Belfast Metropolitan College was left almost £7m (€7.78m) in the red after poor bookkeeping, it was revealed today.
Serious shortcomings in financial management and controls were blamed in at times scathing report for the Department of Employment and Learning.
Centralising the recording of permanent staff costs at the expense of control and changing banks at a time when the college was already coping with a merger and new accounting system were also highlighted.
A spokeswoman for the college said the report had been embraced and issues identified acted on.
The report said: "We consider that the permanent members of the senior management team have shown resilience in the face of the contextual challenges facing the college and demonstrated best efforts and teamwork.
"However they have collectively presided over the emergence of a significant and apparently unexpected revenue deficit in 2007-08 and an unacceptable position of financial and management processes in the college leading to the commissioning of an efficiency review."
According to the efficiency review, in 2007/08 the college had a £6.7m (€7.44m) revenue shortfall.
In the current financial year the college is working towards achieving a balanced budget.
"We have doubts about the college's ability to achieve such an outcome due principally to the late development of the college's budget in mid-December (2008), unrealistic expectations on savings, limited control of staff costs and the college's poor forecasting record," the report authors added.
"Some of the initiatives being taken by the college are ambitious and their implementation will need careful monitoring."
The 111 page dossier made 72 recommendations.
These included properly separating responsibilities between the governing body and senior management. Clear leadership and responsibility for curriculum planning should be put in place, it added.
"We regard the early appointment of a permanent director for Belfast Metropolitan College as critical to its future success," the report authors said.
"We conclude that the present deputy directors, with one exception, have the capacity to implement the findings of our review.
"The college's finance function has a number of serious weaknesses to address and we feel it is presently constrained in its capacity to effectively deal with the recommendations of this review."
Employment and Learning Minister Reg Empey said whilst the financial performance of the college has been disappointing in recent years, it is in a financially healthy position and this review will provide a useful framework for its further development.
"It is gratifying to note that the college is increasing its number of enrolments and continues to deliver a vital service in securing the skills base of the workforce," he added.
Marie-Thérèse McGivern, director and chief executive at the college, said the report had been embraced and issues identified acted on.
"Over the years, with recommendations from inspection reports, we have consistently worked hard at what we do," she said.
"We are committed to improving what we do and this review forms part of this commitment.
"Throughout this review period, Belfast Metropolitan College has continued to deliver high quality teaching and training to meet the skills demand from local businesses to aid the recovery of the Northern Ireland economy."