More than 200,000 requests for a review of Centrelink decisions were lodged in 2009/10, with 47% resulting in a change of decision, often due to new information becoming available.
The report finds that while initial decisions were not always wrong, the statistics reinforce the need for transparency, timeliness, and customer education.
Other problems identified in the report include repeated denials of review requests, delays in obtaining appeals - in some cases up to two years - and "appeal fatigue", when customers give up their appeal because the process is to difficult and time-consuming.
Ombudsman Allan Asher says, "In the end it is Centrelink's responsibility to get it right, for their own sake, to save vast costs, and most importantly for the sake of all their clients who often put up with denial of benefits or changed benefit conditions over a long period," he said.
"It is quite an unreasonable thing and an urgent thing and it needs to be fixed."
Centrelink have agreed to work towards implementing the Ombudsman's recommendations; Centrelink spokesman Hank Jongen says the agency is "...currently working together with the Ombudsman in looking at new review processes which incorporate all of the recommendations of this report."
The new internal review processes will be reviewed again in six months.
Read the report, Centrelink: The right of review - Having choices, making choices