Mr Phillips has been reappointed as head of the EHRC for a second term
Auditors have criticised the Equalities and Human Rights Commission, days after three of its commissioners resigned.
The National Audit Office has not fully signed off the EHRC's accounts because it re-employed senior staff soon after they got generous redundancy payments.
The Treasury refused to authorise the payments and the EHRC has accepted it did not follow the rules.
The Conservatives said the "careless waste of taxpayers' money" had been "totally unacceptable".
The new commission began work in October 2007, having taken on the work of the old Commission for Racial Equality (CRE), the Disability Rights Commission and the Equal Opportunities Commission.
But the NAO report says it faced problems right from the start because it was 140 staff short of its promised 525 workforce. It was particularly short of senior managers with only 10 of the 25 directors.
Seven people who had taken redundancy from the old CRE, at a cost of £629,276, were then re-employed on short term contracts at a cost of £323,708.
The Treasury did not authorise the payments beforehand and refused to do so retrospectively, pointing out the new salaries were much higher than the old ones and because it was "unclear" whether those staff had a break between the two jobs.
The total cost to the taxpayer of paying off these executives only to bring them back as consultants was almost £1m
Public Accounts Committee
It said there was a possibility the severance payments should have been repaid.
The NAO said five had been employed as of 1 October 2007, without the jobs being advertised - and left by 31 March 2008.
The remaining two had breaks between the jobs and were re-employed after a "competitive procurement process".
Edward Leigh, chairman of the public accounts committee which oversees the work of the NAO, said the report raised "difficult questions".
"Poor management and oversight following its creation resulted in EHRC being understaffed and unprepared," he said.
"In response, the department decided to rehire people who had been given redundancy only a few weeks before.
"The total cost to the taxpayer of paying off these executives only to bring them back as consultants was almost £1m."
NAO head Amyas Morse said delays in getting resources led to staff shortages at the EHRC which "made the mistake of re-employing some senior staff from predecessor bodies without authority".
"The shortage of senior staff weakened EHRC's ability to develop a clear business strategy, agree an organisational design and ensure effective operational management was in place," he said.
But he said "welcome progress" had been made on its controls and governance.
Shadow equalities minister Theresa May, said: "Such a careless waste of taxpayers' money is totally unacceptable. Never has the need been greater for public bodies to demonstrate restraint and value for money."
In a statement accompanying its annual report, the EHRC said: "The commission accepts that it did not follow the right procedures in re-engaging the staff referred to by the NAO.
"This does not imply any criticism of the staff concerned. The commission is grateful for the work carried out by those staff on its behalf."
The report comes after three commissioners resigned in days from the EHRC. There have been suggestions they went in protest at the reappointment last week of the body's chairman, Trevor Phillips, for a second three-year term.
But former CRE head Lord Ouseley told BBC Radio 4's World at One programme the problems at the EHRC could not be blamed solely on Mr Phillips.
"I would think that the commissioners have resigned out of frustration as a result of the commission not fulfilling the expectations of the many people who had high hopes for it," he said.
"It hasn't been critical of government where it should have been, it's been too close to government and I think the way it .. failed to merge staff from different backgrounds together is an indictment really."
A spokesman for the EHRC said: "It is always regrettable when commissioners resign and, given their wide-ranging experience and expertise, we hope that we will still work with them on our shared agenda.
"However, their resignations will not affect our day-to-day work making a real difference to people across the UK."