Governors at a college under investigation for mismanagement withheld evidence from an official Government inquiry that they paid pound;12,000 in legal fees for the principal and his deputy.
The governors at Halton College, Cheshire, went against the advice of the Further Education Funding Council by failing to disclose payments when they went before the Public Accounts Committee.
David Blunkett, the Education and Employment Secretary, is under pressure from senior backbench MPs to crack down further on the powers of governors following the revelations to The TES this week.
The timing is bad for colleges, coming in the middle of a major review with ministerial pledges to reduce governors' powers. There will also be considerable reshaping of the post-16 sector after the Government's white paper now scheduled for June 29.
A year-long investigation by the FEFC and National Audit Office revealed a pound;6.4m overspend and excessive spending on foreign travel by the principal, Martin Jenkins, and his deputy, Jenny Dolphin.
Both had been suspended since May 1998, denying any wrongdoing, and resigned in April when investigation reports were published.
The question of probity, particularly over the sanctioning of legal costs, was central to the interrogation by the PAC.
Under questioning from Liverpool MP Maria Eagle, David Melville, chief executive of the FEFC, stressed that to his know-ledge no such payments were made and that their union (the Association of Principals of Colleges) had met all costs.
The disclosure of payments has infuriated Derek Twigg, the MP for Halton. "I am appalled. This should have been made clear to the PAC," he told The TES. "I am writing to David Blunkett for clarification that colleges be allowed to support defence funds for principals in trouble.
"It is one of the worse things that was done at the college - and it is worse still that it has only just come out," he said. And he expressed an even deeper concern over the responsibility of governors. "The governors are going but there is an issue over whether anyone wanted to come back who was signatory to that paper."
John Bolton, former principal of Blackburn College, was brought out of retirement by the FEFC to help to devise a new business strategy following the clawback of pound;6.4m.
He has refocused the work on local community provision rather than the larger initiatives, such as franchising training courses to industry, which were substantially blamed for the overspend.
"I have written to the PAC pointing out that the board sanctioned up to pound;12,000. At the same time we are attempting to recover the amount through the college insurers," he said.
Mr Bolton insisted that such issues had to be seen as "past problems, which have been dealt with. We are not a Bilston or a Wirral, we are not a failing college. The outlook is very positive."
A new board of eight governors has been appointed to take over in July. It was selected by a search committee including local councillors, the training and enterprise council chief executive, the FEFC regional director and Mr Bolton.
Following 170 redundancies - all but one voluntary - in a very hostile atmosphere, unions and management this week jointly declared a "fresh start" for Halton.
A joint letter from NATFHE and Unison said: "John Bolton set out to be open and collaborative. What has been achieved in the past few weeks shows what can be done everywhere if education managers will work in active partnership with the employees."