Luton University "misreported" its student numbers to funding chiefs at a time when it was struggling to meet recruitment targets.
Documents seen by The THES show that auditors from the Higher Education Funding Council for England concluded after a May 2001 audit that they "could not provide reassurance" over the reliability of Luton's student number returns, which are used to determine teaching funds. They found that Luton included almost 500 students who should not have been listed in its December 2000 annual student number return - the Higher Education Students Survey, or Heses.
Hefce's principal auditor wrote to Luton vice-chancellor Dai John: "The main objective of the audit was to obtain comfort over the reliability of the Heses return and to review the systems and protocols used. I believe that we are unable to provide that reassurance at present."
The auditors found that Luton had listed 168 students on a number of health-related courses - 129 part-timers and 39 full-timers - as being eligible for Hefce funding. In fact, they were already funded by the National Health Service.
Hefce discovered that 330 other students (238 part-time and 92 full-time), who were funded under a European Social Fund programme, were included when they "should have been excluded from the return".
It also said that a number of students were counted as full-time students when they should have "more properly" been listed as part-time. Hefce said:
"On the basis of the sample taken this would effectively reduce overall fundable students by 75 full-time equivalents."
The university had also made "over-optimistic" predictions of its student numbers after December 2000, when the return was submitted, suggesting it could recruit an extra 661 full-time equivalent students before the end of the academic year.
Hefce's concerns came amid recruitment problems at Luton. In March 2001, a directorate meeting concluded that the university had to find more students "in order to defend its Hefce contract".
Another in April 2001 agreed that the university had to give "high priority" to recruiting 300 more students to "achieve the forecast number given in the Heses return".
Hefce's concerns about the data were first reported to the university on May 25 2001. Two weeks later, pro vice-chancellor Tim Boatswain told The THES that there was a "simple mistake" with one cohort of students, the ESF-funded group.
He said: "We've just had the Heses auditors in and as far as we're concerned we've had a clean bill of health and they will not be back for four or five years."
But the auditors had concerns about more than one group of students and were due back within a few months, with a special follow-up and "more in-depth" review in September.
After the follow-up visit, Hefce's auditors said that, by then, the records were "substantially" in order. It accepted that the "misreporting" of the student returns had been "an error", rather than a result of systems deficiencies, but it warned: "However, it is of concern that this type of error is appearing."
The follow-up audit in September found an additional problem with the university failing to properly "flag" its dropouts, counting some as if they had completed but failed. There were also "a number of systems-related issues" and Hefce demanded action so the systems could be "further improved".
Despite this follow-up verdict, Luton said at the time that the audit demonstrated that its systems "accord with best practice".
This week, Luton denied misleading The THES . Quality assurance dean Richard Harris said that Professor Boatswain was talking about a different audit that took place at the same time when he said the university had been given a clean bill of health. Professor Harris said the university's claim to "best practice" was endorsed by the final Heses audit.
"The outcome of the September audit was that the university's records were in order. We have not had a Heses audit since, as Hefce obtained the assurances it required in 2001," he said.