The controversial welfare-to-work firm A4e has been stripped of one of its government contracts after ministers decided it was "too great a risk".
The Employment minister Chris Grayling said the company's Mandatory Work Activity contract to help up to 1,000 jobless people in the South-east find work was being terminated.
The announcement was made as the National Audit Office (NAO) prepared to publish a heavily critical report into the Department for Work and Pensions' (DWP) fraud detection systems. It concluded that the department had "missed vital evidence" when assessing the risk of fraud at A4e, which is owned by Emma Harrison.
The NAO criticised the department for failing to obtain copies of providers' internal audit reports and papers sent to the Public Accounts Committee. This included evidence of nine possible cases of fraud and seven of improper practice by A4e's staff and highlighted "a possible systematic failure to mitigate the risk of fraudulent and irregular activity at both an office and regional level".
The report found the total value of cases of reported fraud investigated since 2006 was £773,000. More than half of fraud allegations since 2006 involved New Deal programmes, which ended in 2011. The department knew of the fraud risks inherent in such programmes but did not do enough to address them, the report concluded.
The DWP has been auditing its commercial relationships with A4e after receiving an allegation against the company earlier this year.
Mr Grayling said: "While the team found no evidence of fraud, it identified significant weaknesses in A4e's internal controls on the Mandatory Work Activity contract in the South-east. The documentation supporting payments was seriously inadequate, and in a small number the claim was erroneous. There was also a high incidence of non-compliance with other relevant guidance."
The original allegation against the company suggested that A4e employees may have claimed payments for Mandatory Work Activity claimants who had not been placed in work.
Investigations were held into every MWA claim from the office in Epsom, Surrey, where the allegation was centred, as well as 20 per cent of all the other A4e claims under the contract.
It was established that 97 per cent of payments related to someone taking part in the programme, while the remaining 3 per cent were attributable to inadequate procedures rather than fraud.
A4e welcomed the finding that no fraud had been identified.