Training companies fear tough new controls in the wake of the fraud investigation surrounding the Central England Training and Enterprise Council (CENTEC).
They urged the Government to create an "OFTEC" watchdog to monitor training and enterprise councils, as well as reviewing the funding formulas in post-16 vocational training to guard against possible abuses.
The TEC National Council and the Department for Education and Employment have already set up a body to scrutinise training providers. The Training Standards Council, whose membership was announced this week, will begin work from April next year.
Anne Weinstock, chief executive of training firm Rathbone CI and a member of Manchester TEC, said she feared the changes would lead to "unacceptable" levels of scrutiny. "Who is going to monitor the TECs. We already have quality assurance systems and I do not want the TECs coming to inspect us even more.
"Our staff will end up spending more time being inspected than providing training, which will lead to standards being eroded." She said she also feared that the TECs would employ more staff to audit, so reducing funding for training.
Karl Chapman, chief executive of the CRT Group, which includes Link Training who have a small contract with CENTEC, said: "We deal with more than 70 TECs and believe the existing funding formulas are bureaucratic - it is not surprising that discrepancies occur. Some of it must be human error because of the complexities.
"Instead of funding institutions, we should be funding the student. We would be competing for students, but on a level playing field which would not be open to abuse. It would also raise standards because poor providers would be forced out of business."
However, David Cragg, chief executive of Birmingham TEC, warned that the Government's New Deal for young people could be blighted unless training providers were better supervised.
He suggested that programmes should include more formal training, as part of a stronger system of checks.
Mr Cragg added: "With the New Deal coming around the corner the crucial message to all of usis to link training to qualifications. Ministers must look at this very carefully. If employers are just encouraged to take a young person for Pounds 60-a-week we will have the same issues coming up again. The temptations are clear if providers are being paid too much for placement in a job."