Universities will face new checks on how grants for disabled students are allocated amid claims that companies are raking in large profits by over-diagnosing dyslexia.

The Department for Business, Innovation and Skills has confirmed that it is setting up a body to monitor how much Disabled Students¡¯ Allowance, worth ?128 million in 2012-13 and currently under threat of cuts, is awarded to students at different universities.

It follows a critical report by the National Audit Office into practices by a company operating at Plymouth University that MPs heard resulted in its students receiving 7.5 per cent of England¡¯s overall DSA budget despite making up less than 1 per cent of undergraduate numbers.

The report was commissioned after a whistleblower alleged that Claro Learning, a Tavistock-based firm, was ¡°getting more business by giving students more than they needed at the low level, with so-called dyslexia¡±, a Commons Public Accounts Committee hearing was told on 16 March.

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Margaret Hodge, the committee¡¯s chair, said she believed that Claro had ¡°behaved outrageously¡± by giving students a standardised assessment rather than prescribing dyslexia help on individual needs.

Students assessed at Plymouth by Access South West ¨C part of Claro Learning ¨C received an average DSA payment of ?4,759, more than double the average received by other disabled students, Ms Hodge said.

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Those with genuine needs felt that they were ¡°unfairly stigmatised¡± by being bracketed with those ¡°students with mild levels of dyslexia [who] were playing the system¡±, she added.

Ms Hodge said that Nigel Larcombe-Williams ¨C who carried out assessments for Access South West ¨C and his wife ¨C a Claro director ¨C had made ¡°an arm and a leg¡± out of the situation. Claro accounts showed that it had made a 22 per cent profit, she added.

Ms Hodge complained that Claro was still ¡°making money up and down the South West¡±, providing services at the universities of Bristol, Cardiff, Falmouth and Southampton. The MP added that Claro should be prevented from doing more work as it had already ¡°made a hunking [sic] great amount¡± from what she called a ¡°misuse of public money¡±.

Richard Bacon, a Conservative MP on the PAC, told Martin Donnelly, permanent secretary at BIS, who appeared before the committee, that the department¡¯s own rules on the DSA allowed Claro to ¡°run rings round you and make a really fat margin¡­and there is nothing you can do¡±.

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Mr Donnelly said that BIS ¡°did not find any evidence of misuse of funding¡±. However, he said, potential DSA conflicts of interest were not something ¡°confined to Plymouth¡±, and he was ¡°not at all satisfied with how we handled this¡±.

Under guidance on best practice to be issued next month, DSA assessment centres will have to provide students with two quotes from educational support providers, he said. The centres will also need to sign up to a new accreditation scheme.

Claro Learning has said that its higher-than-average payments were a result of ¡°rapid engagement of students¡±. It had informed BIS and the Student Loans Company, which pays the DSA, of potential conflicts of interest, it added.

In response to the PAC hearing, a Claro spokeswoman said Ms Hodge had ¡°made a one-sided attack¡± using parliamentary privilege ¡°to protect her from the consequences of remarks that might be considered defamatory¡± outside the Commons.

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BIS had confirmed that Claro had ¡°operated entirely within current guidelines, that procedures were long established and that there was nothing peculiar to Plymouth or the South West¡±, she added.

jack.grove@tesglobal.com