The Education and Employment Secretary has refused to intervene in a row at Yorkshire Coast College, where union officials representing support staff claim they have no faith in a recovery plan designed to remedy a Pounds 2 million cash crisis.
Members of Unison, the public sector union, demanded that Mrs Shephard dismiss the 13-strong college board after the publication of a critical inspection report which identified significant weaknesses in governance.
But a written reply from under-secretary of state James Paice said that ministers felt sufficient action was already being taken to set the college back on track. It had implemented a recovery plan and appointed a new principal and chairman of governors.
The college's financial situation was being closely monitored by the Further Education Funding Council.
The response has not satisfied the union, which claims there is no guarantee that the recovery plan now being implemented with the loss of 27 jobs will be any more successful than an earlier plan launched last year, which was followed by 68 redundancies.
Unison regional officer Steve Hoyland said: "It is all very well for the FEFC to say now that the recovery plan is OK, but it still depends on the same governing body monitoring it and the same directors putting it into practice. "
A survey of all staff by Unison and the lecturers' union NATFHE found that 90 per cent had no confidence in their employers.
An FEFC inspection report published this summer called for a shake-up of the board, finding it had failed to take enough account of reports on finances, staff and student numbers.
Inspectors found that staff lacked confidence in the governing body, believing members did not fully understand their concerns, though there were signs of improvements in the board's operations.
The college received a grade four on a scale of five for its governance; its curriculum grades were the best in North and East Yorkshire.
Unison is also angry over secrecy surrounding the pay-off given to former principal Stan Dey, who officially stepped down in August after being absent for several months on sick leave.
The union alleges Mr Dey received between Pounds 70,000 and Pounds 100, 000, though the college insists the sum is lower. The college is obliged to reveal the figure in its annual accounts, but spokesman Mike Padgham said it would be made public earlier if all parties involved agreed.
A new principal - Michael Donaldson, currently at the RAF staff college - is due to join Yorkshire Coast before Christmas.
Mr Padgham said the recovery plan, which is intended to help the college break even by 1999, was on course. The college had made a surplus so far this year and enrolments were up on 1995.
During his time as principal, Mr Dey oversaw an expansion in staff to meet high projected enrolments, which never materialised. A small deficit inherited on incorporation had grown to over Pounds 2 million by July 1995.