Employees who suspect fraud or other abuses of public cash spent on their training will be told by government officials to “grass” on those responsible using a whistle-blowers’ hotline.

Ministers’ plans for a whistle-blowers’ charter are being drawn up after their civil servants were castigated for failing to investigate adequately at least 31 cases ofpossible corruption.

The powerful House of Commons Committee of Public Accounts this week lambasted the Department for Education and Employment for providing Pounds 8.6 million in “incorrect and uncertain” payments. It was, the committee said a “deplorable” mis-spending of public money.

But, while the DFEE gets it in the neck, it is Gillian Shephard, the Secretary of State for Education, who will have to explain to Parliament why it took six years since training and enterprise councils were first created - partly to administer such schemes - to establish measures to ensure tighter scrutiny.

Even then, the precautions are seen as inadequate. The two big programmes scrutinised in a committee report this week - Training for Work and Youth Training - cost Pounds 1.4 billion. Cash is directed through 74 TECs to more than 5,000 training providers.

At the heart of the committee’s attack is the often-repeated allegations of fraudulently issued certificates for national vocational qualifications. It was “concerned that as many as 71 cases have been recorded of suspected and alleged irregularities since 1995”. And yet “following investigation into 41 of these, only one case has been referred to the police”.

Tougher measures imposed by the department include new operating licences for councils, better management teams backed by “forensic accountants”, good practice guides and now the planned hotline. But the committee estimates that the level of incorrect and uncertain payment has dropped by just Pounds 800,000 from Pounds 9.4 million. “This is still too high a figure,” it says, urging tougher measures. “Controls the department and TECs have so far put in place have not been fully effective in ensuring that the majority programme of public expenditure they administer is properly spent.”

In some cases cash had been claimed by the training provider for non-existent trainees and for forged NVQ certificates.

There was particular concern over two councils where overpayment was made: Pounds 150,000 to Cumbria TEC - Pounds 69,000 of which was described as “profit”; and Pounds 231,000 to County Durham TEC.

“We consider it deplorable that money, which should have been spent on equipping people with skills for work, should have been mis-spent in this way,” says the committee in its report.

Allegations of abuses and corruption on NVQ courses were made as early as 1994, by groups including the self-styled education and training watchdog Article 26 and the Campaign for Academic Freedom and Standards. A highly critical report from the National Institute for Economic and Social Research the following year warned that payment by results left the system open to abuse without more rigorous checks on standards.

The first hard evidence of overpayment by Whitehall came in a report last April when the National Audit Office claimed that councils were paid Pounds 20 million too much.

Two police raids followed last autumn. Documents were seized from Sight and Sound, training agents in south London, after accusations that thousands of NVQ certificates had been incorrectly awarded. Police also raided the Leeds, Scotland and Telford offices of Centrex in an alleged Pounds 1 million training fraud.

Ministers, the department and councils have taken pre-emptive steps to tighten-up scrutiny procedures in advance of this week’s embarrassing report. But, the committee concludes: “We concerned at the continuing risks that the Department might make overpayments to TECs on the basis of irregular claims on TECs by training providers in respect of NVQs.”