Three governors left Derby Tertiary college, Wilmorton, last week and one more resigned this week, after a “cocktail of disorder” was revealed in a report for the Further Education Funding Council (FEFC). More than 9,000 college governors have been told the dismissals are a warning to ensure their own colleges are in order.

The FEFC’s chief executive Sir William Stubbs claimed the errors at Wilmorton and St Philip’s VI Form College, Birmingham, were isolated examples and the recommendation to Education Secretary Gillian Shephard for governors’ dismissal showed that there was accountability in the sector.

But remaining and former Wilmorton governors backed fears of lecturers’ union NATFHE that problems of financial management are widespread in the 467 newly independent colleges. Labour has called for parliamentary answers on the extent of the problem.

The Colleges’ Employers’ Forum says its new guidance to governors will be extended in the light of the Wilmorton report, which found “conditions in which fraud and malpractice can flourish”.

CEF chief executive Roger Ward believes college governors should be paid to bring them into line with other quango members, despite nine Derby governors being told they should return Pounds 16,000 in improperly-paid allowances.

Professor Michael Shattock, the registrar of Warwick University who led the Derby inquiry, said particular attention should be paid to rules on conflict of interest of governors, after his finding that two Wilmorton governors failed to disclose business links properly. Quoting a House of Commons’ public accounts committee report on standards in public life, Professor Shattock said any “actual, potential, perceived or perceivable conflicts of interest” should be stated when employing staff, consultants or making contracts.

Sir William Stubbs denied the new FE system, made independent last year, was unaccountable. He said: “Here you have the ultimate accountability. Wilmorton governors were given public duty and were found wanting.

Dan Taubman, NATFHE assistant secretary for FE, believes that local authority and community representation on boards should be increased to boost accountability. He said: “At the moment the so-called independent governors are in the majority. They are not overtly politically appointed as in the NHS, but there are questions about how independent they really are.”

Governors have been given two weeks to comment to Mrs Shephard before she decides whether to use her powers to dismiss them. Barbara Summers, Wilmorton’s chair of governors since millionaire Stuart Webb resigned two weeks ago, said she would “wait to be sacked”. She added: “We haven’t done anything wrong. All our sins were sins of omission.” She blamed the Government for bringing independence to colleges too quickly and said other governing boards were having similar problems.

Brian Bonsall, the staff governor who exposed the mismanagement and was removed for “disloyalty” before being re-instated following the former principal’s departure, said he would be asking Mrs Shephard to keep him on the board until the college stabilised. “I’m concerned about the image projected to the public. It won’t encourage staff at other colleges who see wrong-doing to come forward.” He also criticised the cult of management which, he said, held that “the monopoly of truth lies with those in authority and no one listens to employees”.