MSPs heard that the threatened claw-back of money by the Scottish Funding Council could have a serious impact on Stow College in Glasgow.
As revealed in The Herald this week the SFC has accused the college of taking millions of pounds for courses that it paid a private firm to deliver at a fraction of the cost.
Robert Black, the Auditor General for Scotland, told members of Holyrood's audit committee yesterday that the SFC wanted a "substantial claw-back" of public funds which could have a "significant impact" on Stow College's finances.
In the most recent year for which accounts are available, 2007-08 an auditor's reports showed the college receiving almost £1m for courses it paid a private contractor less than a quarter of that to provide.
At the heart of the affair was a deal with construction industry training specialists Sibbald, which was inherited by Stow from West Lothian College. The committee heard that for several years there were no formal contracts either with Sibbald or another provider of Chinese language courses.
SNP MSP Andrew Welsh criticised this is a "slipshod approach" while Labour's Hugh Henry was critical of the "cosy relationship" which saw a Sibbald representative on the college's board when the work was being awarded to the company.
Although this interest was declared and taken into account, this was said by Mr Black to fail to "measure up to standards of governance" expected.
The Auditor General's report stated: "The college's board of management secured legal advice prior to finalising the college's accounts and is of the opinion that the college has taken a fair and reasonable approach to the funding claims related to the two programmes.
"We understand that discussions will continue between SFC and the college on both the potential claw-back and on future funding. However, because the sums involved may be significant, there remains a possibility that the outcome could have a significant impact on the college's financial position. I have asked the college's auditor to continue to monitor the situation."
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