The assessment, commissioned by the government when it came to office, has found that the actual Australian Public Service workforce in 2021-22 was 37 per cent bigger than the 144,300 staff included in the official headcount.

Underlining the huge scale of outsourcing and contracting engaged in by the Coalition, the audit found the $20.8 billion was spent on consultants, contractors and labour hire arrangements, accounting for around a quarter of all departmental expenses.

The bulk of spending on external labour, 43 per cent, was in the area of IT and digital expertise, while 17 per cent was expended on service delivery and 9 per cent went on portfolio, program and project management.

Public Service Minister Katy Gallagher said the audit findings exposed the "true picture of the APS workforce under the former government".

"What we have uncovered is the extent of the former Coalition government's shadow workforce that was plugging gaps in the APS created by their arbitrary cap on the number of government employees," she said.

Senator Gallagher first raised the alarm about the previous government's extensive use of contractors and consultants while in opposition.

"[Former finance minister] Mathias [Cormann] and I used to have this battle every estimates where he would say that were keeping public service numbers ... capped at 2006 levels," the minister told The Canberra Times. "They sort of wore that as a badge of honour."

"I kept saying, because we were seeing it, 'You're just outsourcing all your work. You are not doing anything'. And they kept saying 'no, no'."

The audit examined 112 APS entities that employ staff under the Australian Public Service Act but did not include several agencies including the Australian Broadcasting Corporation, the CSIRO and parliamentary departments.

It found that the most common form of external labour used was outsourced service providers (accounting for almost 69 per cent of total spending), while 27 per cent of expenditure went on contractors and consultants and less than 4 per cent on labour hire workers.

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Senator Gallagher said the audit exposed the extent of the previous government's subterfuge.

"The Morrison government maintained its artificial cap on public service numbers, promoting a mirage of efficiency," she said.

"But at the same time [they were] spending almost $21 billion of public money on a shadow workforce that was deliberately kept secret.

"The whole time, they were up in the 190,000s. It was total bullshit that it was 144,000."

Senator Gallagher said the government had already embarked on changes to rebuild the capacity of the APS by converting labor hire workers and consultants to permanent employees in a process that was not only restoring the capacity of the public serviced but delivering "reasonably significant savings".