Full extent of Glendene Academy problems become clear, as the chair of governors is revealed to have resigned, with the principal who appointed him on sick leave - and the whistleblower now chair

The Education Funding Agency is seeking to recover at least £162,000 (Getty Images)

The chairman of governors at an academy under investigation for alleged financial irregularities has resigned, it emerged yesterday.

In addition, the head teacher of Glendene Arts Academy in Easington Colliery, Co Durham, has been on sick leave since a whistleblower triggered an investigation into its finances, a statement from the academy said yesterday. It also claimed that both were involved in setting up a private company at the centre of investigations into the academy's financial affairs.

Yesterday The Independent revealed that police were investigating allegations of serious financial mismanagement at the academy, a specialist visual arts academy for two- to 19-year-olds with special education needs.

We also disclosed how the Education Funding Agency, which oversees the funding of free schools and academies, is seeking to recover £162,000 claimed to have been misspent by the academy. Whistleblowers claimed the money was used to pay the salaries and running costs of a private company.

A heavily redacted report by the EFA into the academy said the company was meant to help in fund-raising and training as well as pay the academy an annual dividend. However, the report concluded: "We cannot identify any discernible benefit for the academy in this arrangement; it has resulted in the loss of £162,000 that should have been used for the benefit of academy pupils."

The Department for Education said in a statement that police had started an investigation into the situation.

In its statement, the academy said it had received academy status in September 2012 - and whistleblowers had triggered an investigation into its financial affairs in July 2013. The chairman of governors resigned at the end of that month and the principal has been off on sick leave since then.

One of the whistleblowers, Rob Wright, who was previously deputy chairman of governors, took over the chairmanship on 1 August. An acting academy leader, Craig Platt, and acting deputy, Vanessa Elcock, were appointed on 23 November.

Since then, the academy has brought in an education consultant to assess the position and - although a report has yet to be published - it is understood not to have found any significant weaknesses and reported that the standard of teaching is "good".

Mr Wright said yesterday: "We're trying to unravel complex issues which came to light in the first audit following conversion to academy status.

"I'm confident now that our academy has strong leadership, excellent teaching and - above all - excellent provision for vulnerable and special children - as well as robust financial systems.

"All donations from 1 August 2013 are being properly accounted for and used for the academy purposes intended. Donations made before this are still part of an investigation.

"Much as I'd like to, I cannot comment further while this matter is under police investigation."

News of the police investigation prompted calls from teachers' leaders for a tighter monitoring system of academies and free schools.

Kevin Courtney, the deputy general secretary of the National Union of Teachers, said: "Once again we have a situation where a lack of accountability and democratic oversight has resulted in a police investigation into what we can only assume to be suspected criminal activities."

Labour is also conducting a review of school structures headed by former Education Secretary David Blunkett which is expected to recommend the setting up of a number of sub-regional bodies to keep a closer eye on academies and free schools.

The DfE said the controls covering free schools and academies were more rigorous than those covering local authority maintained schools.