The local infrastructure body Navca says the government must learn lessons from its "flawed" tendering process, following a critical report into its welfare-to-work programmes by MPs.
The Public Accounts Committee criticised the Department for Work and Pensions for not exercising "sufficient oversight of its contractors" in trying to spot potential instances of fraud in its Work Programme.
The report, Preventing Fraud in Contracted Employment Programmes, published on Friday, added that potential risks of fraud within the Work Programme remained, even though the scheme has stronger safeguards than previous welfare-to-work schemes.
About 400 charities and voluntary sector organisations are involved in the programme as subcontractors.
Joe Irvin, chief executive of Navca, said: "The report by the Public Accounts Committee highlights issues that have their origins in the flawed tendering process behind the Work Programme contracts.
"I am worried if the monitoring is allowing these issues to be neglected. As Navca has said before, the tendering process did not allow enough consideration of organisations’ track records of delivering this work and encouraged bidders to overpromise."
He added that this had created problems between prime contractors and their sub-contractors.
"Pressure has been put on charities to deliver the impossible, resulting in a number of established charities being forced out of business," said Irvin.
"Most importantly, it has meant that people looking for work have not had the help they deserve."
But the Employment Related Services Association, the trade body for welfare-to-work providers, has defended the track record of Work Programme providers, arguing that fraud was "virtually non-existent".
Kirsty McHugh, chief executive of ERSA, said: "The Work Programme is the most heavily audited employment programme there has ever been.
"Providers have rigorous systems in place to identify and address any instances of alleged fraudulent behaviour. These systems often go beyond the obligations placed on them by the DWP."
The committee also said that the partial release of information on the Work Programme’s outcomes and results by groups such as ERSA only heightened suspicion of fraud.
McHugh said: "ERSA rejects the Public Accounts Committee’s suggestion that ERSA’s release of partial data about Work Programme performance has heightened suspicion.
"It is better that there is some data in the public arena than no data, and providers look forward to the full release of data from DWP in the autumn."