The Government has terminated one of its contracts with welfare-to-work firm A4e after concluding that continuing would be "too great a risk".
Employment minister Chris Grayling said the company's Mandatory Work Activity (MWA) contract to help up to 1,000 jobless people in the South East is ending.
It follows an audit by the Department for Work and Pensions of its commercial relationship with A4e following an allegation of fraud made against the company earlier this year.
A4e is keeping other contracts it has with the DWP, including those under the Work Programme, which tackles long-term unemployment.
Mr Grayling: "While the team found no evidence of fraud, it identified significant weaknesses in A4e's internal controls on the MWA 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 (including A4e's own processes).
"The process established prior to March fell significantly short of our expectations. As a result, the department has concluded that continuing with this contract presents too great a risk and we have terminated the Mandatory Work Activity contract with A4e for the South East.
A4e held the prime contract for delivery of MWA in the South East, covering Hampshire, the Isle of Wight, Surrey & Sussex, Thames Valley, Bedfordshire, Buckinghamshire and Oxfordshire.
The programme is aimed at helping jobseeker's allowance claimants identified as most in need of support. Participation is mandatory, with sanctions against those who fail to take part or complete a placement.
The original allegation against the company suggested that A4e employees may have claimed payments for MWA 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% of all the other A4e claims under the contract.
It was established that 97% of payments related to someone taking part in the programme, while the remaining 3% were attributable to inadequate procedures rather than fraud.
A4e welcomed the finding that no fraud had been identified and accepted that its "administrative processes" had fallen short at a time when it was very busy.
Chief executive Andrew Dutton said: "These findings demonstrate what I have always maintained to be true - that there is no place for fraud at A4e and make it clear that A4e has strong controls around its flagship contract the Work Programme.
"Our immediate task is to further enhance our controls to cement our position as a trusted provider of front line public services."
He added: "As a company, I recognise that we haven't got it right all of the time, but we are committed to taking responsibility for our mistakes and remedying them."
A number of people have been arrested by police investigating A4e's offices in Slough, Berkshire, and are on bail until dates in late May, June and July.