The University of Salford has agreed to pay back Pounds 240,000 of public money following a damning financial report.

The serious financial mismanagement of publicly funded projects at the university, which was uncovered by auditors, was first revealed by Times Higher Education in 2006.

A special investigation into financial accounting at the university focused on its Learning Systems Institute, which was set up to give computer skills training in deprived areas. The department, which has since been shut down, was accused of mishandling public grants, including ?570,000 from the European Union for five projects.

The auditors' report highlighted "entirely unreasonable" claims for staff time on projects; "inappropriate" transfers of cash between project accounts; claims for staff time not based on any actual activity; "significant expenditure" on computing and film that was "disproportionate to the requirements of the projects"; and overseas travel costs charged to projects without clear business benefit.

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The department was also criticised after half of a Pounds 10,000 Asian tsunami fund was spent on "internal administration costs" and the other half went unspent.

The university, which auditors said was risking "reputation damage", subsequently agreed to return the money to donors.

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The probe found "inadequate and conflicting" evidence that grant-funded training had taken place. The university and the Department for Work and Pensions, which is responsible for overseeing EU grants, have now reached an agreement on how much cash should be returned.

A spokesman for the DWP denied that the department had demanded Pounds 570,000 before being negotiated down, saying that there had been inadequate audit evidence for Pounds 240,000 worth of funding, which will now be retrieved, while the rest "could be evidenced".

In a joint statement, the DWP and Salford said: "Following specific audits by Government Office North West on European Social Fund projects associated with the now defunct Learning Systems Institute, the university has agreed to refund Pounds 240,000 from an original grant of Pounds 570,000. This relates to some training programmes delivered by the university up to seven years ago, for which the university now has insufficient documentation.

"The university has fully co-operated with GONW throughout the process, and we are both very pleased this matter has been resolved to our mutual satisfaction."

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john.gill@tsleducation.com.