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					KENSINGTON AND CHELSEA COLLEGE

REPORT AND FINANCIAL STATEMENTS

        For the year ended

          31st July 2004
KENSINGTON AND CHELSEA COLLEGE



CONTENTS


                                                       Pages

Report of the Members of the Corporation                 1

Corporate Governance Statement                           5

Responsibilities of Members of the Corporation           8

Auditors’ Report to Members of the Corporation         9 - 10

Income and expenditure account                           11

Statement of historical cost surpluses and deficits      12

Balance sheet                                            13

Statement of total recognised surpluses and deficits     14

Cash flow statement                                      15

Notes to the financial statements                      16 - 30
KENSINGTON AND CHELSEA COLLEGE




       REPORT OF THE MEMBERS OF THE CORPORATION
       for the year ended 31 JULY 2004
       Corporation Legal and Tax Status
       The Corporation was established under The Further and Higher Education Act 1992 for the purpose of conducting Kensington &
       Chelsea College. The College is an exempt charity for the purposes of the Charities Act 1993 and is therefore not liable for
       Corporation tax on its activities.

       Mission and Objectives
       Mission

       Kensington and Chelsea College provides high quality education, training and development programmes for adults to help them
       to achieve their fullest potential as individuals and as members of society. In meeting this, the College will be responsive to
       national educational priorities, and to the needs of employers and the community.

       Values

       In delivering the mission, we seek to provide:
       l A culture which encourages new ideas and which promotes excellence
       l Learning which takes account of individual needs
       l Committed and competent teaching
       l Clear communication with staff and students
       l Integrity in decision making
       l Efficient administrative operations
       l Calm and creative problem-solving
       l Positive support for all members of the College community
       l Continuous improvement in all areas of College activity.
       l Active promotion of equality of opportunity and cultural diversity

       Aims

       l To develop the College as a regional centre recognised for its specific achievements and expertise with adult learners.
       l To work with others to :
            - develop provision which is market responsive and which is challenging and stimulating to students,
            - increase participation in learning by adult students, including groups currently under-represented in education
              and training.
       l To raise formally recorded retention and achievement rates of students in all curriculum areas to above the
            national average for similar colleges.
       l To implement a human resource strategy which ensures that talented staff are retained, recruited, developed and
            motivated.
       l To obtain sufficient resources to support continued independence and to enable wise investments in
            accommodation, technology and learning resources.

       Objectives

       The Development Plan 2003-2006, produced in July 2003, identified the following strategic objectives for the College:
       l Progress the accommodation strategy. Fundamental to this is the redevelopment of the Hortensia Road site -
          involving the sale of the Sloane building and adjoining land with the proceeds used to construct a new building on
          the remaining land and carry out major improvements to other buildings.
       l Make improvements across a range of Human Resources Management areas: Converting teaching staff from
          variable hours to fractional contracts where possible, realising the benefits of our new HR system (particularly for
          monitoring), developing managers particularly in the area of performance management, taking steps to ensure
          compliance with new anti-discrimination laws, improving job evaluation procedures, restructuring management to
          help meet employer engagement targets.
       l Raise the skills and qualifications of lecturing staff. The College is currently well below government targets for
          qualified lecturing staff. This is largely because the College employs a large number of staff who are part-time
          teachers and part-time practitioners (considered a strength by OFSTED/ALI inspectors). Nevertheless,
          the College aims to increase the percentage of full time lecturers with a Cert. Ed. from 53% to 73% by 2005/06.
       l Maintain the College's 'category A' financial status (as assessed by the LSC).
       l Achieve LSC funding targets, by maintaining student numbers and raising success rates.
       l Expand employer engagement - work with 75 employers by 2004/05 (25 more than at present).
       A revised strategic plan is in draft for discussion by Governors on 25 January 2005. The draft includes eight key objectives
       which are: increasing provision in the following areas - 'Skills for Life' (basic skills), widening adult participation, 'Employer
       Engagement', 16-19 year olds, ex-offenders, international students; achieving quality improvements and investing in learning
       (improving our finances and workforce).




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       Review of Performance
                                                                                                    2003/04. Performance against
       As part of the annual planning process, 26 operating objectives were set for the College for 200/04. Performance against major
       major objectives is below:
       objectives is shownshown below:

       h The review of the College mission, vision and values was curriculum priorities wasa delay in appointing a new
                                                                     and not completed owing to not completed owing to a delay in
           appointing a new Principal/Chief Executive. The new Principal took up post on the 24th May 2004.
            Principal/Chief Executive.
       h The College achieved 93% of its LSC funding target. This was outside the LSC's 3% tolerance which
       h The College achieved 91% of its LSC fundingrepay funds to the outside the LSC's 3% tolerance which
           meant that the College has been required to target. This was tune of £400,000.
       h The Collegethe College has been required to repay funds to the tune of £513,000.
            means that has maintained its financial category A status, as determined by the LSC.
       h The College has maintainedCollege's accommodation strategydeterminednow signed an agreement for the
            Progress was made on the its financial category A status, as - we have by the LSC.
       h Progress was made on the College's including a new college building. Further upgradingplanning permission at the
           redevelopment of the Hortensia site, accommodation strategy although we still await full work was carried out
           Wornington site. development needed to fund the new college building on Hortensia Road. Upgrading work was
            for a residential
       h New management arrangements were put in place to help develop work with employers. Progress in increasing
            carried out at the Wornington and Marlborough sites.
       h employer contacts external back by the loss of key staff.
             New internal and was set auditors were appointed following tendering exercises.
       h A package of improvements including implemented. training, equipment and buildings were made to improve access
             A new human resources system was systems, staff
       h for disabled people to College courses. of temporary and part-time staff were made.
           Efficiency savings in cafes and in the use
       h Good progress was made was written teaching qualification standards for lecturing staff.
       h A 3 year development planin raising thein consultations with partners. The following priority areas for expansion
       h A new staff appraisal system was for life/ESOL, multimedia/IT, business services, modern foreign languages and
            were identified: healthcare, skills introduced.
       h Changes were made to the provision of childcare facilities for students.
            health/well being services.
       h English of provision Language provision was undertaken to ensure the College to be satisfactory (grade 3).
       h A reviewas a Foreign for disabled studentswas reinspected by OFSTED and foundcomplies with the Disability
       h Beauty Therapy courses were established in a new, purpose built salon.
            Discrimination Act.
       h A major was made in College's student information Language successfully implemented.
       h Progressupgrade to theimproving English as a Foreignsystem wascourses in preparation for reinspection by
            Student and the rates fell by 2% but achievement rates rose by 2% in 2003/04.
       h OFSTEDretention Adult Learning Inspectorate in Autumn 2003. This follows the inspection in 2002 which found
           provision in this area unsatisfactory. Inspectors found performance in all other areas satisfactory or good.
       h Measures were taken to improve student access to library books and IT. Skills Centre opening hours were extended.
       Performance Indicators
       h Student retention rates improved by 2% on the 2001/02 figure. The rate in 2002/03 was 79%
       Performance indicators relating to key areas of the College's activity are set out in the LSC document entitled Summary
       Performance Indicators
       Statistics for Further Education Institutions: England 2000/2001 (available at www.lscdata.gov.uk/summary_statistics). This
       document compares the performance of different colleges in the following areas:
       Performance indicators relating to key areas of the College's activity are set out in the LSC document entitled Summary
       Statistics for Further Education Institutions: England 2000/2001 (available at www.lscdata.gov.uk/summary_statistics). This
       l achievement of funding target
       document compares thestudent numbersdifferent colleges in the following areas:
       l percentage change in performance of
       l in-year retention rates
       l achievement of funding target
       l achievement rates
       l percentage change in student numbers
       l contribution to national targets
       l in-year retention rates
       l achievement rates
       Student Numbers and Achievements
       l contribution to national targets
       In 2003/04 the College had 29,192 enrolments (2003: 30,353), equating to 3,684 full-time-equivalent students (2003: 3,720).
       The retention rate and Achievements
       Student Numbersfor FE students was 85% (2003: 87%) and FE students achieved an estimated 73% of their qualification aims
       (2003: 71%). The College's major funder, the LSC, calculates a provisional level of funding at the start of the year. The College
       In then required to justify this allocation retrospectively 26,000), equating toyear using software which studentsa value 2,800).
       is 2002/03 the College had 29,285 enrolments (2002: after the end of the 2,950 full-time-equivalent assigns (2002: to each
       The retention rate was 79% (2002: 69%) and non-HE students being studied, how long 65%student was retained aimshow well
       student. This value depends on the type and length of course achieved an estimated the of their qualification for, (2002:
       they did in College's major objectives, disadvantage and area of residence. For 2003/04 start of the claimed 93% of the
       69%). Theachieving coursefunder, the LSC, calculates a provisional level of funding at the the College year. The College is then
       required to justify this allocation retrospectively after the end of College is permitted to volunteer a reduction in to each student.
       provisionally allocated funds. Provided deadlines are met, the the year using software which assigns a value allocation such
       This the achieved amount is no less than 97% courseallocation.
       that value depends on the type and length of of the being studied, how long the student was retained for, how well they did in
       achieving course objectives, disadvantage and area of residence. For 2002/03 the College claimed 93% of the provisionally
       allocated funds. Following the welcome change in LSC rules, provided deadlines are met, the College is permitted to volunteer
       Curriculum Developments
       a reduction in allocation such that the achieved amount is 97% of the allocation. This replaces the previous system of full
       clawback of funds fordevelopments during the past year and the coming year are:
       The main curriculum underperformance.
       l Further development of Teacher Training courses at level 1 and level 2. A Cert. Ed. programme has received accreditation
       Curriculum Developments
          and is commencing in 2004/05.
       l New courses in Playwork (NVQ level 2 and 3) and Childcare & Education (NVQ level 2) are up and running.
       The main curriculum developments during at community locations has been achieved.
       l A threefold growth in courses provided the past year and the coming year are:
       l New Teacher in Beautycourses at level 1, level 2in purpose built facilities. programme and specialist courses for
       l New courses Training Therapy started in 2004 established. A Cert. Ed.
           modern foreign language and ESOL teachers are is being extended.
       l The Complimentary Health foundation programmebeing developed for the coming year.
       l New courses inand Nutrition andlevel 2Access/Pre-Access paramedical courses level 2)offered in September 2005.
       l Access to Diet Playwork (NVQ other and 3) and Childcare & Education (NVQ will be are up and running.
       l A threefold growth in courses with Basicat community locations has been achieved.
       l A Pre-Access to Health Care provided Skills course was started in 2003.
       l New courses in Beauty Therapy are being developed toLiteracy tutors fromcompletion of the new hair and beauty
       l An ESOL literacy programme has been developed with commence on the Basic Skills.
           salon.
       l The Complimentary Health foundation programme is being extended.
       l A Pre-Access to Health Care with Basic Skills course has been started.
       l An ESOL literacy programme has been developed with Literacy tutors from Basic Skills.




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  then




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       Financial Performance
       The College generated an operating deficit in the year of £426,000 (2002/03 £432,000 surplus) and has accumulated reserves of
       £11,814,000 and cash balances of £2,562,000. The College aims to accumulate reserves and cash balances in order to help finance
       future capital development and create a contingency fund.

       The deficit was £470,000 worse than the the budgeted surplus of £44,000. The main reason for this was that Learning and Skills
       Council grant funding was more than 10% less than originally expected, owing to student numbers being below target in both 2002/03
       and 2003/04. To an extent there was a compensating reduction in costs. However, the net effect was negative.

       The deficit on the College's share of the Royal Borough of Kensington & Chelsea Pension Fund has increased to £824,000. The main
       reason was an increase in service costs. The actuarial status of the fund has changed only a little since last years review. Under the
       provisions of FRS17, the College is not obliged to show a provision on the balance sheet for this deficit until 2005. The latest
       indications are that the College's contribution to the fund will need to increase from 12% to 20.5% in April 2005 (approximately
       £100,000 in a full year). We are investigating options for phasing this increase in. We are also seeking additional funding from the
       LSC to help pay for this very large increase (among the highest nationally).

       The Late Payment of Commercial Debts (Interest) Act 1998, which came into force on 1 November 1998, requires colleges, in the
       absence of agreement to the contrary, to make payments to suppliers within 30 days of either the provision of goods or services to the
       date on which the invoice was received. The target set by the Treasury for payment to suppliers days is 95%. During the accounting
       period 1st August 2003 to 31 July 2004, the College paid 66% of its invoices within 30 days (up from 37% in 2003/04). Disputed
       invoices have not been excluded from the calculation. We aim to make further improvements in 2005/06. The College incurred no
       interest charges in respect of late payments for this period.

       Planned Maintenance Programme
       The cost of the College’s planned maintenance programme from 2001-02 to 2005-06, a period of 5 years is estimated to be £868,000
       resulting in an annual charge of £174,000. The programme was developed following a survey of the College’s estate in 2001. The
       programme is reviewed annually. This programme will be funded from College funds.



                                           2001-02          2002-03           2003-04           2004-05           2005-06
      Year                                    1                2                 3                 4                 5
      Outstanding at 1 August                £868,455         £761,805          £637,380          £459,698          £256,495
      Average annual charge                  £173,691         £173,691          £173,691          £173,691          £173,691
      Actual or planned expenditure          £106,650         £124,425          £177,682          £203,203          £256,495
      Outstanding at 31 July                 £761,805         £637,380          £459,698          £256,495                £0

       Auditors
       On 1 July 2004, the Grant Thornton partnership transferred its business to a limited liability partnership, Grant Thornton UK LLP. The
       members consented to extend the audit appointment to Grant Thornton UK LLP from 1 July 2004.

       Equal Opportunities and Employment of Disabled People

       Employment of Disabled People
       The College considers all applications for employment from disabled people, bearing in mind the aptitudes of the individuals
       concerned. Where an existing employee becomes disabled every effort is made to ensure that employment with the College
       continues. The College's policy is to provide training, career development and opportunities for promotion that are, as far as possible,
       identical to those for other employees.

       Disability Statement
       The College seeks to achieve the objectives set down in the Disability Discrimination Act 2000, and in particular makes the f ollowing
       commitments:
       l The College recognises that it must reflect the Community in which it is set and that people with differing
          educational needs due to impairments (Disabled People) are one of the groups that may not be properly
          represented. The differing needs of disabled people must be acknowledged as firmly as their common needs.
       l The College is committed to developments whenever possible which promote empowerment, independence, self -
          advocacy and equality of opportunity for students with disabilities and learning difficulties. For all students in the
          college, life experience and existing knowledge should be the foundation of the College’s approach in curriculum
          opportunities and progression routes to further learning, training and employment.
       l The College and all staff are committed to the inclusion of disabled people whenever possible within its services
          and are responsible for ensuring the implementation of this policy. All departments should ensure that the needs
          of disabled people are anticipated and that appropriate provision is integral to the curriculum.
       l Whilst there is a firm commitment to meet our statutory duties not all areas of the college are yet fully accessible.
          The College disability action plan details improvements to accommodation and the timescale for their
          achievement. In the meantime we are committed to be honest and clear about what provision we have.
       l The College is committed to ensuring that all students including those with disabilities are treated fairly. All reasonable
          adjustments to provision will be made so that disabled staff, students and visitors are not substantially disadvantaged.
       l The College is committed to working with disabled people and their organisations to revise and improve services so
          that they better meet their needs.




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 KENSINGTON AND CHELSEA COLLEGE




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                                  Page 3
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       Staff and Student Involvement
       The College considers good communication with its staff to be very important. 'Staff News and Views', the staff newsletter, is
       published each term and circulated to all members of staff, the Principal produces a newsletter on major issues and staff meetings
       take place each term. Two places on the Governing Body are reserved for staff representatives and one is reserved for a student
       rep. Elections are held when these places become vacant or terms of office expire. Support staff and teaching staff are represented
       on the Governing Body.

       Transparency
       The Corporation conducts its business through a number of committees. Each committee has terms of reference, which have been
       approved by the full Corporation. Full minutes of all meetings are available from the Clerk to the Corporation at:
                            Kensington & Chelsea College
                            Hortensia Road
                            London SW10 0QS
       The Clerk to the Corporation maintains a register of financial and personal interests of the governors. The register is available for
       inspection at the above address.


      Corporation Members
      Name                    Category of      Date First        Expiry of term of   Date of            Committee
                              membership       Appointed         office              Reappointment
      Sheila Porritt          Business          November 1996       February 2006    Re-appointed March Finance & General Purposes,
                                                                                             2002.      Remuneration
      Krystyna Ruszkiewicz    Business            May 2002           April 2006                         Finance & General Purposes,
                                                                                                        Remuneration
      Elizabeth Arnold        Community           June 2001         May 2005                            Search
      Colin Matheson          Co-opted          November 1998      October 2006         Re-appointed    Curriculum & Quality, Search
                                                                                        October 2002
      Marcus Gelling          Support Staff     December 1999     November 2003       Not re-appointed Search
      Jack Bovill             Co-opted            June 1995       February 2004      Re-appointed March Remuneration
                                                                                        2000, not re-
                                                                                      appointed again.
      Elizabeth Freeman       Community          October 2000     September 2008        Re-appointed    Curriculum & Quality
                                                                                       November 2004
      Nick de Lotbiniere      Business            June 2001          May 2005        Resigned July 2003 Estates

      Keith Jones             Business          September 2001      August 2005                           Remuneration, Audit, Finance & General
                                                                                                          Purposes
      Andrew Edwards          Student           December 2000     November 2004       Not re-appointed    Search, Curriculum & Quality
      Judith Waters           Business          December 2000     November 2008        Re-appointed       Employment & Finance, Estates &
                                                                                      November 2004       Facilities, Remuneration, Audit
      Verna Lyus              Academic staff    September 2001      August 2005                           Curriculum & Quality

      James Sinclair Taylor   Business            May 2002           April 2006                           Employment and Finance, Remuneration

      Walter Thorpe           Co-opted            March 1997       February 2005     Re-appointed March   Finance & General Purposes, Audit, Search
                                                                                            2001
      Chris Sadler          Acting             June 2003         December 2003       Resigned December Employment & Finance, Estates &
                            Principal                                                       2003       Facilities, Curriculum & Quality, Search
      Vince Hall            Interim          December 2003          May 2004          Contract expired Employment & Finance, Estates &
                            Principal                                                     May 2004     Facilities, Curriculum & Quality, Search
      James Cupper          Support Staff    December 2003       November 2007                         Audit
      Mike Jutsum           Principal &         May 2004                                               Finance & General Purposes, Curriculum &
                            Chief                                                                      Quality, Search
                            Executive
      Naraindra Maharaj     Community           July 2004           June 2008                          Audit
      Vikki Jones           Co-opted            July 2004           June 2008                          Audit
      Tiffany Hall          Business            July 2004           June 2008                          Finance & General Purposes
      Vacant                Student
      The Employment & Finance and Estates & Facilities Committees were replaced by the Finance & General Purposes Committee in July 2004.




      Sheila Porritt, Chair of Governors, 28th January 2005
      Senior Post Holders
      Principal & Chief Executive                                Mike Jutsum
      Vice Principal - Curriculum & Quality                      Amanda Hayes
      Professional Advisors
      External Auditors   Grant Thornton UK LLP, Grant Thornton House, Melton Street, Euston Square, London NW1 2EP
      Internal Auditors   Tenon, Clifton House, Bunnion Place, Basingstoke, Hampshire RG21 7JE
      Bankers             Barclays Bank PLC, Hammersmith and Ealing Business Centre, PO Box 13555, London NW10 7WJ
      Solicitors          Mills & Reeve, Francis House, 112 Hills Road, Cambridge CB2 1PH




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       CORPORATE GOVERNANCE STATEMENT
       The College is committed to exhibiting best practice in all aspects of corporate governance. This summary describes the
       manner in which the College has applied the principles set out in Section 1 of the Combined Code on Corporate Governance
       issued by the London Stock Exchange in June 1998. Its purpose is to help the reader of the accounts understand how the
       principles have been applied.

       In the opinion of the governors, the College complies with all the provisions of the Combined Code in so far as they apply to the
       further education sector, and it has complied throughout the year ended 31 July 2004.

       The Corporation
       The composition of the Corporation is set out on page 4. It is the Corporation’s responsibility to bring independent judgemen t to
       bear on issues of strategy, performance, resources and standards of conduct.

       The Corporation is provided with regular and timely information on the overall financial performance of the College together with
       other information such as performance against funding targets, proposed capital expenditure, quality matters and personnel -
       related matters such as health and safety and environmental issues. The Corporation meets each term.

       The Corporation conducts its business through a number of committees. Each committee has terms of reference, which have
       been approved by the Corporation. These committees are finance and general purposes, curriculum and quality, remuneration,
       search and audit.

       All governors are able to take independent professional advice in furtherance of their duties at the College’s expense and ha ve
       access to the Clerk to the Corporation, who is responsible to the Board for ensuring that all applicable procedures and
       regulations are complied with. The appointment, evaluation and removal of the Clerk are matters for the Corporation as a whol e.

       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 its decisionmaking
       process. The Corporation considers that each of its non -executive members is independent of management and free from any
       business or other relationship which could materially interfere with the exercise of their independent judgement.

       There is a clear division of responsibility in that the roles of the Chair of the Corporation and Principal of the College ar e
       separate.

       Appointments to the Corporation
       Any new appointments to the Corporation are a matter for the consideration of the Corporation as a whole. The Corporation has
       a search committee comprising members of the Corporation as shown in the table on page 4, which is responsible for the
       selection and nomination of any new member for the Corporation’s consideration. The Corporation is responsible for ensuring
       that appropriate training is provided as required.

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

       Remuneration Committee
       The College’s remuneration committee comprised members of the Corporation as shown in the table on page 4. The
       committee’s responsibilities are to make recommendations to the Board on the remuneration and benefits of the Principal and
       other senior postholders.

       Details of remuneration for the year ended 31 July 2004 are set out in note 9 to the financial statements.

       Audit Committee
       The audit committee comprises four members of the Corporation (who exclude the Principal and Chair). The committee
       operates in accordance with written terms of reference approved by the Corporation. Its purpose is to advise the Corporation on
       the adequacy and effectiveness of the college’s systems of internal control and its arrangements for risk management, control
       and governance processes.

       The audit committee meets on a termly basis and provides a forum for reporting by the College’s internal and financial
       statements auditors, who have access to the committee for independent discussion, without the presence of College
       management. The committee also receives and considers reports from the LSC, as they affect the College’s business.




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       Management is responsible for the implementation of agreed audit recommendations, and internal audit undertakes periodic
       follow-up reviews to ensure such recommendations have been implemented.

       The audit committee also advises the Corporation on the appointment of internal and financial statements auditors and their
       remuneration for both audit and non-audit work.

       Internal Control
       Scope of responsibility
       The Corporation is ultimately responsible for the College’s system of internal control and for reviewing its effectiveness.
       However, such a system is designed to manage rather than eliminate the risk of failure to achieve business objectives, and can
       provide only reasonable and not absolute assurance against material misstatement or loss.

       The Corporation has delegated the day-to-day responsibility to the Principal, as Accounting Officer, for maintaining a sound
       system of internal control that supports the achievement of the College’s policies, aims and objectives, whilst safeguarding the
       public funds and assets for which he or she is personally responsible, in accordance with the responsibilities assigned to him or
       her in the Financial Memorandum between the College and the Learning and Skills Council (LSC). He or she is also responsible
       for reporting to the Corporation any material weaknesses or breakdowns in internal control.

       The purpose of the system of internal control
       The system of internal control is designed to manage risk to a reasonable level rather than to eliminate all risk of failure to
       achieve policies, aims and objectives; it can therefore only provide reasonable and not absolute assurance of effectiveness. The
       system of internal control is based on an ongoing process designed to identify and prioritise the risks to the achievement of
       college policies, aims and objectives, to evaluate the likelihood of those risks being realised and the impact should they be
       realised, and to manage them efficiently, effectively and economically. The system of internal control has been in place in
       Kensington & Chelsea College for the year ended 31 July 2004 and up to the date of approval of the annual report and
       accounts.

       Capacity to handle risk
       The Corporation has reviewed the key risks to which the College is exposed, together with the operating, financial and
       compliance controls that have been implemented to mitigate those risks. The Corporation is of the view that there is a formal
       ongoing process for identifying, evaluating and managing the College's significant risks that has been in place for the period
       ending 31 July 2004 and up to the date of approval of the annual report and accounts. This process is regularly reviewed by the
       Corporation.

       The risk and control framework
       The system of internal control is based on a framework of regular management information, administrative procedures including
       the segregation of duties, and a system of delegation and accountability. In particular, it includes:
       • comprehensive budgeting systems with an annual budget, which is reviewed and agreed by the governing body
       • regular reviews by the governing body of periodic and annual financial reports which indicate financial performance against
       forecasts
       • setting targets to measure financial and other performance
       • clearly defined capital investment control guidelines
       • the adoption of formal project management disciplines, where appropriate.

       The College has an internal audit service, which operates in accordance with the requirements of the LSC’s Interim 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. The
       Principal’s 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 and the LSC-appointed ILR auditors in their management
       letters and other reports.




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       The Principal has been advised on the implications of the result of his or her review of the effectiveness of the system of internal
       control by the audit committee which oversees the work of the internal auditor, and a plan to address weaknesses and ensure
       continuous improvement of the system is in place.

       The College Management Team receives reports setting out key performance and risk indicators and considers possible control
       issues brought to their attention by early warning mechanisms, which are embedded within the departments and reinforced by
       risk awareness training. The senior management team and the audit committee also receive regular reports from internal audit,
       which include recommendations for improvement. The audit committee's role in this area is confined to a high-level review of the
       arrangements for internal control. The Corporation's agenda includes a regular item for consideration of risk and control and
       receives reports thereon from the senior management team and the audit committee. The emphasis is on obtaining the relevant
       degree of assurance and not merely reporting by exception. At its January 2005 meeting, the Corporation carried out the annual
       assessment for the year ended 31 July 2004 by considering documentation from the senior management team and internal
       audit, and taking account of events since 31 July 2004.

       Significant internal control problems
       The following significant internal control issues where identified during the year:
       l A large debt had been allowed to accummulate with a major franchise partner. The arrangement has now been
         regularised and the debt eliminated.
       l Monitoring and management of sickness absence was found to be weak. Systems have been tightened and
         management of sickness improved.
       l An instance of lax management of a consultant on a retainer came to light. This arrangement has now been brought to
         an end.

       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 they continue to adopt the going concern basis in preparing the
       financial statements.




       Sheila Porritt
       Chair of Governors
       25th January 2005




       Mike Jutsum
       Principal & Chief Executive
       25th January 2005




                                                                         Page 7
KENSINGTON AND CHELSEA COLLEGE




       RESPONSIBILITIES OF MEMBERS OF THE CORPORATION
       The members of the Corporation of the College are required to present audited financial statements for each financial year.

       Within the terms and conditions of the Financial Memorandum agreed between the Learning and Skills Council (the LSC) and
       the corporation of the college, the corporation, through its Principal, is required to prepare financial statements for each financial
       year in accordance with the Statement of Recommended Practice – Accounting for Further and Higher Education Institutions
       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:

       l Select suitable accounting policies and then apply them consistently.
       l Make judgements and estimates that are reasonable and prudent.
       l State whether applicable accounting standards have been followed, subject to any material departures
            disclosed and explained in the financial statements.
       l Prepare financial statements on the going concern basis unless it is inappropriate to assume that the College
           will continue in operation.

       The corporation is responsible for keeping proper accounting records, which disclose with reasonable accuracy, at any time, t he
       financial position of the College, and which enable it to ensure that the financial statements are prepared in accordance wit h 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 irregularitie s.

       Members of the Corporation are responsible for ensuring that funds from the LSC are used only in accordance with the Financia l
       Memorandum with the LSC and any other conditions that the LSC may 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 fund s
       and to ensure they are used properly. In addition, members of the Corporation are responsible for securing economical, effici ent
       and effective management of the College’s resources and expenditure, so that the benefits that should be derived from the
       application of public funds by the LSC are not put at risk.

       Signed on behalf of the Corporation




       Sheila Porritt
       Chair of Governors
       28th January 2005




                                                                           Page 8
KENSINGTON AND CHELSEA COLLEGE




       INDEPENDENT AUDITORS' REPORT TO THE CORPORATION OF
       KENSINGTON & CHELSEA COLLEGE
       We have audited the financial statements of Kensington & Chelsea College for the year ended 31 July 2004 which comprise the
       principal accounting policies, the income and expenditure accounts, the statements of recognised surpluses and deficits, the
       statements of historical cost surpluses and deficits, the balance sheets, the consolidated cash flow statement and notes 1 to 31.
       These financial statements have been prepared under the accounting policies set out therein.

       This report is made solely to the College's members as a body. Our audit work has been undertaken so that we might state to
       the College's members those matters we are required to state to them in an auditors' report and for no other purpose. To the
       fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the College and the College's
       members as a body for our audit work, for this report, or for the opinions we have formed.

       Respective Responsibilities of the Members of Kensington and Chelsea College and Auditors

       The College Corporation's responsibility for preparing the Members’ Report and the financial statements in accordance with th e
       Statement of Recommended Practice - Accounting for Further and Higher Education Institutions and applicable United Kingdom
       law and Accounting Standards, is set out in the statement of the members' responsibilities on page 8.

       Our responsibilities as independent auditors are established in the United Kingdom by applicable statute, relevant legal and
       regulatory requirements, the Auditing Practices Board and our profession’s ethical guidance. We report to you our opinion as to
       whether the financial statements give a true and fair view and are properly prepared in accordance with the Statement of
       Recommended Practice - Accounting for Further and Higher Education Institutions. We also report to you whether, in our
       opinion, in all material respects, monies expended out of funds from whatever source, administered by the College for specifi c
       purposes have been properly applied for those purposes and, if appropriate, managed in compliance with relevant legislation
       and whether in our opinion, in all material respects, monies expended out of funds provided by the Learning and Skills Counci l
       and Higher Education Funding Council for England have been applied in accordance with the financial memorandum between
       the Learning and Skills Council and the Corporation of the College and the funding agreement with the Higher Education
       Funding Council for England and any other terms and conditions attached to them.

       We also report to you if, in our opinion, the Members’ Report is not consistent with the financial statements, if the College has
       not kept proper accounting records, the accounting records do not agree with the financial statements or if we have not recei ved
       all the information and explanations we require for our audit.

       We read the other information contained in the Members’ Report (including the Corporate Governance statement) and consider
       the implications for our report if we become aware of any apparent misstatements within it.

       Basis of Audit Opinion

       We conducted our audit in accordance with Auditing Standards issued by the Auditing Practices Board and the Audit Code of
       Practice issued by the Learning and Skills Council. An audit includes examination, on a test basis, of evidence relevant to
       amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and
       judgements made by the College’s Corporation in the preparation of the financial statements, and of whether the accounting
       policies are appropriate to the College’s circumstances, consistently applied and adequately disclosed.

       We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in
       order to provide us with sufficient evidence to give us reasonable assurance that the financial statements are free from mate rial
       misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall
       adequacy of the presentation of information in the financial statements.




                                                                        Page 9
KENSINGTON AND CHELSEA COLLEGE




    .




                                 Page 9
KENSINGTON AND CHELSEA COLLEGE




       Opinion

       In our opinion the financial statements give a true and fair view of the state of affairs of the College as at 31 July 2004 and of
       the College's deficit of income over expenditure, recognised gains and losses and cashflows for the year then ended, and are
       properly prepared in accordance with the Statement of Recommended Practice - Accounting for Further and Higher Education
       Institutions.

       In our opinion, in all material respects, monies expended out of funds from whatever source administered by the College for
       specific purposes have been properly applied for those purposes and, if appropriate, managed in compliance with relevant
       legislation for the year ended 31 July 2004.

       In our opinion, in all material respects, monies expended out of funds provided by the Learning and Skills Council and Higher
       Education Funding Council for England have been applied in accordance with the Financial Memorandum between the
       Learning and Skills Council and the Corporation of the College and the funding agreement with the Higher Education Funding
       Council for England and any other terms and conditions attached to them for the year ended 31 July 2004.




       GRANT THORNTON UK LLP
       REGISTERED AUDITORS
       CHARTERED ACCOUNTANTS

       LONDON 2005




                                                                         Page 10
KENSINGTON AND CHELSEA COLLEGE



      INCOME AND EXPENDITURE ACCOUNT
      for the year ended 31 JULY 2004
                                                                         Notes        2004             2003
                                                                                     £000s            £000s

      Income
          Grants                                                           2         8,480            8,577
          Education Contracts                                              3           676              682
          Tuition fees and charges                                         4         1,596            1,650
          Other grant income                                               5            95              112
          Other operating income                                           6           300              781
          Investment income                                                7           101              148


      Total Income                                                                 11,248         11,950


      Expenditure
          Staff Costs                                                      8         7,697            7,553
          Exceptional restructuring costs                                  8            74               13
          Other operating expenses                                        10         3,285            3,401
          Depreciation                                                    13           618              551


      Total Expenditure                                                            11,674         11,518


      (Deficit)/Surplus on continuing operations after depreciation
                                                                                      (426)            432
      of fixed assets at valuation, disposal of assets and tax



      The income and expenditure account is in respect of continuing activities.

      The accompanying accounting policies and notes 1 to 31 form an integral part of the accounts.




                                                                      Page 11
KENSINGTON AND CHELSEA COLLEGE



      STATEMENT OF HISTORICAL COST SURPLUSES AND DEFICITS
      for the year ended 31 JULY 2004
                                                                             Notes      2004    2003

                                                                                        £000s   £000s

      (Deficit)/Surplus on continuing operations before taxation                        (426)    432


      Difference between historical cost depreciation and the actual
                                                                                   18    172     172
      charge for the period calculated on the re-valued amount


      Realisation of property revaluation gains of previous years                  18      -           -


      Historical cost (deficit)/surplus for the period before taxation                  (254)    604




                                                                         Page 12
KENSINGTON AND CHELSEA COLLEGE



      BALANCE SHEET as at 31 JULY 2004
                                                                                 Notes       2004           2003
                                                                                            £000s          £000s

      Fixed Assets
            Tangible assets                                                          13   10,055          9,892


                                                                                          10,055          9,892

      Current Assets
            Debtors                                                                  14       919           834
            Investments                                                                     2,515         3,140
            Cash at bank and in hand                                                           47            92


                                                                                            3,481         4,066

      Creditors: amounts falling due within one year                                 15     1,502         1,559


      Net Current Assets                                                                    1,979         2,507


      Total Assets less Current Liabilities                                               12,034         12,399


      Provisions for Liabilities and Charges                                         16        74              -


      Net Assets                                                                          11,960         12,399




      Deferred Capital Grants                                                        17      146            159

      Revaluation reserve                                                            18     7,515         7,687
      General reserve                                                                19     2,507         2,761
      Restricted reserve                                                             20         -             -
      Designated reserve                                                             21     1,792         1,792


      Total Reserves                                                                      11,814         12,240


      Total                                                                               11,960         12,399


      The financial statements on pages 11 to 30 were approved by the governing body on 25th January 2005
      and were signed on its behalf by:




      Sheila Porritt, Chair                                                           Geoff Principal & Chief Executive
                                                                               Mike Jutsum,Hirst
                                                                                 Thomas Jerry

      The accompanying accounting policies and notes 1 to 31 form an integral part of the accounts.




                                                                 Page 13
KENSINGTON AND CHELSEA COLLEGE



      STATEMENT OF THE TOTAL RECOGNISED SURPLUSES AND DEFICITS
      for the year ended 31 JULY 2004
                                                                              Notes     2004      2003

                                                                                       £000s     £000s


      (Deficit)/Surplus on continuing operations after depreciation of
                                                                                        (426)     432
      assets at valuation and disposal of assets and tax

      Unrealised surplus on revaluation of fixed assets                          18        -        -


      Total recognised (losses)/gains relating to the period                            (426)     432



      Reconciliation

      Opening reserves and endowments                                                 12,240    11,808

      Total recognised gains for the year                                               (426)     432


      Closing reserves and endowments                                                 11,814    12,240




                                                                    Page 14
KENSINGTON AND CHELSEA COLLEGE



      CASH FLOW STATEMENT for the year ended 31 JULY 2004
                                                                        Notes     2004      2003

                                                                                 £000s    £000s

      Cash flow from operating activities                                   22     61        (69)

      Returns on investments and servicing of finance                       23    101       148

      Capital expenditure and financial investment                          23    (709)    (944)


      Cash outflow before use of liquid resources and financing                   (547)    (865)

      Management of liquid resources                                        23    625      (180)



      Increase/(Decrease) in cash in the period                             24     78     (1,045)




      Reconciliation of net cash flow to movement in net funds

      Increase/(Decrease) in cash in the period                                     78    (1,045)
      Cash inflow from liquid resources                                     24    (625)      180


      Movement in net funds in period                                             (547)    (865)

      Net funds at 1 August 2003                                                 3,109    3,974


      Net funds at 31 July 2004                                                  2,562    3,109




                                                                  Page 15
KENSINGTON AND CHELSEA COLLEGE




       NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 JULY 2004
       1 Accounting Policies

       Basis of Preparation

       These Financial Statements have been prepared in accordance with the Statement of Recommended Practice 2003
       (SORP): Accounting in Further and Higher Education Institutions and in accordance with applicable accounting Standards.
       They conform to guidance published by the Learning and Skills Council ("the LSC"), in Circular 03/08.

       Basis of Accounting

       The financial statements are prepared in accordance with the historical cost convention modified by the revaluation of
       certain fixed assets.

       Recognition of Income

       Income from Tuition Fees is recognised in the period in which the course is taking place. It includes all fees chargeable to
       students or their sponsors e.g. National Health Service.

       Income from research grants, contracts and other services rendered is included to the extent of the completion of the
       contract or service concerned. This is generally equivalent to the sum of the relevant expenditure incurred during the year
       and any related contributions towards overhead costs. All income from short-term deposits is credited to the income and
       expenditure account in the period that it is earned.

       The College is required to justify the funding it receives from the LSC by submitting a funding claim. This funding claim is
       subject to a detailed funding audit by the LSC's auditors. This audit is not completed until February of the following year -
       after the deadline for the completion of these financial statements. The figure for LSC recurrent funding shown in these
       statements is therefore an estimate based on the findings of the LSC's interim funding audit. This estimate is further
       informed by the Corporation's view of the likelihood of the final claim submission deadline being met - which determines
       whether the College receives funding within LSC's 3% tolerance or is subject to full claw back of funds for
       underperformance. Any difference between the estimated and final grant allocations is recognised in the following year's
       financial statements.

       Non-recurrent grants from Funding Councils or other bodies received in respect of the acquisition or construction of fixed
       assets are treated as deferred capital grants and amortised in line with depreciation over the life of the assets.

       Pension Schemes

       Retirement benefits to employees of the College are provided by the Teachers’ Pension Scheme (TPS) and the Local
       Government Pension Scheme (LGPS). These are defined benefit schemes, which are externally funded and contracted
       out of the State Earnings-Related Pension Scheme (SERPS). Contributions to the schemes are charged to the income
       and expenditure account, so as to spread the cost of pensions over employees’ working lives with the College in such a
       way that the pension cost is a substantially level percentage of current and future pensionable payroll.

       The contributions are determined by qualified actuaries on the basis of triennial valuations using the projected unit method
       for the LGPS and quinquennial valuations using a prospective benefit method for the TPS.

       In addition to the above schemes the College makes contributions to one employee’s Private Pension scheme.




                                                                              Page 16
KENSINGTON AND CHELSEA COLLEGE




       NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 JULY 2004 (continued)
       1 Accounting Policies (continued)

       Tangible Fixed Assets

       Land and buildings

       Land and buildings inherited from the Local Education Authority (LEA) are stated in the balance sheet at valuation on the
       basis of depreciated replacement cost. The revaluation was performed in July 1999 by Drivers Jonas, chartered
       surveyors and was done on an ‘existing use’ basis. In accordance with the provisions of FRS 15 (Tangible Fixed Assets)
       the College has elected not to continue with regular revaluations of inherited land and buildings but to freeze their value a t
       the 1999 level. 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 to the College of 40 years.
       Leasehold buildings are amortised over 50 years, or, if shorter, the period of the lease.

       Where land and buildings are acquired with the aid of specific grants they are capitalised and depreciated as above. The
       related grants are credited to a deferred capital grant account and are released to the income and expenditure account
       over the expected useful economic life of the related asset on a basis consistent with the depreciation policy.

       Equipment

       Equipment costing less than £500 per individual item is written off to the income and expenditure account in the period of
       acquisition. All other equipment is capitalised at cost. Equipment inherited from the LEA is included in the balance sheet
       at valuation.

       Inherited equipment is fully depreciated. All other equipment is depreciated over its useful economic life as follows:

       Motor vehicles and general equipment 20% per year

       Computer equipment                     25% per year

       Building Additions                     4% to 20% per year

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

       Leased Assets

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

       Leasing agreements, which transfer to the College substantially all the benefits and risks of ownership of an asset are
       treated as if the asset had been purchased outright. The assets are included in fixed assets and the capital element of the
       leasing commitments is shown as obligations under finance leases. The lease rentals are treated as consisting of capital
       and interest elements. The capital element is applied to reduce the outstanding obligations and the interest element is
       charged to the income and expenditure account in proportion to the reducing capital element outstanding. Assets held
       under finance leases are depreciated over the shorter of the lease term or the useful economic lives or equivalent owned
       assets.

       Assets that are held under hire purchase contracts that have the characteristics of finance leases are depreciated over
       their useful lives.

       Investments

       Where applicable, 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 their original cost and net realisable value.

       Stocks

       Where applicable stocks are stated at the lower of their cost and net realisable value. Where necessary, provision is
       made for obsolete, slow moving and defective stocks.




                                                                               Page 17
KENSINGTON AND CHELSEA COLLEGE




       NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 JULY 2004 (continued)
       1 Accounting Policies (continued)

       Maintenance of premises

       The costs of routine corrective maintenance is charged to the Income and Expenditure account in the period it is incurred.

       Taxation

       The College is an exempt charity within the meaning of schedule 2 of the Charities Act 1993 and as such is a charity
       within the meaning of section 506(1) of the Income and Corporation Taxes Act 1988 (ICTA 1988).

       Accordingly, the College is potentially exempt from taxation in respect of income or capital gains received within
       categories covered by section 505 of ICTA 1988 or section 256 of the Taxation of Chargeable Gains Act 1992, to the
       extent that such income or gains are applied to exclusively charitable purposes.

       Most of the College's income from services provided to students is exempt from VAT. The College is not registered for
       VAT as the amount of non-exempt income is below the registration threshold. The College is unable to recover any input
       VAT it suffers on goods and services purchased although it benefits from some charitable exemptions.

       Liquid resources

       Liquid resources include sums on short-term deposits with recognised banks and building societies and government
       securities.

       Provisions

       Provisions are recognised when the College has a present legal or constructive obligation as a result of a past event. It is
       possible that a transfer of economic benefit will be required to settle the obligation and a reliable estimate can be made of
       the amount of the obligation.

       Agency Arrangements

       The College acts as an agent in the collection and payment of learner support funds. Related payments received from the
       Learning and Skills Council and subsequent disbursements to students excluded from the income and expenditure
       account and are shown separately in note 31.




                                                                              Page 18
KENSINGTON AND CHELSEA COLLEGE




       NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 JULY 2004 (continued)
           2 Funding Council Grants

                                                                  LSC    HEFCE     2004    2003
                                                                 £000s    £000s   £000s   £000s

           Recurrent grant                                       8,000     184    8,184   8,207
           Work Based Learning/Work Force Development               59       -       59      84
           Releases of deferred capital grants                      85       -       85     121
           Child Care                                                -       -        -       -
           Basic Skills Quality Initiative                           -       -        -       -
           Individual learning accounts                              -       -        -       -
           Local Initiative Funds                                    -       -        -       -
           Information and Learning Technology Grant                36       -       36       -
           FE Standards fund                                       116       -      116     165

                                                                 8,296     184    8,480   8,577

           3 Education Contracts

                                                                                   2004    2003
                                                                                  £000s   £000s

           Local Education Authority                                               676     682
           New Deal                                                                  -       -

                                                                                   676     682

           4 Tuition Fees and Charges

                                                                                   2004    2003
                                                                                  £000s   £000s

           UK Higher Education students                                              24      26
           European Union (EU) (excluding UK) students                              391     270
           Non-EU students                                                          151     100
           UK Further Education and Adult Education students                      1,030   1,254

                                                                                  1,596   1,650

           5 Other Grant Income

                                                                                   2004    2003
                                                                                  £000s   £000s

           European funds                                                            -       -
           Other funds                                                              95     112

           Total                                                                    95     112

           6 Other Income

                                                                                   2004    2003
                                                                                  £000s   £000s

           Catering operations                                                     108     126
           Other income generating activities                                       97     186
           Other income                                                             95     469

                                                                                   300     781

           7 Investment Income

                                                                                   2004    2003
                                                                                  £000s   £000s

           Interest receivable                                                     101     148

                                                                                   101     148




                                                               Page 19
KENSINGTON AND CHELSEA COLLEGE




       NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 JULY 2004 (continued)
           8 Staff Costs

           The average monthly number of persons (including senior post-holders) employed by the College during the
           year, expressed as full-time equivalents, was:
                                                                                                  2004              2003
           The average monthly number of persons (including senior post-holders) employed by the College during the
                                                                                               Number             Number

           Teaching departments - teaching staff                                                     144                 143
           Teaching departments - other staff                                                         19                  15
           Teaching support services                                                                  18                  22
           Other support services                                                                      4                   5
           Administration and central services                                                        58                  53
           Premises                                                                                   12                  10
           Catering                                                                                    6                   7

                                                                                                     261                 255




           Staff costs for the above persons:                                                                       Restated            Original
                                                                                                     2004              2003               2003
                                                                                                    £000s             £000s              £000s

           Wages and salaries                                                                       6,731              6,676             6,412
           Social security costs                                                                      484                474               474
           Other pension costs                                                                        482                403               667
           Exceptional restructuring costs                                                             74                 13                13

                                                                                                    7,771              7,566             7,566

           Teaching departments - teaching staff                                                    4,466              4,435
           Teaching departments -other staff                                                          482                374
           Teaching support services                                                                  654                608
           Other support services                                                                      65                109
           Administration and central services                                                      1,686              1,693
           Premises                                                                                   261                219
           Catering                                                                                    83                115
           Staff restructuring                                                                         74                 13

           Total                                                                                    7,771              7,566                 -

           The analysis of staff costs for 2002/03 has been restated. There has been no overall effect on the surplus for the year.

                                                                                                                        2004              2003
                                                                                                                       £000s             £000s

           Employment costs for staff on permanent contracts                                                           7,441             7,285
           Employment costs for staff on short-term and temporary contracts                                              256               268
           Restructuring costs                                                                                            74                13

                                                                                                                       7,771             7,566
           The restructuring costs were approved by the institution's remuneration committee.

           The number of staff, including senior post-holders and the principal, who received emoluments in the following ranges was:

                                                                        Year ended 31 July 2004
                                                                         Number                                 Year ended 31 July 2003
                                                                                                                 Number
                                                                       senior post-   Number Other             senior post-   Number
                                                                         holders     Staff                       holders     Other Staff
           £   50,001 to £   60,000                                                 1                   -                  -                 -
           £   60,001 to £   70,000                                                 1                   -                  2                 -
           £   70,001 to £   80,000                                                 -                   -                  -                 -
           £   80,001 to £   90,000                                                 -                   -                  1                 -

                                                                                    2                   -                  3                 -

           A general pay award of 3% was made with effect from 1 August 2004, approved by the corporation.




                                                                          Page 20
KENSINGTON AND CHELSEA COLLEGE




       NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 JULY 2004 (continued)
           9 Senior Post-holders' Emoluments

           Senior post-holders are defined as the principal (or chief executive) and holders of the other senior posts whom
           the board have selected for the purposes of the articles of government of the institution relating to the
           appointment and promotion of staff who are appointed by the board of governors

                                                                                                          senior posts whom
           Senior post-holders are defined as the principal (or chief executive) and holders of the other Number              Number
                                                                                                            2004                2003

           The number of senior post-holders including the Principal was:                                    4                     3
           Senior post-holders' emoluments are made up as follows:
                                                                                                              £                     £

           Salaries                                                                                   170,759                 188,765
           Benefits in kind                                                                             9,912                   1,417
           Pension contributions                                                                       20,770                  18,805

           Total emoluments                                                                           201,441                 208,987


           The above emoluments include amounts payable to the Principal (who is also the highest paid senior post-holder) of:


                                                                                                          2004                   2003

                                                                                                              £                     £

           Salary                                                                                      56,786                  73,974
           Benefits in kind                                                                             8,801                     642
                                                                                                       65,587                  74,616

           Pension contributions                                                                         6,256                  7,160

           The pension contributions in respect of the Principal and senior post-holders are in respect of employer's
           contributions to the Teachers Pension Scheme and are paid at the same rate as for other employees.

           The estimated value of other benefits has been calculated in accordance with Statement of Standard
           Accounting Practice 24.

           The members of the corporation other than the Principal and the staff member did not receive any payment
           from the institution other than the reimbursement of travel and subsistence expenses incurred in the course
           of their duties.

           Senior post-holders, including the Principal and other higher paid staff received a pay increase of 3% in line
           with the general pay award. No bonuses or other salary enhancements were awarded to senior post-holders
           or other higher paid staff.

           Overseas activities

           No costs were incurred during 2003-2004 in respect of overseas activities (2003: Nil).




                                                                            Page 21
KENSINGTON AND CHELSEA COLLEGE



         The number of consolidated pay award STATEMENTS effect from 1 whom the board have selected
         A general none designated senior the Chief Executive and with senior posts August 2000, emoluments the
          Senior post-holders FINANCIAL of 3.3% was made Chief Executive, who received 31 JULY
          KPMG wording needed here
       NOTES TO THE are defined aspost-holders including theotherfor the year endedapproved by for2004 (continued)
           10 Other Operating Expenses

                                                                                             2004                2003
                                                                                            £000s               £000s

           Teaching departments                                                              153                 113
           Teaching support services                                                         193                 153
           Other support services                                                            117                 147
           Administration and central services                                               899                 729
           General education                                                                 535                 474
           Premises costs                                    Running costs                   355                 349
           Premises costs                                    Maintenance                      50                  57
           Premises costs                                    Rents & leases                  201                 244
           Planned maintenance                                                                 -                  17
           Other income generating activities                                                  -                   -
           Catering operations                                                               123                 133
           Franchised provision                                                              659                 978
           Other expenses                                                                      -                   7

           Total                                                                            3,285              3,401




           Other operating expenses include:
                                                                                                                 2004              2003
                                                                                                                £000s             £000s
           Auditors' remuneration:
                                   financial statements audit                                                     12                   14
                                   internal audit                                                                 25                   17
                                  other services from either external or internal audit                           33                    -
           Losses on disposal of tangible fixed assets                                                             -                    1
           Hire of plant and machinery - operating leases                                                          -                    -
           Hire of other assets - operating leases                                                                 6                   11

           11 Interest Payable

           The College did not incur any interest charges during the period.

           12 Taxation

           The members do not believe the College was liable for any corporation tax arising from its activities during this period.




                                                                            Page 22
KENSINGTON AND CHELSEA COLLEGE




       NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 JULY 2004 (continued)
           13 Tangible Fixed Assets

                                                                   Land and Buildings
                                                                    Freehold      Long
                                                                                  Leasehold                Equipment                Total
                                                                         £000s          £000s                    £000s                 £000s
           Cost or Valuation

           At 1 August 2003                                                8,813               1,727                1,182              11,722
           Additions                                                         538                  26                  217                 781
           Disposals                                                           -                   -                    -                   -

           At 31 July 2004                                                 9,351               1,753                1,399              12,503

           Depreciation

           At 1 August 2003                                                   936                202                  692               1,830
           Charge for year                                                    313                 71                  234                 618
           Eliminated on disposal                                               -                  -                    -                   -

           At 31 July 2004                                                 1,249                 273                  926               2,448

           Net book value
           At 31 July 2004                                                 8,102               1,480                  473              10,055


           Net book value
           At 1 August 2003                                                7,877               1,525                  490               9,892




           Inherited                                                       6,281               1,234                    -               7,515
           Financed by capital grant                                          92                   -                   54                 146
           Other                                                           1,729                 246                  419               2,394

           Net book value
           At 31 July 2004                                                 8,102               1,480                  473              10,055


          The transitional rules set out in FRS 15 Tangible Fixed Assets have been applied on implementing FRS15. Accordingly, the book values at
          implementation have been retained.

          Land and buildings inherited from the Local Education Authority were revalued as at 31 July 1999. The revaluation was performed by
          Drivers Jonas, Chartered Surveyors and was done on an "existing use" basis. The freehold land element of the property has been estimated
          at £1,556,500 for depreciation purposes. It should be noted that the land element value is expected to differ significantly from the nominal
          value should an alternative basis for property valuation be used.

          The College has finalised 99 year leases at a peppercorn rent on three premises that were the property of the local education authority but
          are used by the College.

          All freehold land and buildings have been financed by exchequer funds. Should these assets be sold, the College may be liable, under the
          terms of the Finance Memorandum with the Learning and Skills Council, to surrender the proceeds.




           If inherited land and buildings had not been valued they would have been included at the following amounts:

                                                                                                                                        £000s
           Cost                                                                                                                           Nil
           Aggregate depreciation based on cost                                                                                           Nil

           Net book value based on cost                                                                                                     Nil




                                                                                 Page 23
KENSINGTON AND CHELSEA COLLEGE




       NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 JULY 2004 (continued)
           14 Debtors
                                                                                                   2004                    2003
                                                                                                  £000s                   £000s
           Amounts falling due within one year
           Trade debtors                                                                            827                    750
           Prepayments and accrued income                                                            82                     72
           Other debtors                                                                             10                     12

           Total                                                                                    919                    834


           15 Creditors: Amounts Falling Due Within One Year
                                                                                                   2004                    2003
                                                                                                  £000s                   £000s

           Overdrawn bank balances*                                                                    -                   123
           Payments received in advance                                                               -                     90
           Trade creditors                                                                           73                    157
           Employee taxation and social security                                                    154                    176
           Accruals and deferred income                                                             749                    428
           Amounts owed to LSC                                                                      467                    479
           Other creditors                                                                           59                    106

                                                                                                  1,502                   1,559
           *Cashbook for current bank account had a credit balance of £54,881. It was caused by unpresented cheques with a high value.

           16 Provisions for Liabilities and Charges
                                                                    Enhanced
                                                                     Pension                   Other              Total
                                                                  Members do not believe the College
                                                              The College has historically allowed £000s
                                                                            £000s                                         £000s

           At 1 August 2003                                                      -                    -                       -
           Expenditure in the period                                             -                    -                       -
           Transferred from income and expenditure account                                          (74)                    (74)

           At 31 July 2004                                                       -                  (74)                    (74)


           17 Deferred Capital Grants
                                                                                                                          £000s
           At 1 August 2003
                           Land and buildings                                                                               25
                           Equipment                                                                                       134
           Cash received
                           Land and buildings                                                                               73
                           Equipment                                                                                         -
           Released to income and expenditure account
                           Land and buildings                                                                                6
                           Equipment                                                                                        80

           Total                                                                                                           146
           At 31 July 2004
                             Land and buildings                                                                             92
                             Equipment                                                                                      54

           Total                                                                                                           146

           Analysis of capital grants received from the Learning and Skills Council during 2003/04
                                                                                                                          £000s

           Accessibility Improvement Grant                                                                                  33
           FE Cap Buildings - Disability Access                                                                             17
           DDA/SENDA General Allocation.                                                                                    23


           Total                                                                                                            73




                                                                       Page 24
KENSINGTON AND CHELSEA COLLEGE



                                                                           The College do not believe the College was
                                                                               Members
       NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 JULY 2004 (continued)has historically allowed selective liable
           18 Revaluation Reserve
                                                                                                                2004                 2003
                                                                                                               £000s                £000s

           At 1 August                                                                                         7,687                7,859
           Revaluations in the period (as per note 13)                                                             -                    -

           Transfer from revaluation reserve to general reserve in respect of:
               Depreciation on revalued assets                                                                  (172)                (172)

           At 31 July                                                                                          7,515                7,687


           19 General Reserve - Income and Expenditure Account Reserve
                                                                                                                2004                 2003
                                                                                                               £000s                £000s

           At 1 August                                                                                          2,761               2,157
           (Deficit)/Surplus on continuing operations after depreciation of
           The College has historically of assets and tax
                Members do not believe the College was liable for Early Retirement (VER). out VER activities during
           assets at valuation, disposalallowed selective Voluntaryany corporation tax arising Thisof the scheme (426)                432
           Transfer from revaluation reserve                                                                      172                 172

           At 31 July                                                                                          2,507                2,761


           20 Restricted Reserve
                                                                                                                2004                 2003
                                                                                                               £000s                £000s

           At 1 August                                                                                             -                1,792

           Transfer to designated reserve                                                                          -                (1,792)

           At 31 July                                                                                              -                     -


           21 Designated Reserve
                                                                                                                2004                 2003
                                                                                                               £000s                £000s

           At 1 August                                                                                         1,792                     -

           Transfer from restricted reserve                                                                        -                1,792

           At 31 July                                                                                          1,792                1,792

           The designated reserve represents the proceeds from the sale of the College's Edge Street building.
           It is held in reserve for future reinvestment in fixed assets. In accordance with LSC Circular 03/08 paragraphs 77-84,
           the balance has been transferred from a restricted to a designated reserve.

           22 Reconciliation of Consolidated Operating Surplus to Net Cash Inflow/(Outflow) from Operating Activities


                                                                                                                2004                 2003
                                                                                                               £000s                £000s

           (Deficit)/Surplus on continuing operations after depreciation of assets at valuation                 (426)                 432
           Depreciation (note 1 & 13)                                                                            618                  551
           Deferred capital grants released to income (note 2)                                                   (85)                (121)
           (Loss)/profit on disposal of tangible fixed assets                                                      -                    1
           Interest payable (note 11)                                                                              -                    -
           The College has historically allowed selective liable for Early Retirement (VER). out VER activities during the year
                Members do not believe the
           (Increase)/decrease in debtors College was Voluntaryany corporation tax arising Thisof the scheme incorporated an
                                                                                                                 (85)                (478)
           Increase/(decrease) in creditors                                                                       66                 (169)
           Increase/(decrease) in provisions                                                                      74                 (137)
           Interest receivable (note 7)                                                                         (101)                (148)

           Net cash inflow/(outflow) from operating activities                                                    61                   (69)




                                                                          Page 25
                    KENSINGTON AND CHELSEA COLLEGE



  Members do not believe the College was
e College has historically allowed selective liable




                                                      Page 25
KENSINGTON AND CHELSEA COLLEGE



          The Members do not believe the College was Voluntaryany corporation tax ended 31 JULY 2004 (continued)
               TO THE FINANCIAL selective liable for Early the year arising out VER activities during the year
       NOTESCollege has historically allowedSTATEMENTS for Retirement (VER). Thisof the scheme incorporated an element of
           23 Analysis of Cash Flows

                                                                                                         2004          2003
                                                                                                        £000s         £000s
           Returns on Investments and Servicing of Finance

           Other interest received                                                                       101           148

           Net cash inflow from returns on investments and servicing of finance                          101           148


           Capital Expenditure and Financial Investment

           Purchase of tangible fixed assets                                                             (781)       (1,029)
           Sales of tangible fixed assets (see note 13)                                                     -             2
           Deferred capital grants received                                                                72            83

           Net cash outflow from capital expenditure and financial investment                            (709)         (944)

           Management of Liquid Resources

           Placing of deposits                                                                           625           (180)

           Net cash inflow from management of liquid resources                                           625           (180)


           24 Analysis of Changes in Net Funds
                                                               At 1 August                                       At 31 July
                                                                   2003           Cashflows      Other changes      2004
                                                                       £000s             £000s           £000s         £000s

           Cash in hand, and at bank                                      92              (45)              -            47
           Bank overdraft                                               (123)             123               -             -

                                                                         (31)              78               -            47

           Current Asset Investments                                   3,140             (625)              -         2,515

           Total                                                       3,109             (547)              -         2,562


           25 Major non-cash transactions

           There were no major non-cash transactions during year (2003: Nil).




                                                                        Page 26
KENSINGTON AND CHELSEA COLLEGE




       NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 JULY 2004 (continued)
           26 Pension and similar obligations

           The College's employees belong to two principal pension schemes, the Teachers' Pensions Scheme (TPS)
           and the Royal Borough of Kensington & Chelsea Pension Fund (RBK&CPF). The total pension cost for the period was
           £482,000 (2003 - £403,000, restated).

           Teachers' Pension Scheme

           The Teachers' Pension Scheme is an unfunded defined benefit scheme. Contributions on a pay as you go
           basis are credited to the exchequer under arrangements governed by the Superannuation Act 1972.

           SSAP 24

           The pensions cost is assessed every five years in accordance with the advice of the government actuary. The
           assumptions and other data that have the most significant effect on the determination of the contribution levels are
           as follows:

           Latest actuarial valuation                                                                           31 March 2001
           Actuarial method                                                                                     Prospective Benefits
           Investment returns per annum                                                                         7.0% per annum
           Salary scale increases per annum                                                                     5.0% per annum
           Market value of assets at date of last valuation                                                     £142,880 million

           Proportion of members' accrued benefits covered by the actuarial value of the assets                100%
           The contribution rate paid by the College has been 13.5% since April 2003. The rates are normally reviewed
           every 5 years by the Government Actuary.
           An appropriate SSAP 24 provision in respect of unfunded pensioners' benefits is included in provisions.

           FRS 17

           Under the definitions set out in Financial Reporting Standard 17 (Retirement Benefits), the TPS is a multi-employer
           pension scheme. The College is unable to identify its share of the underlying assets and liabilities of the
           scheme. Accordingly, the College has accounted for its contributions as if it were a defined contribution scheme.




                                                                          Page 27
KENSINGTON AND CHELSEA COLLEGE




       NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 JULY 2004 (continued)
           26 Pension and similar obligations (continued)

           The Royal Borough of Kensington & Chelsea Pension Fund

           The RBK&CPF is a funded defined benefit scheme, with the assets held in separate trustee administered funds.
           The total contribution made for the year ended 31 July 2004 was £232,000 of which employers contributions
           totalled £154,000 and employees contributions totalled £78,000. The current contributions rates are 12% for
           employers and 6% for employees. The employers contribution is likely to increase to an average of 20.5% for
           the next three years.

           SSAP 24

           The pensions cost is assessed every three years in accordance with the advice of a qualified independent actuary. The
           assumptions and other data that have the most significant effect on the determination of the contribution levels are
           as follows:

           Latest actuarial valuation                                          31 March 2004
           Actuarial method                                                    Projected Unit
           Investment returns per annum                                        6.5% per annum
           Pension increases per annum                                         2.9% per annum
           Salary scale increases per annum                                    4.4% per annum
           Market value of assets at date of last valuation                    £257 million

           Proportion of members' accrued benefits covered by the actuarial value of the assets: 78%

           FRS 17

           The following information is based upon a full actuarial valuation of the Fund at 31 March 2004 updated to 31 July 2004
           by a qualified independent actuary.

                                                        At 31 July 2004         At 31 July 2003
           Inflation                                          2.9%                   2.6%
           Rate of increase in salaries                       4.4%                   4.1%
           Rate of increase for pensions                      2.9%                   2.6%
           Discount rate for liabilities                      5.8%                   5.5%

           The assets in the scheme (of which the college's share is estimated at 0.79%) and the expected rates of return were:

                                                       Long-term rate of              Value at 31   Long-term rate of        Value at 31
                                                       return expected at              July 2004    return expected at        July 2003
                                                          31 July 2004                     £000s        31 July 2003              £000s
           Equities                                           7.9%                       171,000            8.0%                166,700
           Bonds                                              5.4%                        70,000            5.0%                 59,200
           Property                                           6.7%                              0           6.0%                       0
           Cash                                               4.5%                        11,000            3.5%                  3,600

           Total Market Value of assets                                                  252,000                                  229,500


                                                                                             2004                  2003
                                                                                           £000s                 £000s
           College's estimated asset share                                                  1,987                 1,618
           Present value of scheme liabilities                                            (2,811)               (2,408)

           Deficit in the scheme                                                           (824)                  (790)




                                                                            Page 28
KENSINGTON AND CHELSEA COLLEGE




       NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 JULY 2004 (continued)
           26 Pension and similar obligations (continued)

           Local Government Pension Scheme (continued)
           Under the transitional arrangements of FRS17, no provision has been made by the college for the institution's share of the deficit
           of the scheme. If provision were made, the following entries would be made:
           Balance Sheet Presentation
                                                                                                           2004              2003
                                                                                                          £000s             £000s
           * Net assets excluding FRS 17 pension (liability)/asset                                       11,960            12,399
           Net pension (liability)/asset                                                                   (824)             (790)

           Net assets including FRS 17 pension (liability)/asset                                         11,136            11,609
           Reserves Note
           * Income and expenditure account excluding FRS 17 pension (liability)/asset                    2,507             2,761
           Pension reserve                                                                                (824)             (790)

           Income and expenditure account including FRS 17 pension (liability)/asset                      1,683             1,971

           * Amounts exclude SSAP 24 provisions for LGPS scheme underfunding included within the College balance sheet.

           Under the transitional arrangements of FRS 17, the College's pension charge for the year calculated under FRS 17 assumptions is not
           included in the financial statements (as this is currently calculated on a SSAP 24 basis). If the charge had been included on an FRS 17
           basis, the following entries would be made.
           Analysis of the amount charged to income and expenditure account
                                                                                                           2004              2003
                                                                                                          £000s             £000s
           Service cost                                                                                     194              133
           Past service cost                                                                                  -                -
           Total operating charge                                                                           194              133

           Analysis of net return on pension scheme

           Expected return on pension scheme assets                                                         124                95
           Interest on pension liabilities                                                                 (139)              (96)
           Net return                                                                                       (15)               (1)

           Amount recognised in the statement of total recognised gains and losses (STRGL)

           Actual return less expected return on pension scheme assets                                       36               (91)
           Experience gains and losses arising on the scheme liabilities                                    (12)              (45)
           Change in financial and demographic assumptions underlying the scheme liabilities                 (4)             (372)
           Actuarial gain/(loss) recognised in STRGL                                                         20              (508)

           Movement in deficit during year
           Deficit in scheme at 1 August                                                                   (790)             (297)
           Movement in year:
           Current service charge                                                                          (194)             (133)
           Contributions                                                                                    155               149
           Past service costs                                                                                 -                 -
           Net interest / return on assets                                                                  (15)               (1)
           Actuarial gain or loss                                                                            20              (508)
           Deficit in scheme at 31 July                                                                    (824)             (790)

           History of experience gains and losses (in practice, from 2006, 5 years must be shown)
           Difference between the expected and actual return on assets:
           Amount £000s                                                                                       36              (91)
           % of scheme assets                                                                                2%                6%
           Experience gains and losses on scheme liabilities:
           Amount £000s                                                                                     (12)              (45)
           % of scheme liabilities                                                                           0%                2%
           Total amount recognised in STRGL
           Amount £000s                                                                                       20             (508)
           % of scheme liabilities                                                                           1%               21%




                                                                          Page 29
KENSINGTON AND CHELSEA COLLEGE



         DuringTOyear, do not believe the College was Voluntaryany Educational oftax ended 31 JULY and was the Chair an
          During the year, the FINANCIAL Barnsley College has been the year(VER). Thisof Limited 2004 (continued)
          The Members the College had a relationship withliable for been a director of Progress Training Limited and was the Chair of
                  the THE Chief Executive of Barnsley College has Early director Trustarising subsidiary companiesduring theTraining
                                  Executive of selective the Barnsley corporation         and its out VER activities (Progress year
       NOTESCollege has historically allowedSTATEMENTS foraRetirementProgress Training the scheme incorporated of
            27 Post Balance Sheet Events

            There were no material post balance sheet events.


            28 Capital Commitments
                Members do not believe the College was liable for Early Retirement (VER). out VER activitiesincorporated an 2003
                                                                                                                   during the year
            The College has historically allowed selective Voluntaryany corporation tax arising Thisof the scheme2004
                                                                                                                £000s            £000s

            Commitments contracted for at 31 July                                                                176             276

            Commitments under finance leases entered into but not yet provided for
            in the financial statements                                                                               Nil          Nil


            29 Financial Commitments

            At 31 July had annual commitments under non-cancellable operating leases as follows:
                                                                                                                2004            2003
                                                                                                               £000s           £000s
            Land and Buildings
            Expiring within one year                                                                                  -            -
            Expiring within two and five years inclusive                                                              -            -
            Expiring in over five years                                                                               -            -

                                                                                                                      -            -

            Other
            Expiring within one year                                                                               5              11
            Expiring between two and five years inclusive                                                         19              10
            Expiring in over five years                                                                            -               -

                                                                                                                  24              21


            30 Related Party Transactions

            Due to the nature of the College's operations and the composition of the board of governors (being drawn
            from local public and private sector organisations) it is inevitable that transactions will take place with
            organisations in which a member of the board of governors may have an interest. All transactions involving
            organisation in which a member of the board of governors may have an interest are conducted at arm's length
            and in accordance with the College's financial regulations and normal procurement procedures.
            No transaction were identified which should be disclosed under Financial Reporting Standard 8, Related
            Party Disclosures.

            31 Learner Support Funds

                                                                                                                2004            2003
                                                                                                               £000s           £000s

            Learning and Skills Council grants                                                                   415             217
            Interest earned                                                                                        4               3

                                                                                                                 419             220

            Disbursed to Students                                                                               (398)           (202)
            Audit fees                                                                                           (21)            (11)

            Balance unspent at 31 July                                                                                -            7

            Learning and Skills Council grants are available solely for students; the college acts only as a paying
            agent. The grants and related disbursements are therefore excluded from the Income and
            Expenditure Account.




                                                                            Page 30

				
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