The Individual Learning Accounts (ILA) scheme has cost the taxpayer £97m in fraud and abuse because education ministers were "naïve" and ignored evidence from previous pilot schemes.
The latest report from the Commons Public Accounts Committee slams the risk assessment measures carried out by the Department for Education and Skills (DfES) as "not fit for purpose" and criticises Capita, the company brought in to develop and run the scheme, for failing to voice its concerns.
The ILA scheme, set up in 2000, was the government's flagship adult learning scheme, providing grants of up to £150 towards the cost of a course. But the popularity of the project took the DfES by surprise.
The DfES was slammed for failing to recognise that the target number of learners, and the budget, would be exceeded until early summer 2001.
The problem was exacerbated by Capita failing to include any "exception reports" to highlight unusual items of activity or particularly large claims from training providers, two of which exceeded £6m.
The DfES was also slated for not employing sufficient resources to review the weekly, monthly and annual activity reports supplied by Capita on the number of accounts opened, expenditure, number of complaints and performance against agreed service targets.
This meant it failed to detect that accounts were being opened without the knowledge of account holders, while others were being "emptied by unscrupulous providers".
Hundreds of course providers are now being investigated. More than 100 files have been sent to the police and 60 people arrested. Some of these are awaiting court appearances and one has been sentenced to nine months in prison. The DfES is also pursuing another 400 providers.
Edward Leigh, the Committee's chairman, said: "It is likely that half of the budget for ILAs was siphoned off in fraud and abuse.
"This reflects the number of short cuts taken by the Department. The scheme was poorly thought through, put in place too quickly, and the risk assessment and risk management was wholly inadequate."
The DfES has accepted the report, stating: "Overall, the delivery of ILAs fell a long way short of the standard the public has a right to expect."
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