Kingston University may forfeit £1m of funding, after failing to declare hundreds of students who failed to complete their courses - and the university warned other institutions may have even bigger problems.

Last year the university reported a 6.4 per cent non-completion rate, but an audit of 180 of the university’s 21,300 students revealed a higher figure of 8.6 per cent.

According to documents obtained by the Surrey Comet under the Freedom of Information Act, a later examination of 9,000 student records revealed that the true rate could be high as 14.5 per cent.

Third year computer science student Alfa Sow found it hard to believe. He said: “It sounds like a joke. To the outside it looks like bad management. I think that is bad at the time of the recession. There is so much you could do with that money.”

University vice-chancellor Professor Peter Scott said: “Like many other universities Kingston has been under-reporting ‘non-completions’ or rather reporting them on the wrong basis. This came about because we had an audit in the summer. Almost every other university that has been audited has had the same problem.”

In 2008/9 the university received a £67.5m grant from the Higher Education Funding Council for England (HEFCE), partly based on student numbers. But Professor Scott warned the university board of governors in September, that the HEFCE may claw-back £587,000 of funding from 2007/8 and £518,000 from 2008/9 as a result of the higher non-completion rate.

A pre-Christmas meeting between Professor Scott and Professor David Eastwood, chief executive of HEFCE, agreed to use the lower figure of 8.6 per cent, saving the university from an even higher loss of grant.

An HEFCE spokesman said that discussions with the university were continuing, but the level of clawback had not yet been agreed. He added that while a handful of institutions were affected, it was not a widespread problem.

In his report to the board, the vice-chancellor blamed the problems on confusion over the definition of “non-completion”, failure to record student withdrawals promptly, and shortcomings in the university’s student record system.

Prof Scott criticised the use of non-completions in university funding. He said: “‘Non-completions are not the same as students who drop out. They are students who do not take all the required assessments for all the modules on which they are registered ‘at the first instance’, ie in June. If they pass resits, they are – technically – ‘non-completions’. So students who progress academically must also be counted as ‘non-completions’ – which is nonsense.”

The miscounting is the latest embarrassment for the university, after a lecturer told students to cheat in a national survey last year, and novelist and research fellow Hanif Kureishi said he gave all his students a 71 per cent mark regardless of what they wrote.