The London School of Economics (LSE) has said it will scrutinise all future major donations following a highly critical report on its acceptance of a £1.5m donation pledge from Saif Gaddafi son of the former Libyan leader Colonel Gaddafi.

The just-published Woolf Inquiry found serious failings of governance, management and communication in relation to the acceptance of a pledge from the Gaddafi International Charity and Development Foundation.

Lord Woolf also looked at the former LSE Director's appointment as the UK economic envoy to Libya and his position on the international advisory board of the Libyan Investment Authority as well as the work of LSE Enterprise for Libya's National Economic Development Board. A separate investigation by the University of London looked at alleged academic misconduct, including plagiarism and ghost writing, in awarding Saif Gaddafi a PhD.

Former director of LSE Sir Howard Davies resigned in March this year following protests over the links.

Lord Woolf has made 15 recommendations and the LSE has already started to implement them. Of the £1.5m, a single installment of £300k was received by the LSE and no more has been or will be accepted.The LSE has allocated the money to provide scholarships for students from North Africa.The University of London has concluded that Saif Gaddafi’s PhD should not be revoked. The PhD thesis has been annotated to show where attribution or references should have been made.

LSE’s interim director Professor Judith Rees said: “Lord Woolf makes a number of recommendations on donations, all of which we have in hand. In particular, he asks whether, and in what circumstances, it is appropriate for an individual, centre or department to request a donation on their own initiative. I have already written to heads of departments and research centres to say that it is not acceptable for any individual, department or centre to request funds without consulting ODAR [Office of Development and Alumni Relations] first.”

The council for the advancement and support of education (CASE) welcomed Lord Woolf’s inquiry.  It said the report contained lessons for the entire sector and the fundraising community at large.

Chair of trustees Professor Eric Thomas said: "Philanthropy is an increasingly significant component of the UK higher education sector's income stream. Balancing academic independence with effective donor relations is achievable and evident across the sector. Clear and transparent gift acceptance policies and procedures support this."

Earlier this year, CASE Europe reviewed existing practice in relation to gift acceptance. Fundraising by UK Universities brings in approximately £0.5bn annually representing 2% of UK higher education expenditure. Universities attract the largest philanthropic gifts made in the UK.

In a statement, CASE said: “With the growing emphasis across the sector on philanthropy, the group believed it would be helpful to develop a set of core principles that all universities might consider as they develop or adjust criteria and processes to reflect their particular structures and priorities.”

The guidelines emphasise the following:

1. Philanthropic support should be aligned with the values, strategic goals and financial needs of an institution.
2. Information for donors, stakeholders and the university community regarding the processes followed for gift acceptance should be publicly available.
3. Independent research, scholarship and teaching are the basis for the furtherance of knowledge. Universities must not accept gifts if this is not fully understood and accepted by all parties.

CASE Europe executive director Kate Hunter said: "Fundraising is a legitimate activity for the higher education sector: universities are charitable institutions in their own right and many have their origins in philanthropy. As the higher education sector has internationalised, engagement with supporters across the world has emerged as an increasing component of an institution's philanthropic endeavours.”