THE University of NSW's vice-chancellor, Professor Fred Hilmer, has threatened staff with sackings if they proceed with a wage claim of 20 per cent over three years.

Yesterday's warning was made after the university recorded a net financial loss of $87.3 million last year and $55 million was wiped from its investments.

Professor Hilmer went on the offensive after the NSW Auditor-General, Peter Achterstraat, raised concerns about the university's governance of its failed Singapore campus.

On the eve of departing for overseas, Professor Hilmer said the university was facing significant financial challenges over the next two years. The institution had done well from this year's federal budget in terms of capital grants, but there would be no significant increase in recurrent funding until 2012-14.

"We do not have the capacity to meet any significant increase in costs," he said.