June 2009: David Lammy, the higher education minister, is boiling over with frustration at the debacle at London Metropolitan University, many of whose students live in his Tottenham constituency.
The Higher Education Funding Council for England insists that the university has hugely inflated its student numbers over several years and is demanding that it repay ?36.5 million; London Met's governors say Hefce had tacitly approved its actions.
A memo from Andrew Battarbee, deputy director for HE shape and structure at the Department for Business, Innovation and Skills, discusses a meeting with Lammy on 24 June and describes the minister's "deep unease".
"Something had gone wrong, involving large sums of public funds and with consequences for blameless individuals; and yet there was no accountability mechanism in the system," says the memo, released as part of a heavily redacted bundle of correspondence to Times Higher Education under the Freedom of Information Act.
Brian Roper, London Met's vice-chancellor, had resigned from his post in March - under pressure from Hefce and following a brief period of suspension - but would continue to draw his salary until the end of the year. Roper and the university's governors had shown themselves more than willing to sue if they were publicly criticised: because of their legal threats, Lammy had not even seen a critical report into their actions, commissioned by Hefce from consultants BDO in 2008.
"David is particularly uncomfortable that the chair (of governors) should still be in place - and, as he has said before, that the ex-vice-chancellor is still drawing down full pay," Battarbee's memo continues. "He still feels uncomfortable about the lack of pace and progress.
"He understands the legal position but he contrasted this with the Baby P case sackings ... Doesn't this case show that for higher education institutions that aren't chartered or ... corporations, there is insufficient accountability? I said we'd do something about this."
An unnamed legal adviser replies to Battarbee, telling him that there is no difference between a chartered university and one incorporated, like London Met, as a company "in terms of what we can make it do".
"My understanding is that the secretary of state can only direct a (university) to amend its articles of government ... however, even if you spelt out in the articles what the accounting officer must do, I don't see how that would help if the vice-chancellor failed to do it," the adviser says.
"What seems to be the problem here is that the v-c has not complied with his duties as accounting officer."
JULY 2009: London Met announces its intention to commission reports from auditors Deloitte and Sir David Melville, the former vice-chancellor of the University of Kent, into the student-data issue.
Lammy is "convinced that London Met's inquiry must be useless", expresses a desire to force the university's governors out of office and asks how to set up a public inquiry, the FoI correspondence shows.
Civil servants advise him that a public inquiry would be a "step too far" and that London Met's status as a company restricts his powers to act.
"Lawyers are looking at what options may exist either to force a separate inquiry or to require one or more members of the governing body to stand down, perhaps through a mechanism in company or charity law," Battarbee says in a memo dated 6 July.
"We are not optimistic about turning up something useful here ... Lammy may want to think about less formal options."
Leaving no stone unturned, Battarbee briefs the minister about approaching the National Audit Office ("we don't think this is a promising route"), the police (which was ruled out) and suggests Hefce use "funding levers to yield an inquiry".
Times Higher Education's conversations with university insiders show that London Met's governors and senior management expect Sir David's report to vindicate them.
NOVEMBER 2009: Sir David's report finds that the governors' supervision of the university's management was inadequate. The board, in particular the audit committee, is held accountable for London Met's financial failure, although it was not kept fully informed of the scale of the problems.
Deloitte reports that the university used a number of mechanisms to boost its student numbers, including recruiting as many of them as possible, allowing students to progress who held "considerably below" the number of credits required by Hefce, and failing to "cleanse the data". The auditors uncover 19 students listed as being born between "'03" and "'12", meaning that the eldest are either six years old or 106, and the youngest 97 or unborn. More than 5,000 students have no birth date and almost 2,000 are potential duplicates, having the same birth date, surname and initial.
DECEMBER 2009: Following a letter from Sir Alan Langlands, chief executive of Hefce, threatening to pull the plug on the university's funding unless the audit committee members resign immediately, the lay members of London Met's board agree to go. Peter Anwyl, chairman of the governors, is scheduled to depart in March 2010, with the rest going in the summer.
The saga is over, but its effects will be felt for a long time to come.
Michael Shattock, visiting professor at the Institute of Education, describes the debacle as "the worst governance failure for more than a decade".
"There are some important lessons that need to be learned from it," he says.
One consequence of the crisis may be a more realistic view of mergers.
When universities mired in financial difficulties or governance problems are discussed, talk of mergers is never far behind.
In 2008, consultants PricewaterhouseCoopers carried out an "options review" for London Met that considered the possibility of a merger with another institution. Despite "a significant risk that ... the operational- change requirements and financial issues will detrimentally manifest themselves in a new merged institution and so continue", PwC says that a merger would be a "sensible solution" once financial stability had been achieved.
The university estimated that such a move would cost ?59.2 million, not including the other party's expenses. In contrast, closing down the institution would cost ?573 million over three years, assuming current courses were "taught out".
However, the evidence in the London Met case suggests that its origins as a merged institution were part of its problems.
London Met was formed in 2002 from the merger of London Guildhall University and the University of North London - "an unfortunate combination", as Roger Brown, co-director of the Centre of Higher Education Research Development at Liverpool Hope University, puts it.
A Higher Education Policy Institute report published in 2005 found much higher non-completion rates at North London than at Guildhall, despite similarities in their student bodies in terms of age, social class and entrance qualifications.
The merger was also a marriage of equals, which, as Shattock says, is "always more difficult than when one institution is dominant".
"The rationale for the merger was a similarity of mission and the fact that both institutions were drawing on the same student market," he recalls. "The inherent weakness was the over-optimistic financial forecasts and the significant underestimate of the costs of unifying the organisations."
Hefce's financial support for the merger was "miserly" compared with the funds allocated to the University of Manchester/Umist merger, Shattock adds.
"And the constitutions of North London and Guildhall insulated governors from the very critical views of significant numbers of academic staff, so potential difficulties were glossed over when decisions were taken," he says.
Most academy mergers don't really work and often don't save money, says another expert on university governance, who asked not to be named.
"This is generally the case because the implementation lacks rigour. You save money by removing assets such as duplicate campuses and buildings, but in higher education this tends not to happen."
In London Met's case, even the merged institutions' vice-chancellors were kept on. Sir Roderick Floud, provost of Guildhall, was appointed vice-chancellor of London Met, while Roper, vice-chancellor of North London, became chief executive.
In 2004, Roper became vice-chancellor while Sir Roderick took up the post of president, which he held until 2006. The fact that the institution had two heads until that year cannot have helped its governance: and the relationship between the pair reportedly was not an easy one.
William Locke, assistant director at The Open University's Centre for Higher Education Research and Information and, from August of this year, head of learning and teaching at Hefce, says few mergers "deliver their promised value".
"The human and cultural dimension of mergers is usually eclipsed by strategic, financial and operational concerns," he says. "The 'due-diligence' process, for example, seldom includes a cultural audit of the merging institutions, let alone the basis for a deliberate strategy to address cultural issues."
Despite the evidence from London Met, mergers are likely to continue to be touted as a panacea for troubled institutions for as long as closure remains politically inconceivable or until other solutions can be found. While the Conservatives have said they would like private universities, perhaps from abroad, to take over UK institutions in difficulties - as is happening in the NHS - in the case of London Met, no interested party could be found.
More significantly, the London Met case is likely to lead to changes in the academy's relationship with Hefce - and a possible reduction in university autonomy.
The funding body's reputation has been tarnished by the case. London Met argued that Hefce's convoluted definition of "non-completion" was largely to blame for the difference between its student data and Hefce's view of the correct figures.
This argument does not stand up - the 2,000 "potential duplicates", for example, had nothing to do with non-completion.
Of the 11,263 full-time undergraduates on modular courses at London Met in 2005-06, 3,388 quit before completing. While full-time students would normally be expected to gain 120 credits in a year, 1,483 of them completed less than half that amount, and 803 earned fewer than 30 credits. Some 1,099 part-time undergraduates - a quarter of the total number at London Met - failed to complete a single 15-credit module.
Despite this, London Met has won sympathy from other institutions that have fallen foul of Hefce's non-completion rules.
For example, Thames Valley University had to hand back ?6.9 million last year for under-reporting its non-completion rate, and the University of Wolverhampton is still negotiating over a multimillion-pound clawback. Hefce has since amended its definition.
A "lessons-learned" review that Hefce commissioned from auditors KPMG last year also found that despite first identifying problems with London Met's data in 2003-04, the council failed to uncover the scale of the inaccuracies until 2008. The initial concerns "could have triggered earlier detailed action", the KPMG report concludes.
Among the reasons given for the drawn-out nature of the inquiry was Hefce's inability to access London Met's data. That the council did not press harder for access may be blamed on a variety of factors, including inexperience of dealing with a vice-chancellor of such intransigence (and later, litigiousness), a legal requirement to behave "reasonably" at all times, and an awareness of institutional autonomy.
Some in the sector have speculated that Hefce was also influenced by a perception that London Met had the government's backing as it was "widening participation" - taking in students who would be turned away by other institutions. As a result, so the argument goes, the council feared that a crackdown would earn ministerial disapproval.
The issue prompted Diane Abbott, Labour MP for Hackney North and Stoke Newington, to suggest in the House of Commons in May 2009 that "there was a degree of collusion between the funding council and the university in misreporting for years before the former finally decided to pull the plug".
KPMG also advised funding chiefs to consider a detailed re-examination of London Met's returns as far back as the institution's first year, 2002-03, "in order to identify if any further action should be taken, including the recovery of further funds".
It pointed out that Hefce's scrutiny had revealed the university's non-completion rate to be 30 per cent in 2005-06, rather than 3 per cent as reported. In 2004-05, London Met reported a 7 per cent non-completion rate. There was a chance that the true figure would turn out to be "significantly higher" if a full analysis were carried out, KPMG said.
The funding body's audit of London Met's 2003-04 data discovered some inaccuracies, but their full extent can never be known without a detailed audit.
"Hefce has not fully explained why it chose not to reopen data returns earlier than 2005-06," the KPMG report says, adding that this "may be difficult to justify when the outcome may have been a substantially higher clawback".
Hefce has never given a full justification for its decision, but it is clear that uncovering further major errors would have caused the council more embarrassment.
Correspondence within the now-defunct Department for Innovation, Universities and Skills released under the FoI Act shows that in 2008, internal Hefce board members considered asking John Denham, the former universities secretary, to dissolve the university, although lawyers later advised that this was impossible because London Met was a company.
One memo detailing a Hefce board meeting in May 2008 reveals that one attendee "was worried that Hefce would lose reputation if (London Met) stayed afloat".
KPMG recommended that Hefce include an explicit requirement that governing boards and their audit committees assure data returns in their financial memoranda (the contracts between universities and their funders). Hefce agreed. The council also accelerated its current data-audit cycle so that all institutions will have been scrutinised by the end of this year, rather than 2013.
The council's latest consultation on the memo contains the most controversial change. It proposes giving Hefce powers to reject a university's "accountable officer", who is usually but not always the vice-chancellor, and force the appointment of a replacement.
"In exceptional circumstances, if in Hefce's view the accountable officer cannot be relied upon, Hefce will explain its reasons and require the governing body to take steps to rectify the position," the consultation says.
"The governing body will need either to appoint a new head of institution or seek Hefce's exceptional agreement to its accountable officer being an officer other than its head."
In other words, Hefce would have the power of veto over vice-chancellors' continued employment.
Many institutions have interpreted this as a reaction - some say an overreaction - to the London Met case. Minutes of a University of Exeter strategy committee meeting in February 2010 note that Hefce had "adopted a reactive position to events that had unfolded at London Met". This position was "largely inapplicable to well-managed institutions, and the principle of risk-based regulation and reporting appeared to be severely compromised by these proposals".
The committee registered "special concern" at the prospect of Hefce forcing a governing body to remove a vice-chancellor, as this would "undermine the autonomous nature of higher education institutions".
While Exeter's view is shared by many in the sector, others would agree that governance structures in the academy are seriously flawed, particularly in post-1992 institutions.
"The essential feature of the post-92 constitution, reinforced in this case by the fact that London Met is a registered company, is the power it gives to chief executives," Shattock explains. The absence of academic representation can create a situation where boards "lack a line of communication to alternative points of view".
London Met's board was "characterised by its uncritical approach to its chief executive and the way the institution was managed", Shattock adds. Roper was "a dominant chief executive and the board members so identified with his vision that they were incapable of adopting an independent view when it was apparent that mismanagement had occurred".
London Met's board boasted some high-profile businesspeople, most notably Sir Michael Snyder, senior partner in accountancy firm Kingston Smith, formerly effectively the leader of the City of London's government and the chairman of Chancellor Alistair Darling's City effectiveness group. Jeremy Mayhew, a media strategy consultant and deputy chairman of the City of London's finance committee, was another member.
The University and College Union has long criticised the lack of academic involvement in university governance and has campaigned for more board members to have experience of education. London Met's new vice-chancellor, Malcolm Gillies, fell out with the board of his previous institution, City University London, over this issue last summer.
However, the anonymous governance expert says that any suggestion that a lack of academic involvement was to blame for the London Met crisis would be a "huge oversimplification".
"The early days of North London had loads of academic involvement - almost all of it political, negative and destructive," he says. "You could therefore equally argue, wrongly, that academic involvement is unhelpful. It is like all other kinds of involvement: sometimes it is helpful, sometimes not.
"The real question, in the context of continued ongoing politicisation, is how does a governing body get the view from the grass roots?"
In the pre-Roper period, the expert had some contact with members of the London Met governing board.
"Many felt that there should be greater information and communication with all kinds of staff, but all the routes to getting this were dominated by the trade unions. In the end, I suspect a bunker mentality developed."
However, a UCU representative, who was based at London Met during 2008-09 but has since left, insists it "is not an accident that London Met was set up as a company, not a higher education institution, and has been troubled ever since".
Under Roper, the university's governance model was "explicitly business-orientated", she says. "The staff governor - only one where we used to have two - does not sit on any committees at all."
The academic committee used to consist of heads of department, relevant senior managers and the 13 chairs of departmental "fora" - ordinary academics who could call departmental meetings to canvass opinion on proposals, she says. They were replaced by heads of department, the head of one of the research institutes, plus five members of the staff representative council. Staff council members are mainly managers or non-teaching employees and have no means of reporting back to their departments, she adds.
"The committees tend to exclude real debate," the UCU rep says. "The agendas are far too long so the pace is frenetic. The meetings are so far apart that most business is carried out by the executive and reported to the academic board. Finally, the papers - running to hundreds of pages - are usually available only on Monday for a Wednesday meeting. My guess is that no one reads them."
Another issue is the fact that university governors are unpaid volunteers. As Anwyl told Hefce in a last-ditch plea for the governors to be allowed to remain in post, "there is a sector-wide issue here about what it is reasonable to expect of lay, staff or student governors".
Gillies, London Met's new vice-chancellor, is writing a booklet on university governance for Hepi, which will analyse and attempt to answer some of the wider governance questions that the case has thrown up.
Gillies parted ways with City over governance: his view that more education experience was necessary among its board members proved particularly contentious. He says he will look at staff and student representation on London Met's board, but only once a new set of lay governors is in place. A chair and vice-chair of governors have already been appointed: Clive Jones, chairman of GMTV, and Mark Robson, head of the Bank of England's monetary and financial statistics division, respectively. Both men took up their posts on 1 April.
In June, a review of senior management structures will commence, which will consider whether or not the executive team should be "academically augmented". It will also look at the role of the academic board.
"There won't be any change during this academic year," Gillies says. After all, there is too much to do: rewriting the university's strategic plan, which is due to go to the board next month, and "rebuilding aspects of the university's external reputation".
London Met is not a toxic brand, he insists.
"It's a brand that stands for something very important in London: supporting those that haven't necessarily had the best opportunities. That's what London Met has always been about and will continue to be about, but pragmatically so."