The courts service has admitted responsibility for allowing a woman who made £1.3million by running brothels to slip through its fingers without recovering her criminal profits.

The HM Courts & Tribunal Service, a government agency that is part of the Ministry of Justice, is facing serious questions after it admitted failing to keep track of convicted madam Li Ying, who is now on the run despite a court order requiring her to return her vast illicit earnings.

In an embarrassing turn of events, Ying, 49, was released from prison in October last year despite not paying back a penny of the money she made from a network of 12 brothels that stretched across Camden, Barnet and four other London boroughs, as well as into Hertfordshire and Buckinghamshire.

She was supposed to have returned all of the £1.3million by September – a month before her release – or face a further fives years in jail, under a court order issued last March. Police fear she has now fled the country.

The HM Courts & Tribunal Service finally admitted this week that it was at fault and that its monitoring of prisoners with outstanding confiscation orders needs to improve.

A spokesman said: “This individual should have been brought to court as soon as their time to pay had expired, before they were released from custody. Immediate steps have been taken to ensure that this does not happen again. HM Courts & Tribunals Service is working closely with the National Offender Management Service to introduce a better system for monitoring prisoners with outstanding confiscation orders so that the most effective enforcement action can be taken against them.

“Cracking down on those who do not pay is an absolute priority and we are succeeding in recovering more money every year. The agencies involved in the enforcement of confiscation orders take every step to tackle outstanding debt and are building better relationships with overseas authorities and engaging specialist forensic teams to track down hidden assets.”

At the time the confiscation order was made, Ying, formerly of Fortune Green Road, Fortune Green, was already serving a five year sentence after being jailed in 2011 for controlling prostitution, concealing criminal property and three counts of money laundering.