The watchdog analysed the Scottish Public Pensions Agency's plan to integrate its pension administration and payment operations, which faltered when the chosen supplier, Capita, wasn’t able to provide a working system.
The agency's main role is to administer and pay pensions to deferred members and pensioners of the NHS, teachers', police and firefighters' pension schemes in Scotland.
It also provides policy support to the Scottish government and local government pension schemes.
Caroline Gardner, auditor general for Scotland, said: "The public sector is under pressure and we are seeing more instances of bodies embarking on IT projects without the necessary staff and assurance arrangements in place to manage them properly.
"In this instance, I found no evidence of a clear business case for a new integrated system, which was pursued at a time when the SPPA was going through significant change.
"The result was a project that failed to provide value for money and has considerably set back the SPPA's planning."
SPPA awarded a £5.6m contract to Capita in 2015 to deliver a bespoke unified pensions administration and payment system, with the goal to replace existing systems to improve business efficiency, improve service quality for members, and make financial savings in the longer term.
The new system was to be operational by March 2017, which never happened, and it was cancelled in February 2018.
In its final report published today (June 25), Audit Scotland stated that the SPPA did not apply enough scrutiny to Capita's bid, which was abnormally low, and set an unrealistic timetable for the project.
The independent public sector watchdog added that Capita wasn’t able to provide a working system and did not achieve any of the project's milestones, which was a main contributor to the failure.
Capita paid SPPA £700,000 in compensation in November 2018 following the conclusion of a legal process.
The Scottish pensions body spent £6.3m on the project and a further £2.4m extending contracts with existing suppliers when the project failed to meet the original timetable.
The failure of the project means SPPA has been unable to progress strategic, business and workforce plans as originally intended, Audit Scotland stated.
As a consequence, SPPA requires an additional budget of £9.8m between 2019/20 and 2022/23, and capital allocations of £13.6m over the next five years, it added.
A Scottish government spokesperson said: "While the report raises important issues, there has been, and will be, no disruption to pension services.