The Government has been asked to review the way it administers the cash, and another 20 colleges will be investigated because Brussels believes "the same sort of irregularities could have occurred" in other institutions.
A report published yesterday by the EU's fraud-busting unit detailed how the unnamed college had claimed money for training courses although the students supposedly benefitting from such courses could not be identified.
The document says that "the students were chosen at random from the college's database and their departments were not even aware of their status". It concludes: "In fact, it was impossible to identify any European Social Fund course."
The Government has been asked to review its procedures, and the European Commission has begun legal measures to recover the cash.
The case is one of a catalogue of fraud cases investigated in 1998 throughout Europe. In three of the four categories, the UK notified more suspected cases of fraud and irregularities than any other EU member state, although those under investigation in Italy involve more money.
A total of more than pounds 650m worth of suspected fraud was investigated by Uclaf, the European Commission's in-house investigators, of which more than pounds 90m worth is related to the UK. But Commission officials cautioned against reading too much into Britain's place in the EU's fraud ranking, pointing out that it reflects the ability to detect and report fraud, rather than its incidence. Moreover, the UK is devoting considerable resources to combating tobacco and alcohol smuggling.
During 1998 investigators mounted a crackdown on Andorra, described as "the major source of cigarette smuggling into Europe at an estimated cost of 400m Ecu (pounds 240m) to the EU and national coffers.
The document also details how an investigation in November 1998 in the UK and five other European countries broke up a syndicate, based in Italy "responsible for exporting alcoholic drinks from the UK to the Netherlands and Belgium and then reintroducing them into the UK and Ireland, using false Italian transport documents". Around 150,000 litres of alcohol was shipped.
The report also documents ten arrests made in the UK and Spain of criminals who bought and sold mobile phones without paying VAT, adding: "In the UK alone the loss associated with this fraud is estimated at ECU 1.4m (pounds 850,000) a month."