Over the past two years, subcontracting has become part and parcel of FE funding. More than 1,000 providers now receive government money indirectly, with lead contractors siphoning off a portion of the funding in administration fees.
But TES has learned that a dozen providers are to receive a ticking off from the Skills Funding Agency (SFA) for engaging in the controversial practice of "second-level subcontracting" - subcontracting from a subcontractor - without the agency's permission.
Earlier this month, the SFA warned providers that second-level subcontracting was only allowed "with express consent by the chief executive of (the) Skills Funding (Agency) and then only in exceptional circumstances".
Indeed, it confirmed that approval has been granted in only four cases so far in 2012-13.
But the SFA also told TES it was aware of 12 organisations "that are second-level subcontracting and have not requested permission to do so".
A spokeswoman confirmed that the SFA is "in the process of contacting those providers to request that they now formally seek that permission".
Since 2011, the SFA has limited direct funding to providers with contracts worth at least pound;500,000, forcing smaller providers to club together and resulting in a boom in subcontracting.
In 2011-12, a list of all subcontractors with contracts worth pound;100,000 or more revealed that pound;430 million was being disseminated through intermediate providers to others lower down the chain.
Last October, Ofsted claimed that some providers were taking as much as 35 per cent of funding in administration fees. In cases of second-level subcontracting, an ever higher percentage of skills funding is likely to be swallowed up.
Ofsted concluded that, while some subcontracting is legitimate in meeting the needs of employers or providing different expertise, "others clearly saw it as a way of generating income for doing little work".
Monitoring by lead providers was criticised as insufficiently rigorous and tending to focus on the audit paperwork rather than on quality assurance.
Matthew Coffey, director of learning and skills at Ofsted, said the practice had, in several cases, "diluted accountability and . placed a greater distance between the learner and those responsible for learning".
The SFA spokeswoman said it is not yet clear how much money has been channelled through second-level subcontracting.
"We expect all providers to comply with our funding rules and will take the appropriate action where providers do not to protect public funding in the interests of learners and employers," she added.