Police have arrested three people in connection to an alleged fraud at the Glendene Arts Academy in Durham, it has emerged.

The arrests come after a Department for Education investigation found evidence of serious financial irregularities in the running of the special school.

The report by the Education Funding Agency was released in February. It found that £162,000 of taxpayers’ cash had allegedly been misspent and ordered the school to repay it.

According to Durham Police, a 57-year-old man and his 56-year-old wife were arrested in Whitley Bay while a 41-year-old man was held in Darlington.

All three were detained on suspicion of conspiracy to commit fraud and are in custody at Peterlee police station.

Glendene Arts Academy converted to academy status in September 2012 and caters for pupils aged two to 19 who have mild, severe and profound learning difficulties, autism and sensory difficulties.

The investigation was triggered after a whistle-blower made claims around academy money being used to pay the costs of a private company.

The problems hitting Glendene are the latest in a line of investigations into free schools and academies. Police in West Yorkshire are looking into claims of alleged fraud at the King Science Academy in Bradford. The school’s founding principal Sajid Raza was arrested and later released on bail in connection with the probe.

And just last year, the academy chain E-Act, which at the time was one of the biggest sponsors in the country, was investigated amid claims of financial irregularities and mismanagement. The provider was heavily criticised for spending taxpayers’ money on a “culture of extravagant expenses” and “prestige venues”.

In a statement issued when the EFA report into Glendene was published in February, the DfE said: “The DfE launched an investigation into Glendene Arts academy last year. This found there had been serious mismanagement of funds.

“The EFA is recovering the misappropriated funds from Glendene Arts Academy. The first recovery was made in January 2014 and the remainder will be recovered by April. The police have now started an investigation so it would be inappropriate to comment further.”