Troubled Barnfield College mistakenly let its former principal drive off with a £30,000 Audi due to a “misunderstanding” over his compromise agreement, it has emerged.

After Hertfordshire police today announced that it would not be investigating claims of financial mismanagement at the Luton college and the schools it operates, details of the official investigation have been published by the Department for Education.

A report by the Skills Funding Agency (SFA) found a lack of oversight by its governors and a lack of clarity around financial information had created risks around the college’s financial performance.

Earlier this month, it emerged that the college had claimed nearly £1 million in government cash for students that it could not account for.

A separate review of the Barnfield Federation - which also includes Moorlands Free School, the schools in the Barnfield Academy Trust and the Barnfield Skills Academy - by the Education Funding Agency also found evidence of “significant financial irregularity”.

The SFA report suggested that errors had led to former principal Sir Peter Birkett leaving the college with a larger settlement than he was contractually entitled to.

Despite the fact he had voluntarily resigned while “on the best of terms” with his colleagues, Sir Peter was given two unspecified lump sums of money and an extra month’s holiday pay.

He was also allowed to keep his company car in “recompense for not taking holidays in previous years”. However, a “misunderstanding” led to him being given an Audi Q5 which was less than two years old. This was worth “considerably more” than the three-year-old Jaguar that the college’s governors thought he had.

“Despite the governors being very concerned that the transfer of this much more expensive vehicle was not what they intended, they did not challenge the agreement,” the report said.

A letter to the federation by schools minister Lord Nash and skills minister Matthew Hancock said the investigations had identified “serious concerns about the federation as a whole”.

“These include the governance and leadership of the college - both directly and as a sponsor of the academies - the representation of the academies within the wider governance of the federation and the cost and value for money of shared services. It is clear that new leadership and governance are urgently needed at Barnfield.”

Dame Jackie Fisher, former principal of NCG (Newcastle College Group), has been appointed as interim chief executive of the federation.

Dame Jackie must “work with the college and the academy trusts to implement urgent steps to address the immediate weaknesses across both the college and the academy trusts,” the ministers wrote.

The letter added that the federation’s progress will be closely monitored and checked. If it is not adequate, further steps could be taken, including terminating academy funding agreements, which effectively closes a school, and placing the college into “administered college status”, which puts restrictions on how it operates.

In response, Dame Jackie said: “We are tackling the issues raised by the report with the single aim of ensuring that Barnfield is a strong, fit-for-purpose education provider that puts its students, parents and staff at the forefront of its thinking and actions. Our efforts over the next few months will be to identify and deliver the best possible shape and structure for the federation, the college and our academies.”