NAO: franchised HE fraud ‘potentially linked to organised crime’

Franchised higher education provision in England accounts for 53 per cent of the £4.1 million of fraud detected by the Student Loans Company (SLC) last year, with some cases “potentially associated with organised crime”, according to a report from the UK’s public spending watchdog that puts universities under intense spotlight on their partnerships.

The National Audit Office (NAO) published the results of an investigation into student finance at franchised higher education providers on 18 January, saying the Department for Education (DfE) and regulators need to step up oversight of franchising, in which a university subcontracts the delivery of a course to another provider.

The number of students enrolled at franchised providers more than doubled from 50,440 in 2018-19 to 108,600 in 2021-22, amounting to 4.7 per cent of the total student population, says the NAO report.

Franchised provision can be “financially beneficial to the lead provider” whose qualifications are being awarded, the NAO notes, with the Office for Students (OfS) telling the watchdog that “some lead providers retained between 12.5 per cent and 30 per cent of tuition fee payments”.

“We have seen that some providers use agents or offer financial incentives to recruit students, activities which government does not prohibit or regulate,” the NAO says.

It adds: “One scheme offered students rewards for referring other people to the provider, with no limit on the number of referrals…Students who sign up in response to incentives may be vulnerable to mis-sold loans, while also being potentially less likely to make repayments.”

The watchdog adds that, in 2022-23, 53 per cent of the value of the £4.1 million in fraud detected by the SLC was at franchised providers; yet students at franchised providers made up only 6.5 per cent of total SLC-funded students.

“In the first half of 2022, SLC’s data analysis detected instances of fraud, potentially associated with organised crime, involving franchised providers,” says the NAO.

SLC monitoring “identified links between patterns of applicants’ behaviour and information from banks and the police which SLC suspected indicated organised criminal activity to fraudulently obtain student funding”, including “applications from prospective students whose applications met student funding eligibility requirements but whose qualifications appeared not to meet the provider’s course admission criteria; whose applications were made through certain agents; or whose student loan applications appeared inconsistent with other personal details”.

The SLC notified the DfE and the OfS, and further SLC investigations “raised concerns across a total of 10 lead providers”.

“This led to SLC identifying and challenging 3,563 suspicious applications associated with £59.8 million of student funding, with 25 per cent of this money still withheld as at January 2023,” says the NAO.

“In May 2022 a lead provider disclosed to OfS, as required by its registration conditions, that it suspected widespread academic misconduct at one of its franchised providers and was undertaking investigations,” it continues. “Following investigation, the lead provider withdrew the majority of the then 1,389 students enrolled at the franchised provider. SLC has recovered £6.1 million in respect of the tuition funding provided to withdrawn students.”

The NAO also warns that there are “potentially fraudulent applications and opaque recruitment practices in this sector” and there is “insufficient evidence that students are attending and engaging with their courses”.

Among its recommendations in the report, the NAO says that “as a matter of urgency OfS and DfE should jointly reiterate to the higher education sector its role in preventing fraud and abuse, and particularly to lead providers that they bear direct responsibility for the governance and management practices of franchised providers”.

It also says the DfE should “take a systems-based approach to mapping out its, SLC’s and OfS’ formal responsibilities for protecting student loan funding from the risk of fraud and abuse, making any legislative changes as required”.

In July, the DfE told the OfS it wanted to “make clearer our expectations of providers in these arrangements and to ensure that the oversight of franchised provision by lead providers is robust and effective”, and it would “closely consider whether we should take action to impose additional controls, in particular regarding the delivery of franchised provision by organisations that are not directly regulated by any regulatory body”.

Meg Hillier, the Labour MP who chairs the Public Accounts Committee, said: “More and more higher education students are studying at franchised providers…but there have been disproportionate amounts of fraud and abuse across these providers.”

She added: “Recent fraud has exposed significant gaps, including no clear responsibility for fraud enforcement across controls designed to protect students and taxpayers’ interests, which have been exploited. The Department for Education must clarify and strengthen these controls and promote an anti-fraud culture across government.”

Robert Halfon, the higher education minister, said that while franchising “can be a good way to support more people from disadvantaged backgrounds into higher education”, there “is more to do to strengthen oversight”.

“We will not hesitate to act if we see malpractice of any kind and we are working closely with the Office for Students and the Student Loans Company to ensure we can identify and prevent any abuses of public funds,” he said.

Chris Larmer, the Student Loans Company chief executive, said it was “essential” that higher education providers “meet their obligations under the wider regulatory regime, to ensure that student loan funding is protected and can be accessed as intended by regulation”.

john.morgan@timeshighereducation.com