Services Australia's actions were found to be unfair or unreasonable in responding to "widespread manipulation and weaponisation" of financial payments.
The agency lacked policies, strategies and training to be able to proactively identify, monitor and respond to cases of abuse, the report found.
The ombudsman recommended the federal government introduce legislation to address limitations that impede Services Australia enforcement.
Information sharing and a requirement of abuse survivors to disclose sensitive details with their former partner should also restrained.
In Australia, there are about 1.1 million kids supported by the child support program.
Women are the main recipients of child support, which is usually paid for by men.
In a survey of more than 500 separated mothers, four in five said their former partner had used the program to commit financial abuse.
"We are being told of cases where former partners are ... deliberately not making payments or not lodging tax returns, lying to reduce their income, lying about care arrangements and being abusive or violent to stop the impacted parent from asking for help," the report reads.
Services Australia distributed $1.967 billion in payments in the 2023/24 financial year.
The investigation found as of December 2024 there was $1.9 billion in Child Support Collect debt and 153,694 paying parents had a debt.
Commonwealth Ombudsman Iain Anderson said affected parents "keep telling us they feel abandoned and let down by Services Australia when they seek help for financial abuse in their child support cases".
Services Australia accepted all of the eight recommendations, while the social services department accepted all but one.
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