The owner of a dive school plans to take legal action against the school's former owners after being asked to repay $1.47 million to the Tertiary Education Commission.
An investigation into the New Zealand School of Commercial Diver Training (NZSCDT) found enrolments between 2009 and 2014 could not be validated, and two of the school's courses were shorter than the time they were funded for.
Students who completed the qualifications are not affected by the finding.
Its two main courses on 30m and 50m deep construction diving were funded as 18 and 10 week courses respectively.
In reality they were much shorter, with the 30m course consistently running for fewer than 12 weeks between 2009 and 2014.
The 50m course fared worse, dropping to just over half of its funded hours in 2013 and 2014.
Intueri Education, which owns 20 private training organisations, bought the dive school in March 2013.
Tertiary Education Commission chief executive Tim Fowler said nobody could get away with that.
"There's no way to justify that whatsoever, and as soon as that information's come to our attention we've gone away and investigated that in depth and have actually gone about the process of ascertaining that clearly they were under delivering," he said.
"That's the reason why we are now recovering the money."
Mr Fowler said the investigation also found errors in the school's enrolment numbers.
According to an Ernst & Young report, which Intueri Education commissioned, the dive school received funding for 45 non-existent students between 2009 and 2014, and a further 46 course records could not be validated.
Rob Facer, Intueri's chief executive and a director of the school, said those discrepancies related to the previous owner, and there was no way Intueri could have known about them until it started managing the school in 2014.
"Some things are very, very difficult to identify even through the most rigourous of due diligence," he said.
"It's only when you are in the driver's seat, for want of a better term, that you are able to truly understand exactly what goes on and how things are done."
He said the problems were only found through internal reviews and audits, and it would pay the money back to the Tertiary Education Commission by the end of August.
Mr Facer said Intueri planned to take legal action against the former owners.
Another tertiary provider under the Intueri group, Quantum Education, is also being investigated by the Commission.
Earlier this year, it was subject of a Serious Fraud Office inquiry.
Labour Party associate education spokesperson David Cunliffe said the school was able to get away with it for far too long.
"These rorts were going on since 2009, and it's now 2016 that the government's finally caught up with it and done something about it and we think the systems broken and it takes that long to find and fix what's a very, very obvious rort."
Mr Cunliffe said although he was not a lawyer there should be prosecutions when an institution had been found to have deliberately conducted fraudulent activity.