Ministers want to give tough new powers to the Further Education Funding Council to intervene in failing colleges.
New laws will enable the council to appoint its own governors where there is evidence of fraud or incompetence. Tighter controls are planned to curb the number of colleges finding themselves in hot water financially.
The Government has already insisted that there has to be more accountability in colleges, and new rules saying that clerks have to be independent of the college come into effect in August.
The funding council is also planning to ensure that colleges can only franchise courses locally.
On Monday, MPs on the public accounts committee will look at the events surrounding Halton College, in Cheshire. A National Audit Office and FEFC inquiry last week found that weak financial controls allowed the principal, Martin Jenkins, and his deputy, Jenny Dolphin, to fund extravagant spending.
They were suspended on full pay last May, but resigned last week during a two-day disciplinary hearing, citing ill-health. Over the past year, Mr Jenkins was on a salary of pound;100,412 and Ms Dolphin on pound;80,410.
There was anger at the college, that the pair had been able to avoid disciplinary proceedings, at a time when the college is being forced to make one-third of its staff redundant. The two were charged with a number of disciplinary issues alleging gross misconduct, which they denied.
This week Peter Cavanagh, the acting principal, said: "The board is taking legal advice regarding the potential recovery of appropriate payments from both individuals."
Meanwhile the funding council is standing back, and waiting to see what happens at the PAC before it decides whether it should make further interventions at the college.