The National Audit Office is to recommend that Parliament receives a full account of why Bilston Community College was closed in 1999, and whether there had been a waste of public money.

This week the Learning and Skills Council met officials from the audit office and the Department for Education and Skills. Legal advisers were also present. Discussion centred on whether the LSC intended to sue any individuals or parties to recover public funds.

Last year David Melville, chief executive of the LSC’s predecessor, the Further Education Funding Council, told MPs that a decision on whether to proceed with legal action would be taken by this March. Since then nothing has happened. The LSC took over the powers and responsibilities of the FEFC and has prevaricated for months over whether to sue auditors who handled the former college’s accounts. Eventually, any decision to sue will have to be sanctioned by ministers.

The college was closed in 1999 and merged with Wulfrun to form Wolverhampton College. Supporters of the former college say that closing Bilston has cost the taxpayers millions of pounds and it would have been cheaper to save it. Some 365 staff lost their jobs.

Final accounts published in October show a deficit of almost pound;34 million. But this includes pound;21.5m for courses approved by the then college’s auditors Deloitte amp; Touche, but later deemed ineligible for funding and removed from the accounts. The auditors have always refused to comment.

Accountants HLB Kidsons, who produced the latest accounts, said they could not “give an opinion” as to whether the financial statements gave a true and fair state of affairs, when it folded. For two-and-a-half years any civil action that might have been taken was stymied by a police inquiry into possible fraud.

In August the West Midlands police major fraud unit completed its investigation and said “no evidence was found to suggest that any of the activities of the college were of a criminal nature”.

Much of the debate over Bilston concerns claims that the FEFC changed its rules over what courses could be claimed for eligible funding. In May 1998, Geoff Hall, then director of funding and strategy with the FEFC, wrote to Deloitte and Touche “in strictest confidence” challenging the auditors’ assertion that the council had “changed the rules” over eligibility. Mr Hall was responding to the firm’s draft audit report.

He wrote to the accountants and suggested they might want to withdraw their letter referring to the audit: “The confidence which the council places on college external auditors and their ability to undertake independent work in exceptional circumstances is now placed in question. To guarantee the independence of the findings, unless I receive a satisfactory response from you, the council will have no alternative but to commission another firm to undertake an independent review of the issues raised.....

“You should be aware that the council has not previously felt the need to write to one of the leading firms in these terms.”

This week a spokeswoman for the LSC said they had sought the best legal advice on the possibility of recovering funds through the civil courts. Talks were taking place with other agencies on the best way to proceed.

TIMETABLE OF TROUBLES

1984: Bilston Community College established. Approximately 5,000 students.

1996: now 47,500 students, pound;23m budget. Much growth achieved by franchising with other organisations.

1997: Government refuses to meet costs of college expansion. Huge budget cuts for Bilston and other colleges.

1998: college restructured. Funding council starts to examine funding returns.

April 1998: auditors say funding council “changed the rules”.

May 1998: FEFC questions the independence of the auditors.

June 1998: financial crisis.

Recovery Plan January 1999: large-scale redundancies.

February 1999 : governors invited to consider their position.

April 1999: ministers say governors replaced. Wulfrun to take over Bilston.

August 2001: police find no evidence of fraud.

Today: no decision yet on any civil offence charges.