Fraud squad detectives have raided a Sunderland community college set up only last year in one of the town's most deprived inner-city estates.
A spokesman for Northumbria police said the raid on the Pennywell Community College and adjoining advice centre as well as several homes in the area was "as a result of several pieces of information received."
Three men have been arrested and are helping police with enquiries. Two are senior management officials at the community college. The spokesman said the police investigation would take some time to complete.
The arrests have shocked staff at the community college, which was opened last year by Prince Charles and aims to provide easily usable educational opportunities for local people.
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