Cash from the Further Education Funding Council is now being channelled to employers to pay for training they might otherwise have funded themselves, according to officials at training and enterprise councils.
The trend, which has allegedly emerged within the past few months, is the latest manifestation of franchising, the legitimate but controversial system by which colleges sub-contract courses to private or voluntary-sector providers.
For colleges, under pressure to increase student numbers to win funding, the practice means employees studying in the workplace can be added to college rolls.
But TECs, one of whose jobs is to get employers to organise - and pay for - staff training, are alarmed at the potential conflict with their own remit.
Richard Guy, chief executive of Manchester TEC, said concern was growing over suggestions that colleges were offering to fund employees' training.
He said: "We are talking about a grant scheme. This is not about delivering off-the-job training, which is no problem to the TECs at all. It is about the college deciding to draw down FE funds from the funding council in order to put an employer under a funding regime the TEC normally administers."
Rumours had reached the TEC of more than one college which was running apprenticeship schemes with employers and using full-time education funding to pay for it. Mr Guy said: "This is defining apprentices as full-time students in the college."
The chief executive of Tyneside TEC, Olivia Grant, says she has observed the trend in her own area, though the colleges involved are from further afield. Ms Grant said: "What companies are being offered is a deal to get some funding while the college gets its output of National Vocational Qualifications. But is this the best use of the money?" TECs and colleges must work closely if they are to help employers locally, she believes. "Covert deals which you only get to hear about behind the scenes where people are entering in for the purpose of getting additional resources don't necessarily mean you will get the right relationship at local level."
TECs' fears that funding links between colleges and employers are cutting across their own role highlight the sometimes uneasy relationship with colleges.
While colleges have expressed concern at TECs - the purchasers of education and training - seeking to provide services themselves, some TECs have seen the franchising of courses as trespass by colleges on their turf.
Franchising, a legitimate option for colleges since they left local authority control in 1993, can generate huge amounts of extra cash, with some colleges seeing their income rise by up to Pounds 3 million.
But the system is being examined by an official FEFC working group after allegations of fraud and other abuses of the practice.
Scams that have been reported to the group include schools making multiple claims for cash by running courses for as many as three colleges using the same students. Some private training providers are said to have been playing the same game, while a number of colleges have allegedly claimed payment for courses they did not run.
At Bournville College in Birmingham, management called in the police after discovering Pounds 140,000 had been paid out to four franchise providers for non-existent courses. The scandal prompted the FEFC's chief executive, Sir William Stubbs, to warn all colleges to be "extra cautious" when franchising courses to outside groups.
Neighbouring Handsworth College set up a "Community College Network", which funded community organisations to run courses in cities from London to Bradford and boosted rolls by 80 per cent. But the scheme met stern criticism for lack of quality control in an FEFC inspection report.
The FEFC stressed that much of franchising to companies was "perfectly OK", adding: "At what point should the public purse stop paying and the private sector start paying - that has always been an issue for further education. "
The FEFC working group report, due in the autumn, is intended to clarify guidelines on franchising.
Meanwhile, the TEC chiefs are hopeful of a resolution to the potential conflict over on-the-job employee training now employment and education have moved under the same umbrella.
Manchester's Richard Guy said: "Hopefully this kind of thing will be easier to deal with now. It has to be not beyond the wit of anybody to devise relations which make sense in both the training and education worlds."