Private training firms have been given a blunt reminder about the facts of business life by David Normington, education’s top civil servant.

Standing in the rubble of what was the individual learning accounts scheme, the permanent secretary at the Department for Education and Skills told the parliamentary ombudsman that training companies were responsible for their own risks and therefore not entitled to compensation.

His views were included in the ombudsman’s report which this week found that the DfES had been guilty of “serious maladministration” in the way it set up and ran the scheme which provided subsidies of up to pound;200-a-head to adults who took up training opportunities.

Another fact of business life, unfortunately for the department, is that entrepreneurs are less likely to do business with an organisation which has a record of incompetence such as that contained in the ombudsman’s findings.

The DfES, its reputation already dented by a series of critical reports about its handling of ILAs, returns to the market in June when it hopes the lure of Government cash will win back a training industry which is still licking its wounds after the last encounter.

As it prepares to proposition the learning providers once more, it could have done without yet another report to remind the world of its past failings.

The report, by Alan Watson, deputy to the parliamentary commissioner for administration, said: “It seems to me that the decision to suspend the scheme was forced upon the DfES at least partly as a consequence of their own maladministration.”

One of those who was involved last time was Roger Tuckett, who went out of business with the collapse of the original ILA scheme in November, 2001.

It was his complaint that led to the investigation by the parliamentary ombudsman, reported on the front of FE Focus this week. A further ombudsman’s report is expected before Parliament today.

Quite apart from the effects of ILAs’ withdrawal, he suffered “negative cashflow” as a result of the time it took Capita, the DfES’s administrative partner, to register new ILA account-holders booked on to his courses.

Mr Tuckett has been in touch with a large number of companies damaged by the ILA meltdown. He says those who try and get involved with ILA2 may receive a frosty reception from the banks.

He said: “The confidence of the providers has been knocked and the confidence of the financial community would be severely knocked.

“They would look at investment in any way dependent on Government support to be a high-risk activity. If they invest they may be looking to be paid back not over three to five years but over 18 months.

“Therefore the Government is likely to find that providers who care about the quality of training, of which there are many, are reluctant to get involved.”

His not-for profit training company, Henley Community Online, went bankrupt - which he says was the result of the closure of the ILA scheme and the pressures caused by bringing the closure date forward. He has been given a payment of pound;500 by the DfES for his troubles - but it does not accept liability for his company’s losses.

He says he lost pound;25,000 in salary because the company’s cashflow became too slow to make the payments as it got bogged down by Capita’s inefficiency in processing ILA accounts.

The ombudsman’s report said: “My investigation into Mr Tuckett’s complaint has been seriously hampered by the poor quality of records maintained by the DfES.

“There is no definitive record of certain key decisions not to restrict registration of learning providers to accredited providers.

“The record of some important decisions was not found on the key files. In some cases, it was difficult to identify exactly when a decision was taken and by whom, because the status and date of documents was unclear.”

If the DfES’s record-keeping had been more business-like, the ombudsman might have shed further light on the catalogue of failures which sank ILAs.

But the report says the department cannot be blamed entirely for the failure of Mr Tuckett’s business.

The report said the ombudsman could not recommend full compensation for Mr Tuckett’s losses. It said: “While maladministration in the design and operation of the scheme was a contributory factor in causing ministers to decide to suspend the scheme, I have not found that was the sole cause.

“I am therefore unable to attribute the eventual failure of the company wholly and directly to maladministration by the DfES.”

This will be bad news for other companies which were in Mr Tuckett’s position. Many feel it is unfair to argue that they should have accepted the risks of the marketplace. Through the use of public money to provide incentives to learners, the DfES influenced the training market in a significant way.

Training companies have complained in the past that the ILA scheme was so big they had little alternative but to take part.

The report says: “Had a learning provider decided not to register under the scheme, he or she would have been unable to obtain the discounts available.

As a result, he or she would have been at a significant competitive disadvantage in relation to other providers who had decided to participate and were, as a result, able to offer a reduction of up to pound;200 in course prices for certain courses.”

Accounts were opened by 2.6 million people.

DIARY OF DEBACLE

* March 1999

Chancellor Gordon Brown announces the creation of Individual Learning Accounts. A target is set for at least one million people to open an account by March 2002.

* September 1999

A briefing pack is agreed for companies bidding to administer the scheme for the Department for Education and Skills. The pack sets no requirements for security of data.

* March 2000

Capita is selected as the preferred bidder, after other companies retire from the race.

* October 2000

DfES officials warn that, after a review of the scheme, the risks of fraud are greater than they had originally thought.

* May 2001.

The one million account-holder target is reached - almost a year early.

* June 2001

Officials alert ministers to suspicions about the activities of a small number of providers.

* September 2001

Ministers are alerted to arrests of suspected ILA fraudsters by the police’s National Crime Squad.

John Healey, adult skills minister, instructs officials to tighten up the scheme in the light of increasing reports of abuse.

* October 2001

The Government announces the scheme will close on December 7 because of its rapid growth and concerns over the quality of training.

* November 23 2001

The scheme is abruptly closed two weeks early amid fresh allegations of fraud.

* June 2003

The DfES is due to announce a new ILA scheme.