The cross-party Commons Public Accounts Committee has accused Atos of providing "incorrect and potentially misleading" information about its capabilities when tendering to carry out claim assessments for the Government for the PIP scheme.
The firm has since agreed to end its contract early.
The DWP has let down some of the most vulnerable people in our society, many of whom have had to wait more than six months for their claims to be decided.
The personal stories we heard were shocking... a claimant requiring hospital intervention as a result of the stress caused by the delays suffered, and another claimant who was unable to afford the specific diet required for diabetes and gastric problems while waiting for a decision.
Some claimants have been forced to turn to food banks, loans and charitable donations to support the extra costs of living associated with their disability.
MPs expressed alarm that the average waiting time for terminally ill people to receive a decision was 28 days, 180% longer than originally expected.
The standard of service for claimants had been "unacceptable", with assessors cancelling home visits at the last minute, and failing to turn up after individuals travelled to assessment centres.
MPs have warned that a flagship government welfare scheme is a "fiasco" that has caused unnecessary distress to thousands of sick and disabled people.
The influential Commons Public Accounts Committee (PAC) said implementation of the Personal Independence Payment (PIP) had been "rushed" and described the impact as "shocking".
Terminally ill people have been waiting an average of a month to be awarded the benefit, which was introduced last year to replace Disability Living Allowance (DLA).
Other claims were delayed more than six months, with some individuals taken to hospital due to the stress of the process and unable to afford medically-prescribed diets.
Claims by Macmillan Cancer Support that delayed assessments for a disability benefit have left at least 4,500 cancer patients waiting six months or more have been questioned by welfare officials.
The Department for Work and Pensions said the charity's survey results are "at best to be treated with extreme caution" because it involved only 210 patients.
Official statistics on waiting times are still being compiled.
Macmillan's report is based on a very small sample size using simplistic calculations to produce results, which at best should be treated with extreme caution.
Claims for terminally ill people are fast-tracked using 'special rules' under Personal Independence Payment and statistics show over 99% of people with terminal illnesses who have applied have been awarded the benefit. That means over 10,000 terminally ill claimants are now receiving PIP.
We have been working with Macmillan and they have acknowledged that improvements to the system have already been made.
PIP replaces the outdated Disability Living Allowance which was introduced over 20 years ago.
It includes a new face-to-face assessment and regular reviews - something missing from the old system - to make sure support is better targeted at those who need it most.
Almost half of cancer patients are unhappy with the process of obtaining the new Personal Independence Payment benefit.
Macmillan Cancer Support said their survey showed 47% of patients were dissatisfied with the process - a third because of the delays and almost a quarter (23%) because of "poor communication from the Department for Work and Pensions.
Macmillan's head of policy Duleep Allirajah said: "Our report shows the real and shattering impact of these PIP delays are having on cancer patients.
"It is unacceptable that people struggle to heat their homes, are saddled with debt or are left anxious or depressed because they are waiting so long for their much-needed benefits."
Benefits delays are leaving thousands of cancer patients forced to wait months to find out if they will receive help, a charity has found.
A survey from Macmillan Cancer Support found 4,500 cancer patients had been made to wait six months or more for a decision on whether they will get the new Personal Independence Payment (PIP).
The charity said the poll had shown the "shattering" impact of the problems with the introduction of PIP, which has replaced Disability Living Allowance.
Health Minister Dr Dan Poulter has said it is important lessons are learnt from the PIP scandal. He said - following Sir Bruce Keogh's review - there were a number of recommendations that will be introduced to improve the cosmetic industry.
Among them will be a national register logging every breast implant operation carried out in England.
The Government's proposals to introduce a national register for breast implant operations has been welcomed by the president of the British Association of Aesthetic Plastic Surgeons.
Rajiv Grover said: "We are thoroughly relieved that the Government has seen the light in terms of the importance of reinstating the implant register - but the system must be made compulsory, otherwise it is a waste of time.
"Whilst independent consultants and many reputable groups were able to easily contact their patients during the PIP implant crisis, the scandal shone a light on shoddy record-keeping from many corners of the sector;
" A centralised and comprehensive database is well overdue and essential for the public's safety and peace of mind."
The Government will take "robust action" to clamp down on "cosmetic cowboys" under new plans to register breast implants for operations. Health Minister Dr Dan Poulter said:
For too long, the cosmetics industry has been completely unregulated and there are too many tales of women who have been exploited and of lives ruined by rogue cosmetic firms and practitioners.
We will also be outlining rigorous plans to clamp down on irresponsible cosmetics advertising. For the cosmetic cowboys, be it on the high street, or in the operating theatre, there will be nowhere to hide.
The type of implant a woman is given will be recorded in a new breast implant register under new Government plans, after tens of thousands of women received faulty implants in the PIP scandal.
In further measures, to be announced when Parliament returns in the new year, there will be a ban on aggressive marketing techniques such as offering breast implants as competition prizes, two-for-one offers - so-called "mother and daughter deals" - and time-limited offers.
Training will also be improved, with the Royal College of Surgeons establishing new qualifications and standards for cosmetic surgery. Surgeons will be required to have professional indemnity.
A national register logging every breast implant operation carried out in England is to be established in an attempt to prevent a repeat of the scandal in which tens thousands of women received faulty implants, ministers have said.
The Government has accepted the majority of the recommendations of a review carried out by Sir Bruce Keogh, the NHS medical director, following the disclosure that the French firm Poly Implant Prothese (PIP) had been manufacturing implants using industrial grade silicone.
Almost 50,000 women in the UK and some 400,000 worldwide were affected by the scandal which came to light two years ago when doctors found unexpectedly high numbers of women were suffering from ruptured implants.