The Further Education Funding Council reassured Lord Nolan that Pounds 2.8 billion of public money was safe in its hands, when it came before his committee on standards in public life on Tuesday.

FEFC chairman Robert Gunn and chief executive Sir William Stubbs suggested that the FEFC consultation document on its own accountability, probity and openness was a model code for quango behaviour. But they admitted under questioning from committee member Peter Shore that malpractice at Wilmorton College, Derby, and St Philip's College, Birmingham, only came to light because of the actions of staff.

Mr Gunn explained that the FEFC stopped short of telling colleges how to run their own affairs. "We have welcomed the fact that many of them are producing their own codes of practice," he said. "We have issued our own Guidance to Governors giving advice on how we think they ought to operate. Nevertheless we do not think we can go further than that."

On Wilmorton and St Philip's he added: "The fact that we were able to act fairly quickly and advise the Secretary of State there had been mismanagement is an indication that if there is a serious case we can act and advise her accordingly."

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Mr Shore also asked the witnesses for their impression of the general direction of salaries since the council was set up.

Sir William replied: "We have no detailed or systematic information which would enable me to give a reliable answer to that question." The FEFC suggested Lord Nolan might consider creating an external means of scrutinising public bodies' compliance with codes of conduct.

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* Jack Straw was a paid adviser to the Association of University Teachers while he was shadow education secretary, the Nolan committee heard. The arrangement was declared by committee member and former AUT general secretary Diana Warwick, now chief executive of the Westminster Foundation for Democracy. Mr Straw said he never profited personally from the deal.