The government's tax credit scheme is a "nightmare", according to the chairman of the public accounts committee.
Designed to boost the income of working families, the committee found a range of problems with the £16bn scheme used by 5.7 million families in 2003/04.
In April last year the committee highlighted problems with the system which led to several hundred thousand claimants not being paid on time.
The latest report notes that IT errors and other mistakes lead to a high level of overpayments, which then are reclaimed and lead to hardship.
The committee warned that such problems make it difficult for claimants to plan their finances.
The MPs also highlighted the phenomenon of routine housekeeping software, which wrongly deleted taxpayer records over a period of several years.
Chairman Edward Leigh said: "The introduction and operation of the Inland Revenue's new tax credits system have been a nightmare.
"The Revenue has yet to produce reliable evidence that the flood of public money being wasted under the previous tax credits scheme through fraud and error has been stemmed to any degree.
"And hundreds of thousands of genuine claimants, many of them vulnerable people in very difficult circumstances, have been seriously mistreated.
"The new tax credits system was supposed to be simpler to administer and simpler for claimants to understand.
"What we were given was a frustratingly arcane system which routinely overpays large numbers of claimants - some 1.8 million in respect of 2003/04."
Lib Dems
Liberal Democrat work and pensions spokesman David Laws backed the report's findings and demanded action from the government.
"This report is yet another damning attack on the shambles that is the tax credit system," he said.
"The government will no doubt try to ignore this report in the same way as it ignored earlier reports from the parliamentary ombudsman and the Citizen's Advice Bureau, but it further highlights the ongoing difficulties faced by many families at the hands of the tax credit system.
"The committee is right to call the operation of the system a nightmare."
Calling for change, Laws added: "The government must undertake a fundamental review of tax credits to consider returning to a system of fixed awards to end this bureaucratic nightmare and create greater financial stability for families on low incomes."
