In the latest scandal to hit the vocational and training sector, the Education Department issued Goulburn Ovens Institute of TAFE - also known as GOTAFE - with a formal reprimand.

On Friday the TAFE's general manager of education, Margie Fixter, emailed staff to notify them of a "significant concern" about compliance with training packages, the enrolment of students into inappropriate courses and interstate enrolments.

"I need to alert you to a serious matter," a leaked copy of the email reads.

"As a consequence, an immediate freeze is now in place for all new enrolments in travel and tourism, hospitality and meat processing programs."

She said the situation had "significant implications" for GOTAFE and it would conduct a detailed review.

Insiders allege that the TAFE reaped extra government funding by enrolling students in higher-level qualifications, which attracted more funding, and then exiting them with lower-level qualifications.

It is understood that an employment agency was also involved.

The TAFE has also been accused of enrolling students with inadequate literacy and numeracy skills into courses.

But the Education Department and TAFE refused to confirm or deny the allegations, or elaborate on what took place.

TAFEs have resorted to "creative" ways of raising revenue due to inadequate funding, according to Greg Barclay, the Australian Education Union's Victorian vice-president for TAFE.

"Because TAFEs have been so poorly funded they are pushed to increase their margins on the edges," he said.

"We have always had concerns that this has led to students being enrolled into courses that are not appropriate for their literacy levels."

While the state government is pumping $320 million into TAFEs through its "rescue fund", many in the sector say the money would be better spent on boosting the hourly funding rate for students. 

An Education Department spokesman said that it recently wrote to GOTAFE "regarding issues" with its travel and tourism and meat processing training programs. These were detected during regular monitoring of training providers.

He said the Institute had resolved these issues.

A GOTAFE spokeswoman said the institute was working with the Department to resolve the issues.

"As an interim step, GOTAFE has implemented a number of internal measures to manage the review process," she said.

"GOTAFE continues in its commitment in providing quality assured training programs to the communities in which we operate."

The state opposition's training spokeswoman Steph Ryan said the Andrews government needed to provide an assurance that taxpayers' funds had not been rorted.

"Minister Gayle Tierney has an obligation to explain what will happen to students caught up in this mess and how long the freeze on enrolments will be in place."

A government spokesman said TAFEs played an important role as trusted public training providers.  

"We expect them to operate with integrity and to deliver for students."

The TAFE is located in north east Victoria and has campuses in Benalla, Seymour, Shepparton and Wangaratta.

Its latest annual report revealed that student numbers were down 12 per cent.