Six industry training organisations have been given until February to improve their performance or face losing all taxpayer funding.
The ITOs were this year found to be making unjustified claims for more than 9 per cent of the money they received in 2009.
The figures, obtained by the Weekend Herald under the Official Information Act, emerged from a national audit which found a quarter of listed trainees that year were not employed as the ITOs claimed.
Tertiary Education Commission figures also show the ITOs - which were forced to repay $4.3 million for money wrongly claimed in 2009 - had to return $20 million last year for training they did not carry out.
The commission and the Industry Training Federation, which represents ITOs, say most of this money was for planned training which fell through because of the economic downturn, rather than false claims.
However, both acknowledge that the Government's clampdown on funding rules may have forced some to stop claiming for trainees who were not achieving anything.
Tertiary Education Minister Steven Joyce, who announced a sweeping review of industry training in June, agreed, saying ITOs were forced to run their systems by the new rules and a new register which recorded training as it happened.
Some ITOs which had to make big repayments in 2009 might be struggling to reduce trainee numbers to levels they could justify last year.
Briefing papers show in July, Mr Joyce warned six ITOs - Apparel and Textile, Seafood, Aviation, Travel and Tourism, Engineering, Food and Manufacturing, Equine and Opportunity (which covers cranes and rigging) - that they would lose recognition and funding if follow-up reviews found they were still claiming money for ineligible trainees.
Two of these - Aviation, Travel and Tourism and Engineering, Food and Manufacturing - were told they must resubmit their investment plans for next year before they could receive any more public funding.
A further 10, which claimed more than $100,000 for ineligible trainees, are being monitored and face possible follow-up checks next year.
The reports also show:
* Thousands listed as trainees in the ITOs last year had achieved no credits towards a qualification.
* One trainee electrician spent 15 years on a national certificate supposed to take three part-time years.
* The Engineering, Food and Manufacturing ITO (known as Competenz) agreed to suspend 1070 people still listed as training more than four years after the usual completion date of their course.
Officials said taxpayers lost $24 million in 2009 - $14 million through ITOs overclaiming on courses which should have been completed and $10 million because more than 15,000 trainees enrolled for more credits than could be achieved.
From this year the commission linked funding to the actual duration of a course and proof that trainees were achieving credits. It said ITO cash reserves would cover most of the money owed to the Crown.By Andrew Laxon Email Andrew