The project aimed to track offenders through the justice system
Plans for a multi-million pound central database on offenders failed because of poor management and a lack of budget control, the spending watchdog says.
The National Audit Office said the abandoned IT project's rising costs and delays could have been avoided if basic management rules had been followed.
The offender management system had aimed to track criminals in England and Wales from sentence to release.
Ministers say they will ensure revised systems are on time and in budget.
Plans for the £234m National Offender Management Information System system, known as C-NOMIS, began in 2004 with the aim of allowing the prison and probation services in England and Wales to follow offenders "end to end" through the criminal justice system.
However, by July 2007 the project was two years behind schedule and its estimated costs had soared to £690 million, the National Audit Office (NAO) report found.
As a result, the Ministry of Justice abandoned plans for a single shared database in favour of five separate smaller IT projects at a reduced cost of £513 million, the watchdog said.
The NAO blamed the project's abandonment on poor management at the National Offender Management Service (NOMS), which was set up in 2004 as part of the Home Office but later became part of the Ministry of Justice.
"Roles and responsibilities were blurred, in particular financial accountability was unclear, and insufficient skilled resource was applied to the project," the report said.
It accused initial planning of being "overly optimistic", it said budget monitoring was "absent" and the technical complexity of the plans "significantly underestimated".
The NAO concluded that although the revised programme of IT systems would deliver improvements over existing ones, the main aim of supporting end-to-end offender management "would not be fulfilled".
NAO head Tim Burr said: "These problems could have been avoided if the National Offender Management Service had established realistic budget, timescales and governance for the project at the start and followed basic project management principles in its implementation."
The watchdog added that although the full financial impact of the project's delays remained uncertain, it was likely to be at least £41 million.
Edward Leigh MP, chairman of the Public Accounts Committee, described C-NOMIS as a "spectacular failure".
"The central goal at the outset of the initiative was to have, by January 2008, a single, co-ordinated IT system for managing offenders across the prison and probation services," he said.
"What they delivered was a master class in sloppy project management."
Harry Fletcher, assistant general secretary of probation officers union Napo, said the programme had been "a scandalous misuse of taxpayers' money".
"From the beginning there was no consultation with service users and a total underestimate of the amount of traffic that the system would generate," he said.
Meanwhile, shadow justice secretary Dominic Grieve said the money would have been "better spent on prison overcrowding and monitoring criminals released into the community".
However, Prisons Minister David Hanson said measures had now been introduced to minimise expenditure.
"As soon as the extent of the projected costs and delays to the C-NOMIS project were recognised, we took immediate steps to halt the project and consider the most cost-effective way forward which effectively preserved the work done to date.
"The revised programme builds on this work, and steps have been taken to ensure the programme remains on time and in budget."
The revised project still aimed to provide prison and probation staff with improved access to the information they needed "to effectively manage offenders in custody and in the community", he said.
A Ministry of Justice spokesperson denied progress had been squandered, with work done so far being used "as the basis of the revised NOMIS programme".
Plans for the new system remained on schedule and would be rolled out to all prisons in spring this year, he added.