Schools in Birmingham are sitting on a cash stockpile of more than £46 million which should be used to improve the education of children.
The cash surplus represents an increase of more than £6.6 million on the previous year, sparking concern that pupils are failing to see the benefit of extra funding to schools.
Education chiefs in Birmingham have now warned heads that do not have a valid reason for holding on to the money to spend it or risk losing it.
Coun Jon Hunt (Lib Dem Perry Barr), chairman of the authority's education scrutiny committee, said: "You have to wonder why we have a situation, when we have fair fund-ing formulas, that so much money has been accumulated, especially when quite a number of schools are running a deficit.
"These schools must have realistic plans for spending it. If not the money can be taken back off them. It hasn't happened yet, but it may well happen."
Education chiefs consider a surplus of five per cent of the overall school budget for secondaries and eight per cent for primaries to be healthy in a well-run school.
The spare money is used to cover emergencies such as sickness, repairs, fall in pupil numbers or financing a large capital project.
But in Birmingham, 40 per cent of schools have a surplus of more than ten per cent.
The worst offending primary was Nansen Primary in Saltley which has built up a surplus of nearly £810,000 - 44 per cent of the overall school budget.
Among secondaries, Yardley Secondary had the most unspent money - more than £963,000, representing 28 per cent of the budget.
Both were found to have steadily increased their amount of surplus cash between 2003 and 2005 - a period which has seen millions of pounds of extra funding pumped into education.
Neither school was available for comment yesterday.
But Coun Les Lawrence (Con Northfield), Birmingham's Cabinet Member for Education, said: "I think all other schools within the city would be expecting us to vigorously question the veracity of holding such huge surpluses."
The authority has asked all schools with consistently surplus budgets to explain their spending plans.
Those that fail to provide adequate explanations, face having the unspent money clawed back under the Management of Surplus Balances Scheme and redistributed to struggling schools.
Bill Anderson, deputy general secretary of the Birmingham branch of the National Union of Teachers, said: "Where a school can clearly demonstrate it has a surplus which is going to be spent on a specific project at a specific time we don't have a problem.
"Where we have an issue is with schools that appear to be holding on to budgets for no particular reason."
The power to claw back surplus budgets was introduced to local authorities more than two years ago.
Sandwell Council was the first in the region to threaten to take away cash from wealthy schools.
It complained that schools were sitting on a stockpile of more than £5 million, despite national education performance tables regularly placing Sandwell at the bottom of the league.