The government's auditing watchdog has uncovered a catalogue of incompetence and fraud over a now-disgraced training fund.

An investigation by the National Audit Office found slack controls of cash at the Department for Education and Skills make it unlikely that the government will ever know exactly how much of taxpayer's money was lost on the Individual Learning Accounts.

In its report published on Friday, the government's auditors revealed the ILAs, which were shut down last year by the then education secretary, Estelle Morris, have already cost taxpayers more than £273 million.

Charles Clarke's first day at the office as the new education secretary will begin with him having to give his response to a massively embarrassing report.

The scheme was intended by ministers to help adults who wanted to improve basic skills or learn how to use computers.

The education department, still reeling from the shock resignation of Estelle Morris, is slammed for failing to implement basic security measures.

The report reveals that the department still does not know how many accounts were opened and how much of the fund's money was taken by fraudsters.

The NAO report reveals that 10 police forces are still probing the activities of dozens of companies and that people were able to claim for courses that were either non-existent or unlikely to be recognised by employers.

In one case £1390 was handed over for a course named "Summer Glastonbury 2001" - related to the rock music festival.

In another case £8991 was wasted on "north star crystals" and in another £18,733 was spent on people achieving the national powerboat certificate which enables holders to water ski on major UK lakes.

The department went ahead with the scheme despite several of the companies bidding to administer it warning the timetable was too tight.

Capita, which has also been at the centre of controversy over the performance of the Criminal Records Bureau, eventually took the scheme on.

Fraudsters, having realised that only basic checks on training companies were being made, "hoovered up" account numbers to get subsidies - a task made even easier when they realised that they were arranged in sequence on Capita's computer database.

Comptroller and Auditor General Sir John Bourn said: "In some respects, this was a very good and innovative scheme - it was popular and encouraged many people to acquire or update much needed skills."

He gave a damning review of the education department.

"The speed with which the department implemented the scheme resulted in corners being cut. Poor planning and risk management by the department led to weaknesses in the system which made fraudulent activities possible," Bourn said.

"The department did not keep their eye on the quality of learning and on the indications that a few unscrupulous providers were taking advantage of the inadequate security arrangements. I look to the department to take account of these lessons when devising and implementing the new scheme."

The Conservative shadow minister for higher education, Tim Boswell, described the report as "a sobering document".

"It reveals the characteristic inability of the DfES to move from eye-catching press release to good solid implementation," he said.

"This report reveals that the ILA scheme was an accident waiting to happen. Meanwhile, valuable assistance to learners was withheld, leaving many legitimate education and skills providers unpaid, and there is still no sign of a better founded replacement scheme."