Kingston and Portsmouth universities have confirmed that they are among the institutions that must repay part of their teaching grant to the Higher Education Funding Council for England after underreporting the number of students who failed to complete courses.
Kingston University may have to return £1 million after a routine audit by Hefce found a non-completion rate of 8.6 per cent, which the university had reported as 6.4 per cent.
Peter Scott, Kingston's vice-chancellor, said: "Like many other universities, Kingston has been underreporting 'non-completions', or rather reporting them on the wrong basis. Almost every other university that has been audited has had the same problem."
According to the Surrey Comet, Professor Scott warned Kingston's board of governors in September 2008 that Hefce might ask for a refund of £587,000 from 2007-08 and £518,000 from 2008-09.
Minutes of the governors' meeting noted that the Hefce audit had "uncovered some fundamental deficiencies within the university's data systems, particularly in the areas of reporting non-completions".
In his report to the board, Professor Scott blamed confusion over what constitutes "non-completion" as well as a failure to record student withdrawals promptly.
Hefce's guidance states: "A student who fails to complete (that is, undergo the final assessment of, or pass) any module within the year of instance is to be returned as a non-completion for all activity in that year."
Professor Scott said: "The university included students who took (and passed) resit examinations in September who should have been marked as 'non-completions' because they had not taken all their assignments at the first attempt. The audit confirmed that Kingston was not over-counting students.
"As a result of this adjustment, Kingston's grant from Hefce is likely to be reduced by approximately £500,000 in the current year, which is similar to the clawback from several other universities following Hefce audits.
"Successful recruitment and retention means that the university is now back within its Hefce contract range and will suffer no further losses. Kingston made a surplus of £8 million in the last year, and no jobs will be lost or investment delayed," Professor Scott said.
At least three other universities are facing clawbacks. London Metropolitan University may have to repay £50 million, according to the University and College Union. The universities of Hertfordshire and Portsmouth are currently discussing the amount to be repaid with the funding council, it is understood.
John Craven, vice-chancellor of the University of Portsmouth, said: "We weren't doing anything to mislead Hefce; this was the result of a difference in interpretation."
The clawback would not be more than £1 million and he hoped it would be less, Professor Craven said.
THE COMPLETE GUIDE TO COMPLETION: HOW HEFCE DEFINES A DROPOUT
Universities receive funding for a student only if that student completes a year of study.
According to Higher Education Funding Council for England guidance, a student who fails to complete a year is defined as a student who does not carry out the final assessment task of any of the modules taken during that year.
In their data returns, universities are asked to estimate how many students will drop out of their courses, based on the dropout rate for the previous year.
The document, Higher Education Students Early Statistics Survey 2008-9, states: "Continuation of study to the following year should not be taken as evidence of, or a proxy for, completion in the previous year. In addition, simply because a student has not formally withdrawn from the institution by the year end does not make the student a completion."
It says that there have been instances of universities failing to update their records "in a timely fashion", which have led to students being counted in a university's data return, even when they have left the institution.
There have also been cases of universities using estimated dropout rates that were "significantly lower" than the evidence from previous years would indicate was likely, "with no reasoning behind this".
Hefce says its system protects the interests of students by encouraging universities to support students through to the completion of study.
A Hefce spokesman said: "Students who fail to complete will often have paid a disproportionately high tuition fee in relation to what they have completed, and they may not have a qualification at the end. Furthermore, we don't want taxpayers' money to provide an incentive to institutions to recruit students who are likely to fail.
"There is a significant loss to both the students and the taxpayer when a student fails to complete."
However, the system is due to change from 2009-10. From then on, if a student fails to complete all the modules he or she had originally intended to study during a year, the university will receive funding for each module the student does complete, provided these amount to at least 20 credits.
Hefce has said the new system will result in "only limited redistribution of funding" between institutions.