The case will be anxiously watched by colleges which support schemes like that at Centrex, the motor industry training group where two arrests were made last month.

While no charges have been made, the company has started disciplinary proceedings against William Eastland, a contracts manager, and Kevin Smith, a national vocational qualifications assessor sub-contracted to Centrex. Geoff Marshment, chief operating officer at the company’s Telford office was suspended pending further inquiries.

The investigation is confined to accreditation of prior learning where credit is given for trainees’ earlier achievements to avoid repetitive study. It is alleged that insufficient documentation was available to support the awards.

Critics of NVQs have repeatedly made fraud allegations relating to APL, insisting that tutors cut corners, under the pressure of the Government’s payment by results schemes. So far, such claims have not withstood National Council for Vocational Qualifications analysis.

Colleges are widely involved in franchising APL operations for industry. While few allegations of fraud have been made, there has been concern over the use of public cash for private training.

Independently of the Centrex scandal, the Further Education Funding Council said last month it intended to tighten up on payments in a planned crackdown on cash for job-related qualifications. Fixed tariffs will be imposed in line with the amount of teaching and off-the-job training given.

Colleges were deeply divided over the proposals. Some managers insisted the sector should have seen the changes coming. Others are angry that funding changes are to be imposed retrospectively using a funding system which they say is too simplistic.

Ken Ruddiman, principal of Sheffield College, stepped up the attack on the FEFC guidelines this week in the letters pages of The TES. They were “unreasonable, unfair and unacceptable”, he said.

“Changes in guidelines during the year are bad enough but to make such guidelines retrospective cannot be justified on any grounds.” Agreement with the external auditors on the appropriate tariffs had not been reached, he said.

Many principals see the Centrex case as underlining the need for far more rigorous scrutiny of the evidence of prior learning or training claimed. One said: “I would argue, regardless of the final outcome of the investigations, that we do need tariffs from the FEFC which clearly set out what we are entitled to for teaching and for assessment.”

He insisted that if colleges had done their sums properly in the first place, they would have nothing to fear from retrospective guidelines.