At the centre of the scandal is former principal Andrew Stromberg, who resigned his Pounds 50,000-a-year post in July, three weeks after The TES began to reveal the litany of irregularities and failure to follow procedures at Derby College, Wilmorton. Professor Michael Shattock's report describes how a "small inner group" of governors backed Mr Stromberg, while the governing body as a whole failed to exercise control.
Stuart Webb, the millionaire chair of governors who resigned last week along with three other governors, is also heavily criticised. Although he did not break the law, the report says he should have declared a financial interest in an American-backed computer firm attempting to break into a lucrative new market before it sold Pounds 59,000 of computer equipment to Wilmorton. Mr Stromberg claimed in writing to the inquiry that Mr Webb offered the college a backdated letter which would have cleared him of the failure to disclose, something the chairman denies.
Relations with the 200 teaching staff deteriorated into strikes and "an explosion of discontent" as Mr Stromberg tried to force through a re-structuring plan in a way that was "confrontationalist and conspiratorial" and which disrupted teaching through early retirements. Stress levels were so high that the report said: "The mental state of some of the staff giving evidence to the inquiry was distressing."
The inquiry found inadequate financial control, failure to observe procedure, "and a determination of the governing body to stifle any questioning of executive decision-making". It concludes that although there was no fraud: "these are the conditions in which fraud and malpractice can flourish and no public body should allow them to develop."
Compiled over four months with evidence from 131 people, the report says governors "failed the basic test of acting in the public interest" and "failed to curb the impetuosity of the principal". In a "lamentable catalogue of incompetence", no governors' meeting since February had a quorum, members were taken on unconstitutionally; the only two governors who regularly objected to decisions were ousted in a "carefully pre-planned" weekend meeting. The treatment of one, staff member and union leader Brian Bonsall "offended the rules of natural justice" as he was deemed unfit to serve by the meeting but not given a chance to defend himself.
Twelve Government circulars intended for governors were not given out. The clerk to the governors, Roland Hill (the business and personal partner of another governor, Sandra Brookes), was "not competent to do the job": minutes of five meetings as far back as May requested by the inquiry were still not available in mid-July. Governor Steve Chittenden, Mr Webb's libel lawyer, failed to declare an interest when his law partnership was chosen as the college's solicitors. He was also made chairman of the audit committee, a post which should be independent, according to Further Education Funding Council rules.
In 16 months, nine governors were improperly paid Pounds 16,760.88 in allowances, including Pounds 7,266.50 to Mr Webb. If the report is accepted by the Government that money will be returned apart from travel and other reasonable expenses. Governors were paid Pounds 67 each per meeting, a lot of money to re-imburse travelling expenses since most of them live in Derby.
Mr Webb, who runs Lonsdale Travel (in which the late Robert Maxwell was a director), has claimed his allowance paid for a college scholarship for Far East students. But the candidate, nominated by Mr Webb rather than the college, was a 24-year-old sales co-ordinator for a travel firm in Sarawak, Malaysia. A letter from her firm to Lonsdale says she was unaware of the details of the course or the expenses involved. The report says the bursary "appears to be the adjunct to a business relationship".
Also criticised was Mr Webb's involvement in Systems Integrated Research (SIR), an American-backed computer hardware firm which had begun a take-over of Global Learning Systems, a software company of which Mr Webb was a director. Mr Webb only declared his SIR interest after the college made three orders for equipment, two approved by Andrew Stromberg outside his powers. Although Mr Webb admits suggesting SIR as one of three firms the college might want to deal with, he says he took no part in negotiations. But a letter from SIR's director Mark Lewis to Mr Stromberg about viewing hardware six weeks before the orders was copied to Mr Webb. He must have known, the inquiry concludes, about the relationship between SIR and the college. The day before Mr Lewis' letter, Mr Webb donated software to the college valued at Pounds 10,000 which can run on SIR machines although 15 months later it remained unused.
In March, Alan Wood, a former business partner of Mr Webb, was allowed by Mr Stromberg without reference to the board or its chairman, to set up a computer company in the college called E-disk, displacing irate language staff from a specially equipped room. The idea was to share software development with the college, but only E-disk material has been produced. Calling for the arrangement to end, the report calls it "at best, negligent".