneration;Search& Governance

Angela Pocock Re-appointed: 4 years Independent Employment & 75 July 2015 Governor Equalities;Appointed as Senior StaffVice Chair: Remuneration9 February 2016

Pat O’Neill Re-appointed: 4 years Independent Audit; 928 February Governor Employment &2014 Equalities

Derek Osborne 25 March 2015 3 years Non-teaching 7staff Governor

Alex Re-appointed: 4 4 years Independent Audit; 8Stephenson March 2016 Governor Chair: Search

& Governance;Senior StaffRemuneration

Nasir Awan 9 July 2014 4 years Independent Employment & 3(Governor) Governor Equalities

Shireen Avari 9 April 2014 4 years Independent Audit; 7Governor Employment &

EqualitiesRichard Weber Re-appointed: 4 years Independent Search 9(Ryszard) 13 May 2017 Governor & Governance;

Audit;Employment &Equalities

Musa Nela 6 December 2 years Student Governor 92016

Sabina Begum 14 March 2017 2 years Student Governor 3Albert Winners 13 March 2015 2 years 13 March Student Governor 3

2017

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 Collegetogether with other information such as performance against funding targets, proposed capital expenditure, qualitymatters and personnel-related matters such as health and safety and environmental issues. The Corporationmeets each term.

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Statement of Corporate Governance and Internal Control (continued)

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 planning, resources and estates,employment and equalities, senior staff remuneration, search, student services, standards and audit. Full minutesof all meetings, except those deemed to be confidential by the Corporation, are available on the College’s websiteat www.sccb.ac.uk or from the Clerk to the Corporation at:

South and City College BirminghamHigh StreetDigbethBirminghamB5 5SU

The Clerk to the Corporation maintains a register of financial and personal interests of the governors. The registeris available for inspection at the above address.

All governors are able to take independent professional advice in furtherance of their duties at the College’sexpense and have access to the Clerk to the Corporation, who is responsible to the Board for ensuring that allapplicable procedures and regulations are complied with. The appointment, evaluation and removal of the Clerkare matters for the Corporation as a whole.

Formal agendas, papers and reports are supplied to governors in a timely manner, prior to Board 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 itsdecision-making process. The Corporation considers that each of its non-executive members is independent ofmanagement and free from any business or other relationship which could materially interfere with the exerciseof their independent judgement.

There is a clear division of responsibility in that the roles of the Chairman and Accounting Officer are separate.

Appointments to the Corporation

Any new appointments to the Corporation are a matter for the consideration of the Corporation as a whole. TheCorporation has a search committee, consisting of three members of the Corporation, which is responsible for theselection and nomination of any new member for the Corporation’s consideration. The Corporation is responsiblefor ensuring that appropriate training is provided as required.

Members of the Corporation are appointed for a term of office not exceeding tour years.

Corporation performance

The Corporation carried out a self-assessment of its own performance for the year ended 31st July 2017 andgraded itself as “Good” on the Ofsted scale.

Remuneration committee

Throughout the year ending 31 July 2017, the College’s Remuneration Committee comprised three members ofthe Corporation. The Committee’s responsibilities are to make recommendations to the Board on the remunerationand benefits of the Principal and other senior post-holders.

Details of remuneration for the year ended 31 July 2017 are set out in note 7 to the financial statements.

Audit committee

The Audit Committee comprises seven members of the Corporation (excluding the Accounting Officer and Chair).The Committee operates in accordance with written terms of reference approved by the Corporation.

The Audit Committee meets on a termly basis 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,

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Statement of Corporate Governance and Internal Control (contThued)

without the presence of College management. The Committee also receives and considers reports from the mainFE funding bodies as they affect the College’s business.

The College’s internal auditors review the systems of internal control, risk management controls and governanceprocesses in accordance with an agreed plan of input and report their findings to management and the AuditCommittee.

Audit committee

Management is responsible for the implementation of agreed audit recommendations and internal auditundertakes 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 financialstatements auditors and their remuneration for both audit and non-audit work as well as reporting annually to theCorporation.

Internal control

Scope of responsibility

The Corporation is ultimately responsible for the College’s system of internal control and for reviewing itseffectiveness. However, such a system is designed to manage rather than eliminate the risk of failure to achievebusiness objectives and can provide only reasonable and not absolute assurance against material misstatementor loss.

The Corporation has delegated the day-to-day responsibility to the Principal, as Accounting Officer, formaintaining a sound system of internal control that supports the achievement of the College’s policies, aims andobjectives, whilst safeguarding the public funds and assets for which he is personally responsible, in accordancewith the responsibilities assigned to him in the Financial Memorandum/Financial Agreement between South andCity College Birmingham and the funding bodies. He is also responsible for reporting to the Corporation anymaterial 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 offailure to achieve policies, aims and objectives; it can therefore only provide reasonable and not absoluteassurance of effectiveness. The system of internal control is based on an ongoing process designed to identifyand prioritise the risks to the achievement of College policies, aims and objectives, to evaluate the likelihood ofthose risks being realised and the impact should they be realised, and to manage them efficiently, effectively andeconomically. The system of internal control has been in place in South and City College Birmingham for the yearended 31 July 2017 and up to the date of approval of the financial statements.

Capacity to handle risk

The Corporation has reviewed the key risks to which the College is exposed together with the operating, financialand compliance controls that have been implemented to mitigate those risks. The Corporation is of the view thatthere is a formal ongoing process for identifying, evaluating and managing the College’s significant risks that hasbeen in place for the year ending 31 July 2017 and up to the date of approval of the financial statements. Thisprocess 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, administrativeprocedures including the segregation of duties, and a system of delegation and accountability. In particular, itincludes:

• Comprehensive budgeting systems with an annual budget, which is reviewed and agreed by thegoverning body.

• Regular reviews by the governing body of periodic and annual financial reports which indicate financialperformance against forecasts.

15


Statement of Corporate Governance and Internal Control (continued)

• Setting targets to measure financial and other performance.

• Clearly defined capital investment control guidelines.

• The adoption of formal project management disciplines, where appropriate.

The risk and control framework (continued)

South and City College Birmingham has an internal audit service, which operates in accordance with the

requirements of the ESFA’s Post 16 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. His 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 auditors, the regularity auditors (for colleges in

plan-led funding), in their management letters and other reports.

The Principal has been advised on the implications of the result of his review of the effectiveness of the system

of internal control by the Audit Committee, which oversees the work of the internal auditor and other sources of

assurance 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 and other sources of assurance, 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 October 2017 meeting,

the Corporation carried out the annual assessment for the year ended 31 July 2017 by considering documentation

from the senior management team and internal audit, and taking account of events since 31 July 2017.

Based on the advice of the Audit Committee and the Accounting Officer, the Corporation is of the opinion that the

College has an adequate and effective framework for governance, risk management, for the “effective and efficient

use of resources, the solvency of the institution and the body and the safeguarding of their assets”.

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 5 December 2017 anct signed on its behalf by:

Clive HChairman

16


Statement of Regularity, Propriety and Compliance

The Corporation has considered its responsibility to notify the Education and Skills Funding Agency (ESFA) ofmaterial irregularity, impropriety and non-compliance with terms and conditions of funding, under the college’sfinancial memorandum. As part of our consideration we have had due regard to the requirements of the financialmemorandum.

We confirm on behalf of the Corporation, that after due enquiry, and to the best of our knowledge, we are able toidentify any material irregular or improper use of funds by the College, or material non-compliance with the termsand conditions of funding under the College’s financial memorandum

We confirm that no instances of material irregularity, impropriety or funding non-compliance have been discoveredto date. If any instances are identified after the date of this statement, these will be notified to the ESFA,

Approved by order of the members of the Corporation on 5 on its behalf by:

Officer


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 College’s Financial Memorandum with the ESFA, the Corporation, through

its Accounting Officer, is required to prepare financial statements for each financial year in accordance with the

2015 Statement of Recommended Practice: Accounting for Further and Higher Education 2015 (the 2015 FE HE

SORP), the College Accounts Direction for 2016 to 2017 issued by the Education and Skills Funding Agency

(ESFA) and in accordance with Financial Reporting Standard 102—The Financial Reporting Standard applicable

in the United Kingdom and Republic of Ireland (FRS 102), 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 an Operating and Financial Review 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.

The maintenance and integrity of the 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.

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 ESFA are used only in accordance with the

Financial Memorandum/Financial Agreement with the ESFA and any other conditions that may be prescribe 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 from the ESFA are not put at risk.

Approved by order of the members of the Corporation on 5 December2017 and signed on its behalf by:

CeHen”17

18


INDEPENDENT AUDITORS’ REPORT TO THE CORPORATION OF SOUTH AND CITYCOLLEGE BIRMINGHAM (the “institution”)

Report on the audit of the financial statements

Opinion

In out opinion, South and City College Birmingham’s group financial statements and patent institution financialstatements (the ‘inancial statements”):

• give a true and fair view of the state of the group’s and of the parent institution’s affairs as at 31 July 2017and of the group’s income and expenditure and cash flows for the year then ended;

• have been properly prepared in accordance with United Kingdom Generally Accepted AccountingPractice (United Kingdom Accounting Standards, comprising FRS 102 “The Financial Reporting Standardapplicable in the UK and Republic of Ireland”, and applicable law); and

• have been properly prepared in accordance with the Statement of Recommended Practice — Accountingfor Further and Higher Education.

We have audited the financial statements, included within the Report and Financial Statements (the “AnnualReport”), which comprise the group and parent institution Balance sheets as at 31 July 2017; the ConsolidatedStatements of Comprehensive Income for the year then ended; the Consolidated and College Statement ofChanges in Reserves for the year then ended; the Consolidated Cash Flow Statement for the year then ended;and the notes to the financial statements, which include a summary of significant accounting policies and otherexplanatory information.

Basis for Opinion

We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) andapplicable law. Our responsibilities under ISAs (UK) are further described in the Auditors’ responsibilities for theaudit of the financial statements section of our report. We believe that the audit evidence we have obtained issufficient and appropriate to provide a basis for our opinion.

Independence

We remained independent of the group in accordance with the ethical requirements that are relevant to ouraudit of the financial statements in the UK, which includes the FRC’s Ethical Standard, and we have fulfilled ourother ethical responsibilities in accordance with these requirements.

Conclusions Relating to Going Concern

We have nothing to report in respect of the following matters in relation to which ISAs (UK) require us to reportto you when:

the Corporation’s use of the going concern basis of accounting in the preparation of the financialstatements is not appropriate; or• the Corporation has not disclosed in the financial statements any identified material uncertainties thatmay cast significant doubt about the group’s and parent institution’s ability to continue to adopt the goingconcern basis of accounting for a period of at least twelve months from the date when the financial statementsare authorised for issue.

However, because not all future events or conditions can be predicted, this statement is not a guarantee as tothe group’s and parent institution’s ability to continue as a going concern.

Reporting on Other Information

The other information comprises all of the information in the Annual Report other than the financial statementsand our auditors’ report thereon. The Corporation is responsible for the other information. Our opinion on thefinancial statements does not cover the other information and, accordingly, we do not express an audit opinionor any form of assurance thereon. In connection with our audit of the financial statements, our responsibility is toread the other information and, in doing so, consider whether the other information is materially inconsistent with

19


the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated.If we identify an apparent material inconsistency or material misstatement, we are required to performprocedures to conclude whether there is a material misstatement of the financial statements or a materialmisstatement of the other information. If, based on the work we have performed, we conclude that there is amaterial misstatement of this other information, we are required to report that fact. We have nothing to reportbased on these responsibilities.

Responsibilities for the financial statements and the audit

Responsibilities of the Corporation for the financial statements

As explained more fully in the Statement of Responsibilities of the Members of the Corporation set out on page18, the Corporation is responsible for the preparation of the financial statements in accordance with the applicableframework and for being satisfied that they give a true and fair view. The Corporation is also responsible for, suchinternal control as they determine is necessary to enable the preparation of financial statements that are free frommaterial misstatement, whether due to fraud or error.

In preparing the financial statements, the Corporation is responsible for assessing the group’s and parentinstitution’s ability to continue as a going concern, disclosing as applicable, matters related to going concernandusing the going concern basis of accounting unless the Corporation either intends to liquidate the group andparent institution or to cease operations, or has no realistic alternative but to do so.

Auditors’ responsibilities for the audit of the financial statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are freefrom material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes ouropinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted inaccordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arisefrom fraud or error and are considered material if, individually or in the aggregate, they could reasonably beexpected to influence the economic decisions of users taken on the basis of these financial statements.

A further description of our responsibilities for the audit of the financial statements is located on the FinancialReporting Council’s website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditors’report.

Use of this report

This report, including the opinions, has been prepared for and only for the Corporation as a body in accordancewith Article 22 of the institution’s Articles of Government and for no other purpose. We do not, in giving theseopinions, accept or assume responsibility for any other purpose or to any other person to whom this report isshown or into whose hands it may come save where expressly agreed by our prior consent in writing.

Other Required Reporting

Opinions on other matters prescribed in the Audit Code of Practice issued by the Education and SkillsFunding Agency

In our opinion, in all material respects:

• proper accounting records have been kept, and• the financial statements are in agreement with the accounting records and returns.

P2r L(’

PricewaterhouseCoopers LLPChartered Accountants and Statutory Auditors

ZI €C.e%’-y 2OI-(a) The maintenance and integrity of the South and City College Birmingham’s website is the responsibility of the Corporation; the work carriedout by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changesthat may have occurred to the financial statements since they were initially presented on the website.(b) Legislation in the united Kingdom governing the preparation and dissemination of financial statements may differ from legislation in otherjurisdictions.

20


Independent Reporting Accountant’s Assurance Report on Regularity to theCorporation of South and City College Birmingham and the Secretary of State forEducation acting through the Education and Skills Funding Agency

In accordance with the terms of our engagement letter dated 4 August 2017 and further to the requirements ofthe financial memorandum with the Education and Skills Funding Agency we have carried out an engagementto obtain limited assurance about whether anything has come to our attention that would suggest that in allmaterial respects the expenditure disbursed and income received by South and City College Birmingham duringthe period 1 August 2016 to 31 July 2017 have not been applied to the purposes identified by Parliament andthe financial transactions do not conform to the authorities which govern them.

The framework that has been applied is set out in the Post-16 Audit Code of Practice issued by the Educationand Skills Funding Agency. In line with this framework, our work has specifically not considered incomereceived from the main funding grants generated through the Individualised Learner Record (ILR) returns, forwhich Education and Skills Funding Agency has other assurance arrangements in place.

This report is made solely to the corporation of South and City College Birmingham and the Education and SkillsFunding Agency in accordance with the terms of our engagement letter. Our work has been undertaken so thatwe might state to the corporation of South and City College Birmingham and Education and Skills FundingAgency those matters we are required to state in a report and for no other purpose. To the fullest extentpermitted by law, we do not accept or assume responsibility to anyone other than the corporation of South andCity College Birmingham and the Education and Skills Funding Agency for our work, for this report, or for theconclusion we have formed, save where expressly agreed in writing.

Respective responsibilities of South and City College Birmingham and the reporting accountant

The corporation of South and City College Birmingham is responsible, under the requirements of the Further &Higher Education Act 1992, subsequent legislation and related regulations and guidance, for ensuring thatexpenditure disbursed and income received is applied for the purposes intended by Parliament and the financialtransactions conform to the authorities which govern them.

Our responsibilities for this engagement are established in the United Kingdom by our profession’s ethicalguidance and are to obtain limited assurance and report in accordance with our engagement letter and therequirements of the Post-16 Audit Code of Practice. We report to you whether anything has come to ourattention in carrying out our work which suggests that in all material respects, expenditure disbursed andincome received during the period 1 August 2016 to 31 July 2017 have not been applied to purposes intendedby Parliament or that the financial transactions do not conform to the authorities which govern them as set out inthe Association of Colleges Accounts Direction 2016 to 2017.

Approach

We conducted our engagement in accordance with the Post-i 6 Audit Code of Practice issued jointly by theEducation and Skills Funding Agency. We performed a limited assurance engagement as defined in thatframework.

The objective of a limited assurance engagement is to perform such procedures as to obtain information andexplanations in order to provide us with sufficient appropriate evidence to express a negative conclusion onregularity.

A limited assurance engagement is more limited in scope than a reasonable assurance engagement andconsequently does not enable us to obtain assurance that we would become aware of all significant matters thatmight be identified in a reasonable assurance engagement. Accordingly, we do not express a positive opinion.

Our engagement includes examination, on a test basis, of evidence relevant to the regularity of the college’sincome and expenditure.

21


The work undertaken to draw to our conclusion includes:• Obtaining an understanding of South and City College Birmingham’s key policies, procedures and

controls;

• Reviewing a sample of payments to governors, settlement payments and expenses; and

• Confirming that activities during the year reflect the controls, policies and procedures identified.

Conclusion

In the course of our work, nothing has come to our attention which suggests that in all material respects theexpenditure disbursed and income received during the period 1 August 2016 to 31 July 2017 has not beenapplied to purposes intended by Parliament and the financial transactions do not conform to the authoritieswhich govern them.

PXrV LI-P

PricewaterhouseCoopers LLPChartered Accountants

Date: 2 20t

22


Consolidated Statements of Comprehensive IncomeFor the year ended 31 July 2017

Note Year ended Year ended31 July2017 31 July2076

IncomeFunding body grantsTuition fees and education contractsOther grants and contractsOther incomeInvestment income

Total Income

_______________________________________

ExpenditureStaff costs 6Fundamental restructuring costs 6Other operating expenses 8Depreciation 11Interest and other finance costs 9

Total expenditure

_________________________________________

(Deficit)/Surplus before other gains andlosses

Profit/(loss) on disposal of assetsImpairment LossResult on investments

Deficit before tax

Taxation

Deficit for the year

Unrealised surplus on revaluation of assetsActuarial profit/floss) in respect of pensionsschemes

_________________________________________

Total Comprehensive lncome/(Expense) forthe year

_______________________________________

Represented by:Restricted comprehensive incomeUnrestricted comprehensive income

Deficit for the year attributable to:Non-controlling interest

Group

_______________________________________

Group College Group College£000 £000 £000 £000

2 39,059 39,059 41,106 41,1063 5,765 5,765 6,118 6,1184 19 19 104 104

2,432 2,432 1,439 1,4395 14 14 36 36

12

10

47,289 47,289 48,803 48,803

33,220 33,220 33,118 33,118353 353 492 492

10,657 10,657 9,750 9,7503,070 3,070 3,229 3,2291,871 1,871 1 ,854 1,854

49,171 49,171 48,443 48,443

(1,882) (1,882) 360 360

32 32 (186) (186)0 0 f 1,624) (1,624)0 0 0 0

(1,850) (7,850) (7,450) (7,450)

0 0 0 0

(1,850) (1,850) (1,450) (1,450)

0 0 0 0

10,428 10,428 (15,086) (15,086)

8,578 8,578 (16,536) (16,536)

0 0 0 08,578 8,578 (16,536) (16,536)

8,578 8,578 (16,536) (16,536)

(1,850) (1,850) (1,450) (1,450)

23


Consolidated Statements of Comprehensive Income

Year ended Year endedNote 31 July2016 31 July2016

Group College Group CollegeTotal Comprehensive Expense for the year £000 £000 £000 £000attributable to:Non-controlling interest 0 0 0 0Group 8,578 8,578 (16,536) (16,536)

24


Consolidated and College Statement of Changes in ReservesFor the year ended 31 July 2017

Deficit from the incomeand expenditure accountOther comprehensiveexpenseTransfers betweenrevaluation and incomeand expenditurereserves

(1,450)

(15,086)

133

0 (1,450)

0 (15,086)

(133) 0

(1,450)

(15,086)

0

Total comprehensiveexpense for the year

Balance at 31 July2076


Total comprehensiveincome/(expense) forthe year


CollegeBalance at 1 August2015



(24,935)

(1,850)

10,428

133

(133) (16,536)

6,329 (18,606)

0 (1,850)

0 10,428

(133) 0

(18,606)

(1,850)

10,428

0

8,771 (133) 8,578 8,578

(16,224) 6,196 (10,028) (10,028)

(8,489) 6,462 (2,027) (2,027)

(1,450) 0 (1,450) (1,450)

(15,086) 0 (15,086) (15,086)

133 (133) 0 0

(16,403) (133) (76,536) (16,536)

GroupBalance at 1 August2015

Income and Revaluation Total excluding Totalexpenditure reserve Non-controlling

account interest£000 £000 £000 £000

(8,532) 6,462 (2,070) (2,070)

(16,403) (16,536)

25


Income andexpenditure

account£000

Revaluation Total excludingreserve non-controlling

interest£000 £000


(24,892) 6,329 (18,563) (18,563)


(1,850) 0

10,428 0

133 (133)

(1,850) (1,850)

10,428 10,428

0 0



8,711 (133) 8,578 8,578

(16,181) 6,196 (9,985) (9,985)

Total

£000

26


Balance sheets as at 31 July 2017

Note Group College Group College

Current assetsStocksTrade and other receivablesAssets held for resaleInvestmentsCash and cash equivalents

_____________________________________________

Total current assets

Less: Creditors — amounts falling duewithin one year

Net current liabilities

___________________________________________

Total assets less current liabilities

Creditors amounts falling due after morethan one year

Provisions

Defined benefit obligations

Other provisions

Net liabilities

Unrestricted ReservesIncome and expenditure accountRevaluation reserve

Total unrestricted reserves

Non-current assets

Tangible fixed assetsInvestments

2017 2017 2016 2016£000 £000 £000 £000

11 65,733 65,733 67,104 67,10412 0 0 0 0

65,733 65,733 67,104 67,104

10 10 20 2014 1,689 1,736 1,575 1,62215 500 500 2,250 2,25013 100 100 101 10120 6,661 6,661 4,672 4,672

8,960 9,007 8,618 8,665

16 (22,911) (22,915) (12,432) (12,436)

17

19

19

(13,951) (13,908) (3,814) (3,771)

51,782 51,825 63,290 63,333

(25,339) (25,339) (36,559) (36,559)

(36,471) (36,471) (45,337) (45,337)

0 0 0 0

(10,028) (9,985) (18,606) (18,563)

(16,224) (16,181) (24,935) (24,892)6,196 6,196 6,329 6,329

(10,028) (9,985) (18,606) (18,563)

The financial statements on pages 23 to 55 were approved by thesigned on its behalf on by:

Clive Henderson - Chairman 1’

on 5 December2017 and were

27


Consolidated Cash Flow Statement for the year ended 31 July 2017

Notes Year ended Year ended31 July2017 31 July2016

£000 £000

Cash flow from operating activities

Deficit for the year (1,850) (1,450)Adjustment for non-cash itemsDepreciation 3,070 3,229Impairment of Assets 0 1,624(Increase)/decrease in stocks 10 (11)(Increase)/decrease in debtors (114) (193)(Increase)/decrease in assets held for sale 1,750 (300)lncrease/(decrease) in creditors due within one 1,182 (3,541)yearDecrease in creditors due after one year (973) (482)Increase/(decrease) in provisions 0 0Pensions costs less contributions payable 1,562 1,058Taxation 0 0Adjustment for investing or financingactivitiesInvestment income (14) (36)Interest payable 718 781Taxation paid 0 0(Profit)/loss on sale of fixed assets (32) 186Net cash flow from operating activities 5,309 865

Cash flows from investing activitiesProceeds from sale of fixed assets 48 314Disposal of non-current asset investments 0 0Investment income 14 36Withdrawal of deposits 1 1,976New deposits 0 0Payments made to acquire fixed assets (1,715) (1,188)

(1,652) 1,138

Cash flows from financing activitiesInterest paid (718) (781)Interest element of finance lease rental 0 0paymentsNew unsecured loans 0 0Repayments of amounts borrowed (950) (1,095)Capital element of finance lease rental payments 0 0

(1,668) (1,876)

Increase in cash and cash equivalents in the 1,989 127year V

Cash and cash equivalents at beginning of the 20 4,672 4,545yearCash and cash equivalents at end of the year 20 6,661 4,672

28


Notes to the Accounts

1 Accounting policies

Statement of accounting policies

The following accounting policies have been applied consistently in dealing with items which are consideredmaterial in relation to the financial statements.

Basis of preparation

These financial statements have been prepared in accordance with the Statement of Recommended Practice:Accounting for Further and Higher Education 2015 (the 2015 FE HE SORP), the College Accounts Direction for2016 to 2017 and in accordance with Financial Reporting Standard 102 — “The Financial Reporting Standardapplicable in the United Kingdom and Republic of Ireland” (FRS 102). The College is a public benefit entity andhas therefore applied the relevant public benefit requirements of FRS 102.

The preparation of financial statements in compliance with FRS 102 requires the use of certain critical accountingestimates. It also requires management to exercise judgement in applying the College’s accounting policies.

Basis of accounting

The financial statements are prepared in accordance with the historical cost convention and in accordance withapplicable United Kingdom Accounting Standards.

Going Concern

At 31 July 2017 the College was in breach of the financial covenants that applied to Barclays’ loans at 31 July2017. As a result the College has followed the appropriate accounting treatment and the loans are presentedas being repayable within 1 year at 31 July 2017. As a result, the College balance sheet at 31 July 2017 showsnet current liabilities of £13,908,000 (201 5/1 6: £3,771,000).

Since 31 July 2017 the College has agreed new terms with Barclays and Lloyds in respect of the newly mergedCollege (following the merger of SCCB and Bournville College on 2 August 2017). The new terms include anew set of financial covenants with both Lloyds and Barclays banks. These covenants apply from 2nd August2017.

The College has produced financial forecasts that demonstrate that it will be able to meet the new bankingcovenants, but the cash cover covenant that applies to both the Barclays’ and Lloyds’ loans will require little orno worsening from the forecast position. In the event that actual cashf lows are expected to adversely deviatefrom the forecast position, the College has the ability to revise the timing of planned capital expenditureprograms and/or manage working capital to meet the cash cover covenant. So while there is a risk that theCollege might not meet this banking covenant in future years, the College considers this risk to be manageable.Furthermore, the College has built up strong working relationships with both banks and both banks havereaffirmed their commitment to the College by maintaining loans in the merged College and therefore theCollege does not consider this risk of breach of covenant to present significant uncertainty about the College’sability to continue as a going concern issue. For this reason, the College continues to adopt the going concernbasis in preparing the financial statements.

Basis of consolidation

The consolidated financial statements include the College and its subsidiary, FESSA (Projects) Limited. The resultsof the subsidiary during the year are included in the consolidated income and expenditure account. Intra-group salesand profits are eliminated fully on consolidation. All financial statements are made up to 31 July 2017.

Recognition of income

Government revenue grants include funding body recurrent grants and other grants and are accounted forunder the accrual model as permitted by FRS 102. Funding body recurrent grants are measured in line withbest estimates for the period of what is receivable and depend on the particular income stream involved. Anyunder or over achievement for the Adult Education Budget is adjusted for and reflected in the level of recurrent

29


Notes to the Accounts (continued)

1 Accounting policies (continued)

grant recognised in the income and expenditure account. The final grant income is normally determined withthe conclusion of the year end reconciliation process with the funding body following the year end, and theresults of any funding audits. 16-18 learner-responsive funding is not normally subject to reconciliation and istherefore, not subject to contract adjustments.

The recurrent grant from HEFCE represents the funding allocations attributable to the current financial yearand is credited direct to the Statement of Comprehensive Income.

Grants from non-government sources are recognised in income when the College is entitled to the income andperformance related conditions have been met. Income received in advance of performance related conditionsbeing met is recognised as deferred income within creditors on the balance sheet and released to income as theconditions are met.

Government capital grants are capitalised, held as deferred income and recognised in income over theexpected useful life of the asset, under the accrual method as permitted by FRS 102. Other capital grants arerecognised in income when the College is entitled to the funds subject to any performance related conditionsbeing met.

Income from tuition fees is recognised in the period for which it is received and includes all fees chargeable tostudents or their spouses.

All income from short-term deposits is credited to the income and expenditure account in the period in which it isearned.

Accounting for post-employment benefits

Post-employment benefits to employees of the College are principally provided by the Teachers’ PensionScheme (TPS) and the Local Government Pension Scheme (LGPS). These are defined benefit plans, which areexternally funded and contracted out of the State Second Pension.

The TPS is an unfunded scheme. Contributions to the TPS are calculated so as to spread the cost of pensionsover employees’ working lives with the College in such a way that the pension cost is a substantially levelpercentage of current and future pensionable payroll. The contributions are determined by qualified actuarieson the basis of valuations using a prospective benefit method. The TPS is a multi-employer scheme and theCollege is unable to identify its share of the underlying assets and liabilities of the scheme on a consistent andreasonable basis. The TPS is therefore treated as a defined contribution plan and the contributions recognisedas an expense in the income statement in the periods during which services are rendered by employees.

The LGPS is a funded scheme. The assets of the LGPS are measured using closing fair values. LGPS liabilitiesare measured using the projected unit credit method and discounted at the current rate of return on a highquality corporate bond of equivalent term and currency to the liabilities. The actuarial valuations are obtainedat least triennially and are updated at each balance sheet date. The amounts charged to operating surplus arethe current service costs and the costs of scheme introductions, benefit changes, settlements andcurtailments. They are included as part of staff costs as incurred. Net interest on the net defined benefitliability/asset is also recognised in the Statement of Comprehensive Income and comprises the interest cost onthe defined benefit obligation and interest income on the scheme assets, calculated by multiplying the fairvalue of the scheme assets at the beginning of the period by the rate used to discount the benefit obligations.

The difference between the interest income on the scheme assets and the actual return on the scheme assetsis recognised in other recognised gains and losses.

Actuarial gains and losses are recognised immediately in other recognised gains and losses.

Short term Employment benefits

Short term employment benefits such as salaries and compensated absences (holiday pay) are recognised as

30




an expense in the year in which the employees render service to the College. Any unused benefits are accruedand measured as the additional amount the College expects to pay as a result of the unused entitlement.

Non-current Assets - Tangible fixed assets

Land and buildingsLand and buildings inherited from the Local Education Authority are stated in the balance sheet at frozen valuationor deemed cost. Land and buildings acquired since incorporation are included in the balance sheet at cost.

Freehold land is not depreciated. Freehold buildings are depreciated over their expected useful economic life tothe College of between 20 and 50 years. The College has a policy of depreciating major adaptations to buildingsover the period of their useful economic life.

Where land and buildings are acquired with the aid of specific grants, they are capitalised and depreciated asabove. The related grants are credited to a deferred income account within creditors, and are released to theincome and expenditure account over the expected useful economic life of the related asset on a systematicbasis consistent with the depreciation policy. The deferred income is allocated between creditors due withinone year and those due after more than one year.

Finance costs, which are directly attributable to the construction of land and buildings, are not capitalised as partof the cost of those assets.

A review for impairment of a fixed asset is carried out if events or changes in circumstances indicate that thecarrying amount of any fixed asset may not be recoverable.

On adoption of FRS 102, the College followed the transitional provision to retain the book value of land andbuildings, which were revalued in 1999, as deemed cost but not to adopt a policy of revaluations of theseproperties in the future.

Subsequent expenditure on existing fixed assets

Where significant expenditure is incurred on tangible fixed assets it is charged to the income and expenditureaccount in the period it is incurred, unless it meets one of the following criteria, in which case it is capitalised anddepreciated on the relevant basis:

• Market value of the fixed asset has subsequently improved

• Asset capacity increases

• Substantial improvement in the quality of output or reduction in operating costs

• Significant extension of the asset’s life beyond that conferred by repairs and maintenance

Buildings owned by third parties

Where land and buildings are used, but the legal rights are held by a third party, for example a charitable trust,they are only capitalised if the College has rights or access to ongoing future economic benefit.

Assets held for resaleAssets held for sale at 31 July 2016 comprised of three buildings: Saltley, Tyseley Campus and Balsall HeathCampus. The buildings had become surplus to College requirements and are expected to be sold during 2016/1 7.

EquipmentEquipment costing less than £500 per individual item is written off to the income and expenditure account in theperiod of acquisition. All other equipment is capitalised at cost.

All equipment assets are depreciated over their useful economic life as follows:

Motor vehicles and general equipment - 5 years31




Computer equipment - 5 yearsFixtures and Fittings - 10 years

Where equipment is acquired with the aid of specific grants, it is capitalised and depreciated in accordance withthe above policy, with the related grant being credited to a deferred capital grant account and released to theincome and expenditure account over the expected useful economic life of the related equipment.

A review for impairment of a fixed asset is carried out if events or changes in circumstances indicate that thecarrying value of any fixed asset may not be recoverable. Shortfalls between the carrying value of fixed assets

and their recoverable amounts are recognised as impairments. Impairment losses are recognised in the Statementof Comprehensive Income and Expenditure.

Investments

Fixed asset investments are carried at historical cost less any provision for impairment in their value.

Current asset investments are included in the balance sheet at the lower of cost and net realisable value.

Leased assets

Costs in respect of operating leases are charged on a straight-line basis over the lease term.

Inventories

Stocks are stated at the lower of their cost and net realisable value. Stock cost is measured by the first in, firstout method. Where necessary, provision is made for obsolete, slow moving and defective stocks.

Maintenance of premises

The cost of routine corrective maintenance is charged to the income and expenditure account in the period it isincurred.

Cash and cash equivalents

Cash includes cash in hand, deposits repayable on demand and overdrafts. Deposits are repayable on demandif they are in practice available within 24 hours without penalty.

Cash equivalents are short term, highly liquid investments that are readily convertible to known amounts of cashwith insignificant risk of change in value. An investment qualifies as a cash equivalent when it has maturity of 3months or less from the date of acquisition.

Financial liabilities and equity

Financial liabilities and equity are classified according to the substance of the financial instrument’s contractualobligations, rather than the financial instrument’s legal form.

All loans, investments and short term deposits held by the Group are classified as basic financial instruments inaccordance with FRS 102. These instruments are initially recorded at the transaction price less any transactioncosts (historical cost). FRS 102 requires that basic financial instruments are subsequently measured at amortisedcost, however the College has calculated that the difference between the historical cost and amortised cost basisis not material and so these financial instruments are stated on the balance sheet at historical cost. Loans andinvestments that are payable or receivable within one year are not discounted.

Foreign currency translation

32




Assets and liabilities denominated in foreign currencies are translated at the rates of exchange ruling at the endof the financial year with all resulting exchange differences being taken to the income and expenditure account inthe period in which they arise.

TaxatIon

The College is considered to pass the tests set out in Paragraph 1 Schedule 6 Finance Act 2010 and therefore, itmeets the definition of a charitable company for UK corporation tax purposes. Accordingly, the College ispotentially exempt from taxation in respect of income or capital gains received within categories covered byChapter 3 Part 11 Corporation Tax Act 2010 or Section 256 of the Taxation of Chargeable Gains Act 1992, to theextent that such income or gains are applied exclusively to charitable purposes.

The College is partially exempt in respect of Value Added Tax, so that it can only recover a minor element of VATcharged on its inputs. Irrecoverable VAT on inputs is included in the costs of such inputs and added to the costof tangible fixed assets as appropriate, where the inputs themselves are tangible fixed assets by nature.

The College’s subsidiary companies are subject to corporation tax and VAT in the same way as any commercialorganisation.

Judgements in applying accounting policies and key sources of estimation uncertainty

In preparing these financial statements, management have made the following judgements:

• Determine whether leases entered into by the College either as a lessor or a lessee are operating or financeleases. These decisions depend on an assessment of whether the risks and rewards of ownership have beentransferred from the lessor to the lessee on a lease by lease basis.

• Determine whether there are indicators of impairment of the group’s tangible assets, including goodwill.Factors taken into consideration in reaching such a decision include the economic viability and expectedfuture financial performance of the asset and where it is a component of a larger cash-generating unit, theviability and expected future performance of that unit.

Other key sources of estimation uncertainty

• Tangible fixed assets

Tangible fixed assets, other than investment properties, are depreciated over their useful lives taking into accountresidual values, where appropriate. The actual lives of the assets and residual values are assessed annually andmay vary depending on a number of factors. In re-assessing asset lives, factors such as technological innovationand maintenance programmes are taken into account. Residual value assessments consider issues such asfuture market conditions, the remaining life of the asset and projected disposal values.

• Local Government Pension Scheme

The present value of the Local Government Pension Scheme defined benefit liability depends on a number offactors that are determined on an actuarial basis using a variety of assumptions. The assumptions used indetermining the net cost (income) for pensions include the discount rate. Any changes in these assumptions,which are disclosed in note 23, will impact the carrying amount of the pension liability. Furthermore, a roll forwardapproach which projects results from the latest full actuarial valuation performed at 31 March 2013 has been usedby the actuary in valuing the pensions liability at 31 July 2017. Any differences between the figures derived fromthe roll forward approach and a full actuarial valuation would impact on the carrying amount of the pension liability.

33



2 Funding body grants

3 Tuition fees and education contracts

Total

4 Other grants and contracts

European FundingOther Grant Income

Total

Year ended 31 July 2017Group College

£000 £0004,827 4,827

July 2016College

£0004,781

5,765 5,765 6,118 6,118

Year ended 31 July 2017 Year ended 31 July 2016Group College Group College

£000 £000 £000 £00019 19 95 95

0 0 9 9

19 19 104 104

5 Investment incomeYear ended 31 July 2017

Group£000

College£000

Year ended 31 July 2016

Group£000

College£000

Total other interest receivable (note 23)

Year ended 31 July 2017 Year ended 31 July 2015Group College Group College

£000 £000 £000 £000Recurrent grantsSkills Funding Agency 20,536 20,536 18,379 18,379Education Funding Agency 14,910 14,910 16,809 16,809Higher Education Funding Council 328 328 210 210Specific grantsSkills Funding Agency 1,672 1,672 3,717 3,717Education Funding Agency 651 651 964 964Release of government capitalgrants

Buildings 649 649 668 668Equipment 313 313 359 359

Total 39,059 39,059 41,106 41,106

Tuition feesEducation contracts

Year ended 31Group

£0004,781

938 938 1,337 1,337

14 14 36 36

34



6 Staff costs

The average monthly number of persons (including senior post-holders) employed by the College during theyear, expressed as full-time equivalents, was:

Year ended 31 Year ended 31July2017 July2016

Number Number

Teaching staff 359 383Non-teaching staff 453 454

812 837

Staff costs for the above persons:Year ended 31 Year ended 31

July2017 July2016£000 £000

Wages and salaries 23,8 1 1 24,484Social security costs 2,317 2,014Other pension costs 4,650 4,032

Payroll sub total 30,778 30,530Contracted out staffing services 2,442 2,588

33,220 33,118Fundamental restructuring costs — Contractual 0 107Fundamental restructuring costs — Non- 353 385contractual

33,573 33,610

The number of staff, including senior post-holders and the Accounting Officer, who received emoluments,excluding pension contributions and benefits in kind, in the following ranges was:

Key managementpersonnel Other staff

2017 2016 2017 2016Number Number Number Number

£60,001 to £70,000 p.a. 2 2 3 4

£70,001 to £80,000 p.a. 2 3 0 0

£80,001 to £ 90,000 p.a. 2 2 0 0

£90,001 to £100,000 p.a. 0 0 0 0

£100,001 to £110,000 p.a. 1 2 0 0

£110,001 to £120,000 p.a. 0 0 0 0

£120,001 to £130,000 p.a. 1 0 0 0

£130,001 to £140,000 p.a. 0 0 0 0

£140,001 to £150,000 p.a. 0 0 0 0£150,001 to £160,000 p.a. 1 1 0 0

8 10 3 4

35



7 Senior post-holders’ emoluments

Year ended Year ended31 July 2017 31 July 2016

Number Number

The number of key management personnel including the Accounting 8 10Officer was:

Key management personnel emoluments are made up as follows: 2017 2016£000 £000

Salaries 703 707Employers NI 88 82Benefits in Kind 0 0

791 789Pension Contributions 102 144Total key management personnel compensation 893 933

The above emoluments include amounts payable to the Accounting Officer (who is also the highest paidsenior post-holder) of:

Year ended Year ended31 July2017 31 July2016

£000 £000

Salaries 157 158Benefits in kind 0 0

157 158

Pension Contributions 0 36

The pension contributions in respect of the Accounting Officer and senior post-holders are in respect ofemployer’s contributions to the Teachers’ Superannuation Scheme and are paid at the same rate as forother employees.

The members of the Corporation other than the Accounting Officer and the staff members did not receiveany payment from the institution other than the reimbursement of travel and subsistence expensesincurred in the course of their duties.

Overseas activities

The following costs were incurred during 201 6-2017 in respect of overseas activities which were carriedout in accordance with the strategy approved by the governing body:

Total Contributions Net costsCost received to College

£ £ £

Senior post-holders 0 0 0Other higher paid staff 0 0 0Other staff 5,334 0 5,334

Other staff 5,334 0 5,334

36



8 Other operating expenses

Total

Year ended 31 July2017

Group College£000 £000

10,657 10,657

Year ended 31 July2016

Group College£000 £000

9,750 9,750

Other operating expenses include: Year ended31 July2077

£000

Year ended37 July 2076

£000

Auditors’ remunerationFinancial statement audit*Other services provided by the financialstatementsInternal audit

Pension Administration costsHire of assets under operating leases

* includes £38,760 in respect of the College(2015/16 £44,418)

Teaching costs 1 ,237 1 ,237 1,330 1,330

Non-Teaching costs 7,004 7,004 5,377 5,377Premises costs 2,416 2,416 3,043 3,043

39 45

2 226 2630 35

470 625

37



9 Interest and other finance costs

Year ended Year ended31 July2017 31 July2016

£000 £000

On bank loans, repayable wholly or partly in morethan 5 years 718 781

Pension finance costs (note 23) 1,153 1,073

Total 1,871 1,854

JO Taxation

The members do not believe that the College was liable for any Corporation Tax on its activities duringthe year (2016: £Nil). Furthermore, the subsidiary undertaking did not generate any taxable results inthe year.

38



11 Tangible fixed assets (Group)

Land and BuildingsFreehold Long Leasehold Equipment Total

£000 £000 £000 £000Cost or valuation

At 1 August 2016 77,375AdditionsTransfer: assets held for saleDisposals

At 31 July 2017

_________ ________________ ___________ _______

Accumulated Depreciation

Ati August2016Charge for the yearTransfer: assets held for saleImpairmentEliminated in respect of disposals

At31 July2017

________ ______________ __________ _______

Net book valueAt31 July2017

________ ______________ __________ _______

Net book valueAt1 August2016

________ _____________ __________ ______

7,086 0 7,08624,890 1,612 26,50227,637 4,508 32,145

59,613

________________ ___________ ________

000

0000

77,375

16,2691,493

000

17,762

59,613

61,106

16,609 93,9841,715 1,715

0 0(158) (158)

18,166 95,541

10,611 26,8801,577 3,070

0 00 0

(142) (142)

12,046 29,808

6,120 65,733

5,998 67,104

0

00000

0

0

0

000

0

InheritedFinanced by capital grantOther

Net book valueAt31 July2017 6,120 65,733

39



11 Tangible fixed assets (College only)

Land and BuildingsFreehold Long Leasehold

£000 £000

77,374000

93,9831,715

0(158)

Total£000

Equipment£000

0 16,6090 1,7150 00 (158)

Cost or valuation

Ati August2016AdditionsTransfer: assets held for saleDisposals

At 31 July 2017

Accumulated Depreciation

Ati August2016Charge for yearTransfer: assets held for saleImpairmentEliminated in respect of disposals

As at 31 July 2017

Net book valueAt 31 July 2017

Net book valueAtl August2016

InheritedFinanced by capital grantOther

Net book valueAt31 July2017

18,166

10,6111,577

00

(142)

12,046

6,120

95,540

26,8793,070

00

(142)

29,807

65,733

77,374

16,2681,493

000

17,761

59,613

61,106

7,08624,89027,637

59,613

0

00000

0

0

0

000

0

5,998 67,104

01,6124,508

7,08626,50232,145

6,120 65,733

40



11 Tangible fixed assets (continued)

The transitional rules set out in FRS 15 Tangible Fixed Assets have been applied on implementing FRS 15.Accordingly the book values at implementation have been retained and assets are valued at frozen valuationor deemed cost.

Land and buildings for the former South Birmingham College were valued in 1999 at depreciated replacementcost by a firm of independent chartered surveyors. The land and buildings of the former City CollegeBirmingham sites, as at 1/08/2012 were valued independently by independent chartered surveyors in 2012/1 3.Other tangible fixed assets inherited from the Local Education Authority at incorporation were valued by theCollege on a depreciated replacement cost basis with the assistance of independent professional advice.

The assets were valued on incorporation. The historic cost of assets was £1,449,000. These valuationshave not been updated since first time adoption of FRS 15. If fixed assets had not been revalued they wouldhave been included at the following historical cost amounts:

£000

Cost 1,449Aggregate depreciation based on cost 559

Net book value based on cost 890

Land and buildings with a net book value of £24,890,000 have been financed by exchequer funds, through forexample the receipt of capital gains. Should these assets be sold, the College may be liable, under the termsof the Finance Memorandum with the Council, to surrender the proceeds.

41



12 Non-current investments

Investments in subsidiary companiesInvestments in associate companies

Total

CollegeYear ended

31 July2017£

CollegeYear ended

31 July 2016£

8 8300 300

308 308

The senior post-holders believe that the carrying value of the investments is supported by their underlyingnet assets

(a) Subsidiary companies

Details of the College’s subsidiary company are shown below. The company is registered in England and Wales.The holding is of ordinary shares and the shares are held by the College.

Proportion of votingrights and shares held

Nature ofbusiness

FESSA (Projects) Limited 100% Services connected with Education

The members believe that the carrying value of the investments is supported by their underlying net assets.

(b) Associated companies

Included within investments of the College is a 16.67% interest in City of Birmingham Community College, acompany limited by guarantee and registered in England and Wales. City of Birmingham Community Collegetrades as Birmingham Community College.

City of Birmingham Community College operates as a consortium for the purposes of collaboration and thereare no shares. The company was incorporated on 10th March 1999 and has since traded with a financialyear end of 31 July. The College is of the opinion that their share of assets and liabilities is not material tothe overall state of affairs of the College and, consequently, they have not been included as part of theconsolidated financial statements.

Name of company

42



13 Current Investments

Group College Group CollegeYear ended Year ended Year ended Year ended

31 July2017 31 July2017 31 July2016 37 July2016£000 £000 £000 £000

Shortterm deposits 100 100 101 101

Deposits are held with banks and building societies operating in the London market and licensed by theFinancial Conduct Authority with more than three months

maturity at the balance sheet date. The interest rates for these deposits are fixed for the duration of the depositat time of placement.

14 Trade and other receivables

Year ended 31 July Year ended 31 July2017 2076

Group College Group College

£000 £000 £000 £000Amounts falling due within one yearTrade receivables 1,044 1,044 532 532Amounts owed by group undertakings:Subsidiary undertakings 0 58 0 58Associate undertakingsPrepayments and accrued income 568 557 938 927Amounts owed by the Skills Funding Agency 77 77 105 105

1,689 1,736 1,575 1,622

75 Assets held for resale

Assets held for sale at 31 July 201 7 comprises of three buildings: Saltley Campus. The building hasbecome surplus to College requirements and is expected to be sold during 2017/18. They are held at thelower of cost and net realisable value of £500,000.

43



16 Creditors: amounts falling due within one year

Group College Group CollegeYear Year Year Year

ended ended ended ended31 July 31 July 31 July 31 July

2017 2017 2016 2016£000 £000 £000 £000

Overdrafts 0 0 0 0

Bank loans (note 18) 15,693 15,693 6,397 6,397

Payments received in advance 814 814 1,195 1,195

Trade payables 935 935 726 726

Amounts owed to group undertakings:Subsidiary undertakings 0 11 0 11

Associate undertakings 0 0 0 0

Corporation taxOthertaxation and social security 1,196 1,196 1,130 1,130

HM Revenue and Customs 0 0 0 0

Other creditors 0 0 0 0

Accruals 1,272 1,265 1,164 1,157

Deferred income - government capital grants 924 924 913 913

Deferred income - government revenue grantsAmounts owed to the Skills Funding Agency 2,077 2,077 907 907

22,911 22,915 12,432 12,436

17 Creditors: amounts falling dUe after one year


37 July2077 37 July2077 31 July2076 31 July2076

£000 £000 £000 £000

Bank loans (note 18) 0 0 10,247 10,247

Other creditors (note 18) 0 0 0 0

Deferred income - governmentcapital grants 25,339 25,339 26,312 26,312

25,339 25,339 36,559 36,559

44



18 Maturity of debt

(a) Bank loans

The bank loans are repayable over the following periods:


31 July2017 37 July2017 31 July2016 31 July2016£000 £000 £000 £000

In one year or less 15,693 15,693 6,397 6,397Between one and two years 0 0 669 669Between two and five years 0 0 2,040 2,040In five years or more 0 0 7,538 7,538

Total 15,693 15,693 16,644 16,644

The Lloyds Bank loans totalling £9,481 ,000 are repayable by instalments at an interest rate of 1.95% aboveLIBOR falling due between 1 August2016 and 21 March 2031. The loans are secured on a legal charge overCollege freehold land and buildings.

Following a full tender process Lloyds made available a £3,000,000 revolving credit facility to specifically fundthe construction of North West Skills vocational centre. On completion of the building the facility was convertedto a £2,000,000 repayment loan for a period of 20 years. Interest is charged at 44 basis points over bank baserate or LIBOR. The loan was secured on a first legal charge over the freehold land and buildings at theTechnical Campus, Amington Road, which was sold in January 2017 for £1,200,000. Lloyds are currentlyholding receipts for the sale of this building until new bank covenants and security has been agreed with themerged college. New covenants and security have now been agreed and the College anticpates that the fundswill be transferred by 31 December 2017.

Following a full tender process Barclays Bank was selected to provide a loan facility of up to £12,000,000 tospecifically fund the Fordrough Campus development. At 31 July 2011 £11,000,000 had been drawn downfrom this facility. The College repaid £4,000,000 in March 2011 leaving a £7,000,000 20 year term loan. Thefixed term fixed rate repayments commenced in February 2012 and are continuing in accordance with theTreasury contract signed with Barclays. The outstanding balance on this loan as at the 31 July 2017 was£5,523,000.

45



19 Provisions

Group and College

Defined benefitObligations Total

£‘OOO £‘OOO

AtlAugust2Ol6 45,337 45,337Expenditure in the year (2,012) (2,012)Additions in the year (6,854) (6,854)

At 31 July 2017 36,471 36477

Defined benefit obligations relate to the liabilities under the College’s membership of theLocal Government pension Scheme. Further details are given in Note 23.

20 Cash and cash equivalents

At 1 Cash flows At 31August July

2016 2016£‘OOO £‘OOO £‘OOO

Cash and cash equivalents 4,672 1,989 6,661

Overdrafts 0 0 0

Total 4,672 1,989 6,661

46



21 Lease Obligations

At 31 July the College had minimum lease payments under non-cancellable operating leases as follows:

Group and College2017 2016

£‘OOO £‘OOOLand and BuildingsNot later than one year 23 1Later than on year and not later than five years 0 48Laterthan five years 196 214

219 263

OtherNot laterthan one year 170 0Later than on year and not later than five years 12 178Later than five years 0 0

182 178

22 Events after the reporting period

Birmingham and Solihull Colleges were amongst the first Colleges in the country to take part in the area basedreview process. This process looks at post 16 provision in an area with the purpose of establishing financiallyviable, sustainable, resilient and efficient Colleges which deliver maximum value for public investment. The keyrecommendation of this review was that South and City College merge with Bournville College and that thismerger be a type B merger, which would involve the Corporation of Bournville College dissolving and its assetsand liabilities being transferred into South & City College. The merger was completed on 2 August 2017.

47



23 Defined benefit obligations

The College’s employees belong to two principal post-employment benefit plans: the Teachers’ Pension

Scheme England and Wales (TPS) for academic and related staff; and the West Midlands Local

Government Pension Scheme (LGPS) for non-teaching staff, which is managed by Mercer.

Both are multi-employer defined-benefit plans.

The pension costs are assessed in accordance with the advice of independent qualified actuaries.

The latest formal actuarial valuation of the TPS was 31 March 2012 and of the LGPS 31 March 2016.

Total pension cost for the year Year ended Year ended31 July2017 31 July2016

£000 £000

Teachers’ PensionScheme: Contributionsmade 2,259 2,120

Local Government Pension Scheme:

Contributions Paid 2,012 1,962FRS 102 (28)Charge 379 (50)

Charge to the Statement of ComprehensiveIncome 2,391 1,912

Enhanced pension charge to Statement ofComprehensive income 0 0

Total Pension Cost for Year within staff costs 4,650 4,032

Contributions amounting to £281 ,000 (2015 £288,000) were payable to the Teachers’ Pension Scheme

and £214,000 (2015 £221,000) were payable to the Local Government Pension Scheme at 31st July

and are included within creditors.

Teachers’ Pension Scheme

The Teachers’ Pension Scheme (TPS) is a statutory, contributory, defined benefit scheme, governed by the

Teachers’ Pensions Regulations 2010, and, from 1 April 2014, by the Teachers’ Pension Scheme Regulations

2014. These regulations apply to teachers in schools and other educational establishments, including

academies, in England and Wales that are maintained by local authorities. In addition, teachers in many

independent and voluntary-aided schools and teachers and lecturers in some establishments of further and

higher education may be eligible for membership. Membership is automatic for full-time teachers and lecturers

and, from 1 January 2007, automatic too for teachers and lecturers in part-time employment following

appointment or a change of contract. Teachers and lecturers are able to opt out of the TPS.

The Teachers’ Pension Budgeting and Valuation Account

Although members may be employed by various bodies, their retirement and other pension benefits are set out

in regulations made under the Superannuation Act 1972 and are paid by public funds provided by Parliament.

The TPS is an unfunded scheme and members contribute on a ‘pay as you go’ basis — these contributions,

along with those made by employers, are credited to the Exchequer under arrangements governed by the

above Act. Retirement and other pension benefits are paid by public funds provided by Parliament.

The Teachers’ Pensions Regulations 2010 require an annual account, the Teachers’ Pension Budgeting and

Valuation Account, to be kept of receipts and expenditure (including the cost of pension increases).

48



23 Defined benefit obligations (continued)

From 1 April 2001, the Account has been credited with a real rate of return, which is equivalent to assuming thatthe balance in the Account is invested in notional investments that produce that real rate of return.

Valuation of the Teachers’ Pension Scheme

The latest actuarial review of the TPS was carried out as at 31 March 2012 and in accordance with The PublicService Pensions (Valuations and Employer Cost Cap) Directions 2014. The valuation report was published bythe Department for Education (the Department) on 9 June 2014. The key results of the valuation are:- New employer contribution rates were set at 16.48% of pensionable pay (including administration feesof 0.08%);- total scheme liabilities (pensions currently in payment and the estimated cost of future benefits) for service

to the effective date of £191,500 million, and notional assets (estimated future contributions together with thenotional investments held at the valuation date) of £176,600 million giving a notional past service deficit of £14,900million;- an employer cost cap of 10.9% of pensionable pay.- the assumed real rate of return is 3.0% in excess of prices and 2% in excess of earnings. The rate of realearnings growth is assumed to be 2.75%. The assumed nominal rate of return is 5.06%.

The new employer contribution rate for the TPS was implemented in September 2015. The next valuation of theTPS is currently underway based on April 2016 data, whereupon the employer contribution rate is expected to bereassessed and will be payable from 1 April 2019

A full copy of the valuation report and supporting documentation can be found on the Teachers’ Pension Schemewebsite at the following location:https://www.teacherspensions.co.uk/news/employers/201 4/06/publication-of-the-valuation-report.asjx

Scheme Changes

Following the Hutton report in March 2011 and the subsequent consultations with trade unions and otherrepresentative bodies on reform of the TPS, the Department published a Proposed Final Agreement, setting outthe design for a reformed TPS to be implemented from 1 April 2015.

The key provisions of the reformed scheme include: a pension based on career average earnings; an accrual rateof 1/57th; and a Normal Pension Age equal to State Pension Age, but with options to enable members to retireearlier or later than their Normal Pension Age. Importantly, pension benefits built up before 1 April 2015 will befully protected.

In addition, the Proposed Final Agreement includes a Government commitment that those within 10 years ofNormal Pension Age on 1 April 2012 will see no change to the age at which they can retire, and no decrease inthe amount of pension they receive when they retire. There will also be further transitional protection, taperedover a three and a half year period, for people who would fall up to three and a half years outside of the 10 yearprotection.

Regulations giving effect to a reformed Teachers’ Pension Scheme came into force on 1 April 2014 and thereformed scheme commenced on 1 April 2015.

The pension costs paid to TPS in the year amounted to £2,261,000 (2016: £2,120,000)

FRS 102 (28)

Under the definitions set out in FRS 102 (28.11), the TPS is a multi-employer pension plan. The College is unable

to identify its share of the underlying assets and liabilities of the plan.

Accordingly, the College has taken advantage of the exemption in FRS 102 and has accounted for its contributionsto the scheme as if it were a defined-contribution plan. The College has set out above the information available on

the plan and the implications for the College in terms of the anticipated contribution rates.

49




Local Government Pension Scheme

The LGPS is a funded defined-benefit plan, with the assets held in separate funds administered by West MidlandsMetropolitan Authority. The total contributions made for the year ended 31 July 2017 were £2,557,000, of whichemployer’s contributions totalled £2,012,000 and employees’ contributions totalled £545,000. The agreedcontribution rates for future years are 12.6%, plus a lump sum payment for past years, which will give an averagecontribution rate of 19.5%. For employees contributions will range from 5.5% to 7.5% for employees, depending onsalary, with an average rate of 6.5% being estimated.

Principal Actuarial Assumptions

The following information is based upon a full actuarial valuation of the fund at 31 March 2016 updated to 31 July2017 by a qualified independent actuary.

At 31 July At 31 July2017 2016

Rate of increase in salaries 4.20% 3.75%

Rate of increase for pensions in payment/inflation 2.70% 2.20%

Discount rate for scheme liabilities 2.70% 2.60%

Inflation assumption (CPI) 2.70% 2.00%

Commutation of pensions to lump sums 50% 50%

The current mortality assumptions include sufficient allowance for future improvements in mortality rates.The assumed life expectations on retirement age 65 are:

At 31 July At 31 July2017 2016

Retiring todayMales 21.8 23.0

Females 24.3 25.7

Retiring in 20 yearsMales 23.9 25.3

Females 26.6 28.1

The assets and liabilities in the scheme relating to the College were:

Value at 31 Value at 31July2017 July2016

£000 £000

Equities 50,363 39,223

Government Bonds 5,824 4,586

Other Bonds 3,066 5,658

Property 5,820 5,260

Cash/Liquidity 3,960 4,242

50



23 Defined benefit obligations (continued)Value at 31 Value at 31

July2017 July2016£000 £000

Other 10,574 7,130

Total fair value of plan assets 79,607 66,099

Weighted average expected long termrate of returnActual return on plan assets 13,396 6,740

The amount included in the balance sheet in respect of the defined benefit pension plan is asfollows:

2017 2016£‘OOO £‘OOO

Fair value of plan assets79,607 66,099

Present value of plan liabilities(116,078) (111,436)

Present value of unfunded liabilities 0 0

Net pensions liability (Note 19) (36,471) (45,337)

Amounts recognised in the Statement of Comprehensive Income in respect of the planare as follows:

2017 2016£‘OOO £‘OOO

Amounts included in staff costsCurrentservicecost 2,391 1,912Past service cost 0 0

Total 2,391 1,912

Amounts included in Other Operating ExpensesAdministration expenses 30 35

30 35

Amounts included in interest payableNet interest cost

1,153 1,073

1,153 1,073

51




Amounts recognised in Other Comprehensive Income

Return on pension plan assets

Experience losses arising on defined benefit obligationsChanges in assumptions underlying the present value of planliabilities

Amount recognised in Other Comprehensive Income

11,676 4,509

10,227 0

(11,475) (19,595)

10,428 (15,086)

2077£‘OOO

2017£‘OOO

52




Movement in net defined benefit liability during the year

2017 2016£‘OOO £‘OOO

Surplus/(deficit) in scheme at 1 August (45,337) (29,193)Movement in year:

Current service cost (2,391) (1,912)Employer contributions 2,012 1,962Past service cost 0 0Net interest on the defined liability (1,153) (1,073)Actuarial gain or loss 10,428 (15,086)Administration Expenses (30) (35)

Net defined benefit liability at 31 July (36,471) (45,337)

Asset and Liability Reconciliation2017 2016

£‘OOO £‘OOOChanges in the present value of defined benefit obligations

Defined benefit obligations at start of year 111,436 87,254Current Service cost 2,391 1,912Interest cost 2,873 3,304Contributions by Scheme participants 545 562Experience gains and losses on defined benefit obligations (6,9 1 1) 0Change in demographic assumptions (3,316) 0Changes in financial assumptions 11,475 19,595Estimated benefits paid (2,415) (1,191)Past Service cost 0 0Curtailments and settlements 0 0

Defined benefit obligations at end of year 116,078 111,436

Reconciliation of Assets

Fair value of plan assets at start of year 66,099 58,061Interest on plan assets 1,720 2,231Return on plan assets 11,676 4,509Administration Expenses (30) (35)Employercontributions 2,012 1,962Contributions by Scheme participants 545 562Benefits paid (2,415) (1,191)

Assets at end of year 79,607 66,099

53



24 Related party transactions

Due to the nature of the Colleges operations and the composition of the board of governors(being drawn from local public and private sector organisations) it is inevitable that transactions willtake place with organisations in which a member of the board of governors may have aninterest. All transactions involving organisation in which a member of the board of governors mayhave an interest are conducted in accordance with the Colleges financial regulationsand normal procurement procedures.

The total expenses paid to or on behalf of the Governors during the year was £663; 8 governors(2016: £1,734; 11 governors). This represents travel and subsistence expenses and other out of pocketexpenses incurred in attending Governor meetings and charity events in their official capacity.No Governor has received any remuneration or waived payments from the College or its subsidiariesduring the year (2016: None).

Governing Party Relationship Transaction Value for the Amounts due to I from themember Associated to Party Year Ended 31 July College at 31 July

2017 2016 2017 2016Professor Birmingham Councillor and £1,925,650 £887,813 £96,050 due £60,931Philip City Council Chair of Audit Sales Sales to College of due toWalkling (BCC) Committee Transactions Transactions which a bad College of(Date of £447,830 £308,643 debt which a badresignation: Purchase Purchase provision of debt10 June Transactions Transactions £17,440 has provision of2017) been made. £17,348

£5,042 due has beenfrom the made.

. College £37,525due fromthe College

54



25 Amounts disbursed as agentYear Year

Ended 31 Ended 31July2017 July2016

£000 £000Learner support funds

Funding Body Grants 665 3,623

665 3,623

Disbursed to Students (658) (3,465)Administration costs (7) (142)

Balance unspent at 31 July, included in creditors 0 16

Funding body grants are available solely for students. The College only acts as a paying agent. In thesecircumstances, the grants and related disbursements are therefore excluded from the Income andExpenditure Account.

Prior to the year ending 31 July 2017, the College recorded Discretionary Learner Support and FreeMeals as amounts disbursed as agent’. As control on how to disburse these funds now resides with theCollege, the associated income and expenditure is now recognised with the Statement of ComprehensiveIncome. This is the reason there is large movement between ‘amounts disbursed as agent’ between theyear ended 31 July 2016 and the year ended 31 July 2017. 0

55

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