The way claimants' benefit needs are dealt with by jobcentres is "haphazard" and prone to missing crucial information about barriers to work, the Government has been told.
A committee of MPs said key performance indicators used by Jobcentre Plus (JCP) should immediately be revised to help people into work, not just off benefits.
The Work and Pensions Committee called for a more thorough initial assessment of a claimant's barriers to employment so that those facing the biggest challenges received the most support.
The committee said there was evidence that JCP staff have referred many claimants for a sanction "inappropriately", with some witnesses questioned by the MPs suggesting that financial hardship caused by sanctioning was a factor in the increase in referrals to food aid.
Dame Anne Begg, Labour MP for Aberdeen South, who chairs the committee, said: "JCP's performance is currently measured primarily by the proportion of claimants leaving benefit by specific points in their claims.
"This takes no account of whether they are leaving benefit to start a job or for less positive reasons, including being sanctioned or simply transferring to another benefit.
"We believe this risks JCP hitting its targets but missing the point. JCP must be very clearly incentivised to get people into work, not just off benefits.
"The processes by which JCP currently establishes claimants' needs are haphazard and prone to missing crucial information about a person's barriers to working, including homelessness and drug dependency. A more thorough and systematic approach to assessing claimants' needs is required."
The MPs called for a review of the sanctions regime and whether it was having the desired effect of encouraging claimants to seek work.
Union officials had told the committee that jobcentre staff were being put under pressure by management to increase sanctioning rates.
Dame Anne added that the Government should be clearer about how it will ensure that jobcentres are adequately resourced.
The Public and Commercial Services union said the Government's "stricter" rules have led to target-like objectives being set for staff to sanction a certain number of claimants, regardless of their behaviour.
"This has often come with the threat of disciplinary action and is unfair on both staff and the people entitled to benefits who they are there to help," said the union.
General secretary Mark Serwotka said: "No-one joined the employment service to be in conflict with the people they are there to help, but this Government is seeking to punish the unemployed, sick and disabled.
"This political pressure is making life intolerable for claimants and staff alike and we fully support the MPs' call for a much wider review of the effect that sanctions are having."
Centrepoint chief executive Seyi Obakin said: "We welcome the Committee's call for a broader, independent review of sanctions and conditionality. A third of the young people Centrepoint supports who claim JSA have been sanctioned in the last six months, leaving vulnerable people with little to live on for weeks and sometimes months.
"In some cases, the circumstances in which young people have been sanctioned suggest that common sense or discretion has failed to be applied by Jobcentre Plus, so we agree it is high time for a review of practices on the ground.
"We also welcome the Committee's recommendation that Jobcentres focus on a more personalised approach where the aim of sustainable employment takes precedence over simply reducing the number of benefit claimants."
A DWP spokesperson said: "The report recognises that Jobcentre Plus responds well to changes and is cost effective.
"Every day Jobcentre advisers are successfully helping people realise their aspiration to move off benefits and into work so they can secure their future.
"There has been a faster than forecasted fall in unemployment, which suggests that people are being encouraged to look for work more intensely than in the past, and the changes introduced to sanctions are working as intended."