Tens of millions of pounds of taxpayers' money may have been defrauded from an adult education scheme, a spending watchdog has found.

A damning report by the National Audit Office said the Individual Learning Accounts (ILA) Scheme was introduced too quickly and without proper security measures.

A lack of safeguards or quality controls had left the scheme wide open to abuse by fraudsters, the watchdog said.

ILA fraud

133 people being investigated Those 133 received �67m 98 cases referred to police One conviction Scheme �70m over budget

The scheme, which cost �273m - �70m more than its budget - was wound up in England in November last year following allegations of fraud.

Projects in Northern Ireland, Scotland and Wales closed a few weeks later.

The National Audit Office (NAO) says investigations have been carried out into 133 companies which got money from the scheme.

Those companies together received �67m of government money.

Of the 133 cases investigated, 98 have been passed on to the police. There has been one conviction so far.

The speed with which the department implemented the scheme resulted in corners being cut Sir John Bourn, National Audit Office

The government has not put a precise figure on how much money might have been defrauded and says it might be two years before it can say for sure.

The scheme was run by the private company Capita on behalf of the government.

On Thursday, the government announced it was terminating Capita's contract to wind up the ILA scheme and develop a replacement.

Tricksters

The scheme began in September 2000 and involved the government subsidising courses for adults in basic skills or subjects like computing.

Students paid a small contribution, with course providers claiming the rest of the fee from the government.

But tricksters are alleged to have claimed money for non-existent courses and to have used people's names to claim money without their knowledge.

Mistakes were made and lessons have been learned Government spokesperson

An earlier report by the Commons Education Select Committee blamed the department for education and Capita, which was paid �55m to operate the scheme.

The head of the National Audit Office (NAO) Sir John Bourn said the scheme had been innovative in some ways, but serious mistakes had been made.

He said: "The speed with which the department implemented the scheme resulted in corners being cut.

"Poor planning and weak risk management by the department led to weaknesses in the system which made fraudulent activities possible."

He said the department had not realised that some unscrupulous providers were taking advantage of "inadequate security arrangements".

The scheme cost �273m in total - but there is no clear picture of how much of this was stolen, as it is not known how many of the 2.6m accounts opened were genuine.

At one point, 10,000 accounts were being opened daily - and the ILA budget was over-spent by �93.6m.

Crystals course

The NAO also criticised quality control on courses, which meant some were being funded which should never have received money.

It named several courses, including Chronic Cats 2001, Transcendental Meditiation, Summer Glastonbury 2001 and a crystals course as some which had received funding for which they were not eligible.

However, one of the companies which ran a course listed by the NAO as ineligible told News Online that Capita staff running the scheme had said their course on crystal healing was eligible.

Erick Henderson, of Nottingham-based North Star Crystals, said: "We did check this with the ILA people and were told we definitely did qualify."

The government has said it will learn the lessons of the ILA scheme to make the replacement adult education scheme harder to rip off.

However, Training providers will have to show they are reputable before being allowed to take part.

A spokesperson for the department for education said: "It is clear that mistakes were made and lessons have been learned."

He said the "innovative" programme had "helped hundreds of thousands of people get back into learning".

And he added the report would help to ensure "the failures of the first scheme are not repeated".

Review

The government is working on a replacement scheme, with details to be announced in a review next June.

It is negotiating an agreement to terminate the Capita contract, but said it was very happy with the company's work on early plans for a replacement scheme.

Tim Boswell, Conservative spokesman on higher education and lifelong learning, described the ILA scheme as "an accident waiting to happen".

He said: "This report is a sobering document.

"Just like the new A-level system, the department once again failed to move from eye-catching press release to good solid implementation."

Paul Holmes, the Liberal Democrat's member of the Education Select Committee said the ILA fiasco paved the way for Estelle Morris' resignation.

"The NAO confirms the findings of the Education Select Committee's report which found that the ILAs were badly planned from the beginning, open to fraud and abuse, and ineptly run by Capita," he said.