Officials from the Ministry of Social Development told the Social Housing Minister a year ago that the emergency housing system was incoherent, unfair and unaccountable.
The scathing remarks come in a review obtained by Checkpoint, delivered to the Minister, Paula Bennett, last June.
It also recommends she accept that the system is failing those who need it, and says the funding system is ad-hoc.
A separate document reveals just eight of more than 60 social housing providers were dedicated providers, and the rest were hotels, motels and campgrounds.
Labour Party MP Carmel Sepuloni said Work and Income was driving people into debt, by lending them money they could not repay.
"MSD should be doing something to alleviate the poverty that we're seeing out there but instead they're perpetuating it, because the people that are experiencing the deepest level of hardship are going to them and then being thrown further and further into debt by the ministry that should actually be supporting them."
Social Housing Minister Paula Bennett has so far been unavailable to comment.