Flexible e-learning is praised in the report [Photo: NAO report]
Learndirect has "pushed the boundaries of learning" in a relatively short period, the National Audit Office said.
But its administrative structure is too large and should be streamlined, freeing more money to be spent on students, the NAO added.
Learndirect said it was using technology to reach more learners.
'Unproductive'
In 1998 the Department for Education and Skills formed Ufi (University for Industry), which runs Learndirect, to try to address skills shortages in the workforce.
The NAO's report, which focused on England, said £54.2m - or 29% - of the budget allocated to Learndirect had been spent on marketing and management costs in 2004-5.
It said it should work to reduce costs generally, which could be achieved by reducing unproductive administration.
But in seven years Learndirect had become the largest education provider of its type in the world - 1.7 million people have accessed four million courses in the last five years.
Almost two thirds of these - 65% - had not undertaken any learning in the past three years.
But just 9% of learners progressed to a Level 2 qualification (the equivalent of good GCSE grades) within two years, the NAO said, a figure Ufi says it wants to increase.
The report said learner assessment and moving students on to further appropriate learning were "key services".
'Innovative'
The NAO scrutinises public spending on behalf of Parliament.
Its head, Sir John Bourn, said Learndirect's feat was a major innovation.
"Learndirect is attracting large numbers of learners who otherwise would not have undertaken learning.
"Management and administration costs still need to be streamlined so that more money can go into services for learners."
Learndirect was set up in 1998 to offer flexible post-16 learning to people unlikely to participate in traditional forms of education.
Its courses focus on skills needed in employment, including management, IT, numeracy and literacy and languages at a number of levels.
'Flexible'
And it makes courses available online so learners can fit study into their usual routine, with 6,000 centres in schools, colleges, shopping centres and prisons.
NAO said Learndirect had achieved high recognition of its brand among the public - at 74%.
But it needed to increase employer awareness of its courses - especially in small to medium-sized business.
Ufi said it was pleased the NAO had recognised that Learndirect had harnessed technology to make learning more flexible, thereby reaching more learners.
Ufi chairman John Weston said: "From a modest but visionary beginning just seven years ago, Ufi is now attracting half a million adults a year - including some of the hardest to reach in our society - back into learning through the Learndirect network of online centres."
In an independent report released today, the National Audit Office has accused Learndirect and its administrators Ufi (University for Industry) of being 'too bureaucratic' in their administrative processes. They say that the administrative structure is too large, and should be streamlined. This should free more money to spend on students.

However, they have praised Learndirect, saying that they have 'pushed the boundaries of learning' in a short time frame.

Sir John Bourn, the Comptroller and Auditor General of the National Audit Office issued this statement:

"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.”