The Industry Training Federation admits the discovery that some members have been claiming funds they are not entitled to is unacceptable.
The Tertiary Education Commission plans to recover $4.3 million of funding from 18 of the 38 industry training organisations (ITOs) which manage on-the-job training and qualifications.
The commission says some ITOs did not have robust monitoring processes in place and claimed for funding they were not eligible for in 2009.
Tertiary Education Minister Steven Joyce says the move to recover the money is fair, as some funding was given for people who have not been engaged in training and there are 11 cases of money being provided for trainees who had died.
Mr Joyce says the monitoring processes of some ITOs has been inadequate and needed to be tidied up.
The federation's director, Jeremy Baker, says it understands the need to retrieve the money and will keep working with ITOs to encourage compliance with government regulations in future.
However, having to repay the money will put financial pressure on some ITOs already under strain due to the recession, Mr Baker says.
The commission's acting chief executive Colin Webb says economic conditions have also led to a drop in the number of trainees and it will also recover some 2010 funding allocated to ITOs but not used.
The drop in demand means less funding will be invested in industry training this year, Mr Webb says.
