Victoria’s corruption watchdog has found evidence of a $2 million TAFE scam.

The Independent Broad-based Anti-Corruption Commission (IBAC) is considering informing the Office of Public Prosecutions of a subcontracting scam involving the South West and Bendigo Kangan TAFE institutes.

IBAC says the owner and director of the private training company TayTell, Rebecca Taylor, received over $2 million in Victorian Government TAFE subcontracts for training that did not take place.

TayTell secured a third-party agreement with South West TAFE in 2013 to train employees of the private company Zinfra.

The investigations have found Zinfra employees were enrolled in certificates in engineering and business administration without their knowledge.

Ms Taylor, her husband and daughter allegedly fabricated student records in a system she described as being like a “sausage-machine”, including using the term “sausages” as code for student files in text messages.

“Ms Taylor maintained, quite absurdly, the references to 'sausages' in her text messages related to the catering to be provided at the student graduation,” IBAC said in its report into the matter.

Ms Taylor claims the required training and assessment did occur.

“Ms Taylor's plainly false evidence became more preposterous the longer it went on,” the IBAC said.

The scam reportedly involved a South West Institute of TAFE senior executive who awarded training and assessment and engineering certificates to Ms Taylor when she was not qualified.

TayTell secured a similar agreement with Kangan in 2014 to enrol Jetstar employees in an engineering course, in which no training took place.

IBAC found the enrolments were riddled with false information and forged signatures, but allowed TayTell to claim funding.

The authorities caught wind when students complained after receiving unexpected statements of attainment for study they had not done.

Zinfra had raised concerns with Kangan about the fraud, but the TAFE reportedly ignored the claims in order to preserve its valuable stream of Government subsidies.

“The Kangan team managing the TayTell contract worked to downplay and discredit Zinfra's concerns, to conceal the TayTell non-compliances and to prop up and continue the training arrangement between Kangan and TayTell,” the report said.

IBAC found both TAFEs failed to complete basic due diligence.

“There was a disincentive to critically monitor TayTell, Ms Taylor's company, as to do so would jeopardise funding,” the report says.

“The potential value of the contract, at a time when revenue was hard to come by and highly sought after, may have marked the contract as the 'gift horse' into whose mouth no-one dared look.”

Rebecca Taylor also worked as a consultant to regional rail operator V/Line after the company failed to follow proper procurement or recruitment processes.

A group of senior V/Line officers were found to have placed undue emphasis on who people knew and personal friendships in their disregard of public sector procurement and recruitment standards between 2013 and 2016.

“Clear conflicts of interest in procurement and recruitment were not declared or managed, allowing unfettered cronyism to flourish at senior levels of the agency,” the report said.

V/Line says the staff are no longer employed by the company, and that it has improved the management of procurement, recruitment and conflicts of interest.

IBAC commissioner Stephen O'Bryan said the scam was made possible by the TAFEs’ failure to properly monitor training delivered on their behalf.

“The Victorian community would be right to be extremely concerned with the misappropriation of these funds,” he said.

“In recent years, there has been considerable attention on the challenges confronting the vocational education and training sector, including concerns around TAFEs' financial sustainability and the vulnerability of the sector to unscrupulous providers.”