Benefit sanctions that can plunge claimants into hardship, hunger and depression are being handed out with little evidence they work - a scathing report by the public spending watchdog has found.
Use of the penalties also varies "substantially" across the country and referral rates have changed significantly over time, according to the National Audit Office.
It accused the Department for Work and Pensions (DWP) of not doing enough to find out how sanctions affect people on benefits.
MPs said the findings showed it was "pot luck" which people were sanctioned and demanded ministers "get a grip" of the "discredited" system.
Birkenhead MP Frank Field said: “Sanctions are being applied at a scale unknown since the Second World War and the operation of sanctions on this scale has made for the most significant change in the post-war social security system.
“Yet the Government holds no information on what has happened to large numbers of people who have had their money withdrawn.
“We do not know how many people are being pushed permanently outside the benefits system and left destitute.”
More than one million unemployed benefits claimants have to meet certain conditions, such as showing they are looking for work, to receive their payments.
The report found the use of penalties differs across j obcentres and employment schemes. Some Work Programme providers make more than twice as many sanction referrals as others dealing with similar groups in the same area, it said.
More than a quarter of Work Programme claimants hit by sanctions last year had their decisions overturned compared to 11% of jobcentre penalties, it added.
Liberal Democrat leader Tim Farron said: "This report is a civil service equivalent of a character assassination. It shows that a failing department is trying to prop up a discredited system.
"The DWP have turned this system in a postcode lottery and means that someone could be sanctioned in one place and not in another for the same thing.
"What is worse is that the government are not assessing the impact of sanctions, using their own data to see what is going on and they are not even tracking the benefits. Ministers need to get a grip."
Nearly a quarter of Jobseeker's Allowance claimants received at least one sanction in the five years to 2015, according to the NAO. A four week penalty for the over 25s means a £300 loss.
The department has not used its own data to evaluate the impact of sanctions in the UK and does not track the costs and benefits of sanctions, according to the report.
The DWP estimates that it spends up to £50 million a year applying sanctions and £200 million monitoring that claimants meet the conditions for receiving payments.
It withheld £132 million following sanctions last year and paid out £35 million in hardship payments, according to NAO estimates.
In its report, the watchdog said the department "needs to do more than react to problems" and ruled that it " cannot conclude that the department is achieving value for money".
Amyas Morse, head of the National Audit Office, said: "Sanctions on benefits have a high opportunity cost, not only for those who are dependent on those benefits if sanctions are applied, but for the efficient use of public resources.
"We acknowledge the department's effort to reduce its error rate on sanctions, but we think there is more to do in terms of reducing them further, and in reducing the notable differences in sanctions applications between comparable localities."
A DWP spokesman said: "Sanctions are an important part of our benefits system and it is right that there is a system in place for tackling those few who do not fulfil their commitment to find work.
"This report fails to recognise the improvements we have made to sanctions, particularly to help those who are vulnerable. The number of sanctions has fallen, and they are only ever used as a last resort after people fail to do what is asked of them in return for benefits.
"We will consider the recommendations, and respond fully in due course."
Child Poverty Action Group chief executive Alison Garnham said: "As today's NAO report makes clear, the DWP has little idea what impact sanctions have on individuals and, with some areas imposing twice as many sanctions as others, appears to have little concern for consistency.
"Sanctions create destitution but the DWP is operating almost blind."