A deal to harmonise staff pay at a cost of £50m a year will absorb projected savings from the reform of Scotland's colleges, says the Auditor General.
Caroline Gardner's annual report on colleges says the sector reported a very small surplus in its underlying financial position in 2016/17, compared to the previous year's £8m deficit.
But the upturn masks wide variations between institutions, with several colleges facing significant financial challenges.
The report notes that:
- The sector estimates harmonisation of pay and conditions could add £50m a year to staff costs - absorbing projected savings from college reform;
- The college estate needs urgent and significant investment, with the sector facing an estimated £360m repairs bill;
- Differences in how colleges prepare their six-year financial forecasts mean they are neither comparable nor provide a reliable picture of the sector's sustainability;
- The sector exceeded its learning targets, delivering a greater proportion of credits to deprived, ethnic minority, disabled and care-experienced students;
- The attainment gap between students from well-off and poorer areas is widening.
The overview shows student numbers have increased by around four per cent as result of a jump in part-time learners and those under 16-years-old.
Good progress has been made in attracting female students to engineering courses, but key courses still have significant gender imbalances.
Varying degrees of success have also been achieved by the sector's three regional strategic bodies (RSBs), which were set up to make the sector more efficient.
In the Highlands and Islands, colleges are working in an increasingly joined up way. Longer-term leadership stability is required to increase the effectiveness of Glasgow's regional board. But the regional arrangement in Lanarkshire is not delivering any significant benefits.
Ms Gardner said:
"The performance of Scotland's colleges has improved, although like all public bodies they continue to operate in a very challenging financial environment.
"Several factors pose a risk to colleges' financial sustainability, including the prospect of a bigger wage bill for support staff and the cost of maintaining buildings.
"There now needs to be clarity about how capital spend will be prioritised across the sector, and colleges need to work with the Scottish Funding Council to improve financial forecasting."