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22 June 2017, 09:26 | Updated: 22 June 2017, 09:29
Student numbers at Scotland's colleges have fallen to the lowest level for almost a decade.
Audit Scotland's annual review of the sector found there were 220,680 students by headcount in 2015/16, the smallest number since 2006/07.
Part-time students fell by 8% from 2014/15, to 151,498 in 2015/16 while full-time students were down 1% over the same period to 77,332.
As overall demand for college places is still not recorded at national level, it is not possible to say whether this decrease is due to a fall in demand.
The review also found that while the financial health of colleges remains "relatively stable'', it has deteriorated since 2014/15.
Government funding will increase between 2015/16 and 2017/18, but most of this relates to a capital project at Forth Valley, with the sector still facing several financial challenges, the report states.
Colleges Scotland has estimated that implementing national bargaining, to harmonise pay and conditions for all college employees, could cost about £80 million over three years.
Potential difficulties from falling student numbers coupled with financial challenges mean there is a "growing risk'' to colleges' ability to deliver on key Scottish Government aims for sector, the Auditor General said.
Since 2012/13, the government has set a national target for the colleges to deliver a specific volume of learning.
Despite the fall in students, the sector exceeded the target in 2015/16, with 1,752,536 credits achieved against a target of 1,689,431, but performance has declined since 2013/14.
Demographic changes - such as a decline in 16 to 19-year-olds - are also expected to make it harder for the sector to continue to meet the target in future years.
Auditor General Caroline Gardner said: "There is a growing risk to colleges' ability to keep delivering what the Scottish Government requires from the sector as a result of major financial challenges and a declining student population.
"Colleges need to plan ahead so their future budgets can withstand the impact of cost pressures.
"Demand for college courses and the effects of demographic shifts also need to be assessed so educational provision can be designed around these.''
A Scottish Government spokeswoman said: "This report highlights that Scotland's college sector is financially stable overall and that colleges continue to exceed their targets for student learning opportunities.
"It also identifies areas where improvements can be made.''
She said the government will work closely with the Scottish Funding Council and colleges to consider the report's findings.
Scottish Conservative education spokeswoman Liz Smith said: "These figures show fewer people are entering college than at any time since the nationalists came to power and they have to explain why they've let this happen.''
Ms Smith pointed to the decline in part-time students.
"These part-time courses are crucial to improving flexibility within the labour market and to enhancing opportunities for those who can find themselves further removed from that labour market,'' she said.
Larry Flanagan, general secretary of teaching union EIS, said: "The EIS is concerned with the continuing drop in student numbers which follows on from last year's similar decline - particularly in the number of part-time students.
"We are concerned that funding across the sector for the year 2017-18 will only increase by 1% after some exceptional capital funding at Forth Valley College is excluded.''
Full-time and part-time student numbers differ slightly from the overall headcount because part-time students can undertake multiple courses at one or more colleges.
Scottish Labour MSP Monica Lennon said: "This report highlights the mess SNP ministers have made of pay deals for college lecturers and the huge cost it will take to settle the deal.
"The theme here is constant - further education simply needs more funding.''
Lib Dem MSP Tavish Scott said: "The Scottish Government's narrow, short-term focus has slashed opportunities for lifelong and part-time learning, depriving many of the chance to gain the new skills they and our businesses need.
"This report rightly calls into question the sustainability of this approach.''
Audit Scotland's figures are not based on student headcount for all colleges.
Recent changes have been made to how full-time equivalents (FTE) are calculated, which could have had an impact on the figures.
A Scottish Government spokeswoman added that if revenue for college NPD capital projects was included in the report it would show funding has increased by 8% (£47.5 million) in real terms from 2015/16 to 2017/18.