The government is "over-optimistic" about how many job seekers their flagship £5bn work programme will help and there are "increased risks" of fraud because of its fast implementation, according to the regulator National Audit Office (NAO).
Analysis carried out by the watchdog suggests that 26%, rather than 40%, of the largest group of unemployed people will be helped by the programme.
The NAO also revealed £63m was spent by the DWP terminating existing contracts for welfare to work schemes - 10 of which with providers who were then given contracts with the work programme.
The IT project which the department set up to support the programme did not work at the time of launch, which means that the department for work and pensions (DWP) face an "increased risk of fraud and error", according to the watchdog.
"The speed with which the work programme has been introduced has involved the acceptance of risks, or curtailing of safeguards, that potentially will have a bearing on the programme's success or failure", the NAO's report said.
On the eve of the report being published employment Chris Grayling assured MPs that the new programme would provide "better value for money for the taxpayer" and that the government would produce datasets showing how many people were being helped by the scheme, eight months on.
"I am not in the interest of burying good news," the employment minister said.
Dame Anne Begg, chair of the House of Commons Work and Pensions Committee told Huff Post UK that the report was concerning, and her committee would look again at the work programme.
"The thing is the work programme has now been up and running for 8 months. A lot of the assumptions they made in terms of contracts were guesswork, they didn't pilot anything.
"In some aspects it was different, they've got performance outcomes in each of the types of people they're getting into a job but my understanding is the mix of people they are getting referred to them is not what they expected," she told Huff Post UK.
"As a committee we will be going back to look at the work programme but there's no point in doing that until the government is willing to publish the data sets. At the moment a lot of it is just hearsay.
"I'm concerned about the lack of transparency from the government."
The work programme is expected to cost between £3-5bn over five years and help 3.3m unemployed people. But Dr Neil Lee, senior economist at The Work Foundation said unless the work market improves it will be "hard pressed to meet its targets".
In a statement responding to the report, Chris Grayling said said the NAO's work was "based on guesswork", something the watchdog denies.
"Payment by results is a totally new approach for Government and its success simply cannot be assessed in the same old ways. I'm really disappointed that the NAO is producing a report which is partially based on guesswork, when it's private companies and not taxpayers who are carrying the risks.
"Unlike the last government's welfare to work schemes, we only pay when companies succeed in getting the long-term unemployed into sustained employment."
But Labour's shadow employment minister Stephen Timms said the report was "scathing".
“The work programme has been so badly introduced that it has already wasted £63 million on cancelling past contracts and the IT needed to stop fraud isn’t even ready yet. The NAO believes these flaws may lead to the hardest to help being cast aside – and 85 charity providers have already dropped out."
Margaret Hodge, chairman of the public accounts committee said: "Implementing the programme quickly should not come at the expense of securing value for money. The Department did not pilot the Programme and did not have the data to test its assumptions about costs and performance. There is a real danger that providers will try to renegotiate contracts if targets prove too optimistic, or cherry pick clients who are easier to help"