The Government was urged to overhaul its contract with a private firm contracted to carry out medical assessments for benefits claims after auditors identified weaknesses in the deal.
The National Audit Office (NAO) said the Department for Work and Pensions (DWP) had failed to penalise Atos for "under-performance" and had not set "sufficiently challenging targets", the BBC reported.
Labour MP Tom Greatrex, who asked the NAO to review the deal, said taxpayers were being forced to pay twice with £60 million spent clearing up errors on top of the £112 million contract with Atos.
Assessments carried out by Atos are used to make decisions about whether people are fit to work or eligible for Employment and Support Allowance (ESA).
But nearly four out of 10 decisions are overturned on appeal and the NAO said it was unclear whether the quality of the assessments was to blame.
In a letter to Mr Greatrex seen by the BBC, Comptroller and Auditor General Amyas Morse said: "It is difficult to assess, as the department does not routinely request feedback on the rationale for tribunal decisions. Without such data it is not clear whether any changes in the medical process are needed."
Labour frontbencher Mr Greatrex, MP for Rutherglen and Hamilton West, told BBC Radio 4's Today programme: "My initial concern was that I could not find out from the DWP what financial penalties there were in the contract because they said they were commercially confidential. That's why I asked the NAO to look at it.
"My underlying concern was the fact that the contract is worth £112 million a year to Atos, at the same time, through the Tribunals Service, the appeals are costing about £60 million a year so effectively we are paying twice to try to correct the mistakes in the initial assessments or the process that leads to the assessments and decisions.
"That isn't good value for money and this is a contract that really needs a lot more scrutiny to understand ho effective its been."
The NAO criticised the DWP for not seeking "financial redress" for delays in carrying out tests, with just 10% of possible penalties triggered by poor performance applied.
The watchdog said the department's "inaccurate forecasting" of the number of people likely to need a medical test had damaged its negotiating position.
Mr Greatrex told Today: "The verdict of the NAO just adds to the concerns around the process that this contract isn't working properly and it needs to be thoroughly overhauled."
The Independent website, 17 August 2012