An independent report criticises the funding council's handling of London Metropolitan University's financial turmoil but concludes that the university was ultimately responsible for the errors in its student-data returns.
The Higher Education Funding Council for England commissioned the "lessons-learnt" review from accountancy firm KPMG after uncovering serious inaccuracies in London Met's reported student non-completions between 2005-06 and 2007-08. It said they were running at about 3 per cent when in fact the figure was about 30 per cent.
The discovery led to Hefce clawing back £36.5 million paid to the university during the period. A further £15 million has been held back in recurrent teaching funding.
London Met has admitted that it included students who did not meet Hefce's definition of completion in its data returns, but said it did so with the funding body's approval. Hefce denies this.
Noting the dispute, KPMG's report states that Hefce "must be clear and unequivocal" in all future communication with universities.
Nevertheless, "the responsibility for the accuracy of data returns and ensuring that weaknesses in data are identified and rectified ... lies with the institution", the report says.
London Met has also complained that Hefce did not raise concerns over non-completions until 2007.
KPMG's review - which was made public last week - confirms that Hefce's audits in 2004 and 2005 did not "explicitly" identify non-completion problems.
If the funder's auditors had extended their testing, "it is possible that the large scale of the non-completion issues may have been more clearly identified and pursued", it says.
But the audits did identify that "data was not of a satisfactory quality over an extended period", it adds.
"Hefce therefore persisted with its inquiries until the point it proved necessary to carry out ... detailed work directly at the university," the report says.
KPMG adds that Hefce has "not fully explained" why it has chosen not to reopen London Met's data returns from 2003-04 and 2004-05.
This "may be difficult to justify when the outcome may have been a substantially higher clawback", it states.
Hefce said that after taking account of London Met's circumstances and the interests of its students, it had decided not to revisit the earlier returns.
This week, the funding council said it would write to universities to inform them that it is accelerating its audit cycle: it is currently in the second year of a cycle that was due to conclude in 2013, but this has now been brought forward to 2010.
Hefce has also said that in 2008, it encouraged London Met to produce a new corporate strategy so it could bid for cash from the funding body's Strategic Development Fund.
The university did so, but Hefce judged its plan to be inadequate and provided £183,000 for a new "strategic programmes office" to help improve it.
However, as yet London Met has not submitted a revised bid for the cash. A university spokeswoman said that it was likely a bid would be made later this year.
The institution is also organising an alternative review of the crisis. The spokeswoman said: "The university has invited Sir David Melville (former vice-chancellor of the University of Kent), assisted by Deloitte, to conduct what our board of governors regard as the first truly independent review of the events leading to the clawback."
Meanwhile, the University and College Union has queried whether the dozens of compulsory redundancies proposed by London Met managers in the wake of the clawback are still going ahead.
It said that only one UCU member had so far been notified of compulsory redundancy.
The spokeswoman said: "Approximately 53 full-time equivalent posts are scheduled for compulsory redundancy this summer."