MILLIONS of pounds of public money were lost in fraud under a government scheme for adult education, a report by the National Audit Office said yesterday.

Ministers rushed in individual learning accounts (ILAs), which enabled people to claim subsidies for training courses, despite clear warnings about the risk of deceit by companies involved. They were forced to close the scheme last November on police advice after it became clear that tens of millions of pounds could be lost in fraudulent claims.

Scores of training companies who claimed £67 million in taxpayers’ money are being investigated by police, the Audit Office said. It was likely to be another two years before the full scale of fraud is known.

Nine companies under investigation received £21 million in incentives for running a basic computing course. Payments of more than £1.5 million were made to 20 companies.

The Department for Education and Skills admitted that mistakes were made. It reacted to the report by announcing that it had ended a £50 million contract with Capita, the services company that implemented the scheme, which was meant to run until 2005. Capita has insisted that its systems were secure.

The audit office criticised the department for failing to respond fully to warnings about the dangers involved and for “the very tight timetable for getting the scheme set up”. Poor financial controls meant that officials never realised that 13 training providers had each registered more than 10,000 students, making them larger than 80 per cent of further education colleges for part-time enrolment.

The scheme was intended to fund courses to improve people’s job skills. Under a 1997 Labour manifesto commitment, the first million account-holders were given £150 towards the cost of a course, provided that they contributed £25. After that, courses attracted a 20 per cent subsidy worth up to £100, or 80 per cent worth up to £200 in the case of basic computing and mathematics.

Slack controls meant that money was wrongly spent on courses in leisure pursuits, such as transcendental meditation. Ministers wasted £77,000 on creative writing courses. Among the more bizarre courses that wrongly gained funding were “north star crystals” (£8,991), “Chronic Cats 2001” (£288), and “Summer Glastonbury 2001” (£1,390).

The National Audit Office said that ILAs had cost the taxpayer more than £273 million, against an original budget of £199 million. Problems were compounded by the unexpected popularity of ILAs: the target of one million holders was reached six months early, in September last year. More than 2.6 million accounts were opened by the time the scheme was closed.

Estelle Morris, the former Education and Skills Secretary, ordered the closure after being warned that companies were trawling Capita’s database of learners for unused accounts so that they could claim subsidies for courses that the individuals never took.

The department has no idea exactly how many accounts were opened and how much subsidy money earmarked for use by learners was taken by unscrupulous companies. Research suggested that more than a quarter of learners registered on courses had not done them.

As with the introduction of the new A level in 2000, many of the problems with the scheme resulted from its rushed introduction. The audit office said that the Department for Education was under pressure to launch ILAs as quickly as possible in 2000 and gave Capita less than five months to set the scheme up.

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