The real cost of a massive learning fraud could reach almost £38m, police revealed.

Cleveland Police has launched what is believed to be the biggest ever fraud investigation in the North involving the multi-million pound abuse of Individual Learning Accounts (ILAs).

The investigation, code-named Operation Anaconda, is looking into the disappearance of millions of pounds from both the Government and from people who signed up for the distance courses.

The cost to the Department for Education and Skills (DFES) was put at £5.8m. But it has emerged that the Cleveland force is investigating a loss to prospective students of around £32m.

It is understood that one activity involved some students failing to get sufficient material to complete the courses they had paid for.

Detective Sergeant Phil Murphy, of Cleveland Police fraud squad, said: "The ILA system was wide open to unscrupulous and dishonest training providers who developed many different methods to defraud millions from the public purse.

"We already have two rooms of documents and our inquiries will be nationwide."

The seven-strong squad is investigating the activities of up to nine companies in Teesside and expects to take up to three years to complete its inquiries.

Extradition orders could be issued against some suspects.

ILAs were launched by the Government in 2000 and enabled anyone aged 19 and over to claim subsidies worth up to £200, or 80 per cent of the course cost, covering subjects such as computing.

The money went direct to organisations registered as training providers. But the scheme was halted in December 2001 when allegations of abuse became widespread.

The alleged fraud is thought to have affected 100,000 students across the country.

As part of the their investigations, police will be working with the Official Receiver, the Department of Trade and Industry, various accountancy firms, a forensic accountant and examination and accreditation boards. * Have you joined an ILA scheme? If so call news desk on 01325 505067.