Dame Jean Else was officially dismissed from Whalley Range high school for girls in Manchester this week, following a two-year investigation into her leadership.

She had been suspended in November 2004 after concerns about financial irregularities at the school, which she helped transform from a struggling secondary into one of the best in the area.

In a damning 12-page report last October, the Audit Commission said that a series of “substantial” payments had been made to staff, contracts were signed with a consultant who was a close friend of the head and parties were thrown at “excessive” expense.

It said Dame Jean’s headship had been tainted by “nepotism”, accusing her of promoting her twin sister from a part-time clerical assistant to assistant head on pay of pound;79,003 in just a few years.

Dame Jean’s own pay, a basic salary of pound;76,000 that was almost doubled with outside work for Manchester City Council and the Government between 2002 and 2004, also came under scrutiny.

The council dismissed the head, who was made a dame in 2001 for her services to education, following the publication of the report and this week a spokeswoman confirmed that she had lost her appeal against the sacking.

A panel of senior councillors notified her of the decision on Monday.

Following publication of the report last year, Dame Jean said that she was the victim of a witch-hunt: “There were all sorts of allegations and very few of them have been proven. They say they have found some faults but if you spend three years raking over an organisation you are going to find something.”

This week, she said she would take the council to an employment tribunal.

She told the Manchester Evening News: “I don’t think I could possibly have had more muck thrown at me. Everything to do with this process has been unfair.”