A police investigation into allegations of fraud at a Nottingham school has been dropped following a decision by the government, the BBC has learned.
The school took four months to deal with the legionella
An internal inquiry at Bluecoat School in Aspley found evidence of fraudulent activity, involving publicly funded building contracts.
Senior site manager Kevin Darby and head teacher Max Kay were suspended in December 2007.
Disciplinary proceedings against the two members of staff can now continue.
In a letter to the school's governors seen by the BBC, the Department for Children, Schools and Families said it did not want to pursue the matter.
Mr Darby used whistle-blowing rules to complain about the running of the school in 2007.
The school then investigated the claims and found financial irregularities with building contracts drawn up as part of the school's redevelopment.
The city council carried out a separate investigation and has said it is now going to introduce stricter controls on all schools.
The proceedings against the staff can now go ahead, after being delayed by police involvement.
Bluecoat Church of England school is undertaking a £40m redevelopment of its two sites in Aspley Lane and Wollaton Park.
The city council has had to lend the school £3m to cover on overspend on redevelopment at the Aspley campus, where the highly dangerous legionella bacteria was subsequently found.
It took the school four months, and a demand from the city council, to confirm this had been resolved.