The National Audit Office calls for tighter financial monitoring of the Government training programmes in the wake of its investigations into alleged irregularities.
Its report shows how unscrupulous private training providers have fraudulently claimed cash by forging certificates for national vocational qualifications.
The certificates trigger payments from training and enterprise councils, which act as local agents for the Department for Education and Employment and contract with companies who provide training.
There is also evidence of providers claiming for payments before trainees have achieved their target qualifications. Some have also claimed when trainees have not met required attendance levels.
The report's findings will come as no surprise to many involved in further education and training. Rumours are common of a variety of scams used to exploit the system of funding the Youth Training and Training for Work programmes.
Last month, the National Council for Vocational Qualifications and south London TEC launched an investigation into allegations that Sight and Sound College in South London had received thousands of pounds by falsely claiming students had passed NVQs.
An inquiry is under way at Derby Tertiary College, Wilmorton, after it was found that certificates had been claimed early for 800 students training as vocational qualification assessors.
British Technology and Education Council auditors were visiting the college this week to run a sample check of assessments, but BTEC has accepted it was an administrative problem not a fraud.
The NAO report will add weight to the arguments of those who feel there is insufficient scrutiny of private training providers.
The providers are monitored by awarding bodies, whose external verifiers are supposed to check training centres meet national standards, and by TEC monitoring teams. The report will be seen as questioning the effectiveness of those mechanisms.
This week's report acknowledges that a range of steps have already been taken by the DFEE to improve financial controls of training programmes. TECs have been told to contact samples of trainees to confirm training is taking place, and last year the department established a central record of known cases of irregularities.
TECs point to the fact that incorrect training payments have fallen from Pounds 67 million in 1989-90 to Pounds 9.4m.
The NAO study suggests the NCVQ and the awarding bodies should pass on information on suspect providers to the DFEE. It recommends the department creates a system allowing trainees or training centre employees to blow the whistle on irregular practices, and provides good practice guidance to TECs identifying problems.
It also suggests the DFEE should examine ways to arrange for awarding bodies to send TECs lists of people on Government-funded training programmes who have been awarded NVQs or other qualifications to help detect claims based on forged certificates.