New governors of a college at the centre of a police fraud inquiry are investigating how far they are liable for its current deficit amid fears that further debts could put its future in doubt.
The governing body of Hereward College, Coventry, newly-appointed after all but one of the previous governors resigned, has asked Coopers and Lybrand, the college's internal auditors, to examine how the Pounds 1.2 million deficit built up.
Members also want to establish what liabilities they are taking on as a result of Hereward's connection with Empathy Ltd, a company with charitable status whose bids for European Union cash are being investigated by West Midlands fraud squad.
The new board is chaired by Michael Shattock, the Warwick University registrar who conducted an inquiry into mismanagement at Derby Tertiary College, Wilmorton, a year ago.
Mr Shattock told The TES: "We have inherited a very significant deficit and if there are grounds for thinking that debt might increase that might have very severe implications for the future of the college."
He pledged to work to "restore the college's fortunes" with the help of acting principal Catherine Cole, who was appointed early this year after principal Rees Williams took long-term sick leave. Mr Williams, who was also a senior director of Empathy, retired early on health grounds in the summer.
The Hereward case raises afresh the question of liability of governors for an individual college's financial problems. The issue, which prompted calls for clarification at last week's public hearings of the Nolan Committee, is still untested and remains a legal grey area.
West Midlands Police fraud squad was called in two months ago by the London office of the European Social Fund, backed by the college, to investigate alleged fraudulent bids for cash for courses in London and South Wales.
The social fund finances 45 per cent of each accepted bid on condition applicants secure the remaining cash from a public- sector body. Detectives are examining whether Empathy, which named Hereward College as its backer, ever put the promised 55 per cent into its projects. If not, the social fund could potentially demand repayment of its grants - one of the issues concerning the college governors.
In a Further Education Funding Council inspection Hereward management was awarded a grade five - the lowest possible grading which had never previously been issued.
Mr Shattock's appointment has been approved by Education and Employment Secretary Gillian Shephard. Mr Shattock said the new board would "put the student interest first as well as trying to find ways of clearing up the mess". He added academic standards had not slipped. Hereward faces a further FEFC inspection next March.