About seven in eight supervisors employed in the public service are not busy enough, the National Commission of Audit suggests.
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The commission also says almost one in four executive-level officers - the bureaucracy's middle-management ranks - manage no staff at all.
Yet of the five government workplaces that did manage to meet the audit's high standards, the commission wants to privatise one and dismantle another.
An audit finding that is already affecting Canberra workplaces is the commission's view that the bureaucracy has "excessive management lawyers" and that its middle managers oversee too few staff.
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The cost-cutting commission, chaired by business lobbyist Tony Shepherd, sought advice from Boston Consulting Group on whether middle managers' "spans of control" - the number of staff for whom each executive level 1 and 2 officer has direct responsibility - were too small.
Boston developed "best practice" targets for middle managers in different agencies, according to the work the agency did.
Only five of the 90 surveyed agencies' EL1 and EL2 officers managed enough staff to achieve the targets: the departments of attorney's-general, foreign affairs and human services, as well as Austrade and the Defence Housing Authority.
Yet while these were the only workplaces that met the tough targets, the commission wants to get rid of the latter two.
It says Austrade should be folded into the Department of Foreign Affairs and its help for exporters should be "substantially reduced". It also recommends privatising the Defence Housing Authority, saying the real estate market can meet military families' housing needs.
Boston's findings are skewed in that they exclude EL1 and EL2 officers who manage no staff.
In some agencies, a majority of EL staff have no supervision responsibilities but are instead employed as specialists. For example, in the Tax Office, only one in three EL1 officers supervise any staff.
The commission said some workplaces had "justified narrow spans of control as a necessary part of their organisation, particularly in areas of high-level policy, strategy and technical work (for example, scientific, legal or information technology roles)".
It also noted that getting information about supervisors' workloads had proved difficult, and "some agencies have little if any awareness of the spans of control across their organisations".
Most federal government workplaces began retrenching middle managers last year in response to former Labor finance minister Penny Wong's concerns about top-heavy management structures.
