Poor planning and over-optimism contributed to financial problems at New College Lanarkshire while Edinburgh College has made progress, says the Auditor General.
New College Lanarkshire received a £1.9m advance from the Scottish Funding Council (SFC) in July 2017 after suffering cash-flow problems.
The college attributed its issues to lower than expected fee income and higher than anticipated costs around national pay bargaining, pensions and national insurance.
Caroline Gardner's report says that the college's cash issues stemmed from:
- Setting an ambitious tuition fee income target of £6.1m but bringing in only £5.2m;
- Not planning effectively for £400,000-worth of staff pay increases that resulted from the reintroduction of national bargaining in the college sector.
New College Lanarkshire's underlying deficit in 2016/17 was £560,000. A plan to reduce cost pressures - a condition of the SFC advance - has yet to be finalised.
In the meantime, the college has taken steps to improve its financial reporting and reduce its estate and IT costs. The SFC has also agreed to provide the college with £1.1m for a voluntary redundancy scheme.
Ms Gardner said:
"Colleges operate in narrow margins and relatively small changes in income or expenditure can push a college from a surplus into a deficit position.
"New College's financial problems were caused partly by overly optimistic assumptions around tuition fee income, and partly by poor financial planning around cost pressures such as national pay bargaining.
"The college is continuing to work with the SFC to stabilise its financial position and I will be keeping its position under review."
The Auditor General also published an update report on Edinburgh College.
She says it has made "good progress" - reducing its deficit from £7m to £2.5m, and exceeding its teaching and learning target for the first time since 2012's college merger.
She notes that Edinburgh's current Principal steps down in August 2018 and a new chair of the board was appointed in March.
Ms Gardner said:
"It is imperative that the college now maintains momentum and continues to closely monitor its financial performance as it moves towards financial sustainability."