Geoff Russell, the council’s chief executive, said in Making Skills Matter, published this week, that the number of referrals to the LSC’s internal audit investigations unit had increased by more than a fifth over the year. Over the last two years, the rise was 115 per cent.

Mr Russell said: “The risks in this area are likely to increase in the forthcoming period of change and with the current economic situation. I am taking a personal interest in this and receive a monthly report.”

The high number of referrals was putting the unit under increased pressure to deal with allegations and investigations quickly, he said.

One investigation, relating to 2006-07, has led to five people being charged with a range of offences from corruption to money laundering and obtaining pecuniary advantage through deception.

The LSC said a total of pound;2.5 million was “at risk” in the case and it has been handed to the Serious Fraud Office. The five individuals, three men and two women, are expected to make their pleas at Birmingham Crown Court in October.

Mr Russell said there was a “significant reputation risk” to the funding body as a result of this case.

These latest revelations follow an earlier warning at a meeting of the LSC national council that fraud was a serious potential risk, and in a circular issued to all colleges and training providers.

The council said that isolated incidents of Train to Gain providers paying cash incentives to employers to sign up learners were not acceptable. Risks of financial irregularity in Train to Gain have created particular concern as colleges and training providers face budget cuts for the scheme, which has been overspent by pound;50m this year.

The LSC usually carries out six to 10 fraud investigations a year, with up to pound;10m at risk, which it notes is only 0.1 per cent of its budget.