The papers seeking Cabinet approval of an $8.5million bail-out for the polytechnic were released by the Government on Wednesday.
Officials also noted it had ``long-term governance and management problems''.
As well as the $8.5million bail-out, the Government last year propped up Tai Poutini Polytechnic with $3.5million, and it was also revealed this week the Tertiary Education Commission (TEC) was writing off a $24.8million debt owed by the polytechnic for underdelivering on a range of courses.
Tai Poutini Polytechnic employs 100 staff.
The papers show that its underdelivery of courses - mainly outside the West Coast - resulted in money that was then used to subsidise the West Coast operation.
As well as not providing enough hours on 13 of 14 programmes audited, the polytechnic provided programmes to fewer students than it was funded for.
The West Coast programme was too small to be viable on its own.
``Effectively, Tai Poutini Polytechnic is in a receivership situation, but the Crown is continuing to provide support because it is critical for tertiary education provision on the West Coast,'' officials said.
The polytechnic balance sheet values it at $12million, less than the outstanding debt.
If improvements are not made quickly, it will affect learners and reduce the chance of a successful change.
The Cabinet papers also reveal the acting chief executive, Alex Cabrera, appointed in July 2016, had raised concerns about cashflow. When the NZ Qualifications Authority rated Tai Poutini Polytechnic its lowest ranking late last year, it should have been stopped from taking new students, officials say. However, the Crown manager appointed to the polytechnic, Murray Strong, had agreed on an action plan including a partnership with Southern Institute of Technology.
Financial processes and controls have been reviewed and, last year, the polytechnic achieved savings of about $3.5million.
Nationally, about half of similar institutes are expected to be in deficit by 2020, prompting a wider review of the sector.
Education Minister Chris Hipkins met polytechnic chief executives and the TEC yesterday, to try to work out a cure for the struggling sector.
The Government has warned that 80% of the country's 16 polytechnics will be losing money in five years.
RNZ said falling enrolments and rising costs were the problem, and the situation appeared to be getting worse.
