Half of the Pounds 1.4 billion of training funded by Train to Gain would have been paid for by employers without using public money, according to an official report.
Although this is an advance on the 85 to 90 per cent "deadweight" when the programme was trialled under the employer training pilots, the National Audit Office said the flagship scheme "has not provided good value for money" over its first three years.
The report prompted the Conservatives to renew their call for Train to Gain to be radically overhauled. They favour using its budget of Pounds 925 million in 200910 to fund more apprenticeships.
David Willetts, shadow skills secretary, said: "This report confirms our fears that much of the Train to Gain budget has been wasted. The shocking price tag for the failure and mismanagement of this programme runs into hundreds of millions of pounds."
But the report conceded that some level of deadweight is inevitable and said that government believes it has achieved a reasonable additional amount of training.
A spokeswoman from the Department of Business, Innovation and Skills said: "We disagree that Train to Gain has not delivered good value for money, particularly when the majority of employers report that Train to Gain has improved productivity.
"Since 2006, employees have started more than 1.2 million courses, 143,000 employers have benefited and satisfaction levels are over 90 per cent."
Success rates were 71 per cent on average in 200607, the auditors said, but the picture varies dramatically between providers. The best saw 99 per cent of students complete the course successfully.
But in some of the 100 largest Train to Gain providers, success rates were as low as 8 per cent, and 26 of them were below the proposed minimum performance level of 65 per cent.
The NAO also criticised the lack of management control that led to budget problems this year. About a third of its budget for next year has already been committed because of over-recruitment this year, in addition to a Pounds 50 million overspend for 200809.
"It is vital that Train to Gain avoids the pitfalls of the further education capital programme, which became severely over-committed," the report said.
Auditors pointed out that it was not until December 2008 that the Learning and Skills Council had reliable systems to measure Train to Gain activity.
As a new programme that has undergone many changes since 2006, Train to Gain has seen more mistakes in funding than usual, the NAO found, with Pounds 11 million of payments to providers made in error, Pounds 8.2 million of which had been recovered.
The auditors said that 42 per cent of providers did not have robust internal controls and the use of sub-contractors who are not directly monitored by the LSC increased the risks of fraud and error.
By March this year, 19 allegations of fraud in Train to Gain had been investigated by the LSC, with four awaiting police action.
An internal audit in the funding body found that there was a lack of co- ordination in anti-fraud activity and that it was unclear who should be monitoring high-risk providers, such as companies trading under multiple names or using sub-contractors.
Minutes of the LSC national council in April warned of a serious risk of potential fraud, although the funding body said this was largely precautionary given the upheaval likely during the move to a new FE funding system.