Iain Duncan Smith's Department for Work and Pensions has so far failed to achieve "value for money" in the development of the new universal credit, and needs to adopt "realistic expectations" on the timetable for its delivery, Whitehall's spending watchdog has warned.
The warning, in a new report from the National Audit Office, came a day after Mr Duncan Smith admitted that more than £40 million spent on IT for the flagship project had been written off in 2012/13, with a further £91 million of software code expected to be written down in value to nil over the next five years.
The figures were branded "truly shocking" by the chair of the influential House of Commons Public Accounts Committee, Margaret Hodge, who said she "would not be surprised" if further write-offs emerged.
And Mr Duncan Smith came under fire over the programme - intended to replace a set of out-of-work benefits with a single simplified payment - on the floor of the Commons, where his Labour shadow Rachel Reeves accused him of being "in denial" about the scale of delays in the introduction of Universal Credit.
A defiant Work and Pensions Secretary insisted that the programme was "essentially going to be on time", with six and a half million people on universal credit by 2017. Mr Duncan Smith last week admitted that around 700,000 disabled claimants of Employment and Support Allowance will not be transferred onto Universal Credit by the target date of 2017.
But he insisted today that he would not "take lessons" from Labour after the party's own IT failings, and told MPs it was the Opposition that was really in denial.
In his report, Auditor General Amyas Morse said that the DWP needs to "properly commission and manage IT development for the universal credit system, exercise "effective financial control" over the programme and set itself "realistic expectations" of the timetable within which it can be delivered.
"I judged in September that, at this early stage of the Universal Credit programme, the Department had not achieved value for money," said Mr Morse. "The underlying issue, highlighted in today's report, is that the Department has written off £40.1 million on assets it will now never use and spent a further £91 million on assets that will support only a limited service for five years, with clear consequences for public value."
Ms Hodge said: " Whilst these figures are truly shocking, I do not think we have heard the end of this matter and would not be surprised if further write-offs emerge over the coming period. It is deeply depressing that DWP has chosen to pour more money into the existing IT system in what seems like a short-term fix, rather than showing the confidence and foresight to come up with a solution that will truly stand the test of time.
"Even for those people who transfer to the new benefit, the online system is currently not able to deal with issues like frequent changes of circumstances, claims if a couple splits up, or conditionality."
In his report, Mr Morse also refused to sign off the DWP's accounts for 2012/13 because of an "unacceptably high" level of fraud and error in spending on benefits. This is the 25th year in succession that the DWP and its predecessor departments have received only a "qualified" audit opinion for their accounts.
The DWP has estimated total overpayments due to fraud and error at £3.5 billion in 2012/13, up from £3.2 billion the year before. This equates to 2.1% of the total benefit bill of £166.8 billion, up from 2% in 2011/12. T otal underpayments for 2012-13 were estimated at £1.4 billion, or 0.9% of the total.
Mr Morse said: "I am still concerned about the continuing high level of fraud and error in benefits expenditure. Issuing an audit qualification is a serious matter, and the fact that similar qualifications have followed one another over so many years does not lessen that seriousness.
"However, I note the Department's new approach to reducing fraud and error. Only by developing an evidence-based framework will the Department be able to show that its systems are good enough to lessen the gap between what it should and does achieve."
Asked about Mr Duncan Smith's handling of universal credit, David Cameron's official spokesman told reporters at a regular Westminster media briefing: "The Prime Minister thinks that the Secretary of State has been doing, and continues to do, a very, very important job taking through this important area of Government policy around welfare reform and making sure work pays. That's the Prime Minister's view."
Asked whether Mr Cameron also thought Mr Duncan Smith was doing a good job, the spokesman said: "He does think he is doing a... He does think that, yes."
The spokesman defended the gradual introduction of the programme: "This has been a process that is designed to be gradually rolled out on a series of pilots that rightly allow us to take on board the findings and experiences of those pilots. The wrong thing to do is what has been done unfortunately in the past, which is to keep ploughing on with this, get to the end and then have to start retro-fitting the IT, causing disruption to people who are already in the scheme."
A DWP spokesman said: "It is not unexpected that IT requirements evolve on a long-term programme of reform and that some rework was required. But we are not complacent about this loss and are working to ensure that this project continues to roll out within the budget we have been set.
"This should be seen in the context of the £38 billion economic benefit that Universal Credit will ultimately bring."