Some lawyers took advantage of legal aid, the report says.
Lawyers reaped £25m more than they were entitled to in legal aid payments last year, a government auditor has said.
The National Audit Office (NAO) says more than £18m was paid to lawyers who claimed too much. The rest went on work that did not qualify for legal aid.
The Legal Services Commission, which runs the scheme, said it was addressing NAO findings that lax checks left the system open to exploitation.
Auditors do not "fully understand" the complex scheme, the Law Society claims.
Legal aid minister Lord Bach said a review of the commission's "delivery and governance arrangements" would be published in the new year.
The government has been consulting with law professionals about reforming the legal aid system in the face of "unsustainable" rising costs.
The NAO said the commission lacked proper controls to check whether claims made by solicitors in England and Wales were accurate and punish those which were not.
This created "a risk of solicitors exploiting the payment system", it said.
The biggest number of incorrect claims were made by family and immigration lawyers. A quarter were either "incorrect" or "unsupported", the NAO said.
Auditors found solicitors were wrongly claiming more expensive payments for asylum cases, when they actually gave immigration advice which commands a lower fee.
The auditor general, Amyas Morse, said there were not sufficient penalties to deter solicitors from submitting incorrect claims.
He said: "A significant sum of taxpayers' money is being paid to solicitors in error.
"The Legal Services Commission needs to build on its existing efforts to tighten its controls on payments to solicitors and on how it monitors the eligibility of cases supported by legal aid.
"Where appropriate, the commission should also impose sanctions on solicitors found to be making incorrect claims."
The NAO report said problems were caused by the complex fee regime.
Chairman of the Commons Public Accounts Committee, Edward Leigh, said the findings were "particularly unsettling".
"[The law] is a profession famed for its skill in mastering the finer details of an issue, and for a forensic understanding of what action is permitted and what is not.
"We expect to see solicitors subjecting their own claims to a similar level of scrutiny."
The commission's chief executive Carolyn Regan said it was "urgently" addressing the issues by taking steps to recover over-payments, including £2m related to family work by December.
"We are also strengthening the controls in our systems and working with providers to reinforce the importance of accurate claims, eligibility assessment and record keeping," she added.
Meanwhile, Law Society legal aid manager Richard Miller disputed any suggestion solicitors had been deliberately over-claiming.
He blamed the over-payments on frequent changes to the system by the LSC, confusing guidance and a lack of clear answers from officials on what could be claimed.
He said: "Our experience is that people without knowledge of the system who try to audit files do not fully understand the work done by lawyers or the system under which they operate.
"The complexities of the scheme are what need to be looked at urgently, not the solicitors using it.
"The rules and guidance as to which category to claim in are hopelessly unclear."