Cases reported to the official FEFC working group on franchising - schemes where one organisation is paid to run courses on behalf of another - include schools involved making multiple claims for cash. One school is said to be running courses for three colleges, using the same students and therefore getting triple payments.

Similar scams by private training providers have been reported and some colleges are alleged to be claiming cash for courses which they do not run. Such allegations, even if they prove unfounded, are damaging to the image of colleges and come at a sensitive time when former Employment Secretary, Michael Portillo had been questioning whether colleges should have any part in running training for industry. One departmental source told The TES: “People close to Michael Portillo are asking why colleges should act as middlemen and skim off some of the money.”

Franchising can generate huge amounts of extra cash. Some colleges stand to see their annual income rise by up to Pounds 3 million. Halton College in Widnes, Cheshire, is set to get a 33 per cent rise in FEFC support to Pounds 10.5m. Part of its highly ambitious package is training for 9,000 Tesco staff. Geoff Hall, director of education for the FEFC, denied recent press reports that the FEFC was “investigating” the activities of the college. “They had their own external auditors in to look at their programmes and called us in to check whether it was all legitimate,” he said.

Colleges are throwing the net wide. For example, Cornwall College (not under investigation) is franchising into schools in Newcastle upon Tyne. Bids for extra cash from the FEFC this year added up to 24 per cent of the Pounds 3 billion budget while only 6 per cent was available. The bulk of the requests were to fund franchised courses.

Mr Hall told The TES: “Much of this work is so new, we have to revise our advice and guidance to colleges.”

A working group will now look in detail at the different schemes and issue the guidance this autumn. If any schemes were found wanting the council would have to think again about the money it was giving, he added. Colleges have a wide range of skills in helping firms convert home-grown courses into nationally recognised qualifications, Mr Hall said. But this all raises questions of what should be paid for and at what rate . . . To what extent should public funds subsidise private training?

There is inevitable nervousness in the council since police were called in to investigate claims that Pounds 1 million from Bournville College in Birmingham had been spent on non-existent franchised FE courses.