Select Committee on Education and Skills Third Report


Compensation for learning providers

119.  The Association of Computer Trainers complained that DfES had reneged on their promise to accept legitimate training arranged prior to 7 December 2001 by closing the website early. Many responsible and professional providers had honoured the contracts entered into with clients to deliver subsidised training for those holding a valid Individual Learning Account, at great cost to the financial viability of their business.[239] The National Extension College was "dismayed at the lack of notice over the ending of the scheme".[240] Mr Roger Tuckett of Henley Online estimated that the closure of the ILA scheme could result in "2,000 to 5,000" job losses.[241] Mr James O'Brien of Pitman Training Group plc and the Association of Computer Trainers told us that it was "very difficult to get information on the size of the market" but he assumed there could be up to 5,000 people squeezed out from IT training centres or forced to move to other areas of training.[242] Mr Healey told us that the DfES had no systematic way of gathering data on the job losses and bankruptcies resulting from the closure of the ILA scheme.[243]

120.  The Association of Colleges conducted a quick postal survey of member colleges on 30 November 2001 to ascertain the effects of the early closure on colleges. Of the 105 colleges able to submit returns by 22 January, 84 colleges reported that they expected to suffer a loss of income amounting in total to £1,225,111 as a result of the early closure of the ILA programme. Colleges generally expected to have to meet this loss of income in order to honour commitments to students.[244] The Principal of Preston College, Mr Stuart Ingleson, estimated the loss of income for his college at £260,000.[245] When the scheme was halted prematurely in November 2001, Preston College had chosen "to honour our marketing and the commitments we had made to our students."[246] According to Mr David Gibson: "the colleges did this in good faith, the money was withdrawn and, therefore, compensation would be quite legitimate."[247]

121.  The Association of Computer Trainers estimated that three quarters of the 250 training centres they surveyed would have to make redundancies or face closure by mid-2002 because of the withdrawal of the ILA scheme.[248] Mrs Sammy Betson of Ipswich ITeC told us that "our cash flow has taken a serious knock".[249] Providers' experience of being left stranded by the sudden closure of the ILA scheme may affect their willingness to operate the successor scheme: Mrs Betson said that "the question of whether or not we would participate in a future scheme is whether we have a spoon long enough".[250]

122.  Mr James O'Brien of Pitman Training Group plc and the Association of Computer Trainers told us that the most important thing was that "the Government had set a legitimate expectation for individuals to be able to access that learning up until 7 December and they should honour that commitment".[251] Mr Healey said that the DfES "simply had no other option" than to close the scheme immediately on 23 November.[252]

123.  Mr John Healey has repeatedly made it clear that the DfES has no plans to compensate learning providers in relation to the closure of individual learning accounts—

    "I do not want to mislead any learning provider ... that somehow there is provision that we can make to support their business as a result and in the immediate aftermath of having to withdraw the scheme. If I have been tough about that it is because I do not want anyone to mistake what I have said or to be misled that somehow it can be a lifebelt of public money which will continue to support their operations".[253]

124.  We do not express an opinion on the legal status of the Department's relationship with learning providers. We do however note that while the Minister has reiterated that "there was no contract between the Department and learning providers, and therefore we are not considering claims for compensation for those providers", he also stated that "a new learning provider agreement" had been introduced.[254] It is difficult not to see this "agreement" as introducing reciprocal obligations between its signatories.

125.  It should also be noted that Government intervention in a market has a distorting effect of a different quality from that of market entry by a commercial competitor. The latter is affected by the same economic rules (relating to risk, staffing, borrowing, etc.) as those already in the market. Government risk is less because Government is backed by the taxpayer and the power of legislation and regulation; its power is greater because it can shift a market. Providers with an established market position may have little choice but prepare to participate in a Government scheme rather than be overtaken by competitors. That is not an argument against Government involvement, merely an indication that Government should recognize its strength and not use it inadvertently to damage other players in the market.

126.  The Parliamentary Ombudsman is investigating several individual complaints that mal-administration of the ILA scheme has resulted in unremedied injustice to learning providers and individual account holders. We await the Parliamentary Ombudsman's findings with interest.

127.  We recommend that the Department should at least re-imburse those bona fide learning providers who can demonstrate that they have been financially disadvantaged by the accelerated date of closure of the scheme. The Department should appreciate that the way the date for closing the ILA was brought forward caused a great deal of difficulty for many learning providers, both large and small, and this should be borne in mind when launching any successor scheme.

Continuing investigations

128.  Since November 2001, investigative work has been continuing. By the end of January 2002, the total complaints received had reached nearly 18,300 (0.7 per cent of account holders). Of these, some 5,800 related to money being taken from individuals' ILA accounts without their knowledge.[255] Other complaints of a serious nature included poor value for money, aggressive marketing techniques, individuals contributions not being collected and unsolicited learning materials being sent to learners. The DfES assured us that all such complaints would be followed up. These complaints related to some 670 providers out of the total of 8,910 registered providers.[256] Mr Healey said that the DfES had "very strong and proper grounds for withholding payment" from certain providers.[257]

129.  The DfES told us that internal and police investigations were necessarily thorough and would of course take time, particularly with such a high volume of cases.[258] As at 16 April 2002, the SIU was dealing with 117 registered learning providers against whom complaints had been received. Of these, the police (nine forces: City of London, Metropolitan, Leicestershire, West Midlands, Cheshire, National Crime Squad, Kent, Cumbria and Dorset) were investigating 80 learning providers. The DfES Special Investigations Unit was discussing a further 16 learning providers with the police.[259] Mr Lauener of the DfES pointed out that the number of account holders in the West Midlands as a proportion of the population was certainly significantly higher than other regions, and that there were probably more cases of ILA fraud in the West Midlands than in other parts of the country.[260]

130.  By early April, police had made 45 arrests. Ten people had accepted cautions and charges had been brought against 13 people, one of whom had already been convicted.[261] Those figures include a National Crime Squad investigation of animal rights extremists which had incidentally uncovered ILA fraud for which 38 people had been arrested, of whom 12 people had been charged and a further 10 people had been cautioned. A total of £4.47 million of payments was still being withheld from the 80 providers referred to the police and the 16 providers whom the SIU were discussing with the police.[262]

131.  The DfES told us that work was underway to resolve a range of outstanding issues resulting from the closure of ILAs. These related to the implementation of payment procedures to enable the validation and processing of legitimate claims from providers; follow up and investigation of learner complaints; and action to pursue recovery from providers for monies wrongly paid. The Department told us that it was allocating significant resources to help ensure that these matters were dealt with as swiftly as possible.[263]

TABLE - Payments made and withheld after closure of ILA scheme

Payments withheld
Payments made
20 Dec 01
25 Jan 01
8 Mar 01
15 Mar 01
2 Apr 02
16 Apr 02
26 Apr 02

Notes: A learning provider may be included on more than one payment run. Payments made on 20 December 2001 were for claims for learning made with the ILA Centre up to and including 21 November 2001; payments made on 25 January 2001 were for claims for learning made with the ILA Centre up to 23 November 2001: the other payments were for learning booked but not confirmed at 23 November 2001, apart from those where payment had been withheld, to cover subsequently confirmed periods of learning booked on the ILA payment system. Source: DfES.

132.  On 31 January 2002 officials wrote to all learning providers explaining the arrangements for payment of validated, eligible advance bookings of learning on the ILA Centre system up to 23 November. The latest date for confirmation of booked learning will be 22 May 2002.[264] Claims have been invited from providers for learning booked on the ILA centre system, but not confirmed by the closure of the Individual Learning Account programme on 23 November, with start dates between 1 September 2001 and 31 March 2002. Providers for whom payment had previously been withheld had not been invited to claim. The DfES has made number of payments, which are now being made on a monthly cycle. Where the Department has complaints or other concerns, payments are withheld pending the outcome of validation checks and investigations [see Table above].[265]

133.  Since the closure of the Individual Learning Account programme on 23 November, payments of £8.16 million have been made to 2,883 registered learning providers and payments of £15.12 million to 223 learning providers have been withheld pending results of validation checks and investigations.[266] Mr Healey assured the Committee that all serious complaints were subject to follow­up and where evidence of potential fraud was found the complaint was passed to the Department's Special Investigations Unit (SIU).[267]


134.  The Secretary of State has given "a cast­iron guarantee that we will build on the huge success of ILAs in the next few months and ensure that further plans for progress on adult learning will take the best from the best scheme that has ever existed, but also remedy its shortcomings".[268] Hairnet commented ironically that "the term 'cast-iron' is not recognised by most spreadsheet applications".[269] Mr Healey told us that there were important lessons to learn not only in relation to any successor ILA scheme but also for the Department as a whole and "I think there are also some important lessons for us across Government from the experience we have had of this scheme".[270]

135.  The Association of Colleges highlighted a number of issues as a result of the early closure:

  • disenchanted students who had lost an entitlement to public support as a result of the closure or of fraud;
  • adverse publicity for providers as well as for the ILA programme and Government;
  • resolving the problems of how to deal with students for whom ILA support had been expected but had been lost as a result of the scheme's closure;
  • uncertainties over the nature and timing of any replacement programme.[271]

136.  Capita "believes that there are several important lessons to be learned from the operation of the ILA scheme and the subsequent abuse of information that has come to light. We would wish to contribute to this learning process in order to enable any re­launch of the scheme".[272] Mr Paddy Doyle of Capita told us that "any re­launched scheme will need to balance being non­bureaucratic with the need for tighter systems and business process, along with new verification, validation and auditing processes".[273]

137.  Mr Bryan Sanderson, Chairman of the Learning and Skills Council [LSC], said that the LSC had been asked by the DfES "to comment and to consider what we will do". In his view, "there is ... an enormous need for good professional management of anything like this, and clearly in this case that was somewhat lacking. There were just too many abuses. The decision to suspend them was almost inevitable but we do have to come back at them".[274]

138.  The DfES told us that "We are determined to get to the bottom of what has gone wrong and our investigations have already identified a number of lessons which we need to draw on in designing and managing a successor programme. We will also ensure the lessons are shared more widely across the DfES and other Government Departments. There are still a number of strands of this work under way, however, and we will be updating this assessment as further analysis becomes available. In particular, we will shortly have a report on system security from Cap Gemini Ernst & Young and we will make available the main findings from this review in an updated 'lessons to learn' in our response to the Select Committee's report".[275] We recommend that the report on system security from Cap Gemini Ernst & Young should be placed in the House of Commons Library as soon as it is available.

139.  Mr Healey has also indicated that the results of the review of the development and management of Individual Learning Accounts by the DfES's Head of Internal Audit requested on 12 November 2001 by the Secretary of State would be made available to the House "in due course".[276] We recommend that the results of the review of the development and management of Individual Learning Accounts by the DfES's Head of Internal Audit should be placed in the House of Commons Library as soon as it is available.

140.  The DfES summarised the conclusions they had drawn so far as follows:

  • "In terms of policy design, we need to build in stronger quality assurance mechanisms so that we minimise the chance of unscrupulous providers benefiting from the programme. This is a strong message that has come through from providers themselves. In designing a new programme, however, we will need to balance the need for stronger quality assurance with the need to preserve as much as possible of the simple non­bureaucratic processes which have also been a key to engaging new learners and learning providers;
  • A related issue is that we need to develop better intelligence about unscrupulous providers and ensure that this is shared amongst different funding and contracting agencies. We plan further analysis of the companies where we are taking forward formal investigations to identify any links with other companies previously involved with fraud and abuse;
  • There are important lessons about the process of risk identification and management. The ILA programme was managed with a risk log but it is clear with hindsight that this focussed too heavily on the risk of failing to meet programme targets. The Department should have specified a full business model for the ILA programme and subjected this to tests of how abuse could have occurred. This would have allowed us to identify other risks and design better monitoring systems to pick up early warning indicators. We will build this approach into the successor programme;
  • There are also lessons about the management of a public/private partnership of this kind. We will build in stronger and clearer contract management arrangements into the successor programme, based on the risk analysis set out above as well as on performance and financial information;
  • There are also important lessons about security when running open, non­bureaucratic programmes. It is clear from our experience with the ILA scheme that a balance must be struck between openness and security. We and Capita agree that any future ILA programme will require stronger security measures across the entire operation to guard against those who are intent on mis­using the programme. There will be a need for a tighter security architecture across the successor programme and more rigorous monitoring and management of the security arrangements".[277]

141.  Mr Simon Pilling of Capita told us that "you only learn by delivering a scheme and running a scheme and incorporating the changes back in. It is not particularly unusual to have a number of revisions when it is a new scheme".[278]

142.  Accountability and risk should not stifle innovation in the delivery of public services. The Public Audit Forum[279] is committed to adopting an open-minded and supportive approach to innovation and supporting well thought through risk-taking and experimentation.[280] We recommend that the National Audit Office should take a close interest in the ILA failure, but we expect its analysis to take a balanced approach as far as risk-taking is concerned.

143.  The Department should have undertaken a full risk assessment of the ILA scheme, which should have been aimed not at designing all risk out of the programme, but rather at understanding the level of risk which was being accepted in return for a recognised benefit such as ease of access.

Developing a new scheme

144.  On 25 October 2001, the Secretary of State announced plans to develop an ILA­style successor programme building on the best of the original — one that attracts non­traditional learners, one that balances measures to protect the public purse, provides simplicity for the learner and avoids bureaucracy for providers.[281] Usdaw argued that the replacement for the ILA, making learning affordable for the lower paid, was the key to narrowing the learning and digital divide.[282]

145.  The National Institute for Adult Continuing Education [NIACE] acknowledged that ILAs were a "bold and innovative experiment", but said that they found ILAs "unconvincing" as a centrepiece of policy. Rather, they should be seen as "an interesting niche product".[283] The Learning and Skills Development Agency suggested that "a future role for ILAs should be developed within the mainstream of post-16 policy".[284] NIACE cast doubt on whether the basic concept of discounting was a long­term means of demonstrating the value of learning.[285] NIACE argued that other initiatives such as Adult Learners' Week and bite­size courses had been rather more successful in reaching non­participants.[286] Mr Michael Stark of the Learning and Skills Council confirmed that the bite-size programme was "extremely successful" and "very cost-effective".[287]

146.  As Mr James Rees of Usdaw put it, the ILA was "was not the only tool in the toolbox to try and make the learning affordable".[288] NIACE believed that future government initiatives should build upon three principles:

  • choice and breadth — "encouraging adults to value learning and to invest their own time and money in it is not helped by prescription or proscription. Allowing prospective learners to begin their journey where they want to start is crucial in motivating the least motivated";[289]
  • entitlements — "allowing prospective learners to access resources ring­fenced for their learning reduces the perception of financial risk associated with participation";[290]
  • putting control of resources in the hands of prospective learners rather than providers — "it is important to remember that the ILA scheme was not brought down as a result of putting trust in learners".[291]

147.  The Association of Colleges said that they "very, very strongly support" the ILA as a successful means of marketing learning to people who would not otherwise have had it.[292] The Association of Colleges would be trying to ensure that in any re­launch of the programme the weaknesses of the original design, such as the lack of adequate mechanisms for ensuring quality assurance, probity and value for public money, and the unnecessary complications of the administrative system were eliminated.[293]

148.  Mr Paddy Doyle of Capita recognised that "the business model in terms of a completely open, non­bureaucratic system with IT systems at the back end which were mirroring that openness was wrong. It did not work. We now have to back off and rebuild a business model which tries to keep the best things from ILA 1 but tries to close down all those things where the business model obviously failed".[294] Ms Denyse Metcalf of Capita also suggested that the contractor might be more pro-active in developing a risk register for different kinds of providers and producing more reactive management information reports, such as exception reports, to alert the Department to take action on any emerging issues.[295]

149.  The Association of Computer Trainers believed that a successor to ILA could be reintroduced swiftly by:

  • "accreditation of learning providers and/or training materials through acceptance of the independent accreditations (including from government agencies) held by all legitimate providers;
  • involvement of local Learning & Skills Councils, who know the local market and who know the learning providers in the area;
  • an adequate regulatory and compliance framework, to ensure correct controls are in place, without making the scheme unworkable;
  • provision of clear and unambiguous guidelines for learning providers, with version numbers for clarity and understanding".[296]

150.  We highlight below some of the key features which need to be addressed in the re-design and relaunch of the ILA. Our advice to the Government is that before launching the new scheme, they should ask themselves: how can we most effectively provide high quality training in a way that makes it difficult to abuse the scheme?

Partnership with private sector

151.  Mr Paddy Doyle told us that Capita would hope to be involved in the next scheme, "but we have to prove our worth and that we are going to add value to the next scheme".[297] There should not be an automatic assumption that Capita should be the provider to take forward any new ILA scheme. The Committee notes the contrast between the Department's continuing co-operation with Capita and its refusal to consider compensation for learning providers.

152.  Capita proposes that there should be:

  • prior accreditation and verification of learning providers, particularly those who wish to be approved for provision of distance learning;
  • authentication of an individual's existence during membership applications;
  • guidance and advice for account holders on the type of course available under the scheme and on the quality of the training which they should have expected;
  • verification and monitoring of the courses and the take up ­ particularly with regard to differential and targeted take up;
  • regular account statements issued to account holders when incentive payments are claimed to enable them to check their accounts are not being improperly used;
  • a review of the computer system and business process requirements to balance speed and openness of access with probity and control;
  • formalised partnership arrangements to ensure regular dialogue at all appropriate levels within the client and provider partner organisations in order to ensure that areas of difficulty and improvement are recognised and addressed jointly including the means for escalating concerns and proposals from the client and the delivery partner.[298]

153.  While we approve of the innovation which the ILA encouraged in attracting new learning providers into the market, the lack of controls preventing abuse of the scheme point to a serious gap in the relationship between the Department and its contractor. By retaining even the smallest details of policy design within the Department, an opportunity was missed to transfer the risks to the private sector by transferring fuller responsibility for the management of the scheme to the private sector.

154.  It is not clear who was responsible for delivering the specific outcomes of the ILA project. There does appear to have been some confusion of responsibilities.

155.  We do not under-estimate the difficulty of getting right the balance between policy and delivery, but we question whether the DfES could have been bolder and given Capita a wider brief to deliver the desired outcomes of the ILA project.

Brand name

156.  The Learning and Skills Council considered that there remained critical value in the ILA 'brand'.[299] Mr Paddy Doyle and Ms Denyse Metcalf of Capita agreed that the ILA brand name, while tarnished, still had value.[300] Mr James O'Brien of Pitman Training Group plc and the Association of Computer Trainers suggested that "it would be a shame to replace [the ILA scheme] and call it something else".[301] Ms Liz Smith of the Trades Union Congress thought that "within unions, there is a sort of positive view of the brand of ILA in that it helped us. Whether that necessarily means that the brand 'ILA' is right for the new scheme I think is a different matter because obviously there have been an awful lot of very serious problems, so I think it would be difficult to comment".[302] We would expect that the ILA brand name will have a continuing value, despite the problems associated with the shutdown of the scheme in the autumn of 2001. We recommend that the value of the ILA brand name should be market tested by an independent professional firm with relevant expertise in this field before the successor scheme is announced.

Quality Assurance

157.  The DfES has been discussing with the Learning and Skills Council and others how to use existing learning provider quality assurance arrangements to help ensure that the provider base for the ILA successor scheme is quality assured.[303] Ms Emma Solomon of Hairnet argued that "it was not actually rocket science to put some proper checks in there for training providers and learners".[304] NIACE thought that the lack of quality assurance arrangements in the ILA system was a surprising policy misjudgement that was even more shocking than weaknesses in administrative mechanisms.[305] Head-line Communication warned that accreditation training processes needed to be understood as accreditation in itself was not necessarily a guarantee of quality.[306]

158.  Usdaw suggested that as well as a quality check on the provider, there should be a quality check on the learning that takes place:

    "There could be an expectation that the ILA user would achieve a qualification. Where a provider did not achieve a certain percentage of learners with qualifications, an inspection could be triggered. If there were satisfactory explanations (because of the nature of the learners, for example) then the provider would remain on the register. If not, they would be removed from the register."[307]

159.  Quality assurance is the one indispensable feature that needs to be built in from the start if the new version of the ILA is to succeed. Prior accreditation of providers would be essential; post-payment audit checks should be carefully targeted, based on a risk profile of providers and their claims. Prior accreditation should be designed to ensure that any obstacles to new providers and innovation are minimized.

Complaints procedure

160.  As pointed out above,[308] it will be essential for any successor scheme to have a robust system in place for recognising, handling, remedying and learning from complaints.

239   Ev13 paragraph 8. Back

240   Ev153 Appendix 1. Back

241   Ev30. Back

242   Q.65. Back

243   Q.579. Back

244   Ev64 paragraph 5. See also Q.258. Back

245   QQ.231 to 234. See also Q.208. Back

246   Q.201. Back

247   Q.208. Back

248   Ev17. Back

249   Q.263. Back

250   Q.263. Back

251   Q.80. Back

252   Q.572. Back

253   HC 304-v Q. 247. See also HC Deb10 January 2002 vol 377 col 952W; Q.571. Back

254   HC Deb19 March 2002 vol 382 col. 225. Back

255   Q.529. Back

256   Ev121 Annex 2. Back

257   Q.533. Back

258   Ev118 paragraph 30. Back

259   HC Deb 16 April 2002 vol 383 cols 897-8W. See also Ev117-118 paragraph 30, ev136. Back

260   Q.53. See HC Deb 13 November 2001 vol 374 cols 705­6W. Back

261   HC Deb 16 April 2002 vol 383 cols 897-8W. For previous summaries of the state of investigations, see Ev118 paragraph 30, HC Deb 15 January 2002 vol 378 col 214W and HC Deb 11 February 2002 vol 380 col 99W. Ms Sylvia Iwuagwu, 25, of no fixed abode, pleaded guilty on 16 January 2002 to fraud against the ILA system. Ms Iwuagwu admitted at Southwark Crown Court to five charges of obtaining money by deception from the DfES to a total value of £9,396. She was sentenced on 15 February to 60 hours rehabilitation order and Community Punishment Order. Back

262   HC Deb 16 April 2002 vol 383 cols 897-8W Back

263   Ev118 paragraph 31. Back

264   Ev118 paragraph 32. Back

265   Ev136. Back

266   HC Deb 23 April 2002 vol 384 col155W. Back

267   Ev136. Back

268   HC Deb 6 November 2001 vol 374 col 130. For another example of the cast-iron guarantee, see HC Deb 10 January 2002 vol 377 col 951W. Back

269   Ev28. Back

270   Q.520. See also Q.586. Back

271   Ev65 paragraph 7. Back

272   Ev94 paragraph 24. Back

273   Q.336. Back

274   HC 322-ii Q.148. Back

275   Ev119 paragraph 35, Q.573. Ernst and Young are Capita's auditors. Cap Gemini Ernst & Young is a consultancy organisation formed in June 2000. The group was formed by the established Cap Gemini consultancy group, which bought the consultancy arm of Ernst & Young. There is no commercial link between Ernst & Young and Cap Gemini Ernst & Young, beyond a normal trading relationship. Cap Gemini Ernst & Young will drop the Ernst &Young tag to become Cap Gemini in 2004. See QQ.427 to 429. Back

276   HC Deb 8 January 2002 vol 377 col 708W, Q.574 to 576. Back

277   Ev119 paragraph 36[emphases added]. See QQ.545,548. Back

278   Q.630. Back

279   The Public Audit Forum brings together the National Audit Office, the Audit Commission, the Northern Ireland Audit Office and the Accounts Commission in Scotland. Back

280   Implications for Audit of the Modernising Government Agenda, Public Audit Forum, 1999, cited in Performance and Innovation Unit, Wiring It Up - Whitehall's management of cross-cutting policies and services, January 2000, page 57. See also Holding to Account, the Report by Lord Sharman of Redlynch on the review of audit and accountability for central government, February 2001paragraphs 5.40 to 5.48. See also Modern Policy-Making: Ensuring Policies Deliver Value for Money, Report by the Comptroller and Auditor General, National Audit Office, HC289, November 2001. Back

281   Ev117 paragraph 25. Back

282   Ev46. Back

283   Ev55 paragraph 2. Back

284   Ev153 Appendix 2 paragraph 4. Back

285   Ev55 paragraph 2. Back

286   Ev55 paragraph 4. Back

287   Q.284. Back

288   Q.150. Back

289   Ev55 paragraph 5. Back

290   Ev56 paragraph 5. Back

291   Ev56 paragraph 5. Back

292   Q.243. Back

293   Ev65 paragraph 8. Back

294   Q.666. Back

295   Q.663. Back

296   Ev13 paragraph 9. Back

297   Q.601. Back

298   Ev94 paragraph 25. Back

299   Ev83. Back

300   Q.671. Back

301   Q.68. Back

302   Q.165. Back

303   Ev120 paragraph 40. Back

304   Q.79. Back

305   Ev56 paragraph 7. Back

306   Ev159 Appendix 3. Back

307   Ev47. Back

308   See paragraph 87. Back

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