Thomas Danby College in Leeds this week became the latest victim of charges of "inadequate" financial controls.

The further education college has just discovered a budget overspend "well in excess of Pounds 1 million", according to acting chief executive Colin Couble. The principal is to take early retirement at the end of the month.

Mr Couble said that the discovery came out of the blue and that the shortfall was the result of "a lack of control" and inadequate budgeting throughout the year. "It has made us realise how easy it is to get in to real difficulties," he said.

A survival plan was being discussed with the Further Education Funding Council which had been supportive, according to Mr Couble, although officers could not guarantee that the college had a future. Staff numbers were to be reduced through voluntary severance and early retirement and Mr Couble said he could not rule out compulsory redundancies later.

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He added that the college had suffered because it lacked the "appropriate management and systems" to control spending on staffing and equipment. Dozens of other colleges are in similar positions around the country and the sector is split over the cause.

Many principals blame the financial problems on college mismanagement rather than underfunding. In a THES poll of almost 10 per cent the sector's principals, almost three quarters of those contacted pointed to managers' inability to keep control of labour and other costs. "Those colleges managing to be successful at the moment are the ones who are obsessive about cost-cutting," said one principal who claimed to have the lowest proportion of labour costs to income in FE. The college has a Pounds 3 million surplus.

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Many principals were happy with annual 3 per cent efficiency gains. "Productivity gains are still possible and it is not unrealistic to expect colleges to produce even more qualified students," said one London principal. "Teachers have got to become more productive," was a repeated sentiment.

But not all respondents shared such views. One principal in the home counties said his college was regarded by the funding council as one of the healthy ones and yet he could not see any means of making the books balance in four years' time. He said: "I am facing the fact that we may have to close."

The Association for Colleges says that under present public expenditure forecasts colleges will not be able to maintain the level of output and quality required to meet national objectives. It is requesting an extra Pounds 80-90 million per year for continuing student growth of 3 per cent plus an increase of Pounds 40 million per year for capital investment. A further Pounds 50 million a year is needed to replace equipment and Pounds 60 million in a full year to meet pay costs.