London Met warned that it could be closed

Governors' refusal to resign over university's £36m 'scam' could lead to funding being withdrawn

London Metropolitan University had failed to address failings identified by the now-defunct UK Border Agency (REX)

The university accused of a £36m scam involving false funding claims for thousands of students was told by ministers last night to take "urgent" action after its governors refused to resign.

The Higher Education Funding Council (Hefce) has the power to withdraw funding from London Metropolitan University, which would mean closure. Lecturers' leaders are known to be worried that the institution, with its 34,000 students and 2,400 staff, might be shut. The Higher Education minister, David Lammy, said it was "imperative" that London Met and the body that funds universities "act with all due urgency to resolve the problems that have been identified, putting the interests of the students and the proper stewardship of public funds at the forefront of their concerns".

And in a letter to The Independent today, 12 academics demand that the governors and senior staff resign, after a written request by Hefce that the governors and senior staff fall on their swords, as revealed in The Independent on 23 November.

Withdrawal of funding is considered to be "a nuclear option" to be used only if Hefce saw no other way out, but it may come to that, if the governors refuse to move. The only weapon the funding council has is to pull the plug on London Met. The 12 academics, including a professor, principal lecturers and others, in their letter to The Independent, say the governors and other senior staff were given six days by the funding council to consider their positions. That was on 20 November. "The deadline for their resignations has now passed, but the governors and executive all remain in place," they write. "The executive members' obduracy comes as no surprise, but the governors' failure to serve the institution's interests by resigning aptly demonstrates their lack of moral integrity and their abdication of institutional trusteeship."

They also seek a legal investigation. "The governors, the executive group members identified by Hefce – and some of their colleagues – must go, immediately."

The London Met case follows two damning reports, one from the consultancy firm Deloitte and the other by Sir David Melville, the former vice chancellor of Kent and Middlesex Universities, that revealed the university falsely claimed cash for thousands of students.

The university has been ordered to repay an unprecedented £36m because it failed to keep track of students by ensuring they sat assessments at the end of each year. The result was that it continued to get the money based on an artificially high student population, receiving much more cash that it should.

Sir Alan Langlands, the funding council's chief executive, said in his letter calling on the governors to resign. "We have been concerned that the university is unable to safeguard public funds and the reports confirm our view. Given the criticism of the board and the senior management team, I do not believe confidence can be restored until action is taken to consider the position of the board members and senior staff who are criticised in the report and new governance and management arrangements are put in place."

Mr Lammy last night welcomed the reports by Deloitte and Sir David Melville. "I look to the university and Hefce to consider Sir David's findings and the implications for the actions they now need to take," the minister said.

A spokesman for Hefce said the funding council had received a letter from the governors but refused to disclose its contents. Sir Alan Langlands met Peter Anwyl, chairman of the governors at London Met on 3 December, and they will be meeting again on 14 December. It is understood the governors reject aspects of the Melville report, claiming they are not based on evidence. A spokesman for London Met said that its governors would be considering both reports at its next board meeting on 15 December. The new vice chancellor, Professor Malcolm Gillies, is seeking a thoughtful, long-term plan to restore public confidence in the university, said the London Met statement.

The governors: Links with City of London

*London Met's board of governors, which is being asked to stand down, has 15 members and contains movers and shakers of the City of London Corporation, including one key member who has spent his life in accountancy. Sir Michael Snyder, a former chairman of the university's audit committee, the Corporation's policy and resources committee and its finance committee, is a senior partner of the accountancy firm Kingston Smith.

*Another governor is Jeremy Mayhew, who, like Sir Michael, is a Common Councilman in the City of London. He is a consultant and former director of new media at BBC Worldwide.

*The board of governors is chaired by Peter Anwyl, director of International Students House, which provides accommodation for students in the capital.

*Other governors include Professor Zanobia Nadirshaw, head of psychology at Kensington and Chelsea primary care trust; Raj Patel, Associate Director of Policy and Research at the Learning and Skills Network; Abdul Rahim, managing director of Platinumlinks Ltd; Tony Millns, chief executive of English UK Ltd, and Bob Morgan, dean of London Met's business school.