Ufi has done a "good job" in establishing learndirect, but the organisation needs to streamline its administration and put more resources into services to learners, according to an audit report.

Sir John Bourn, head of the National Audit Office said: "learndirect is a major innovative feat that within a few short years has become the largest education provider of its type in the world. It is attracting large numbers of learners who otherwise would not have undertaken learning.

"Management and administration costs have reduced with time but still take up too large a portion of the budget. They need to be streamlined so that more money can go into services for learners, and to increase the emphasis on small- and medium-sized businesses."

The NAO's key findings include:
* Building Ufi and the learndirect network from scratch required significant up-front investment. By 2004-05, marketing and management costs were reducing but £54.2 million was still being spent – equivalent to 29% of the budget allocated for services to learndirect learners. Ufi has started to cut administrative costs, but its four-tier delivery chain leads to duplication and unproductive administration. As part of its ongoing change programme Ufi should explore the potential for eliminating one tier, thus freeing up more resources for front-line services.

* The long-term sustainability of the learndirect network in rural areas and those centres dealing with disadvantaged groups is in question. Ufi needs to identify those centres at risk and develop plans for their viability.

* Ufi has achieved high recognition of the learndirect brand and has developed increasingly high-quality learning materials. It needs to do more to disseminate these materials across the education sector. 180,000 small and medium-sized businesses have used learndirect services, representing 4% of the sector. There is lower recognition of learndirect among employers than among the general public, and many employers are not aware of the full range of services offered. When Ufi was established one of its objectives was to generate substantial income of its own, but by July 2005 its total self-generated income was only £12 million. Ufi needs to do more to market itself to the small- and medium-sized business sector.

Commenting on the findings, Ufi chairman John Weston said: "We are delighted that the NAO acknowledges the innovative approach to learning delivery developed by Ufi, and acknowledge the progress we need to make in working with government to exploit learndirect services more widely across public service delivery, develop a service which is uniformly of a high quality across our national network, and increase the proportion of learndirect learners progressing to other forms of provision."