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.
A new 'Claimant Commitment' setting out what jobseekers must do to find work in return for benefits have been successfully rolled out across the country.
The Department for Work and Pensions said the agreements had now been adopted in every UK jobcentre, with jobseekers agreeing to take steps to find work or face having their benefits docked.
Among the measures are registering to look for work through the universal jobmatch service or via a recruitment agency.
Jobseekers who fail to follow through with the commitment risk having their benefits docked.
Almost 1.75 million of the poorest families in the UK have been made poorer by a "perfect storm" of changes to the welfare system over the last three years, a new Oxfam report claims.
The families have been hit by one or more changes including fewer council tax exemptions and the under-occupation policy or "bedroom tax", according to Multiple Cuts For The Poorest Families.
The report, produced along with the New Policy Institute (NPI), says the worst-hit 200,000 families affected are losing out by £18 per week or £864 per year.
Mark Goldring, Oxfam's chief executive, said: "This is the latest evidence of a perfect storm blowing massive holes in the safety net which is supposed to stop people falling further into poverty.
"We are already seeing people turning to food banks and struggling with rent, council tax, childcare and travel costs to job centres."
The Government has announced that European Union migrants will have to wait at least three months before they can claim child welfare payments.
From July 1, migrants will need to prove they have been in Britain for three months in order to claim child benefit and child tax credit.
Ministers claim the move is to stop the welfare system being open to abuse.
There is already in place a three month wait for migrants before they can claim jobseeker's allowance.
Work and Pensions Secretary Iain Duncan Smith will credit Chancellor George Osborne for helping to create 1.7 million jobs since the election but will add that welfare reforms have also played a part in the current level of employment.
Whilst others have questioned and puzzled over the record employment Britain is now seeing, as the Work and Pensions Secretary I have long believed that the strength of our labour market would both drive Britain's great economic recovery, and increase as a result.
First, this Government created the conditions for growth, and gave businesses the freedom and confidence to create jobs.
Second, we drove a programme of welfare reform where every change was designed to get Britain back to work - giving people previously left to languish out of work the skills and the incentive to take those jobs.
Work and Pensions Secretary Iain Duncan Smith will claim that the Government's package of welfare reforms have helped "get Britain back to work".
Mr Duncan Smith will say in a speech in London that the strength of the labour market is evidence that benefit reforms are also having an impact by boosting economic activity.
He will also accuse the former Labour government of trapping people in welfare dependency and robbing them of the drive to go to work, while claiming his reforms have given jobless people the incentive to seek and take employment.
Mr Duncan Smith will say that changes to benefits have played a crucial part in "creating a stable economy matched by a strong society where people are ready and capable of work".
A raft of welfare reforms have been implemented in the last year, including the so-called "bedroom tax", the introduction of Personal Independence Payments for disabled people and the imposition of the £500-a-week benefit cap.
A Department of Work and Pensions spokeswoman responded to criticism from the Children's Commissioner on how poorest families are paying the price for the government's welfare reforms.
The spokeswoman insisted the reforms would improve the lives of some of the poorest families by "promoting work and helping people lift themselves out of poverty."
Our reforms will improve the lives of some of the poorest families in our communities by promoting work and helping people to lift themselves out of poverty.
Universal Credit will make three million households better off and lift up to 300,000 children out of poverty.
There are a lot of misleading stories about our reforms, but the truth is that we spend £94 billion a year on working age benefits and the welfare system supports millions of people who are on low incomes or unemployed so they can meet their basic needs.
A generation of youngsters are "paying the price" for the Government's austerity measures, the Children's Commissioner for England has warned.
Maggie Atkinson said the poorest families were being hit by welfare cuts, but children were also affected by library closures and reductions in spending on leisure facilities.
In an interview with Total Politics magazine the commissioner said local government cuts had also hit after-school and holiday clubs for children.
She said: "There are children now who are paying the price in England, not only for the reduction in welfare spending, but in libraries, in leisure facilities, in early intervention, in after-school clubs or holiday clubs.
"All of those things have been under such severe pressure in local government that many of them have stopped doing them."
MPs have voted overwhelmingly in favour of the government's plans to cap welfare spending at £119.5 billion.
520 MPs backed government's welfare cap of £119.5bn. 22 MPs did not
The Labour "rebellion" on welfare cap was less than two dozen. We will get the names shortly but this isn't big upset for Miliband: 520 v 22