The Work and Pensions Committee's second report criticises the DWP for failing to provide enough funding, a lack of effective marketing and not understanding the needs of disabled people.
The report concedes that concerns around funding are not new, quoting a previous 2003 committee who also urged an increase in funding to help disabled people into work.
The committee demands answers from the DWP around the pledge to invest money saved from the closure and sale of Remploy factories into the AtW programme.
It accuses the DWP of "not providing a satisfactory explanation" of how funds raised from this activity have been reallocated.
Despite the criticism, the report says that AtW is helping a large number of people into work – the DWP's own figures claim it helped 35,000 people into employment in the past 12 months – and that it can "transform people's lives".
But committee chair and Labour MP Anne Begg warned that the "modest budget" assigned to AtW meant increasing the number of people supported was often at the expense of those who need high-cost, specialist help, such as that required by the deaf.
A spokesman for the DWP said the number of disabled people helped into work by the programme has increased by 5,000 over the past two years.
