The government has ended a contract with welfare-to-work company A4e after deciding that continuing would be "too great a risk", it has said.
Employment minister Chris Grayling said the Mandatory Work Activity contract to help up to 1,000 jobless people in south-east England find work would end.
The firm is the subject of a police investigation into allegations of fraud relating to government schemes.
An eighth person was arrested on Monday.
Seven others are on bail until dates in late May, June and July.
'No evidence of fraud'
As part of its work, A4e handles government contracts worth millions of pounds for welfare-to-work schemes.
Mandatory Work Activity was launched by the government in May 2010. More than 24,000 people have been through the programme, which involves a four-week placement including maintenance work on houses, renovating furniture or supporting charities.
The scheme is aimed at getting people into a working routine if they need an additional "push" to find a job.
The Department for Work and Pensions has been auditing its commercial relationships with A4e after receiving an allegation against the company earlier this year.
Mr Grayling said: "While the team found no evidence of fraud, it identified significant weaknesses in A4e's internal controls on the Mandatory Work Activity contract in the South East.
"The documentation supporting payments was seriously inadequate, and in a small number the claim was erroneous. There was also a high incidence of non-compliance with other relevant guidance (including A4e's own processes).
"The process established prior to March fell significantly short of our expectations. As a result, the department has concluded that continuing with this contract presents too great a risk and we have terminated the Mandatory Work Activity contract with A4e for the South East."
Mr Grayling added that "contingency plans" were in place to ensure "continuity of support for participants".
But the company welcomed the "positive findings" of the Department for Work and Pensions' audit, and another by the Skills Funding Agency, saying: "Both confirmed they identified no evidence of fraud, systemic, attempted or otherwise, in relation to any audit completed of the contracts they hold with A4e."
Chief executive Andrew Dutton said: "These findings demonstrate what I have always maintained to be true - that there is no place for fraud at A4e and make it clear that A4e has strong controls around its flagship contract the Work Programme.
"Our immediate task is to further enhance our controls to cement our position as a trusted provider of front-line public services."
He added: "As a company, I recognise that we haven't got it right all of the time, but we are committed to taking responsibility for our mistakes and remedying them.
"No other provider has undergone such a thorough and forensic review of its contracts, and the positive outcome speaks for itself - this is huge reassurance for taxpayers and our customers."
A4e started in South Yorkshire more than 20 years ago to provide retraining to large numbers of Sheffield steelworkers who became redundant when the industry started to decline.
Its former chairman, Emma Harrison, was appointed by Prime Minister David Cameron to be the government's "family champion" in 2010.
She resigned from that role, and the chairmanship, in February, saying she did not want the "media focus on me to be any distraction for A4e".