INDIVIDUAL LEARNING ACCOUNTS
GOVERNMENT RESPONSE TO THE THIRD REPORT
EDUCATION AND SKILLS COMMITTEE, SESSION
Memorandum from the Department for Education
The Department is pleased to take this opportunity
to respond to the report of the Education and Skills Select Committee
inquiry into Individual Learning Accounts (ILAs).
The Department welcomes and values the Committee's
strong support for the concept of ILAs, and, particularly, their
simplicity and attractiveness to learners. That support encourages
us in our determination to retain those key concepts in developing
a successor scheme. The inquiry and report, through its detailed
analysis, identification of problems, and its conclusions and
recommendations will provide solid assistance to the Department
in considering further the issues we are tackling in developing
a successor scheme.
The programme was successful in many ways. The latest
statistics are that 2.6 million people became account holders,
over 1.3 million accounts were activated and there have been some
1.7 million learning episodes. Evaluation found that 91 per cent
of ILA learning met or exceeded expectations and 85 per cent of
those learners said that ILAs had increased the learning options
open to them. That is why the Secretary of State and the Department's
Ministers have been clear and unequivocal that a successor scheme
will be developed. The importance of ILAs to our lifelong learning
strategyparticularly in the long term - demands that a
successor scheme must be in place just as quickly as the issues
can be fully resolved.
The original programme was successful and popular
with both learners and learning providers. It was, therefore,
with considerable regret that it had to be closed because of the
serious flaws which we identified and the inquiry has confirmed.
Since the programme was closed the Department has been:
· managing the closure effectively,
ensuring that valid learning is supported and the consequences
for both learners and providers are dealt with clearly and effectively;
· establishing the full extent of misuse
and fraud, checking complaints and investigating all learning
providers where there is evidence of serious concerns;
· developing the outline design for
a successor scheme and ensuring the lessons from the ILA programme
are identified and fully learned.
Response to the Select Committee's conclusions
The Select Committee's headings, sub headings, conclusions
and recommendations are in bold text.
The Department's response is in plain text.
1. Presented with a manifesto commitment,
and a single target of one million users, insufficient attention
was given both to the reasons for the previous rejection of an
ILA scheme and to ensuring that quantity was balanced by quality.
While the development of targets for the achievement of policy
objectives is to be commended, such targets should be based on
outcomes not tied to specific delivery mechanisms (paragraph 11).
The Department does not agree that it gave insufficient
attention to the 'previous rejection' of an ILA scheme, or that
there was what could be properly called a previous scheme. It
is worth noting that there was nothing like a precise proposition
at the time of the 1996 Competitiveness White Paper to which the
Committee refers. Crucially, there were no clear proposals for
a discount, other financial incentives or a delivery mechanism.
There was a single numerical target of one million
users by March 2002 as that was the manifesto pledge. But alongside
this target there were a number of policy aims and operational
objectives. The overall aim was to widen participation in learning,
to help overcome financial barriers to learning faced by individuals
and provide a mechanism to enable individuals to invest more in
their own learning. The scheme was therefore universally available
and within that some specific groups were identified as targets:
women returners, younger workers with low skills or few qualifications,
self-employed people and non-teaching school staff. ILAs were
also intended to be a mechanism to encourage the development of
wider choice and innovation in the delivery of training and to
attract new providers, not just established providers known to
the former Training and Enterprise Councils (TECs) and the Further
Education Funding Council. This in turn would support improvement
in the training market, through encouraging providers operating
in smaller niche markets and with new, non-traditional learners.
This innovative approach led to the funding of targeted
ILA pilot approaches with Community Groups, Trade Unions and small
businesses; though limited, these proved successful and we will
further develop this approach in a successor scheme.
The Department is taking account of the Select Committee's
comments on targets and outcomes in developing a successor scheme.
THE TEC PILOTS
2. The implications of opening up the scheme
to new providers not known to TECs was not thought through either
in terms of quality of learning on offer or the risk of fraud.
As a significant change to the pilot scheme, this should have
merited greater consideration (paragraph 15).
The Department took a number of steps to draw the
lessons from the early TEC pilots in the development of the national
framework and in the roll out of the programme. SWA Consulting
were appointed in August 1998 to evaluate the impact of local
models and draw out the learning points. This informed a good
practice guide to help TECs manage ILA projects in 1999/2000.
KPMG conducted a market feasibility study during which they held
discussions with TECs on identifying the lessons learned from
the early development projects, and in particular, on the effectiveness
of methods that have been used to promote ILAs during the pilots.
These findings alongside wider research and consultations were
used to inform, refine and develop the ILA product definition
and underlying delivery process.
In addition, the Department drew on the valuable
experience of TECs by seconding TEC personnel to the policy development
team and ensuring that the TEC National Council was represented
on the project steering group. Also, one of the TEC pilots continued
into the national programme to pilot the programme with Community
Groups. So there were clear steps taken to learn policy lessons
from the TEC experience. The decision to extend the range of providers
in the national programme was taken to widen choice and expand
the training market. With hindsight this should have been combined
with stronger quality checks of learning providers and tighter
system security. These features will be implemented in a successor
scheme without losing the facility to encourage good new learning
SAVING TO LEARN
3. Once the savings concept had been replaced
by a straightforward offer of a Government-subsidised discount,
the name "Individual Learning Account" ceased to be
a strictly accurate description of the scheme (paragraph 20).
Key concepts of the original delivery model, piloted
in a variety of forms through TECs, remained in that the programme
was for individuals, universally available and had a monetary
value in the form of discounts for individuals on the cost of
their learning. An account was necessary, therefore, to record
transactions and provide a record of each individual's learning
as part of our efforts to achieve the sort of cultural change
in attitudes to learning and training that the country needs.
The Department decided that, in the light of these features, Individual
Learning Account was an appropriate name for the programme.
THE NATIONAL FRAMEWORK
4. We regard the failure of the Department
for Education and Skills to learn from the mistakes made in the
past by its predecessors and other Government Departments to be
one of the most disturbing aspects of the ILA experience (paragraph
In paragraph 22 of the report, the Committee refers
to the 1998 Beating Fraud Green Paper and the pledge that the
Government would work across boundaries to share expertise and
create a professional approach to anti-fraud work. There are a
number of cross-Government activities which already take forward
this commitment. These include:
· a Fraud Response Liaison Group (chaired
by the Department for Education and Skills) involving officials
in a number of Government Departments and Non-Departmental Public
Bodies with responsibilities for fraud detection and investigation.
The group was set up in 1997 and currently meets quarterly. Its
purpose is to share information, lessons learned and, where providers
access funds from more than one Government Department or Non-Departmental
Public Body, to facilitate a coordinated approach to investigations,
where appropriate. It also considers common problems and training
needs for investigative staff. As membership of the group has
grown significantly a protocol for the sharing of provider information
is currently being developed.
· a Treasury led Special Investigation
Group (coordinated by the Government Accountancy Service) was
set up last year. This group is concerned with the development
of common standards in relation to the abilities and skills required
by staff working in the area of special investigations; and
· a Better Governance and Counter Fraud
Group, chaired by the Chartered Institute of Public Finance and
Accountancy, which brings together specialist staff from across
the public sector to develop and disseminate best practice on
risk management, particularly relating to fraud.
The groups mentioned above are generally of an informal
nature, with the sharing of information being reliant on what
members feel they can or should share. The recent report issued
by the Cabinet Office Performance and Innovation Unit on Privacy
and Data Sharing recognises the current legislative limitations
for data sharing and the need to formalise arrangements for making
better use of available intelligence, balanced with the rights
of the individual. The Department is in the process of preparing
an Action Plan to detail the action needed in responding to this
report, and also in responding to other maturing legislation,
including the Data Protection and Freedom of Information Acts.
The Department plans 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
and currently in receipt of public funds.
The Department has also taken the initiative to develop
a new strong mechanism for working across Government on learning
provider issues. We have taken early steps to set up a formal
group to bring together key interests from across Government Departments
and relevant Agencies at senior policy and operational level to
share information on concerns about providers, improve liaison
across Government on investigations and follow-up of lessons learned
from fraud investigations. As part of this work we will discuss
with the Departments and Agencies concerned how we might more
effectively share information about poor practice and poor providers,
whilst protecting confidentiality.
The Department's Special Investigation Unit has developed
a rolling programme of fraud awareness seminars for all Directorates
and Divisions in the Department so that fraud prevention can be
more effectively embedded into policy making processes and systems
development. The Learning and Skills Council has a similar programme.
We will be considering the Fraud Response Plans of all the Department's
Non-Departmental Public Bodies. We are also reviewing our risk
assessment strategy to ensure that the risks of fraud are fully
considered across all of the Department's activities.
The Department's Internal Audit Unit is working closely
with the development team for a successor scheme to ensure that
the lessons to be learned which were identified in the Special
Audit Review of the ILA programme are addressed.
THE 80 PER CENTDISCOUNT AND THE END OF VOCATIONAL
5. The introduction of the 80 per centdiscount
was a crucial step in widening the attractiveness of the ILA to
unscrupulous operators. There was no check on the provider to
give good value for money, and no incentive for the customer to
complain (paragraph 29).
The York Consulting early evaluation of the ILA programme
found very high rates of satisfaction amongst learners, showing
that the programme was successfully meeting its overall aim of
widening participation in learning and helping to overcome the
financial barriers to learning faced by individuals. Some key
· 91 per cent of ILA learning met or
· 85 per
cent of ILA redeemers said the ILA had increased the training/learning
options open to them;
· More than half ILA redeemers (51
per cent) said they had little (27 per cent) or no (24 per cent)
prior knowledge of the subject(s) they were
studying with ILA support ;
· 50 per cent of ILA redeemers would
not have been able to pay for their course without their ILA;
· 22 per cent had not participated
in any training/learning in 12 months preceding ILA use;
· 16 per cent of ILA redeemers had
no previous qualifications; and
· 54 per cent of redeemers said their
ILA made them more interested in learning.
However, the evidence indicates that those learning
providers who abused the programme by, for example aggressive
mis-selling and providing poor value for money products, first
concentrated, from early summer, their efforts on the £150
introductory incentive for the first million account users. Once
this offer ended on 31 July 2001, these unscrupulous providers
and others not previously involved in ILAs moved on to exploit
the 80 per cent discount. The maximum payment allowable under
the 80 per cent discount was, of course, set at £200. It
was the increasing volume of complaints to the Department, the
Individual Learning Account Centre and Trading Standards Officers
that highlighted these abuses of the programme.
The Department agrees that a key part of ensuring
good value for money is that learners have a personal stake in
their learning alongside effective registration procedures, quality
checks and well-publicised and robust complaints procedures.
THE DELIVERY MODEL
6. We welcome the entry of new and innovative
providers into the market for delivering lifelong learning. It
should have been possible to design a scheme to encourage new
providers that was not wide open to fraud or abuse by unscrupulous
people posing as learning providers, but the lack of quality assurance
made it almost inevitable that it would
be abused (paragraph 33).
The Department welcomes the Committee's recognition
of the aim of the ILA programme in stimulating new and innovative
provision of learning and accept entirely the Committee's description
of the balance to be struck vis-à-vis learning providers.
Tighter checks on learning providers will be at the heart of the
There is widespread agreement that registration of
learning providers would need to be strengthened in a successor
scheme. Findings from the report of Segal Quince Wicksteed (SQW),
'Individual Learning Accounts: A Consultation Exercise on a New
ILA style Scheme', show that the majority of learning providers
(68 per cent) support more rigorous quality assurance of providers.
We are exploring the possibility of the Learning and Skills Council
taking a lead role in this process. We are also looking at ways
in which the LSC's existing and tested arrangements for initial
provider assessment might be developed for use in a successor
scheme. Such arrangements, together with more effective complaints
procedures and on-going monitoring of providers through random
checks and de-registration of providers who abuse the scheme will
act as strong deterrents to abuse and fraud.
7. The failure of the DfES to learn from past
experiences, such as franchising and demand-led funding, is a
matter of concern (paragraph 35).
Demand-Led Element (DLE) funding was a funding methodology
put in place for FE funding in academic year 1994/5. Part of the
colleges' response to DLE funding was to introduce franchising
in order to increase their throughput and consequent take-up of
the funding. In addition to an agreed number of funding units,
colleges could claim, at a reduced rate, for additional units
from the DLE of funding held by the FEFC, the budget which was,
as implied, demand-led. This successfully stimulated the desired
growth but it became clear that its success had become too great
to be affordable and, in February 1997, the Department announced
that DLE funding would end from academic year 97/98 with further
provision being on a cash limited basis.
The Department believes that it would be wrong to
draw too close parallels between DLE funding and ILA funding because
of their very different context and environment. ILAs were a new
way of stimulating training, putting the focus on the individual's
requirements. Nothing quite like it had been tried before. It
is accepted that there is a similarity in unexpected growth of
the scheme, but ILAs were an entirely new programme, without precedents
on which to model likely demand and the speed with which participation
grew for ILAs was far in excess of that experienced with DLE funding.
8. The change control process clearly did
not work (paragraph 37).
The Department agrees that there should have been
tighter control of contractual changes and their consequent impact
on other aspects of the service provision and this will be a key
part of a successor scheme. Indeed, the contract change control
procedures, jointly discussed and agreed with Capita and put in
place for residual activity on the closed programme, have already
been considerably strengthened through tighter management and
more rigorous review of proposed contract changes. This type of
rigorous arrangement will be carried through to the contract management
of a successor scheme and reviewed regularly.
9. Despite the out-sourcing of service delivery,
the risks in effect always remained with the Department. Surprisingly,
the potential expertise of Capita in designing systems to be fraud-resistant
was neither called upon, nor offered (paragraph 38).
As Capita acknowledged to the Select Committee, as
the service delivery partner of the Department, they developed,
implemented and operated the ICT system for ILAs. Capita also
administered defined elements of the business process for the
scheme. They also advised the Department on operational and technical
issues. Improved partnership management and governance arrangements
will be developed with the Service Provider for a successor scheme.
Capita were contracted to have in place for the ILA
programme IT systems which are secure and meet the requirements
of the Data Protection Act. Controls were built into ILA IT system
to give access only to authorised users, prevent individuals opening
duplicate accounts and to enable data trawls and analyses (such
as for common addresses) to be undertaken on ad hoc basis as means
of detecting potential fraud.
Additional, non-technical safeguards and controls
continued to be implemented in response to increasing complaint
levels. These included withdrawal of non-personalised application
forms, re-registration of all learning providers alongside the
introduction of a formal learning provider agreement and suspending
registration of new providers.
Though we still want ILAs to be easy for the learner
to use, the Department acknowledges that a successor scheme will
need to have in place tighter systems. More specifically, the
Department plans to introduce more robust learning provider checks
and a strengthened and expanded compliance team as part of the
successor arrangements. System security will be based on a formal
Security Risk Analysis and will also be subject to continuous
monitoring and assessment throughout the life of a successor scheme.
10. There is nothing in the evidence we have
received to suggest that Ministers sought advice from other Government
Departments, or even heeded warnings from within their own Department,
on how to protect such a scheme from unscrupulous opportunists
There were meetings and exchanges of correspondence
with relevant other Government Departments to discuss the key
policy, design and procurement issues concerning the ILA programme.
The risk of fraud was identified on the ILA Programme
Risk Register. The programme involved high volume but relatively
low value transactions and the control regime was designed to
reflect that situation. The programme sought to engage new learners
and encourage them to look across the wide range of learning opportunities
available. We did not want to introduce heavy-handed bureaucracy,
which would have discouraged the development of innovative, local
provision. There will be a rigorous approach to the initial registration
and accreditation of providers together with stronger financial
controls in a successor scheme.
We have described, at 4 above, the cross government
anti-fraud arrangements and how we are taking the lead in setting
up a senior, strategic group to work across Government to improve
liaison and share best practice and information on fraud prevention,
detection and investigation issues.
11. Capita's ILA Centre gave any provider
who joined the system unlimited access to individuals' accounts
As the then Minister for Adult Skills said in his
Memorandum to the Committee and when giving oral evidence, because
the ILA programme was closed due to new allegations of very serious
potential fraud and theft, the Department commissioned a report
on the system security from Cap Gemini Ernst & Young. The
main findings from this review are appended to this response.
It does seem that registered learning providers could use their
password access to the ILA Centre database to access account information
for which they did not have authorisation. A small number of unscrupulous
learning providers took advantage of this to abuse the programme.
The review did not find specific evidence of access to the ILA
system by external third parties.
Capita are working closely with the Department to
assist in the investigations into the reasons for the closure
of the programme.
The Department readily accepts that the successor
scheme requires stronger security measures to guard against those
who are intent on mis-use.
12. An unscrupulous provider could trawl the
database and submit claims for having trained any individual on
the system whose account had not already been spent (paragraph
This is the reason the Secretary of State decided
to close the programme. On Wednesday 21 November an approach was
made to the Department by an ILA learning provider alleging that
a third party had offered to sell them a computer disc containing
large number of ILA account numbers. The Department's urgent investigations
confirmed that the disc contained ILA numbers which had been obtained
from the ILA database and that they were being offered for sale.
Ministers decided, in line with police advice, that immediate
closure of the programme on 23 November, two weeks earlier than
planned, was the only way to protect public funds.
It is clear from our experience with the ILA programme
that a better balance must be struck between openness and security.
With the benefit of hindsight, all parties now agree that there
was a higher level of risk than was anticipated. We repeat that
the Department is determined that a successor scheme will have
in place stronger security measures and more rigorous monitoring
and management of the security arrangements across the entire
operation to guard against those who are intent on mis-use. It
will be essential for the security standards and requirements
to be agreed by the Department and the service provider and that
they will be different from those in place for the closed ILA
13. We recommend that in future the non-confidential
clauses of any such major Service Provider Agreement should be
laid before Parliament at least three weeks before coming into
effect, in order to allow interested parties and this Select Committee
to assess the practicality of the proposed delivery model (paragraph
Once the Department has reached agreement with the
delivery partner on the contractual terms regarding the service
requirements for a successor scheme the Department will place
a copy of the main substantive provisions of the Service Provider
Agreement in the House of Commons library, after excluding commercially
sensitive details such as pricing structures.
THE INDIVIDUAL CONTRIBUTION
14. We recommend that in the successor scheme
to the ILA providers should be required to make clear to learners
that the learners have a choice about how, when and with whom
they use their ILA (paragraph 51).
The Department agrees strongly with this recommendation.
One of the key aims of the ILA programme was to empower the learner
by putting the choice of learning in the hands of the learner.
One of the priorities for a successor scheme will be to give learners
the opportunity to make informed decisions about their learning
and encourage access to independent information advice and guidance.
15. Until remedial measures were taken in
the summer of 2001, Capita's ILA Centre could not prevent unscrupulous
providers creating accounts for individuals whom they had not
trained, or who did not even exist (paragraph 53).
As has been stated in response to recommendations
11 and 12, a successor scheme will have more robust arrangements
to guard against fraud and mis-use. The systems and processes
will be agreed with the delivery partner for a scheme.
Accreditation of providers - learndirect
16. It seems surprising to this Committee
that Capita was not able to make a speedy assessment of the suitability
of the learndirect database to provide assurance on the quality
of providers and to advise the Department accordingly (paragraph
Entry to the learndirect database was never
intended to be a quality assurance process. During the summer
of 2001, discussions were held involving Capita, Ufi and the Department
but this was to explore whether the ILA and learndirect
databases could be joined or made more compatible so that learners
could receive better information about learning provision. It
was not an exercise in introducing systems to quality assure learning
or learning providers. Consultants were contracted to advise on
this issue of database compatibility but this work ended when
the programme closed. The Department will look to build on the
preliminary findings of that work in developing a successor scheme.
17. The unavailability of a list of accredited
training providers undermined a key part of the ILA structure.
The DfES confused quality assurance with registration. It is this
confusion which lies at the heart of the ILA debacle. Without
a quality threshold or any systematic audit, there was nothing
to stop unscrupulous opportunists signing up as providers on the
ILA database (paragraph 56).
The Department did not confuse quality assurance
with registration. The objective was to bring in new learners
and providers and so the programme was designed to be simple and
flexible for the learner and provider with the minimum of bureaucracy.
The programme was designed to open up the learning market and
to place as few restrictions as possible on what people could
choose to learn; placing real purchasing power and consumer choice
in the hands of learners for the first time. A fundamental principle
of the design was that individuals had to pay a contribution for
their learning. This personal investment aspect of ILAs was not
only intended to give learners greater control over their personal
development but also to increase their personal stake so that
they would make informed decisions about their choice of learning.
ILAs were not, however, intended to be a guarantee of quality
of learning or learning providers as such; it was a policy of
putting purchasing power in the hands of the learner and 'buyer
beware' when purchasing learning. The system was therefore designed
to register but not accredit learning providers.
However, it is now very clear from our
experience that there is a need to build in stronger registration
and quality mechanisms so that the chance of unscrupulous providers
benefiting from the programme is minimised. This is also a strong
message that has come through from learners, stakeholder organisations
and learning providers themselves. At the heart of the new scheme
will be tighter registration and quality checks and stronger financial
THE £200 CAP
18. The Department apparently failed to heed
the warning, given three months before the national roll-out of
the ILA scheme, from its own experts on the Further Education
Funding Council, of the risk to public funding if rigorous quality
arrangements were not put in place (paragraph 61).
As the Committee records, a cap of £200 was
introduced on the 80 per cent discount for certain ICT learning
on 20 October 2000, less than seven weeks after the programme
was launched on 4 September 2000. While we had initially wanted
to avoid introducing a cap, as the provision we had in mind would
be of short duration and therefore not expensive, our early experience
of offering the 80 per cent discount caused concern. The Department
had a number of instances of providers offering learning at very
high prices, and this started to put the success of the policy
in jeopardy. Under the uncapped arrangements almost £22 million
was paid to providers who claimed a discount of more than £200
for a single account holder. We decided, therefore, that the introduction
of a cap was the best solution to meeting the policy objective
and allowing many more people to benefit from the 80 per cent
discount on their learning.
Further Education Funding Council staff discussed
a number of aspects of the design of the ILA programme at liaison
meetings with the Department. These included issues about the
quality assurance and audit arrangements for providers. In the
final design of the ILA programme, there were light touch quality
assurance arrangements so that the scheme could be as simple and
non-bureaucratic as possible. The successor arrangements for ILAs
will include a robust system of learning provider registration,
quality checks and monitoring of provider activity.
The emerging concerns -'deadweight'
19. We recommend that any successor scheme
to the ILA should be focussed on adults
whose highest level of qualification is at level 2 or below and
that particular efforts should be made to promote the scheme through
employers, trade unions, community groups, approved training providers,
schools and colleges (paragraph 73).
The Department is considering the options of limiting
entry to a successor scheme only to particular groups; for example,
those not possessing qualifications or having low levels of qualification.
Such an approach would however be more complex to administer,
especially in determining the eligibility of each individual.
More importantly, we tend to the view that it would be right to
continue into a successor scheme the policy objective of opening
up learning opportunities to all adults. We will consider this
Promoting the scheme through employers, trade unions,
and others, which was a successful approach in the ILA programme,
will be very important. Intermediaries have a lot to offer, particularly
in reaching and guiding those most in need of support and guidance.
THE EMERGING CONCERNS - OVER-SPENDING
20. Without access to the detailed notes of
confidential discussions between Treasury and DfES officials,
we cannot know how large a part the desire to rein in over-spending
played in the demise of the ILA. This is not a satisfactory position
and we have requested the Secretary of State to provide us with
the relevant papers (paragraph 80).
After considering all available information, the
Department's Ministers made the decision to suspend ILAs from
7 December 2001. The Prime Minister, the Chancellor of the Exchequer
and Ministerial colleagues were then informed of the decision
before the announcement was made public on 24 October 2001. The
Secretary of State has confirmed these details to the Committee
and the dates of key internal DfES meetings when we took these
decisions. From the outset of the Select Committee's inquiry,
we have been open in the provision of evidence and in the Memorandum,
going beyond customary expectations set out in guidance (Citizen's
Charter: Open Government; Code of Practice on Access to Government
Information, Second Edition 1997).
The Committee has been kept closely informed about
spend against the total ILA budget. In addition to information
provided in oral evidence, John Healey wrote to the Committee
on 30 November 2001, 7 December 2001, 18 December 2001, 15 January
2002, 16 January 2002, 7 March 2002 and 26 April 2002. The Department's
forecast of the final overspend for the financial years 2000-01
and 2001-02 is £93.6 million.
THE INCREASING NUMBER OF COMPLAINTS
21. Both types of complaint mechanism, for
the provider and for the learner, failed badly in the ILA scheme
and any successor scheme will have to perform much better in recognising,
handling, remedying and learning from complaints (paragraph 87).
Despite its faults, the complaints mechanism did
allow the Department and Capita to identify emerging problems
with the programme. In response to rising complaints in summer
2001, the Department and Capita took action against unscrupulous
learning providers and a number of important changes were made
to the system. These included:
· the establishment of a Compliance
· requiring all ILA Providers to sign
and return an ILA Learning Provider Agreement from 30 June 2001;
· removing 700 Providers who did not
sign the Learning Provider Agreement from the Register on 14 July
2001; (105 were subsequently reinstated after signing the agreement.
The initial cut-off date for the return of the Learning Provider
Agreement was 10th August 2001. Providers who had failed to complete
and return their agreement by that date were suspended or de-registered.
However, following this 'cut-off' date providers who subsequently
completed their registration forms and so signed up to the Agreement
were re-instated on the ILAC system. This re-instatement process
continued up until 17th October 2001);
· issuing a learner leaflet entitled
'Choosing Your Learning', in August 2001;
· a compliance letter sent to all learning
providers on 15 August 2001;
· stopping third parties automatically
receiving supplies of blank application forms;
· increasing DfES and Capita resources
on the investigation of complaints and cases for potential abuse;
· a complete re-draft of the Learning
Provider Guidance (overtaken by the closure of the scheme);
· setting up a joint DfES and Capita
Compliance Unit, operational from 24 September 2001; and
· from 28 September 2001, the Department
suspended the registration of new providers and required that
all ILA applications had to be made via the ILA Centre. Non-personalised
applications were no longer accepted.
The Department agrees that a successor scheme must
have improved mechanisms for capturing management information
on complaints together with managed processes for analysing, dealing
with, remedying and learning from complaints. The number and nature
of complaints can be a very important early indicator of possible
MISUSE, ABUSE AND FRAUD
22. We find it hard to credit that Capita,
a major player in winning contracts for work contracted out to
the private sector, should not have pointed out that, without
a quality threshold for providers, the ILA was a disaster waiting
to happen. The culpability of Capita was matched by that of the
Department, in particular for not demanding more robust anti-fraud
mechanisms in their specification (paragraph 97).
There are important lessons about the process of
risk identification and management and also for the specification
and operation of both systems security arrangements and management
information about activity. The Department should have had clearer
agreement with Capita on the risks, their significance and how
they should be managed. 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. The Department is building
this approach into the development work for a successor scheme.
Whilst there were some discussions on these issues
between Capita and the Department there was no formal mechanism
for escalating these between the Department and Capita. This must
be addressed in the partnership governance and management arrangements
for a successor scheme in such a way that will enable the Service
Provider formally to raise concerns and propose changes.
There are also lessons about the management of a
public/private partnership of this kind. The Department will incorporate
stronger and clearer contract management arrangements into a successor
scheme, based on a thorough risk analysis as well as on performance
and financial information.
23. It is a matter of concern that, while
Ministers were clear that misuse and abuse had taken place, alongside
fraud, they were unable to provide either an exhaustive list or
a working definition of misuse and abuse. The Department needs
to be clear about which activities are unacceptable (paragraph
The Department was clear about the nature of the
misuse and abuse of the programme, alongside fraud. John Healey
set out the position when he gave oral evidence to the Committee.
The Department wrote to every learning provider in August 2001
pointing out which activities were unacceptable. The identified
areas included misleading individuals, claiming incentives where
it is unclear that the learning had taken place, learning commencing
prior to an individual becoming an ILA account holder, the absence
of enrolment forms authorising learning providers to claim the
ILA incentive on behalf of the individual, individuals not paying
any personal contribution to the learning for which they were
claiming an ILA incentive and the use of aggressive marketing
tactics or inaccurate material, often through marketing companies,
to encourage people to open an account and sign up for training.
Misuse, abuse and fraud is categorised in the table below.
The Department will state more clearly what is unacceptable
in a successor scheme. The future arrangements will also include
robust complaints procedures, and providers who abuse the scheme
will be excluded.
Categorisation of complaints and abuse
Some 19,296 complaints have been received. The latest information available shows there have been 7,495 complaints (39 per cent of all complaints) relating to access to ILAs without the consent of the account holder (non-consent) and non-compliance with the programme rules (non-compliance). The remaining 61 per cent of complaints cover operational issues such as level of discount and eligibility of courses.
Non-consent and non-compliance complaints are identified as being in one of four categories: misused accounts, free learning, no learning and other. The last three relate to non-compliance with the programme rules. The 7,495 figure is broken down as follows:
||5,022 (67 per cent)
|(Funding has been removed from the ILA without the account holder's consent and usually the account holder has no knowledge of the learning provider accessing the funds.)|
|Free learning||450 (6 per cent)
|(Contribution not sought from the account holder e.g. on a course value £250 account holder should personally contribute £50.)
|No learning||1,049 (14 per cent)
|(Account holder authorises access to the ILA but subsequently received no learning.)
|(Cash or other incentives offered to enrol on course. Learning delivered is outside the specific list of eligible learning.)|
(N.B. The breakdowns of the non-compliance total are estimates as enquiries are still being pursued.)
In addition to the above, additional examples of abuse have been identified through investigation by the Department's Special Investigation Unit (SIU) and the Police, which involves:
|Inappropriate access to ILA database
|(Registered Learning Providers accessing account holder details on the ILA database and using this information to book learning and claim funds or selling such information to other providers.)
|(Fictitious account holders created often using a common address.)|
The Department's SIU has had 125 learning providers referred to it, 27 files are being examined and 98 have been passed to the police. The files passed to the police cover the following categories:
|Misused accounts ||66 (67 per cent)
|No learning ||3 (3 per cent)
|Other||9 (9 per cent)
|Inappropriate access to ILA database
||1 (1 per cent)|
|Ghost Learners||19 (20 per cent)
|In addition the Department's Compliance Unit is checking a further 569 learning providers.
24. We recommend that the successes of trusted
intermediaries, such as trade union learning representatives,
should be taken fully into account in designing an ILA successor
scheme (paragraph 106).
The Department fully recognises the valuable contribution
intermediaries made to the original programme, especially in reaching
those not in learning. The ILA Community Group projects
attracted people who had never previously heard of ILAs (two thirds
of those who opened them through the projects) and encouraged
the participation of larger proportions of ethnic minority groups
(14 per cent from ethnic minority groups compared with 5 per cent
nationally). They also attracted a higher percentage of people
with no qualifications (22 per cent against 16 per cent nationally)
and 73 per cent of users (compared to about 50 per cent nationally)
said they would not have been able to fund their learning without
an ILA. An evaluation (TUC Learning Services) of accounts opened
through the Union Learning Fund showed 79 per cent of learners
are from those groups least likely to participate in learning.
The Small Firm Learning Account (SFLA) was aimed at increasing
participation in learning, through the take-up of ILAs among owner
managers and their employees in companies of 5-49 people. This
innovative pilot project, which operated in Leicestershire and
Lincolnshire, engaged 352 firms in 3 months with 1242 employees
opening accounts during the period of the project. It was refocused
following the withdrawal of ILAs and re-launched as the Small
Firm Development Account (SFDA) early in 2002. The new pilot
will be formally evaluated in due course.
We will continue to work with intermediaries to explore
ways in which they can play a key part in the delivery of a successor
scheme. In particular, we will seek to develop strategies with
intermediaries in order to attract new and non-traditional learners.
Compensation for learning providers
25. 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 (paragraph 127).
The Department recognises the concerns of learning
providers. The Department gave as much notice as possible when
the decision was taken to withdraw the programme from 7 December
2001. We wanted to allow people to use their ILAs to help pay
for learning they had planned and to allow businesses time to
adjust their plans and enable learners and providers to forward
book learning by up to 6 months. Around 6 weeks notice was given.
Any longer period would simply have provided the unscrupulous
providers with an opportunity to continue, or even increase, their
activities. In the event, of course, in the light of new and serious
allegations about potential fraud and theft involving the sale
of large numbers of ILA account numbers, the programme had to
close with immediate effect on 23 November 2001. Had the Department
not closed the scheme immediately, we would not only have been
failing to act on police advice, but would also have risked further
loss of public money.
The Department has received some representations
from providers for compensation for losses they feel have been
incurred by the need to close the programme immediately on 23
November, just two weeks earlier than planned. We have listened
to those representations and carefully considered the views of
the Select Committee and, whilst the Department does of course
sympathise with the position of learning providers, we cannot
agree that the Department should compensate them because of the
closure of the ILA programme. ILAs were successful in encouraging
new learning and brought new business to learning providers and
the extent to which organisations made business decisions around
ILA participation is something each organisation determined for
With regard to the contractual position between the
Department and registered learning providers, which the Committee
refers to, it may be helpful to set out our position. A contract
is an agreement negotiated between two parties free to reach their
own terms in which each makes a promise to the other. Neither
the Secretary of State nor registered learning providers were
free to bargain in respect of the Learning Provider Agreement
nor does it contain any promise on the part of the Secretary of
State. The Learning Provider Agreement sets out some of the criteria
set by the Secretary of State for the operation of the ILA programme.
Registered learning providers were asked to sign up to this agreement
to signify that they had fully understood those criteria.
To minimise the financial implications and disruption
for providers, the Department introduced a paper-based claims
process to replace the web-based process used before the closure.
This process has been set up to pay valid claims as quickly as
possible, while pursuing inquiries and investigations into unscrupulous providers.
The current payment procedures for provider claims adhere to Treasury
policy on payment of valid invoices and meet the DfES standard
of paying valid claims within 20 working days of receipt (as long
as learning providers meet the published timescales for return).
Up to the end of May, a total of 5,526 claims (94
per cent) worth £10.6 million have been paid since 21 November,
and a further £15.9 million representing some 371 (6 per
cent) provider claims have been withheld over the same period
(including providers referred to the SIU). These overall totals
include claims which were held in the web-based system at the
time of the closedown, in addition to claims received through
the paper-based system.
26. 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 (paragraph
As John Healey undertook to the Committee in his
Memorandum and when giving oral evidence, the main findings from
the Cap Gemini Ernst & Young review are appended to this response
and will be placed in the House of Commons Library. Both the Department
and Capita are committed to using the report to learn lessons
for the future.
27. 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 (paragraph 139).
John Healey said when giving oral evidence that he
would be happy to provide the Committee with the main findings
of the Internal Audit review. The main findings from this review,
including the lessons that have been identified, are appended
to this response and will be placed in the House of Commons Library.
The lessons identified from this work are already
being applied in the development of the new scheme, and will also
be taken into account as appropriate for all Departmental projects
and programmes. We will also take steps to ensure the lessons
are widely shared across Government Departments.
28. 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 (paragraph 142).
The Department welcomes the Committee's recommendation
concerning the need for a balanced approach to accountability
and risk taking so that beneficial innovation is not stifled.
The Department and Capita have separately had a number
of meetings with NAO to assist its work and have provided a considerable
amount of information and documents. The Department will use the
findings of the NAO report to help learn lessons and in the development
of the successor scheme.
29. 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 (paragraph
The Department recognises that there are important
lessons to be taken forward about the process of risk identification
and management. There was a risk register but the identified risks
should have been better managed. Also, as mentioned in 22 above,
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 will be applied to a successor scheme.
A further important issue to consider in drawing
up programme specifications, particularly where public/private
partnership arrangements are planned, is what risks can be transferred
to or shared with the Department's contractors and partners. Where
relevant, the Department will ensure contracts clearly specify
joint and separate risk management responsibilities following
discussions and agreement with the delivery partner.
PARTNERSHIP WITH PRIVATE SECTOR
30. 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 (paragraph 151).
We are continuing to work closely with Capita on
the wind down of the ILA programme to ensure payments to providers
in respect of eligible and valid claims are made as quickly as
possible and Capita are providing assistance to our investigations
of compliance issues. The Department and Capita have gained a
great deal of experience from running ILAs. The lessons learned
will be built on to the benefit of a successor scheme.
We have agreed, in principle, to work with the Capita
in developing arrangements for a successor scheme. The decision
on whether we will work with Capita is however subject to satisfactory
progress and the outcome of negotiations with them; for example,
agreeing the financial basis for delivery and appropriate revisions
to our existing contract with Capita over the coming months. A
successor scheme will be a major test for Capita, as well as the
Department. There are thresholds to pass in development work towards
the launch of a successor scheme and no finalised contractual
arrangements will be made until we are satisfied that all necessary
steps have been taken by the Department and our delivery partner
to minimise the risks involved in operating the new scheme.
We are continuing to consider how others, such as
the Learning and Skills Council, can be involved. The Learning
and Skills Council, for example, has relevant experience in provider
31. 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 (paragraph 153).
The Department must continue to determine the overarching
policy objectives for a successor scheme and that responsibility
cannot be transferred. Ministers must account for this in Parliament
and the DfES Permanent Secretary as Accounting Officer must account
to the Public Accounts Committee.
We accept that we need ensure that we are absolutely
clear with the delivery partner about the extent to which they
are responsible for the delivery of the policy objectives. The
operation of a successor scheme in terms of, for example, systems,
security, web site management, response to calls; dealing with
complaints and making payments should be a risk and responsibility
of the service provider.
32. 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 (paragraph
The delivery of the ILA programme was enabled through
a partnership arrangement through which Capita captures and processes
data on individuals and learning providers and also manages telephone
and web-based call centre facilities. The Department was responsible
for the policy framework and overall design of the ILA programme,
including the eligibility conditions for individuals and the definition
of eligible and ineligible learning for funding. Capita were responsible
for translating the policy intentions set out in the contract
into a robust and functional system and for the operation of the
system and associated call centre facilities to deliver the ILA
programme. Their interpretation of this policy was presented in
the form of a Business Rules Handbook.
The Department is determined to ensure that there
is no confusion of responsibilities with any of its partners in
the successor programme.
33. 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 (paragraph 155).
The Department agrees that this is an important issue
which we are considering in developing a successor programme.
The Department intends to involve the delivery partner in the
policy design and development process for the successor programme.
Any new contractual arrangements will place more precise emphasis
on the contractor's responsibility for managing the scheme. The
Department recognises the need, however, to achieve the right
balance between risk transfer and obtaining value for money. The
balance needs to be set in the context of what is likely to be
a comparatively small scheme where we will still aim to make access
as easy as possible for the learner. That balance will be monitored
regularly and maintained throughout the life of a new scheme.
34. 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 (paragraph 156).
Some testing of the brand name was done as part of
the SQW stakeholder consultation exercise. In general views were
mixed54 per cent of providers and 50 per cent of learners
thought the name ILA should be retained, and around 40 per cent
in each case thought it should be changed. Despite the problems
that ILAs have encountered, only a minority of providers and users
feel that the brand has been damaged enough to change it. The
Department will give further consideration to the appropriate
name for a successor scheme.
35. 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 (paragraph 159).
There will be much a more rigorous provider registration
system in the successor scheme and stronger quality checks. We
expect these will be developed in conjunction with the LSC and
will integrate the Qualifications and Curriculum Authority endorsement
of qualifications. Links with Awarding Bodies will be explicit.
We will put in place Management Information mechanisms to pick
up complaints about quality.
In designing a successor scheme, however, we will
need to balance the need for stronger checks on providers with
the need to preserve as much as possible of the simple non-bureaucratic
processes which have been key to engaging new learners and learning
An appropriate accreditation body
36. We would expect the Learning and Skills
Council to take the lead in prior accreditation, with a fast-track
registration process for providers with a proven track record
of delivering quality training. National providers, and providers
of on-line or distance learning, will almost certainly need to
be registered at a national level (paragraph 164).
The Department agrees that registration of learning
providers must be a key element in the successor scheme. The Department
is in discussion with the Learning and Skills Council to explore
ways in which the LSC can support the registration process, including
arrangements for the registration of on-line and distance learning
providers. In doing this, it is important to strike the right
balance between the costs of the process, the amount of resources
available to a successor scheme and the burden on legitimate providers
wishing to register for the scheme. All providers who wish to
take part in the successor scheme will need to apply for registration.
37. We recommend (a) that the educational
and social objectives of any successor scheme should be defined
before determining a delivery mechanism and financial support
criteria which advance those objectives and (b) that those objectives
should be closely integrated with other aspects of policy towards
lifelong learning (paragraph 170).
The Department agrees that the educational and social
objectives of a successor scheme should be defined clearly and
that these should be closely integrated with other aspects of
lifelong learning policy. In developing the policy we will ensure
both that the aims and objectives of the new scheme are clearly
focused and that it supports other elements of our lifelong learning
Payment in stages
38. We expect that the new ILA system will
include some kind of staged payment system,
perhaps combined with early notification to the individual of
how their ILA has been spent (paragraph 172).
The Department is examining these areas in detail
in the design of a successor scheme. Findings from the SQW report
show that the majority of providers (60 per cent) support the
withholding of at least part of the payments until the training
has been completed. However, staged payments would add to the
administration costs and would have to be justified on value for
money grounds. Only 34 per cent favour all payments being made
at the start of learning as in the previous programme.
Advice and guidance
39. We recommend that provision should be
made to pay for advice and guidance where this can be demonstrated
to advance the objectives of the scheme in terms of reaching the
target audience (paragraph 173).
The Department acknowledges the importance of opportunities
for learners to obtain information and advice to help them make
informed choices and again this is an area we are giving close
consideration to in the development of a successor scheme. We
certainly plan to encourage new learners to take advice. The majority
of providers (61 per cent), along with key partner organisations,
believe that account holders should be encouraged to seek independent
advice and guidance before embarking on learning. 85 per centof
ILA learners declared they knew exactly what course of learning
they wanted to follow; providing advice and guidance to all learners
could be an expensive and unnecessary step.
We are also considering how to encourage learners
to take advice or guidance on options for progression following
40. We see the possibility of some form of
pooling in the successor to ILAs as a promising area for future
development (paragraph 174).
This is an aspect of ILA delivery which the Department
is keen to explore with intermediaries such as trade unions and
the Learning and Skills Council. We will build on the successes
of the pilots described in our response above to recommendation
Timing and consultation
41. We are not satisfied that the Government
understood, at a sufficiently early stage, the effect of the sudden
closure of the scheme on providers. Many of the smaller and more
innovative providers may be unwilling to risk entry into a second
ILA scheme without a contractual arrangement with the Department
The Government were well aware of the impact the
sudden closure of the programme would have on providers; the decision
to close the programme was not taken lightly.
As described in 25 above, the Department gave as
much notice as possible when the decision was taken to withdraw
the programme from 7 December 2001. The Department wanted to enable
people to use their ILAs to help pay for learning they had planned
and to allow businesses time to adjust their plans. John Healey
wrote to all 9000 registered learning providers on 24 October
2001 giving around 6 weeks notice and explaining the necessity
for that decision. In the event, of course, in the light of new
and serious allegations about potential fraud and theft involving
the sale of large numbers of ILA account numbers, the programme
had to close with immediate effect on 23 November 2001.
Since that time we have been active in keeping providers
informed about issues such as making outstanding payments as quickly
as possible (subject to validation checks).
We are developing a successor scheme in a way that
we hope will encourage smaller and more innovative providers to
42. The new form of ILA should be a permanent
and successful part of the lifelong learning strategy (paragraph
We envisage, as does the Cabinet Office Policy and
Innovation Unit and other parts of government, that ILAs will
be an important part of our lifelong learning policies and programmes.
A successor scheme will be developed as part of our wider strategy
to promote lifelong learning.
43. We support Ministers in their determination
to learn the lessons from the collapse of the first version of
ILAs and to bring forward as soon as practicable a more robust
version which is capable of expanding adult learning, to the benefit
of each learner and the nation as a whole (paragraph 182).
When the ILA programme closed the Secretary
of State made a firm commitment to introduce an ILA successor
scheme. We reaffirm that commitment.
We intend coming forward with a new scheme built
on a robust framework which achieves the right balance with the
successful parts of the ILA programme and safeguards which eliminate
its well documented flaws.
It is our intention to announce detailed
proposals in the autumn including a start date for a successor
scheme. Our capacity to do so will significantly depend on the
outcome of negotiations with Capita and a final determination
of their involvement in a new scheme.
We welcome the positive contribution of the
Select Committee and look forward to their continued support as
we develop and deliver a successive scheme.
SYNOPSIS OF THE DfES ILA PROGRAMME CAPITA SYSTEM
LESSONS LEARNED REVIEW OF THE DEVELOPMENT, INTRODUCTION
AND OPERATION OF INDIVIDUAL LEARNING ACCOUNTS: SPECIAL AUDIT REVIEW