The Government has launched an investigation into an English ÖйúAƬ institution's claims for European funding.

Secrecy surrounds the inquiry by the Department for Education and Employment's European Social Fund Unit.

But sources suggest it is focusing on whether the institution, which has not been named, observed criteria ruling eligibility for ESF grants - worth a total Pounds 25 million to ÖйúAƬ this year. The case may involve the responsibilities of institutions which sub-contract with external providers.

The English and Welsh ÖйúAƬ funding councils have issued guidelines to institutions, following the investigation, in a bid to avoid "irregularities".

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They stress that "all claims for ESF funds should be based on actual expenditure" and that "institutions should not expect to achieve a surplus from an ESF project".

They go on to say that where institutions, as the applicant for ESF support, sub-contract with external providers for the delivery of courses, they should ensure that this is on the basis of a written contract allowing audit access to records.

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Institutions should install monitoring systems to check on student numbers and course quality, and must ensure that any payments are only made against itemised invoices, the guidelines say.

Under the ESF grants criteria, institutions must provide matched funding representing at least 55 per cent of the actual eligible project cost. The circulars advise that major ESF projects obtain approval from governors or relevant committees, and that they are independently vetted by a member of the institution's finance department.

Institutions have been asked by the funding councils to review their arrangements for ESF in the light of the guidelines.

A DFEE spokesman said the investigation was on-going and that no further details would be released unless the case reached the courts.

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