The London TEC, covering the boroughs of Lambeth, Southwark, Lewisham and Greenwich, called for receivership under the weight of £5m worth of liabilities.
Ministers last night insisted that all the other 73 employer-led TECs in England - they are new-style quangos with private company status - are financially sound. Neverthelss their ability to deliver training for the unemployed will be severely undermined by fresh cuts announced last month.
According to one government source, financial controls at South Thames TEC, which covered an area with some of the highest unemployment rates in the country, were particularly lax. " It was so bad nobody knew where they stood".
James Paice, the employment minister responsible for TECs, said there was no question of fraud. ``It was simple bad managment. They were entirely overstretched.'' One senior source in the TEC movement argued that senior officials at South Thames had emphasised the needs of the people in their area rather than the necessity for financial control.
The organisation had been the subject of three concurrent investigations into its financial managment system. South Thames had found itself unable to supply sufficient financial information to the Government and in October, ministers issued a breach of contract notice. It is understood that less than half of the £5m debt involves taxpayers' money, the rest is owed to contractors.
Mr Paice said the Government had issued a letter legally guaranteeing continued training for the 7,000 students presently on courses and payment for the colleges and other training providers. Harriet Harman, shadow employment secretary, whose Peckham constituency is covered by the TEC, said it was the Government's duty to "pick up the peices".
She said: "The TEC may be a private company, but it is still a public responsibility." She said it would be a great blow to training in south London. It demonstrated the fundamental flaw in "pretending" that Government functions were being hived off to independent private companies when in fact the Govenrment was forced to step in to bail them out. "Their ideology is catching up with them," she said.
Morale among peole looking for training, people on training courses and people providing training is already low and has been made worse by Government cuts in the training budget. Instead of a limited guarantee , Ms Harman called for a pledge that all training courses and contracts would be honoured and that the issue should be referred to the Public Accounts Committee. Ministers should also publish a report into the operation of the organisation by Grant Thornton which has now been appointed as receivers.
The Government should also make clear whether it would now change the financial control systems for all TECs in the wake of the problems at South Thames.