The Abbott government bungled its overhaul of billions of dollars worth of Indigenous funding, a major report has found.

Key points: Independent watchdog report said the department "did not effectively implement the strategy"

Independent watchdog report said the department "did not effectively implement the strategy" There is "limited assurance" projects funded supported desired outcomes, report says

There is "limited assurance" projects funded supported desired outcomes, report says Mr Scullion says "outcomes improved"; Mr Shorten says Coalition approach to Indigenous affairs is "hopeless"

The Indigenous Advancement Strategy (IAS) moved thousands of existing agreements into five broad funding streams overseen by the Prime Minister's Department.

A report from independent watchdog, the Australian National Audit Office (ANAO), said the department "did not effectively implement the strategy".

"The department identified but did not meet key implementation stages and timeframes," it said.

"The department's grants administration processes fell short of the standard required to effectively manage a billion dollars of Commonwealth resources."

The Government initially earmarked $4.8 billion for the IAS over four years.

The report said the strategy was announced in May 2014 and was designed over just seven weeks.

It also found applications were not assessed according to guidelines and records of key decisions were not met.

"Limited assurance is available that the projects funded support the department's desired outcomes."

Scullion defends program, says 'outcomes improved'

In a statement, Indigenous Affairs Minister Nigel Scullion said the Government accepted the report's recommendations but also defended the program.

"The ANAO's report highlights broad stakeholder support for key features of the IAS," he said.

"Frontline service delivery was maintained and outcomes improved through the introduction of the IAS.

"Before the Coalition introduced the IAS, it was not possible to say where and how much taxpayer money was being spent or what outcomes were expected for the outlay.

"The Government's reforms have enabled a far more strategic and flexible approach to the Government's investment in Indigenous Affairs."

Senator Scullion said $40 million would be spent over four years to improve evaluation of Indigenous programmes.

He said the Government had also released new guidelines for applicants and was giving more support to organisations developing funding proposals.

Coalition needs to 'talk to Aboriginal communities'

Federal Opposition Leader Bill Shorten said the Government's approach to Indigenous affairs was "hopeless".

"Ever since Tony Abbott introduced these policies it's been a disaster," said Mr Shorten, who is also Labor's Indigenous Affairs spokesman.

"Our First Australians are worse off since the Coalition Government's been in and nothing that Mr Turnbull's done seems to have changed anything.

"What I'd like to see them do is put their hand up take responsibility.

"What they should do is go back and talk to Aboriginal communities and rather than do this top-down approach ... give people control over their own lives."