Margaret Hodge, chair of the House of Commons education and employment select committee, said the figures were “appalling” and said she wanted the Further Education Funding Council to come clean about where cash had gone.

Accounts released in the council’s annual report reveal:

* #163;845,000 was spent subsidising basic leisure courses in underwater diving - payments later banned in a ruling earlier this year.

* One, unnamed, college spent up to #163;335,000 between 1992 and 1995 which “may have been lost on a business venture from which there was no benefit to the students of the college”. Accounts from the college remain outstanding.

* Another unnamed college spent #163;440,000 on “education and training which may not be eligible for council funding”. Its accounts are also still not available.

Accounts all relate to the 1995-96 college year, but have only just been made public by the FEFC.

Mrs Hodge, Labour MP for Dagenham and Barking, whose committee is currently investigating FE finances, said: “There are issues here which cause concern. We would like to know more about the business venture which cost the tax-payer a cool #163;335,000.

“We need to know where the #163;440,000 went which was not eligible for council funding.

“And we want to know why it took them so long - and almost #163;1 million - to realise funding for diving was illegal.

“Clearly questions need to be asked about where the money went and whether controls were sufficient. ”

The revelation that nearly #163;1 million was spent on diving courses will re-open the debate about controls on college courses run under franchise with private companies - a key area for the select committee investigation.

Funding for diving courses was finally banned earlier this year when lawyers ruled that they were essentially for pleasure and offered no direct route into work.

The law only permits public money to subsidise vocational courses, or those which could lead on to more training or employment.

Diving courses have become a cause clbre among critics of franchise deals who argue that they typify the uncontrolled expansion of colleges during the early 1990s.

Don Foster, education spokesman for the Liberal Democrats, reacted angrily to the “waste of public money” and contradictory messages coming from the inspectors and auditors. “If you have a college that has a good inspection report but has to pay back more than #163;300,000 it does not make sense. You are damaging the education that the college can provide.

“It is outrageous too that colleges can have audits outstanding which date back to July 1994.”

The FEFC commented that it would be unreasonable to demand the cash back given in good faith. A spokesman for the FEFC said: “The council does not intend to recover any funds provided to colleges prior to the receipt of legal advice.

The council believes the DFEE will endorse this view.”

* FEFC accounts also reveal that the council may have exceeded its powers in paying out #163;378,000 for sixth-form courses in schools. Negotiations have begun with officials at the Department for Education and Employment to clarify the situation.