The chair of the public accounts committee,
She said there had been an "astonishing growth" in the private-college sector, which has increased from the use of £40m of public funds in 2010 to £900m this year after the higher education minister
Tens of thousands of students and around two dozen new private colleges have been major beneficiaries of the funding changes.
A four-month Guardian investigation revealed on Wednesday that senior staff at one college in Wembley, the
When the Guardian filmed undercover at the college it found a lesson which had a lecturer but not one student. Former staff alleged that people were recruited who "blatantly" did not have the skills to study at university level, and that candidates had been recruited from the street and as far afield as eastern
Speaking in her office at the
"I'm pretty shocked," she said. "[The Guardian] has raised some huge issues. We're talking about many hundreds of millions, if not a couple of billions in taxpayer money which was set aside to support higher education."
She said it was potentially a misuse of public funds and that money may have been taken "out of the system to enrich individuals and colleges".
She said she felt sympathy with genuine students who expected better for their £5,000-£6,000 in fee payments and may not have been receiving the best education.
Willetts has previously said that opening up higher education to little-known private colleges would raise standards and create innovation throughout the sector.
However Hodge said there was now a pattern emerging in which the government opened up sectors to private institutions and only then set up proper regulatory frameworks to check public spending and "follow the taxpayer's pound".
"You've just got to look at the [growth] figures," she added. "The red light ought to go on immediately."
Hodge, known for her formidable questioning of civil servants and company executives, said she felt culpable for not acting more on warnings about the potential for the misuse of public money from
Hodge said she also regretted not holding
She said that, after the NAO report, she would hold BIS civil servants to account for the allegations.
"They are accounting officers in government, and they will have to be brought in front of us to account for why they allowed this loose system to exist; why they didn't see any of the warning lights.
"I will ask the comptroller auditor general to prepare a report for my committee on the basis of which I will take evidence. It will take us a few months, but I think you have brought to our attention a huge issue … it may be one I've seen in other guises … there's an outrageous waste … misuse of public money."
LSST denied the allegations put to them and said the Guardian had visited the college at the end of term when students were submitting their coursework. The college said it had "robust procedures for recording and monitoring student attendance" and it employed a full-time attendance officer.
Willetts, who has compared the reforms to
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