The IT system at the doomed Child Support Agency (CSA) still had 500 defects three years after it was built – and an improvement plan will cost up to £320 million, MPs have revealed.

A scathing report on the failed agency by the powerful Commons public accounts committee says reforms to the child support system have already cost more than £539m since 2000, but the IT system introduced to implement them has “never fully supported” the objective of processing maintenance applications accurately and quickly.

The CSA was scrapped a year ago, speeded on its way by a damning National Audit Office report into the £456m CS2 case management system, provided by EDS under a 10-year private finance initiative contract.

Department of Work and Pensions figures show that at the end of December, just 42% of the CSA’s 1.4m cases had been transferred to CS2, with 58% still held on predecessor systems.

The public accounts committee warned: “The agency needs not only to fix the IT problems, but also to rebuild staff confidence which has been damaged by previous failed attempts to provide a workable system.”

There is a backlog of 239,000 uncleared cases – down from around 333,000 in June 2006 – and 36,000 new cases have become stuck in the system because of IT problems, the MPs found.

An operational improvement plan aimed at tackling the backlog and stabilising the new IT system by fixing the 500 defects could cost up to £320m, but given the scale of the CSA’s problems, there will be “no quick solution”, the MPs warned.

The committee acknowledged that the IT systems to deliver the child support reforms carried a high level of risk because of their size, complexity and the development.

But its report notes that having outsourced most of its IT capability to EDS, the Department of Work and Pensions “did not maintain the capability to be an intelligent customer”.

It adds: “A number of poor operational decisions went unchecked or unchallenged, not least going live with an IT system that had 14 critical defects.”

In 2005, the DWP reorganised its contracts with EDS, cutting the cost of the CS2 contract to £381m, including a £53m penalty for failing to meet the contract terms and for poor delivery.

But the report says: “Despite the problems experienced with the delivery of the IT system from EDS, the department did not repudiate its contract in 2004 when it had the chance to do so.”

The DWP believed it was right to continue to develop the system with EDS, “despite now not expecting the system to be running as intended for a further two years”, it adds.

The department must “strengthen its independent in-house IT capacity to challenge the validity of assurances” from suppliers, the MPs urged.

“Contractors who assume responsibility for sensitive public services should not lose sight of their wider obligation to the community in the single-minded pursuit of their commercial interests,” the report adds.

The MPs also found that £91m had been spent on external advice on the design and implementation of the child support reforms between 2001–05, “which the departmental financial management system could not break down by supplier” – a finding that adds to the committee’s concerns, expressed last month, that the government is wasting £500m a year on consultants.

After the demise of the CSA was announced last year, the government pledged that the new Child Maintenance and Enforcement Commission (C-MEC), to be established as a non-departmental public body, would offer a “fresh start”.

But in March, the Commons work and pensions committee warned there was “no evidence” that C-MEC and its IT system would avoid a repeat of the CSA fiasco.

Work and pensions minister James Plaskitt had already admitted that C-MEC would inherit the CSA’s crisis-ridden IT systems. In response to a parliamentary question, Plaskitt confirmed: “The existing IT and contracts will be used by C-MEC once it takes on existing CSA operations.”