LEAKED papers have revealed a catalogue of blunders at the body which distributes £1 billion to Scottish universities with some institutions left scrambling to fund vital projects.

Two universities were forced to shelve or scale back redevelopment plans which would have improved life for students and staff following a chaotic breakdown between ministers and the Scottish Funding Council (SFC).

Projects to redevelop the Hamilton campus of the University of the West of Scotland and the Crichton campus of the Scottish Rural University College, in Dumfries were subsequently thrown into jeopardy.

Read more: Internal inquiry highlight errors and confusion at the heart of the Scottish Funding Council

The dispute centres on £50 million of unspent reserves within the SFC and a failure by officials to understand how they had acquired the sum or what to do with it.

Subsequent plans to invest the reserves in much-needed projects were thwarted when the Scottish Government became aware of the surplus money and demanded it was repaid to the public purse.

News that two universities suffered setbacks from the funding dispute is at odds with claims from the Scottish Government who suggested there would be no repercussions from the money being returned.

Rival parties claim the leaked report - compiled by accountants Scott-Moncrieff on behalf of the SFC - raises serious questions over a statement Education Secretary John Swinney made to parliament in December when he said all institutions had received all expected funding.

Liz Smith, education spokeswoman for the Scottish Conservatives, said the "deeply worrying" report highlighted problems at the heart of the relationship between Scottish Government and the SFC.

"The evidence points to the fact the funding council was continuing to have discussions with individual institutions about how some of the £50m money could be spent despite the government informing the SFC it would have to pay it back," she said.

"Not only is this an example of gross mismanagement, but it raises serious questions about what the £50m was supposed to be used for.

"Mr Swinney told the committee the reason for the claw-back was because all financial commitments had already been met, but this does not tie up with the actions of the SFC."

Read more: Internal inquiry highlight errors and confusion at the heart of the Scottish Funding Council

Iain Gray, education spokesman for the Scottish Labour Party, said the "sorry tale" showed "budget double-dealing" was standard practice for the Scottish Government.

He said: "What makes me really angry is that Mr Swinney assured the education committee this was money the SFC did not need, and that no-one had missed out, but that is just not true. The funding council did need these funds, not least for the UWS campus."

The Scott-Moncrieff report also highlights the fact some of the £50m was given to the sector to make it more competitive as far back as 2011 following the introduction of tuition fees in England, but was never passed on.

Tavish Scott, education spokesman for the Scottish Liberal Democrats, added: "Scotland’s universities have plans to improve competitiveness and financial sustainability, yet we now know the government withdrew £50m at the very time when this money would have been invested in the future."

A Scottish Government spokesman said the independent audit report confirmed it had been consistent that the unallocated funds accrued should be returned to central government to support other priorities.

He said: "The report records that we formally notified the SFC in February 2014, in October 2014 and in March 2015 that the funds should not be committed elsewhere and this was acknowledged.

"The report also confirms these funds built up following the management of budgets between academic and financial years. This historical build-up of unallocated funds is not exclusively linked to the outcome of the 2011 spending review.

"As we have made clear, throughout this period, all of the commitments made to the further and higher education sector were met in full and the transfer of funds from the SFC was subject to careful consideration and managed to ensure no adverse impact on institutions."

Read more: Internal inquiry highlight errors and confusion at the heart of the Scottish Funding Council

A spokesman for the SFC said funding to universities was conducted on the basis of academic years, but was allocated by the government within financial years.

He said: "To make this work we have to make assumptions about budgets and to manage subsequent surpluses or deficits. We have been clear in our reporting to the Scottish Government and have complied with the principle that available funds are redeployed.

"All our funding decisions are published and reported in our annual accounts. This is all part of our normal management of the funds for which we are responsible. It is important to note that there have been no changes to the planned allocation of funding to universities or colleges."