The department implementing the Government's failed home insulation program underestimated safety risks and was unable to cope with mounting problems, the auditor-general has found.

The $2.5 billion program was suspended in February after it was linked to four deaths, hundreds of house fires and widespread rorting.

It is estimated the cost of cleaning up the Government's insulation program will be around $400 million.

A report released today by the Australian National Audit Office has found the program to be costly, caused householders serious inconvenience and damaged the reputation of the insulation industry and the reputation of the public service.

It has also found that while the program created 6,000 to 10,000 jobs during the height of the global financial crisis, people then lost those jobs when the program was closed.

Auditor-general Ian McPhee has identified several shortcomings in the way the Department of Environment, Water, Heritage and the Arts handled the program's implementation as it faced pressure from the Federal Government to get it up and running during the height of the global financial crisis.

His report says the department requested the program be rolled out over five years but that this request was denied because of the desire to stimulate the economy and create jobs.

He has found the department underestimated the level of risk involved in an unregulated industry which was using inexperienced workers to install insulation in ceiling spaces.

"The focus by the department on the stimulus objective overrode risk management practices that should have been expected given the inherent program risks," the auditor-general said.

"The department intended to rely heavily on its compliance and audit program to address some of the risks identified, but the significant delay in implementing this element of the program meant that these risks were not adequately addressed."

At its peak, demand for the program more than doubled original expectations.

Mr McPhee says that by November 2009 the number of complaints to the department over quality, safety and fraud overwhelmed the department and as issues requiring attention increased, the department could not deal with the volume.

By March this year 2,883 people had complained that they had not had insulation installed at their home even though the department had received a claim for a rebate.

As problems mounted up, then minister Peter Garrett did not have his requests for information answered promptly and then when it was provided it was "overly optimistic" and contained factual errors, Mr McPhee said.

The report estimates safety inspections and the removal of foil insulation from around 50,000 homes could cost around $85 million and ongoing inspections for another 150,000 homes could cost $340 million.

Parliamentary Secretary for Climate Change and Energy Efficiency Mark Dreyfus says 95,000 inspections have now been carried out.

"These shortcomings are unacceptable to the Government and we will continue our work to ensure they are addressed and not repeated," he said.

Opposition environment spokesman Greg Hunt says Mr Garrett must take responsibility for the program.

"The department was under instructions to put stimulus ahead of safety with tragic consequences. There must be an end to Peter Garrett's ministerial career. He must resign or be sacked - it's a test for Julia Gillard," he said.

The auditor-general has not made any recommendations because the program is now closed.

The controversy surrounding the program led to the removal of Mr Garrett and caused great embarrassment for the Government, sparking Opposition accusations of incompetence and mismanagement.

Insulation was installed in more than 1 million homes under the original program, which was rolled out as part of the Government's $42 billion stimulus package.