The 2019 audit into Technical and Further Education Institutes found the Bendigo Kangan Institute had a total of revenue of $164,364,000.

But the institute's total expenses rose to $172,937,000 last year, creating a shortfall of $8,573,000.

The results come after the institute recorded successive surpluses between 2015 and 2018.

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Bendigo Kangan Institute chief executive Sally Curtain said the Auditor-General's report reflected changes at the institution.

"Bendigo Kangan Institute undertook significant change in 2019 with the launch of free TAFE and the rollout of the first year of the Multi-Enterprise Agreement that makes Bendigo Kangan Institute teachers now among the highest paid teachers in the country," Ms Curtain said.

"The Department of Education and Training has supported Bendigo Kangan Institute during this time of transition and will continue to do so."

The Victorian Auditor-General's report showed TAFE institutions across the state took a hit in 2019.

The total revenue across the sector dropped to $1,206,476,000 last year, after recording a total revenue of $1,217,672,000 in 2018.

But the sector's expenses rose to $1,253,083,000 in 2019 after it was $1,152,556,000 in the previous year.

The state government rolled out its free TAFE program in 2019.

Ms Curtain said 3665 students were enrolled in the institute's free programs last year.

"Bendigo Kangan Institute is continuing to deliver high quality training that is leading to local jobs in the communities it serves," she said.

"The Victorian Auditor-General noted the introduction of free TAFE has reversed the downward trend in commencements and encouraged the transition of students to courses designated as high priority for future growth."

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