A committee of MPs has criticised the Arts Council England, a quango with charitable status that funds arts organisations, for wasting public money and spending too much on administration.
The Culture, Media and Sport Committee report, Funding of the Arts and Heritage, also said it was concerned that the Arts Council might not be supporting applicants for grants as well as it should.
The report says the Arts Council had been guilty of a "gross waste of public money" in its funding of The Public, a gallery in West Bromwich, and that it had previously been spending "far too much" on administration costs.
The Arts Council, which had its government grant cut by 29.6 per cent in the comprehensive spending review, funds more than 800 organisations. About 550 are charities, according to a list of cuts published by the National Council for Voluntary Organisations.
The council had an income of £604m in 2009/10, of which £453m came from government.
The report said about half of all organisations applying to the Arts Council in the latest funding round were likely to receive nothing.
And it said that it would be a "great administrative task" for the Arts Council to assess all applications to its new funding programme, the National Portfolio, in only two months.
"Applying for grants is a necessary evil for the arts sector and it is important that due process is followed," the report said. "We are concerned the Arts Council may not be supporting arts organisations in this process as well as it should."
The report said the council had not learned lessons after the funding of The Public.
"We were concerned at the inability of the chief executive [Alan Davey] to provide answers to our questions and the lack of any serious attempt to learn lessons or prevent a repetition," the report said.
"We consider this to be a failure of leadership at the Arts Council. It does not inspire confidence in the Arts Council."
The Arts Council said in a statement that the report was "out of date in places" and that "The Public is old news and is not representative of the Arts Council's investments in capital projects".