A government crackdown on the cost of further education red tape saved just a "modest" £4 million, the public spending watchdog has said.
The National Audit Office (NAO) said the plan to free institutions from unnecessary bureaucracy did not go far enough and vital funding that could be spent on teaching students was being swallowed up by the administration costs.
Despite reforms being put in place, nearly one quarter of providers felt the administrative burden was now worse while 60% said it was no different.
The Department for Business, Innovation and Skills (BIS) introduced a "simplification" plan after an NAO report three years ago estimated up to £70 million a year could be slashed by reforming the system.
Much of the bill for red tape is caused by having a number of different funding arrangements but BIS and the Department for Education have "not done enough" to streamline the system, according to the NAO.
The watchdog said a "much more serious effort" was needed to tackle the problem.
Around £7 billion is channelled through the two main funding bodies - the Skills Funding Agency and the Education Funding Agency - .every year for around 4.2 million students.
NAO head Amyas Morse said: "We and the Public Accounts Committee have highlighted before the over-complexity in the further education sector and the unnecessary burden this places on training providers. This diverts money away from students.
"Despite some progress there is still too much red tape. While initiatives to reduce the levels of bureaucracy have generated some good ideas, putting them into practice has not significantly cut the cost incurred by hard pressed providers.
"The Department for Business, Innovation and Skills, working with the Department for Education, needs to consider more radical ways to simplify complex funding arrangements."
A BIS spokesman said: "We have made good progress in removing and reducing bureaucracy for further education providers. Funding and inspection systems have been streamlined and providers tell us that this has had a positive impact.
"We will carry on working with the sector to reduce bureaucracy whilst driving up the quality of further education provision and making it more responsive to the needs of learners and employers."