The Immigration Department failed to rein in spending on Australia's overseas immigration detention, which costs taxpayers more than half a million dollars a year for each asylum seeker, an audit has found.

Auditor-General Grant Hehir's searing report also shows officials could not explain how they selected the businesses that received more than $3 billion to build and run the detention centres in Nauru and Papua New Guinea's Manus Island.

The report, tabled in Parliament on Tuesday, examines how the department managed the contracts for security, cleaning, catering, health and welfare services for detainees.

It said the department fell "well short of effective procurement practice", and identified "serious and persistent deficiencies" in its efforts to build the centres in 2012 and then to reduce costs over the following four years.