Large numbers of further education colleges are having to give back money to their funding council this month because they failed to count their student numbers accurately.

The first full external audit of colleges' funding claims - based on student enrolments in 1993-94 - reveals that adjustments to payments had to be made in 167 colleges, more than a third of the sector.

The Further Education Funding Council reports that 71 colleges' audits gave "particular concern", including 13 with "significant data amendments".

In all 169 college audit reports were "qualified" for reasons given by the FEFC as including duplicated student enrolments, internal staff enrolled on courses, double counting of franchise students, inaccurate recording of withdrawals, errors in modes of attendance, and estimates rather than actual student numbers being used. In addition auditors encountered software problems and failure to retain adequate supporting documents such as register sheets.

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The audit findings will fuel concerns that a significant proportion of colleges in the further education sector lack the management skills to cope with their financial responsibilities. This is a view which emerged from a THES survey this week which found that almost three quarters of principals questioned believe "mismanagement" is largely to blame for rising numbers of colleges struggling with deficits.

Roger McClure, head of finance at the FEFC, said the financial position of the sector had deteriorated over the past year. But the equation was complex, he said, because there were as many colleges in deficit with above average funding levels as below.

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"Management is certainly a key issue but there is not a huge overlay of demand and so colleges are having to take very labour-intensive measures to bring people in to meet national expansion targets," Mr McClure said. At the same time average efficiency gains of 5 per cent a year were being made. Given these restraints, he said, the sector had performed well.