The Scottish Executive believes it has been misled by the board and Ann Hill, its chief executive, and is hugely embarrassed at being drawn into its internal power struggles amid accusations about financial mismanagement.

A final blow was the revelation that the conference was likely to be sponsored by Brian Souter, engine of the Keep the Clause Campaign. Mr Souter has since withdrawn his offer.

An independent report into finances at the association, following disclosures in the Herald, states that it is “effectively finished” unless it apologises to ministers and mends bridges quickly.

Mrs Hill is now demanding a public apology from the news-

paper over its accusations.

Her association received a grant of pound;17,740 from the executive to wind up its ill-fated Furbie Foundation subsidiary, which offered refurbished computers to schools at knock-down prices.

The report - compiled by Ken Macleod, former director of education in Dumfries and Galloway, Fred Forrester, recently retired depute general secretary of the Educational Institute of Scotland, and Donald Urquhart, a policeman and former SSBA vice-president - advises that the Executive may try to retrieve some or all of its grant.

The authors say ministers have “taken a remarkably generous attitude to the SSBA over the years”.

A statement from the association this week said of the inquiry team: “We note that it is their view that they have found there to be no financial impropriety. Recommendations contained within the report will be remitted to the new executive board of the association for consideration and implementation as they find appropriate.”

The new executive board takes over following the association’s annual meeting in Glasgow next Saturday. Its first task will be to consider the recommendations of the inquiry. Mrs Hill was initially suspended then reinstatedbefore the inquiry reported, a decision criticised by Mr Macleod’s team.

It was alleged that she and her personal assistant were still receiving bonuses of more than pound;1,100 a month after the Furbie Foundation ceased trading and that a grant from the Executive to put the organisation on a sound footing should not have gone to pay the extra wages.

The inquiry concentrated on two key questions:

Did the chief executive pay her personal assistant and herself for the period from January to March at an enhanced level “for providing services which no longer exist”?

Was a larger than necessary grant sought and accepted from the Executive to subvent any unjustified payments to staff after January in breach of the conditions of the grant?

It found the organisation collectively negligent in not pursuing practices normally expected of a publicly funded agency. Administration was confused.

The report concludes: “The chief executive’s conduct could, at worst, be characterised as culpable negligence with highly mitigating circumstances or, possibly, as serious maladministration in which the executive board shared collective responsibility.

“Even this may be too harsh a judgment since this situation undoubtedly has its genesis in the origins, evolution and resultant culture of the SSBA. Basic good housekeeping has been persistently neglected in order to pursue more immediately attractive, high-profile causes.”

Mrs Hill should have “pursued more vigorously and more timeously” clarification of the salaries’ position. She manifested “a degree of naivety” in not asking for organisational safeguards.

The inquiry says the SSBA’s credibility and that of Mrs Hill “have been severely dented” and questions whether boards will continue to subscribe to an association that cannot keep its house in order. The new executive board should also take advice from an employment specialist “before contemplating any form of disciplinary action, however informal”.

The report also calls for a “root and branch review” of the association’s role and how best it can serve members.