The contractor ran an engineering course on the institute's behalf for about 140 people. The program attracted subsidies believed to be worth $15,000 per student, but was later alleged to have failed to meet proper training standards in its course content.

An audit by the Victorian Auditor-General in 2014 uncovered a loss of $1.82 million at South West TAFE, in a case of suspected fraud. The alleged fraud was referred to Victoria Police and IBAC.

IBAC said on Tuesday that Operation Lansdowne would investigate allegations that people connected with V/Line and the two TAFEs had corruptly profited at the public's expense.

"The investigation is considering whether persons associated with these public bodies have engaged in corrupt conduct to improperly benefit themselves or others," the watchdog said.

In a statement it named Rebecca Taylor, director of Taytell, as a person of interest in relation to the investigation. It said it would investigate whether current or former TAFE officers misused their position to award or interfere in the awarding of qualifications to her.