The governors of London Metropolitan University must take overall responsibility for the university's financial catastrophe, a review says.
Sir David Melville, the former vice-chancellor of the University of Kent, was asked to investigate how London Met came to overclaim millions of pounds in public funding, which it has been forced to hand back.
His review, which is due to be published this week, concludes that despite not being fully informed of the scale of the problems, the university's board of governors and audit committee were aware of the poor quality of the university's student data and high dropout rates, but failed to follow them up.
The review, commissioned by the university and obtained by Times Higher Education, follows an earlier report into the affair commissioned by the Higher Education Funding Council for England.
It emerged this week that Hefce has written to Peter Anwyl, the chair of governors, asking members of the governing body and senior staff to "consider their position" in light of Sir David's findings.
Sir David's report says that Brian Roper, the former vice-chancellor of London Met, who left in March but remains on the payroll until next month, presided over a dictatorial management regime.
It says he must take "the major responsibility and culpability" for the fact that the university has been forced to hand back £36.5 million overpaid to it by Hefce between 2005-06 and 2007-08. The university's recurrent grant has also been cut by £15 million.
Mr Roper and some members of the executive were fully aware that the university was applying its own definition of funding rules on student dropouts - rather than the funding council's - as far back as 2003, but took no action, it says.
The university's method resulted in a non-completion rate of 3 per cent compared with Hefce's 30 per cent figure.
Sir David acknowledges that Hefce's funding rule on completion was "controversial" and says there was "widespread belief" in the sector until 2004 that it was not literally applicable. However, the fact that Hefce was taking a literal approach to the rule in audits was apparent in the sector from 2004, leaving Mr Roper out of step.
There is clear email evidence that "third-tier officers" responsible for the area tried to warn the vice-chancellor and most members of the executive that, if Hefce applied its definition literally, the result would be "disastrous" for London Met. There is no record of a response.
Mr Roper has confirmed that he saw no reason for the university to change its practice because he firmly believed that Hefce was not applying its funding completion rule in a literal sense and that London Met's approach was therefore valid, Sir David's report says.
"It appears that he took it upon himself to make this decision, and it is clear that he was not challenged in this by his executive group colleagues," the report states.
Meanwhile, Mr Roper, the university secretary and members of the executive group failed to present clearly the risks to the board of governors or board committees, and the audit committee "appears to have failed to consider" the audit reports for Hefce's Higher Education Students Early Statistics Survey in 2003 and 2005 and other Hefce reports, the review finds.
Sir David writes that vice-chancellors "are often charismatic leaders, and the case of LMU is no exception", but says "it is incumbent upon boards of governors to provide sufficient and effective challenge". He concludes that in the case of London Met, "this challenge and supervision by the board of governors in general was inadequate".
Sir David adds that he has received more than 50 submissions from staff, most of which describe "a highly centralised and dictatorial executive led by the vice-chancellor." To see all executive members in the same light may "be unfair to particular individuals", Sir David acknowledges, but adds that they "share collective and in some cases line-management responsibility for the failings in relation to data quality".
Hefce might have discovered the problems at London Met earlier if it had been quicker to investigate in more detail the "lack of credibility" in student data identified during Hefce audits from 2003, while its initial lack of clarity on the funding rule "may have contributed to LMU's position", he says.
Sir David's report is coupled with an independent review carried out by Deloitte into the circumstances of Hefce's funding clawback, which is due to be finalised this week.
The university says the Deloitte report "is critical, and the board acknowledged those criticisms".
It says the points raised by Sir David's report "provide London Met with important lessons, which will also be discussed at length by the board of governors. All the recommendations will also be the subject of full response and proposed action."
FORMER CITY HEAD IS READY FOR THE CHALLENGE
The former head of City University London has taken on a role that has been described as the most challenging in higher education.
Malcolm Gillies, who resigned as head of City in July after disagreements over governance with the institution's council, has been appointed the new vice-chancellor of London Metropolitan University.
Professor Gillies, who still holds the post of professor of music at City, served as deputy vice-chancellor of the Australian National University from 2002 to 2006. He said: "I relish the opportunity to address the challenges the university faces going forward."
A survey of City's council members in 2008 notes that the council had "failed over the past year (to clarify) the relative responsibilities of the vice-chancellor and the council".
There needed to be more contact with the vice-chancellor to build a "more engaging relationship", the survey indicates.
Professor Gillies will take up the London Met post early in 2010.