THE Government was guilty of "serious maladministration" in its handling of the individual learning accounts scheme which collapsed amid allegations of fraud and abuse.
A catalogue of errors of judgment by the Department for Education and Skills is outlined in a 62-page report by the parliamentary ombudsman.
Charles Clarke, the Education Secretary, said this week: "We took a real bloody nose on the whole ILA programme and we can't afford to make this mistake again."
Individual learning accounts were scrapped on November 23, 2001. The pound;199 million budget for the first two years was overspent by pound;93.6m.
The ombudsman's investigation was mounted after a complaint from Roger Tuckett, whose company, Henley Community Online, a not-for-profit computer training provider, went bankrupt.
Administration of ILAs was carried out by private firm Capita for the DfES.
The report, by Alan Watson, deputy Parliamentary ombudsman, said:
"There was serious maladministration by the DfES in setting up and managing the scheme and a failure by the DfES and Capita to work effectively together to make sure there were adequate safeguards."
The DfES made an ex-gratia payment of pound;500 to Mr Tuckett but the ombudsman said he is not entitled to full compensation.
The report said there were fundamental errors in the way Capita was allowed to set up its computer system without proper safeguards against fraud.
The department failed to make sure Capita was aware of its own computer guidelines on protecting public money. This amounted to a "major administrative fault". The ombudsman said: "I would have expected to see that steps had been taken to ensure that the security of the computer system was such that users had access only to data which they were properly authorised to use.
"I consider the failure to take such basic steps, and of the DfES to ensure that they were taken, to be clear evidence of maladministration. That learning providers could gain access to accounts to which they had no entitlement is a matter of deep concern, which merits my strongest criticism."
The DfES also allowed blank ILA membership forms to be sent to providers.
This allowed trainers to recruit learners and then withdraw money from their accounts. In releasing the forms, says the ombudsman, the DfES "both expected and consented to" this practice.
The DfES accepts the report's findings, which add to previous critical reports from the Commons education and skills select committee, the National Audit Office and the Public Accounts Committee.
A spokesman for the department said: "The DfES is very sorry for the difficulties that some learning providers and learners experienced with the ILA programme.
"The department is in no doubt that serious mistakes were made and hard lessons are being learned. For all the faults, ILAs unleashed a real appetite for learning, particularly among people who would not normally undertake learning."