Funding chiefs have admitted that the rules under which they hand out more than £6 billion of public funds each year may be "breached" by universities without the funding council's knowledge.
The admission raises concerns that the Higher Education Funding Council for England, which is consulting on plans to scale back its financial scrutiny of the sector, already struggles to account for taxpayers' money, according to an accountability expert. Hefce has confirmed that to keep red tape to a minimum, it no longer checks closely universities' compliance with the "financial memorandum" - the contract that ensures that public funds are well managed.
"Consequently, institutions may occasionally breach the memorandum without our knowledge," Hefce said in response to a Freedom of Information Act request by Nick Tiratsoo, a research fellow at Nottingham University who specialises in accountability in higher education.
Breaches might include the mismanagement of funds, excessive borrowing and getting poor value in purchases. The council is considering ending regular audits of the governance, management and finances of universities that are deemed to be "low risk".
"I was not surprised by the response from Hefce, but the revelation is nevertheless shocking," said Professor Tiratsoo, who is writing a book on the future of universities. "Hefce could not tell me how many times the rules have been breached, and it happily admits that they may well be breached without its ever knowing.
"It is important that universities are not subjected to excessive scrutiny, but it is important that they account for public money. Scarce resources are wasted by mismanagement, and this must be identified and prevented. Staff and students have a right to know if an institution is in financial trouble."
The funding council outlined its approach to monitoring universities' financial accountability after several requests from Professor Tiratsoo.
Hefce said universities were well managed and the risk of serious breaches was low. It said its arrangements balanced accountability with the need to avoid unnecessary prescription. Universities' external auditors confirmed compliance with the financial memorandum and Hefce systems picked up rare problems, it added.
But it disclosed that institutions had breached the section of the financial memorandum covering financial borrowing on occasions between 1996 and 2004.