The government's wish to see more charities providing services could be undermined by a complicated funding system.
The National Audit Office (NAO) found funding processes for large charities are unnecessarily complicated and offer poor value for money.
In a report published today, the NAO found large charities received funding from multiple public bodies, but few efforts were made to coordinate timing, payment terms and monitoring requirements - resulting in increased costs for the taxpayer.
Joe Cavanagh, director of business development at the NAO, said: "Large charities are important providers of some public services, but public bodies' funding arrangements are often unnecessarily complex and costly.
"Public bodies need to work together to bring coherence and consistency to their funding practices, to ensure that charities' valuable work is not hampered by bureaucracy."
The NAO examined evidence from 12 major charities including Marie Curie and the British Red Cross.
Between them they received £742 million in public funding. Multiple bodies were delivering small portions of this to individual charities, with each charity reporting up to 4,000 individual funding relationships.
The charities estimated it cost them £400,000 a year to manage these relationships.
The Conservatives said the NAO's report was a "powerful indictment" of the government's policies.
Shadow charities minister Greg Clark said: "The NAO describes the funding system as 'baroque' - a polite way of saying that it's a dog's breakfast.
"Ed Miliband, as the cabinet minister responsible needs to pull his finger out and deal with this mess.
"Unfortunately, the government's strategy - as set out in the Third Sector Review, is clearly not up to the job."
The NAO recommended the Office of the Third Sector and Treasury raised specific issues with the departments and bodies concerned.