Critical Perspectives on Accounting 21 (2010) 18–30
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Critical Perspectives on Accounting
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The individual learning account experiment in the UK: A conjuncturalcrisis?
Bill Lee ∗
Accounting and Financial Management Group, University of Sheffield Management School, 9 Mappin Street, Sheffield S1 4DT, UK
a r t i c l e i n f o
Article history:Received 1 June 2005Received in revised form 1 June 2009Accepted 1 September 2009
Keywords:AccountabilityConjunctural phenomenaContent analysisCritical theoryFraudGramsciHegemonyIndividual learning accountsNew public management
a b s t r a c t
Individual learning accounts (ILAs) were a flagship policy of the 1997 Labour Governmentin the UK. ILAs provided a new universal right for all adults to receive State financial sup-port to pursue lifelong learning that was delivered through markets in ways consistentwith the prevailing neo-liberal hegemony. The scheme was suspended following allega-tions of fraud and abandoned after regulators of markets associated with the neo-liberalhegemony published reports. An analysis of these reports is used to highlight how theyfailed to emphasise the positive and novel universal right of financial support from ILAs,but instead criticised the adoption of light-touch accounting controls and gave these as areason for fraud being possible and over-expenditure. Subsequently, when a replacementscheme was introduced, the novel principle of universal financial support was abandoned.Gramsci’s concept of a conjunctural crisis is used to explain the abandonment of the novelelement of ILAs while the neo-liberal hegemony endured.
Individual learning accounts (ILAs) that provided all adults with a new right of Government monies to pursue lifelonglearning was a “flagship” policy of the Labour Party when elected to Government in the UK in 1997 (Clough, 2008; Forresterand Payne, 2000, p. 154). Once introduced, demand for ILAs far exceeded expectations. A target of one million account holdersby April 2002 was reached amid celebration in May 2001 (Blunkett, 2001) and demand continued to grow. Promises to expandthe scheme were made at regular intervals (DfES, 2001; Labour Party, 2001). Then, following “serious allegations of potentialfraud and theft involving ILAs” (DfES, 2005), the scheme was closed on 23rd November 2001.1 A few successful prosecutionsensued. At the time of the closure, the Government promised to re-launch ILAs. Now, skills accounts are being piloted in theUK to be rolled out as a national policy in 2010 (Clough, 2008, p. 407; LSC, 2008). It would be tempting to view the scenarioas one where there were some initial problems that were corrected and the scheme is being reintroduced successfully.However, the current skills accounts offer “virtual vouchers” (Clough op cit) rather than accounts for saving towards lifelonglearning. Also, they do not provide universal financial support; instead, they are limited to either the unemployed, or to theleast well-educated to allow them to obtain a minimum level of skills (LSC, 2008, p. 3; National Learner Panel, 2008, p. 1).
1 Figures, dates and specific details of initiatives relate to their organization in England. Arrangements were slightly different in Northern Ireland, Scotlandand Wales.
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The purpose of this article is to use Gramsci’s (1978) ideas of hegemony, organic crisis and conjunctural phenomena toconsider an unexplored dimension of the ILA episode; namely the role of regulators of markets for State-financed serviceswhose criticisms of the methods of financial control used in the scheme contributed to the replacement of ILAs by a markedlydifferent form of State-support for prospective learners to the detriment of a broad range of people who could have benefitedfrom ILAs. In doing so, the article does not intend to single out those regulators as wholly responsible for the episode, butinstead to locate their role and responsibilities in a critical reflection on how the general form of delivering public servicesthrough regulated markets militated against endurance of the innovative principles of ILAs.
The following argument about the ILA scenario will be made. During an organic crisis of deep-rooted economic andpolitical change, the 1979–1997 Conservative administrations institutionalised market-based practices to deliver State-funded services – thus, utilizing notions of profit to motivate service providers – and strengthened regulators of those marketsas part of a new neo-liberal hegemony or form of political and ideological leadership. The new Labour administration of1997 proposed ILAs as a universal right for all citizens to receive financial support for lifelong learning but accepted the neo-liberal hegemony and used market-led arrangements for delivery of that learning. Private learning providers were allowedto offer learning alongside public sector providers as their pursuit of profit was deemed likely to lead them to devise efficientways to deliver learning to non-traditional learners. Thus, supply expanded to satisfy demand from new learners and thenumber of accounts grew rapidly. A failure to persuade financial institutions to manage the accounts deprived the policyadministrators of a means to regulate the pace of spending. Those administrators’ own use of light-touch accounting controlsmeant that they did not anticipate the rate of outgoings accurately, so over-expenditure occurred, which was attributed towidespread fraud. Administrators gave greater priority to stopping fraud than they gave to realising learning objectives andsuspended ILAs. Regulators sought explanations of why ILAs were suspended and highlighted how limited controls – ratherthan any profit motive residing in the market for learning – led to the potential for fraud by private learning providers andhigh costs. Policy-makers in the relevant Government department were reluctant to embark on such a radical innovationagain. Thus, although they persisted with market-based provision of learning that complements the neo-liberal hegemonywhen replacing ILAs, they introduced a scheme that did not offer universal financial support so spending was more limitedand could be more easily controlled. The movement away from the initial “flagship” policy should be seen as a conjuncturalcrisis of a transient event that caused temporary embarrassment for a Government at a time when the prevailing hegemonyendured.
The discussion is organized as follows. The next section outlines Gramsci’s ideas – of hegemony, organic crisis andconjunctural phenomena – that are used to develop the theoretical argument. The ensuing section describes the politicalcontext of the prevailing neo-liberal hegemony and its market-based provisions and methods of accountability for State-financed services. The following section discusses the policy of State-financed ILAs and why the format of that scheme ledto over-expenditure which was attributed to fraud and led to suspension of ILAs. The subsequent section analyses differentregulators’ reports about ILAs and the evidence of fraud surrounding the scheme to suggest that it was the recommendationsin the report – rather than the actual levels of fraud – that contributed to the movement away from universal financial supportin the ILA scheme. The final section concludes that the furore surrounding the ILA episode and the abandonment of its noveluniversal qualities when the prevailing hegemony remained intact, should be seen as a conjunctural crisis.
2. Understanding continuity and change through a Gramscian lens
The idea of continuity in societies is apparent in Gramsci’s concept of periods of hegemony which are generally lengthy,lasting several decades. Hegemony is discussed elsewhere in the accounting literature – see, for examples, Alawattage andWickramasinghe (2008), Cooper (1995), Goddard (2002, 2005), Lee and Cassell (2008), Lehman (1995), Lehman and Tinker(1987), Richardson (1989), and Spence (2009). It is, thus, sufficient to define hegemony as political leadership achievedthrough a mixture of the attainment of consent from a majority of a population through the propagation of ideas about therights of the leading class and a threat of force against any deviant minority, to create the conditions for the development ofan economy under the direction of that leading class and its allies (Gramsci, 1978, p. 12). Although political representativesof a leading class may oversee the establishment of enduring organizations and practices and the generation of commonsense ideas to support periods of routine development of the economy in ways that help to perpetuate the position of thatleading class, Gramsci never saw hegemony as given (Hall, 1983). It has to be renegotiated constantly and constructed by thepolitical representatives of a leading class to ensure a configuration of Government policies that a majority of the populationcontinue to find attractive. To discourage resistance and gain acceptance for actions favourable to the leading class, politicalrepresentatives will formulate policies that meet some interests of subordinate groups (Gramsci, 1978, p. 258), although notin ways that threaten the leading class’s economic prominence (Gramsci, 1978, p. 161).
Change in Gramsci’s work may be categorised into two general forms. Firstly, there is the most fundamental change,namely organic crises. The latter days of a period of hegemony will be marked by an organic crisis that entails “incurablestructural contradictions” (Gramsci, 1978, p. 178) that prevent further development of the economy. At that stage, a pre-viously subordinate class may be able to formulate an alternative hegemony to gain power and change the fundamentalnature of society, or representatives of the existing leading class may establish a new hegemony involving new ideas andpolicies for a further period of economic development under their direction. Although organic crises have occurred, thepolitical representatives of those who control capital have managed to formulate a new hegemony involving far-reachingpolicy changes to maintain capitalist economies in Western societies.
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The second form of change in Gramsci’s work involves conjunctural phenomena. As Adamson (1980, p. 208) pointsout, “political ideas, strategies, leaders and so forth” fit Gramsci’s (1978, p. 177) description of the “conjunctural” as theirendurance are not essential to the development of the economy. Hence, political figures may be replaced at elections orat other times by their competitors as representatives of the leading class. Alternatively, political leaders’ attempts to con-struct and continually renew the prevailing hegemony may entail their different policies developing at different tempos andrhythms so that some conflict with established policies and institutions, run into difficulties, are discarded and replaced byothers rather than being assimilated into the prevailing hegemony. Disregard of policies may appear “dramatic” (ShowstackSassoon, 1982, p. 114), but – unlike at times of organic crisis – they “do not have any very far-reaching historical signifi-cance; [instead] they give rise to political criticism . . . which has as its subject . . . personalities with direct governmentalresponsibilities” (Gramsci, 1978, p. 177). In short, a particular type of hegemony may prevail, but a particular policy may beconjunctural and fail.
Gramsci’s concepts of hegemony and organic crisis will now be used to explain the political context that preceded theintroduction of ILAs. The rest of the article will then document how the ILA episode unfolded into a conjunctural crisis.
3. Hegemony, the organic crisis of the 1970s, State-funded services and changes to accountability
For a long period leading up to the 1970s in the UK, a hegemony of corporatism prevailed so although a large part ofthe economy was organized along capitalist lines in which private industries pursued profits, collective institutions andresponsibilities figured strongly and the State offered essential services for everyone from taxation revenues (e.g., Goddard,2002). When the economy was expanding, the State was able to use rising taxation revenues to fund a “consensual expansionof [public] services” (Goddard, 2002, p. 672) including health and education to ensure that those who could work wereproperly prepared and people who could not work received support. These services were delivered through publicly ownedbodies that observed “the bureaucratic ideal of efficient and impartial administration characterised by hierarchical structure,clearly defined duties and rule-based procedures . . . carried out by professional staff who were given ‘bounded discretion”’(Butcher, 1995, p. 2). Accountability – namely the “duty to provide an account . . . or reckoning of those actions for which oneis held responsible” (Gray et al., 1996 p. 38; see also, Laughlin, 1996, p. 225) – was achieved by the State employees responsiblefor delivery of public services, reporting up a chain of command of civil servants that led ultimately to a Government minister(Oliver and Drewry, 1996, p. 4).
When an organic crisis affected the UK in the 1970s, the Conservative Party that was elected to government in 1979replaced the prevailing hegemony (Hall, 1983, p. 23 et seq) with what Goddard (2002) describes as a neo-liberal hegemonyin which the idea of individuals acting freely in markets was more prominent. State services were presented as the sourceof economic problems because they necessitated high levels of taxation which discouraged entrepreneurialism and encour-aged dependency (Humphrey et al., 1993, p. 9; Goddard, 2002, p. 673; Rouse and Smith, 1999, p. 238). The ConservativeGovernment also considered public services to be inherently inefficient, unresponsive to the needs of the population anddetermined by unaccountable professionals (Walsh, 1995, pp. 83 and 85). Hence, they sought to reduce the functions per-formed directly by the State (Oliver and Drewry, 1996, p. 24). This “low trust” in public servants was matched by a “hightrust” in markets and business methods (Broadbent and Laughlin, 1997, p. 488) and informed the Conservatives’ search forways to allow others to provide services previously delivered directly by the State. In some instances, this involved intro-ducing the profit motive that drove private industry. Thus, the Conservative Government employed compulsory competitivetendering and privatization to shift responsibility for the provision of some services to the private sector (e.g., Puxty, 1997,p. 722 et seq). Where this was not possible, the Conservative Party sought to divest the State of direct control of the provisionof public services by constructing internal or quasi-markets in which consumers acquired services from semi-autonomousservice units (Clatworthy et al., 2000; Oliver and Drewry, 1996; Rouse and Smith, 1999). The public sector became “a nexusof contracts, in contrast to the traditional patterns of professional bureaucracy and integrated hierarchies” (Walsh, 1995, p.88). Reduced authority of civil servants to ensure quality of provision of public services was allegedly countered by increasedpower of choice of provider by consumers (Oliver and Drewry, 1996, p. 26).
In the neo-liberal hegemony, State mechanisms for regulating “any new market order” for public-funded services werestrengthened (Humphrey et al., 1993, p. 10 et seq). Existing instruments of accountability such as Parliamentary SelectCommittees – that comprise cross-party groups of Members of Parliament (MPs) to monitor the expenditure and policy ofcorresponding Government departments – were supplemented by a proliferation of State-sponsored regulators, ombuds-men, inspectorates and public auditors (Hood et al., 1998, p. 62). Of particular significance to a study of ILAs are the NationalAudit Office (NAO) and the Public Accounts Committee (PAC). The 1983 National Audit Act established the NAO – from itsantecedent of the Exchequer and Audit Department – to audit the economy, efficiency and effectiveness of any public orprivate body’s expenditure of large sums of Government money. The NAO is headed by the Comptroller and Auditor Generalwho is a public servant appointed by Parliament. The PAC – which is a cross-party body of MPs – uses the information fromthe NAO to hold Government departments and other public bodies to account (Broadbent and Laughlin, 1997, p. 500; Whiteand Hollingsworth, 1999, p. 101). Individual users of services could also seek redress for any discrimination through theParliamentary Ombudsman who is a public servant (Oliver and Drewry, 1996, p. 54). The Ombudsman was established asthe Parliamentary Commissioner for Administration in 1967. The Ombudsman’s role was expanded to deal with complaintsof maladministration around ‘contracted out’ services as well as other Government policies referred by a MP (Oliver andDrewry, 1996, pp. 54 and 68).
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The extent to which the policy of ILAs complied with the delivery of State-funded services in the dominant hegemonyand the response of regulators to that policy will be considered in turn.
4. The rise and abandonment of the initial individual learning account scheme
During the period of Conservative rule between 1979 and 1997, the Labour Party changed its policies to be broadly sup-portive of the prevailing neo-liberal hegemony (Goddard, 2002, p. 675). Nevertheless, the Labour government of 1997 soughtto extend rights to people who had previously been marginalized in economic life, to appeal to a broader constituency thanhad the Conservative administrations. Thus, Labour’s acceptance of market reforms took place within a framework that,although not identical with, “owes a debt to”, communitarianism (Rouse and Smith, 1999, p. 254). Communitarianism pro-motes the recognition of society as a means of realising individuals’ citizenship rights (Etzioni, 1993). The Labour governmentthought citizenship could be promoted by “preventing poverty by ensuring that people have the right education, trainingand support” (DSS, 1998, p. 20). The government aimed to use lifelong learning to equip people with new skills to “dealwith the dynamics of the labour market” (Cressey, 1999, p. 182). The policy document, The Learning Age presented ILAs asan important tool in realising that objective. Thus:
“Individual learning accounts . . . will need to be part of a coherent approach to welfare reform, in which poverty isnot just a question of financial support but also of enabling people to get the skills which allow them to earn theirown living.” (DfEE, 1998, section 2.17)
The prevailing neo-liberal hegemony led the government to the view that using the market to deliver learning – andallowing private learning providers who pursued profit to participate in the scheme alongside public sector colleges – wouldbring clear advantages. John Healey, a government minister for adult skills told the Education and Skills Select Committee(2002, ILA 53) that ILAs were intended to place “real purchasing power and consumer choice in the hands of the learners”so that “funding would flow away from inefficient and ineffective providers and make room for new providers, particularlythose operating in smaller niche markets and with new non-traditional learners”.
The Labour government’s manifesto promised to create one million ILA account holders by the end of its first term inoffice, which could have stretched until April 2002. The first million account holders were entitled to £150 to pay towardsa training course and were expected to contribute a minimum of £25. The plan was that additional account holders overthe million and those using an ILA in subsequent years could claim a 20% discount up to a maximum of £100 on mostcourses. Information technology courses brought an 80% discount up to a maximum of £500 – subsequently reduced to£200 in October 20002 – in any one year. Responsibility for creating the ILA scheme was given to the Secretary of Statefor Employment and Education and his team of civil servants at the Department for Education and Employment (DfEE,subsequently re-organized into the Department for Education and Skills or DfES in 2001), for which the DfEE received abudget of £202.1 million.
The DfEE hoped to integrate ILAs into the prevailing hegemony by constructing a broad cross-class alliance that gavedifferent groups an opportunity to benefit from the scheme. The intention was that ILAs would be a savings account admin-istered by accredited financial institutions (DfEE, 1999, p. 21). A government-sponsored customer services departmentwould liaise with both (i) the financial sector institution to ensure that individuals had deposited a requisite contributioninto an account and (ii) the learning providers to check that the individual had registered for the training. The customerservices department would then arrange for the public incentive to be paid into the account. Consistent with the logic ofthe neo-liberal hegemony, the DfEE offered administration of the service centre to tender by private providers. Capita, aconsultancy firm won the contract.
The DfES (PAC, 2003, paragraph 3) has reported that a desire to minimise bureaucracy and encourage innovation inprovision to reach people who had traditionally been excluded from learning, contributed to its decision to allow learningproviders to register by simply telling Capita their contact details. As with earlier market-based reforms, consumer powerwas seen as a force for ensuring the quality of the service provided. David Normington (PAC, 2003, paragraph 35), thePermanent Secretary at the DfES said:
“[T]his was going to be a market driven scheme and . . . the individual learners would judge whether that training wasup to satisfactory standards or not.”
A decision was taken to have minimum educational and financial management controls to manage the market for learning.Normington (PAC, 2003, EV 276, emphasis added) explained:
“[E]verybody believed that this was an innovative scheme and they were going to take some risks and those risks werejustified because of the objective of getting more people into learning. The decision was taken therefore to have . . . lighttouch rules.”
2 The formal reason given for this reduction was that some providers complained their competitors were receiving an unfair market advantage byovercharging or repackaging materials to gain the maximum incentive (NAO, 2002, p. 12). However, such an indiscriminate response could just as easilybe seen as a reactive attempt to reduce costs as a scheme proved to be very popular from when it was launched.
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Fig. 1. Number of ILA accounts and learning providers and levels of actual and potential expenditure.
In other words, universality of opportunity and lifelong learning were given greater weight than any need for strongcontrols.
The DfEE failed to construct the cross-class alliance that it desired around the policy. Although financial institutions wereinvolved “with the progress towards the final design of the accounts” (DfEE, 1999, p. 12), they did not find managing a largenumber of small value accounts commercially attractive and “ultimately [at the end of 1999] the financial institutions wouldnot participate” (PAC, 2003, Evidence paragraph 4). Thus, when the scheme became fully operational from September 2000,an important stage was missing from the original conception of the payment process. State finances were not committedto individuals’ accounts as soon as they opened their ILAs. Instead, learners who applied to the ILA Centre were sent aregistration number and they purchased training by giving a registered provider that number and paying any additionalsum. The learning provider claimed all of the State’s contribution to the individual’s ILA when the learning commenced. Thelearner was removed from the money transaction so that there was a clear separation of learners’ acquisition of learningand a learning provider’s receipt of State funds. An initial outcome was that expenditure did not rise proportionately withthe number of accounts—see Fig. 1.
Given the prima facie low level of costs, it is not surprising that attainment of the initial target of one million accountholders one year early took place amidst celebrations (Blunkett, 2001). When the Labour government called a GeneralElection for May 2001, a year in advance of the end of its scheduled term of office, it promised to “extend Individual LearningAccounts”, a promise that was repeated by the DfES (2001, p. 15) in its October 2001 strategy document. However, as theDfES was not depositing the money into accounts at financial institutions, they did not know whether individual accountholders needed their full entitlement to purchase the learning that they were undertaking. The DfES appeared not to realisethat low costs were due in part to a lag between the growth in the number of people registering for accounts, learners findinga suitable learning provider, learners starting on courses, the learning provider claiming the subsidy through the ILA centreand expenditure finally taking place. It was not until October 2001 that expenditure finally exceeded the initial budget, whenmany people had still to use their accounts.
Another consequence of the separation of the learning providers’ receipt of funds and the learners’ acquisition of learningwas an increased potential for providers to receive funds, even if they had provided poor quality learning, or no learning atall if they were able to gain access to learners’ accounts. In this context, it will probably not be viewed as wholly unexpectedthat on 24th October 2001, allegations of poor quality provisions by some learning providers accompanied an announcementthat the scheme would be closed on 7th December 2001, to allow it to be overhauled. On 23rd November 2001, the Secretaryfor State closed the ILA programme in England with immediate effect, in accord with police advice following claims of afraudulent attempt to sell a large number of ILA registration numbers. In light of these events, it is of value to consider anyevidence of abuse of the scheme that existed prior to its closure. In the summer of 2001, sections of the media reported misuseof the ILA scheme (Parry, 2001) by the National Distance Learning College and its associated companies. Evidence does notsuggest that these reports reflected a growing dissatisfaction by users of the scheme. Studies have shown that the schememet many of its educational and policy objectives and learners were generally highly satisfied with the learning undertaken(Clough, 2004, pp. 17–18; Owens, 2001). Also, Fig. 2 shows the number of complaints in each month that the scheme wasoperational, the cumulative number of complaints as an absolute figure and as a percentage of the accounts opened. Levels of
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Fig. 2. Complaints in relationship to number of accounts.
complaints as a percentage of the number of accounts remained between 0.18% and 0.26% from November 2000 to September2001. The DfEE responded to the adverse publicity and complaints by introducing new financial management techniques tomonitor the operations of the learning market at that stage (PAC, 2003, paragraph 27; E&SSC, 2002, paragraph 102).
It is clear that the initial budget was exceeded in October 2001 and the decision to suspend the scheme was announced on24th October 2001. Legal advice that the Government had to give six weeks notice prior to the suspension (PAC, 2003, EV15)meant that the announcement did not introduce an immediate ceiling on expenditure as many accounts had remainedunused. Furthermore, almost 100,000 more accounts – with a potential increase in expenditure of £20 million – wereopened in the first three weeks of November. If the scheme had remained open until 7th December, further commitmentsmay have arisen. Consistent with earlier occasions when demand-led learning initiatives led to over-expenditure (E&SSC,2002, paragraph 35), the DfES closed the scheme. Many complaints followed, including protests about the closure.
When the scheme was closed, the DfES promised to reintroduce ILAs and conducted a far-reaching consultation exerciseearly in 2002, to identify how best to introduce a replacement (see Thom et al., 2002). A number of the regulatory bodiesassociated with the neo-liberal hegemony then conducted investigations into ILAs. There were reports about ILAs by theEducation and Skills Select Committee, the National Audit Office, the Public Accounts Committee and the Ombudsman. Thesereports, the actual evidence of fraud and their respective potential impacts are discussed next.
5. The reports on ILAs and the evidence of proven criminal activity
Data for this article have been gathered from 1998 when the ILA scheme was conceived through to December 2008 whenthere was the most recent imprisonment of people accused of defrauding the scheme. The methods of data collection includecompilation of documents about the introduction and suspension of ILAs and the subsequent introduction of a successorscheme. When ILAs were operational, the author discussed the scheme with many ILA-holders and learning providers. Afterthe scheme was closed, interviews were held with a member of staff at the DfES, a witness to a committee that reportedon ILAs and a former director – who was arrested initially and subsequently informed that charges would not be broughtagainst him – of a learning provider where convictions took place. Several hundred newspaper articles about the ILA schemewere also collected. All sources of evidence have been used to inform the discussion so far.
Two main sources of evidence are used below. Firstly, content analysis has been used to interpret the reports aboutILAs prepared by the Education and Skills Select Committee (2002), the National Audit Office (2002), the Public AccountsCommittee (2003) and the Parliamentary Ombudsman (2003), to identify their potential impact on the abandonment of theprinciple of universal financial support in the ILA scheme that had promised lifelong learning. Content analysis aims to makevalid inferences from documents and text (e.g., Bryman and Bell, 2007, p. 193). Content analysis may be either quantitativeor qualitative. Krippendorf (1980, p. 40) identifies the “frequency with which a symbol, idea, or subject matter occurs in astream of messages” as a valid quantitative index of the “importance, attention, or emphasis” of a theme in documents. Witha qualitative approach, the underlying meaning is sought (Bell and Bryman, 2007, p. 71). Qualitative approaches involveorganizing the data into categories, codes, indices or themes to identify the significance given to processes, events, etc., in atext (Gibbs, 2007).
A three-staged approach was adopted to analyse the text in the actual reports – i.e., not the witness statements – tofacilitate both a quantitative and a qualitative understanding of their content. First, each report was read to identify itspurpose and the gist of its message to provide a context for the subsequent analyses. Second, a list of terms associated with
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the merits of the scheme or the reasons given for its closure along with terms referring to control requirements that couldaffect the design of a replacement scheme were compiled to identify the frequency with which those terms appeared, toinfer the importance of each to the report. The positive terms were the objectives of “universal” opportunities for “lifelonglearning” in ILAs. The terms of “abuse”, “fraud”, “unscrupulous” providers and “poor quality” learning were listed as potentialproblems associated with the scheme. The educational control requirements of “quality assurance” and “accreditation” or“accredited” learning providers and the financial controls of “audit” and “risk analysis” or “risk register” were also included.An Acrobat search facility was used to identify where the terms appeared and the sentences in which the terms appearedwere read to ensure that the reference related to the ILA scheme. Third, to gain a more qualitative understanding of how ILAswere being presented and who was deemed to be responsible for their failure, each document was searched for “individuallearning account” and the shorthand terms of “ILA” and “the scheme”. Each time a term appeared, the surrounding sentenceswere read and an explanation of each reference was written for subsequent perusal. The data from the different forms ofcontent analysis were then used to assess the potential impact of the reports on the replacement skills accounts scheme.
The second main source of evidence used is newspaper reports about any convictions of people accused of fraud. Thewebsite of the DfES and its successor, the Department of Innovation, Universities and Skills (DIUS) were visited regularlyto identify names of individuals who had been convicted for defrauding the ILA scheme. These names were added to thoseof people associated with the National Learning Distance College that was mentioned in media accounts of ILA abuse priorto the closure of the scheme. Search engines were also used to find newspaper articles in which the terms “individuallearning accounts” or “ILAs” and “fraud” appeared together to identify any potential perpetrators of fraud. A Google searchwas performed for all names gathered so a list of convictions, forms of abuse and monies lost could be compiled. DIUS wase-mailed to confirm whether this was the complete list, although no confirmation has been received. The details were usedto reflect on how any fraud may have affected the replacement for ILAs.
The contents of each report and details of frauds will be provided before their respective impact on the form of thereplacement skills account scheme is considered.
5.1. Education and Skills Select Committee report
The Education and Skills Select Committee (E&SSC)’s report was published in April 2002. The purpose of the E&SSC (2002,paragraph 4) enquiry was “to examine the lessons from the closure of the individual learning account (ILA) scheme, for thefuture of the DfES’s lifelong learning strategy in England, with particular reference to management, policy [and] plans forreplacing the ILA scheme”. The general gist of its report is supportive of the concept of the ILA scheme and a replacement.The E&SSC is also supportive of the use of a market for delivery of learning and the entry of new learning providers whoare described as “innovative”. However, the E&SSC did question why design of ILAs did not exclude “unscrupulous peopleposing as learning providers” who perpetrated fraud and why extensive systematic analysis of complaints did not take placewhen the scheme was operational.
The frequency analysis suggests that the E&SSC gave greater coverage to issues of financial impropriety than it gave tothe educational merits of ILAs, even though the term “lifelong learning” appeared in the terms of reference for the report.While the terms “universal” and “lifelong learning” were mentioned 13 and 11 times, respectively, “fraud” (17), “abuse” (26)and “unscrupulous” providers (19) appear a combined total of 62 times. Although “poor quality” of learning only appearsin the report when the E&SSC are quoting from the announcement that accompanied the closure of the scheme, the E&SSC(2002, paragraph 11) do express concerns that insufficient attention was given to quality of learning in the design of the ILAscheme. Thus, the E&SSC gave greater coverage to educational controls – of “quality assurance” which appeared 20 timesand “accreditation/accredited” bodies which appeared 27 times – than it gave to financial management controls of “audit”and “risk register/risk analysis” which appeared 12 and 3 times, respectively.
The analysis of the contexts in which terms referring to ILAs were used indicates that the E&SSC saw weaknesses inthe design and operation of individual learning accounts and held the DfEE/DfES for their failure to design the systemappropriately and Capita for failing to make the Government sufficiently aware of the mounting problems. Examples of thecriticisms include:
“We regard the failure of the Department for Education and Skills to learn from the mistakes made in the past byits predecessors and other Government departments to be one of the most disturbing aspects of the ILA experience”(E&SSC, 2002, p. 11).
“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”(E&SSC, 2002, p. 40).
5.2. National Audit Office report
The NAO report was published in October 2002. It focused primarily on the DfEE/DfES. The objectives of the NAO reportwere to examine “a) how far individual learning accounts met the policy objectives; b) how well the Department managedrisks in design and implementation of the scheme; and c) how well the Department handled the closure and wind downof the scheme”. The gist of the report is critical of the DfEE/DfES when the first two objectives are discussed. On the first
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count, there is the implicit criticism that the scheme had few objectives beyond introducing one million accounts. There is,however, inferred support for private learning providers and a market for learning in helping to realise any objectives. Thus:
“The Department has been successful in bringing new providers to the market, thus extending the choice of learningand learning environment for learners and enhancing options for access to education.” (NAO, 2002, p. 15)
When considering the second objective of how well the risks associated with the scheme were managed, the reportconcludes that because of time pressures when the scheme was introduced, there were inadequate financial controls (NAO,2002, p. 9) such as exception reporting and insufficient consideration of risk of fraud, although the report does acknowledgethat the DfES did upgrade the level of risk associated with the scheme and had introduced – and were in the process ofintroducing – further controls. One of the criticisms that the NAO (2002, p. 21) makes of DfES’s management of the schemewas that when ILAs proved to be more popular than expected, the DfES “did not act to ease demand until [it] realised[the] budget would be at least £20 million overspent”. In response to that concern, the NAO report (2002, p. 22) makes thefollowing recommendation for subsequent schemes:
“Departments wishing to implement innovative demand-led projects for which there is very little or no relevantexperience, should prepare detailed business process models and sensitivity analysis for a wide range of scenarios.They should also develop contingency plans in case the project does not proceed as expected, or expenditure issignificantly higher or lower than budget.”
On the third issue of how well the Department handled the closure and winding down of the scheme, the report is moresympathetic. It suggests that if the DfES had not closed the scheme immediately, “the value of fraudulent claims could [have]run into tens of millions [of pounds]” (NAO, 2002, p. 32).
The frequency analysis highlights that the NAO gave considerable coverage to potential issues of financial improprietyand proposed extensive controls as a solution. The terms “fraud” (17), “abuse” (9) and “unscrupulous” providers (3) arementioned 29 times. Poor quality provisions are also mentioned 4 times. Accounting methods of control of “audit” (18references) and “risk analysis/register” (17 references) received extensive coverage. Terms such as “accredited/accreditation”(12 references) and “quality assurance” (9 references) that suggested educational controls were also mentioned regularly,but less frequently. The frequency analysis suggests that less coverage was given to the positive dimensions of “lifelonglearning” (9 references) and “universal” (3 references) and – as indicated above – the popularity of the scheme was deemedby the NAO to be problematic and a reason for more controls. The qualitative analysis of the context of the use of termsdescribing ILAs highlights that the report saw limited controls as the main reason for the failure of the scheme and blamedCapita and the DfES. The report concludes that “poor risk management and an unclear relationship [of the DfES] with Capitacontributed to the closure of an innovative project due to allegations of potentially serious fraud and abuse” (NAO, 2002, p. 8).
5.3. Public Accounts Committee report
The Public Accounts Committee (PAC)’s review was published in March 2003. It aimed “to examine the managementof risk in designing and implementing the scheme, the effectiveness of monitoring, the Department’s relationship withCapita who operated the scheme, the levels of fraud and abuse and the actions taken, and the lessons learned” (PAC, 2003,paragraph 3). The gist of the report is contained in its claims that: the DfEE had implemented the ILA scheme in too shorta time period and overrode “sound project and risk management” and so had not built “counter-fraud measures into thedesign of the scheme”; the decision not to have checks on learners and providers meant that the Department was “slow toidentify emerging problems, including substantial fraud and abuse”; and the DfEE had failed to develop a proper partnershipwith Capita which “meant that the Department bore more of the key risks than planned”. Unlike some reports, the PAC(2003, paragraph 4) does criticise the market for learning for providing an incentive for “unscrupulous providers”, althoughthe PAC suggests that it is only when that motive is combined “with control weaknesses” that “the environment for fraudand abuse” is created.
The frequency analysis suggests that the PAC gave little coverage to the positive aspects of the scheme. “Lifelong learning”does not appear in the report at all while the concept of the “universal” provisions appears only in the evidence fromwitnesses. By contrast, issues of “fraud” (12), “abuse” (11) and “unscrupulous” (2) participants appear a total of 25 times,although the term “poor quality” provision is absent. Consistent with the emphasis on issues of financial impropriety, thereport gave greater coverage to the financial controls of “audit” (9 references) and “risk analysis/risk register” (5 references)than it gave to the educational controls of “accredited/accreditation” (4 references) and “quality assurance” (3 references).
The qualitative analysis of the use of the terms describing ILAs highlight that levels of fraud and abuse were seen assubstantial. It is accepted as evidence (PAC, 2003, EV34) that “there were estimated net irregular payments of £97 million onthe ILA programme, of which based on estimates and extrapolations, some £67 million was fraud and serious irregularities.The other £30 million was where learning was provided but where the claims did not fully meet the programme rules”.Allegedly, a considerable number of people were involved in fraud and abuse. The report states:
“The Department’s SIU [special investigations unit] is currently dealing with 153 registered learning providers aboutwhom we have more serious complaints or concerns. Of these 153, the police are investigating 100 learning providers.To date, there have been 60 arrests, which have resulted in 10 people accepting cautions and charges being brought
26 B. Lee / Critical Perspectives on Accounting 21 (2010) 18–30
against 14 individuals. Charges have since been dropped against two individuals investigated by the National CrimeSquad (NCS); this was due to the small amounts of money involved for these individuals. 11 others are awaiting courtappearances. One person has been convicted.” Additionally, “the Department is pursuing another 400 providers” (PAC,2003, paragraph 27).
The DfES is held most culpable for the faults. For example, in suggesting that the scheme offered only limited quality, thereport states “while the Department required providers to be registered with the Individual Learning Account centre, it didnot subject them to quality assurance”. The report implies even greater failings in the area of accounting. It calls for the DfESto review risk management arrangements quickly, to ensure effective risk management of innovative schemes, to recog-nise a need for sensitivity analysis and contingency planning in innovative schemes, to develop monitoring arrangementsincluding exception reporting, to operate with clear lines of communication from partner bodies to the Accounting Officer,to allocate risks clearly between the different partners and to involve internal audit more in reviewing systems and internalcontrols. The PAC (2003, paragraph 3) directs particularly strong criticisms at the DfES’ Accounting Officer for not providing“convincing assurance that weaknesses have been properly analysed and understood so that the necessary improvementscan be identified and implemented”.
5.4. Ombudsman report
The Ombudsman’s report was published in April 2003. Its aim was to investigate whether the DfES failed to establish andoperate adequate controls, leading to potential abuse of the ILA scheme and people suffering unfair losses. The Ombudsmanconsidered two cases. The first was a student who complained that his ILA was emptied without his knowledge and sowas not available when he wanted to register for a course. The second was a provider who claimed that delays in paymentand closure of the scheme without proper notice led to his company’s bankruptcy and entitled him to compensation. Thegeneral gist of the Ombudsman’s report was that the DfES and Capita failed to ensure adequate controls and safeguards forILAs which led the Government to close the scheme. Design weaknesses and an ongoing failure of the DfES to recognisewarnings about potential fraud contributed to the first complainant losing his entitlement, either by an administrativeerror, or by deliberate abuse and fraud. The Ombudsman found that the DfES’ reimbursement of the money that the firstcomplainant was out of pocket from enrolling on a course without knowing that his entitlement had been taken wrongly,was a satisfactory response to a legitimate complaint. In considering the learning provider’s case, the Ombudsman foundthat when introducing a new control mechanism for processing applications for ILAs, the DfES permitted an insufficienttime of grace for processing applications made via the old method. The Ombudsman found that the DfES compensatingthe learning provider for the monies that he would have received for the learning provided to learners who registered inthe relevant period and an ex gratia payment of £500 for inconvenience suffered was a satisfactory response to a justifiedcomplaint. By implication of this support of the DfES’s payment to the learning provider – and to other learning providersin a similar situation (Ombudsman, 2003, paragraph 148) – the Ombudsman’s report endorses the role of private learningproviders in a market for learning.
The frequency analysis confirms the Ombudsman’s strong coverage of the potential for financial impropriety. There arenineteen references to “abuse”, 18 references to “fraud”, 1 reference to “unscrupulous” providers and 4 references to “poorquality”. By contrast, positive dimensions of ILAs are given little coverage; there are only two allusions to “lifelong learning”and no references to the “universal” provisions of the scheme. The frequency analysis also suggests that the Ombudsman gavegreater coverage to the need for financial management controls than it gave to a need for educational controls. Thus, “audit”is mentioned 18 times, “risk register/risk analysis” warrants 17 references while “accreditation/accredited” is discussed in15 places and “quality assurance” is mentioned only 4 times. The qualitative analysis of how terms describing ILAs were usedindicates that the Ombudsman holds the DfES ultimately responsible for the closure of ILAs because of “maladministrationin the design and operation of the scheme, and [in] the fact that DfES consistently ignored warnings about potential fraud”.
5.5. Prosecutions and levels of proven fraud
The reports inferred that fraud that had arisen from insufficient controls was the reason for the closure of the ILA scheme.However, the different searches revealed only the following six cases of convictions:
(1) On 16th January 2002, a woman was sentenced to a non-custodial community-based punishment for fraud. She hadclaimed £9396 of ILA funds for training courses that had not been delivered (DIUS, 2008a; Hook, 2001).
(2) In April 2005, six people were imprisoned and nine others received non-custodial, community-based punishmentsfollowing fraud that involved £1 million of ILA monies. The individuals had created companies and provided fictitiousapplications for fake students to obtain ILA funds for courses that did not run (Anon, 2005; DIUS, 2008b).
(3) In April 2003, one person was given a custodial sentence, another received a suspended custodial sentence, three othersreceived non-custodial punishments and others received the cautions mentioned by the PAC for offences relating toa fraud of £40,000. Some offenders had asked others to enrol on a learning programme when no learning took place(Clancy, 2003; DIUS, 2008c).
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(4) In April 2005, three men were imprisoned for varying periods when convicted of either fraudulent trading or conspiracyto defraud after claiming around £2 million funding from the ILA programme. They had been involved in a company thatrecruited around 8000 students for a correspondence course comprising a plagiarized version of other software that wasrepackaged and renamed. The learning provider claimed £200 of ILA monies for each disk which had only cost around£1 (DIUS, 2008d; Leyden, 2005).
(5) In January 2005, an individual was imprisoned for four years after being found guilty of fraudulent trading, havingreceived a total of £1,440,700 of ILA monies. The individual’s company employed more than 100 salespeople acrossSouthern England to sell the courses. The course was deemed not to represent value for money, as all that was suppliedwas a book which could have been purchased off the shelf for £15 (Anon, 2004; DIUS, 2008e).
(6) In December 2008, a man was jailed for seven years for fraudulent trading and money laundering and a woman was jailedfor fifteen months for money laundering. They owned the National Distance Learning College (NDLC) that had claimed£6 million of ILA funds. NDLC recruited 80,000 students after its publicity promised that students would be workingtowards qualifications accredited by major UK qualifications bodies. However, NDLC invented educational bodies whoseinitials and artwork were put on marketing literature and they sent students forged official paperwork and worthlesscertificates from fictitious educational bodies (Anon, 2008a, 2008b; O’Neill, 2008).
5.6. Overview and consequences
When closing the scheme, the DfES promised to reintroduce ILAs. Regulators of markets for State-funded services thenpublished the reports above. All reports attribute the closure of the scheme to fraud and abuse and criticise the DfES for notintroducing sufficient controls. The PAC report suggests that fraud and abuse were extensive, accounting for around one-third of the total monies spent on the ILA scheme. Proven fraud involved only a small number of offenders and organizationsthat received only one-eighth of the £97 million allegedly claimed wrongly and only around £1 million of this sum wentto people who provided no learning at all. Although any losses are sufficient to cause concern, the fact that most provenwrongdoing took place when some learning was provided, suggests that those offences may have been precluded by theaccreditation of providers. Yet most committees gave greater coverage to financial management techniques than they gaveto educational quality controls.
The focus of different committees on whether a Government department managed market-based provision prop-erly deflects criticism away from the profit motive that resides in a market. Indeed, most reports present provisions ofa learning market positively with private learning providers being congratulated on playing an “innovative” role (e.g.,E&SSC, 2002, p. 17) and for extending learning opportunities (NAO, 2002, p. 15). Such emphasis endorses the use of mar-kets for delivery of State-funded services in the neo-liberal hegemony. Notably, the reports gave less coverage to thenovel, positive aspects of universalism and lifelong learning associated with ILAs even though pursuit of these objec-tives was the reason that the DfES gave for adopting light-touch controls. Even when the popularity of the scheme isacknowledged by the NAO, there is a proposal that innovative schemes should be accompanied by a greater range offinancial management tools. While tools that anticipate levels of expenditure are useful, an exhortation to adopt numer-ous additional financial management tools for State-funded schemes that introduce novel principles may discourageinnovation.
Given the lesser coverage of the positive dimensions of ILAs coupled with the criticisms that the scheme failed becausepoor stewardship led to high levels of fraud – and the emphasis given to the need for financial management controls tomanage expenditure on innovative schemes – it is not surprising that policy-makers were averse to embarking again onradical change. As Kingston (2004, p. 14) has reported, the DfES was “jumpy about fraud ever since . . . individual learningaccounts. Any new policy being framed in the education department involving possible loss of money is now tested todestruction by officials”. If such testing does not take place, officials may be subjected to the criticism of not learning the“lessons” of previous schemes (for example, NAO, 2002, appendices).
Towards the end of the process of evaluating ILAs, a Government minister announced to the PAC that although thegovernment “remained committed to the principles” of the ILA scheme any successor programme would form part of aNational Skills Strategy (PAC, 2003, p. EV2). When the National Skills Strategy was introduced, the provisions for skillsaccounts reflected only part of the earlier scheme. In line with the continuation of markets in other areas (Goddard,2005, p. 35), people may choose the public or private learning provider with whom they learn. Learners will use “vir-tual vouchers” (Clough, 2008, p. 407) to obtain concessions on certain types of learning at providers that have installedspecified payment mechanisms. Hence, the idea of a savings account has disappeared. The only people eligible for sup-port from those accounts are the unemployed (National Learner Panel, 2008, p. 1) and those who have not yet reachedqualifications equivalent to those held by 18 year old school-leavers, who are only eligible while they are at that level(LSC, 2008, p. 3). In effect, the ideas of universal provision and lifelong learning have also disappeared. The potentialfor others to learn for their own development or to respond to changes in the economy have been lost. The smallerscale of the scheme and the absence of novelty in schemes that target resources at particular groups preclude theneed for some of the financial controls that regulators suggested were necessary for ILAs. Effectively, the committees’reports appear to have helped subvert the goals of universal financial support and lifelong learning in the original ILAscheme.
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6. Discussion and conclusions
The backdrop for this discussion has been the 1979–1997 Conservative administrations’ introduction of markets forState-funded services and their institution of strong regulators to oversee those markets as part of a neo-liberal hegemony.This article has investigated the role of those regulators in the abandonment of the novel and innovative principles ofILAs. The 1997 Labour administration had sought to introduce ILAs to establish a new universal right for people to receivegovernment financial support to pursue lifelong learning. That government hoped that their use of the neo-liberal principle ofmarket delivery to provide the learning would lead to innovative providers catering for unmet learning needs. To encourageproviders to participate, the DfES adopted light-touch controls. The scheme proved popular with learners, the number ofaccounts grew more quickly than anticipated and new learning providers soon came into existence to meet the new demandfor learning. The scheme did not function exactly how the DfES had envisaged because commercial financial institutions’refused to manage the accounts. As a consequence, the DfES chose to respond to claims for payment from learning providersrather than paying money into individual learners’ accounts. This effectively separated delivery of, and payment for, learning.The outcomes were that learners could not withhold payment if learning was of a poor quality, the forms of proven fraud ofinventing fictitious learners and claiming for courses that did not run became easier and the Government was less able tosee the extent of expenditure and to regulate it.
The DfES’s use of light-touch accounting controls precluded the possibility of identifying easily whether money had beenspent correctly and claims of widespread fraud ensued. The scheme was closed, although the evidence of proven fraudsuggests that the extent of abuse was overstated and there appears to be no record of anyone being charged with the allegedoffence of selling a file of account numbers that precipitated the closure of the scheme. The absence of any charges aroundthat alleged offence may lead some to interpret the event as being manipulated to precipitate the closure.3 Whether ornot there was any manipulation and by whom are not essential to the argument here. What is essential is that the marketregulators accepted the suggestions of widespread fraud and criticised the DfES for not having sufficient controls either toprevent fraud or to anticipate the levels of expenditure that could occur with innovative policies. Of course, it may be arguedthat as the purpose of the committees was to investigate problems, it is almost inevitable that their reports would be negativetowards the scheme, rather than neutral.3 Equally, it may be argued that the reports of committees concerned with auditingof public expenditure and reporting on public accounts are likely to focus on financial management techniques as solutionsto problems. However, the choice of what to define as problems and the parameters to potential solutions are shapedby the dominant hegemony and that construction and proposed resolution of problems projects a vision of how servicesshould operate in future to complement that hegemony. This puts pressure on those who design and implement policy toensure future services comply with that vision. Notably, the replacement scheme did not include the innovative principles ofuniversal financial support and saving towards lifelong learning in accounts which had arisen from the Government’s earlierdesire to extend citizenship rights. What did endure were market delivery of learning and the involvement of private sectorproviders that are consistent with the prevailing neo-liberal hegemony. Abandonment of a policy when the hegemony isleft intact fits with Gramsci’s concept of a conjunctural crisis of a transient policy that brings about criticism that appearsdramatic, but which does not have any marked impact on the prevailing order.
In composing this account of ILAs, the article has made four important contributions. Firstly, it has helped to illuminate thefinancial management and accountability issues in the area of adult learning initiatives that has been neglected by academicaccountants even though adult learning is a target of public expenditure in a number of countries. Secondly, a neglecteddimension of the abandonment of ILAs has been brought into focus; namely, the role of committees that regulate marketsfor State-financed services as part of the neo-liberal hegemony. These committees’ challenge to the way that the innovativeprinciples of ILAs were managed was followed by the introduction of a scheme that jettisoned those innovative principlesto the detriment of learners even though “the ILA scheme was not brought down as a result of putting trust in learners”(E&SSC, 2002, Evidence ILA 12). Thirdly, the paper has added to those studies that utilize Gramsci’s concept of hegemony.Hitherto, many have examined the creation or existence of hegemony. However, hegemony has to be sustained. Regulators’acceptance of private provision of State-financed services and focus on weaknesses in accounting controls for innovativeschemes may discourage experimentation by those responsible for conceiving and implementing policies. Discouragementof new dimensions of policy illuminates how accountability mechanisms may help sustain the neo-liberal hegemony ofwhich those accountability mechanisms are a part. Finally, the paper has introduced Gramsci’s concept of conjuncturalphenomena to the accounting literature as a means of understanding a novel policy that did not last after the institutionsassociated with the prevailing hegemony demanded stronger regulations for its endurance. In offering such an account, thepaper demonstrates a concept that could help to explain instances where other policy goals are changed following reportsby regulators.
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