Higher education needs to put more effort into recruiting the right governors and training them properly, Michael Bichard, permanent secretary of the Department for Education and Employment, said this week.
Mr Bichard's comments came in response to mistakes made by governors and managers at Southampton Institute under former director David Leyland.
Mr Bichard told the Commons Public Accounts Committee that he was disappointed that members of the institute's former board of governors had not raised concerns about overseas activities and management style that had led to a vote of no confidence in Professor Leyland.
A National Audit Office report on the institute revealed losses of almost Pounds 1 million between 1994-95 and 1996-97 related to a campus in Athens and a joint venture with the University of Alicante. The Athens campus closed in 1996, and the institute has implemented a phased withdrawal from Alicante.
The report also raised general concerns about governance and management at the institute. In August 1997, Professor Leyland took an early retirement package worth Pounds 156,966, including Pounds 2,350 to cover solicitor's fees "to renegotiate the director's divorce settlement as a result of his retirement", the report said.
The committee pressed Brian Fender, chief executive of the Higher Education Funding Council, to explain why it took years for funding council auditors to unearth problems at the institute.
Professor Fender said the institute had had a good financial and academic record and it was not the auditors' job to check use of non-public funds raised overseas.
Roger Brown, the institute's new principal, assured the committee that new government guidelines had been put in place to ensure that the institute was not run by a cabal and that there were controls on severance packages.