"Cronyism" at a "dysfunctional" BBC led to executives getting larger pay-offs than they deserved, MPs have said.
In July it emerged the BBC paid £25m to 150 outgoing executives - £2m more than their contracts stipulated.
The Public Accounts Committee (PAC) called it a "serious breakdown" that "cast doubt" on the BBC's governance.
The corporation's governing body, the BBC Trust, accepted it had "let down licence fee payers" but said a £150,000 cap on pay-offs had been introduced.
'Kick in the teeth'MPs first expressed concern over pay-offs when director general George Entwistle resigned in November 2012 following the Jimmy Savile scandal with a £450,000 payoff after spending 54 days in the job.
A subsequent National Audit Office report, published in July, found the BBC had paid £25m in severance payments to 150 senior staff, with 14 staff paid more than had been contractually obliged.
Among the biggest payments was the £1,022,000 paid to deputy director general Mark Byford in 2011.
Analysis
David Sillito Media Correspondent
It was clear from the way the Public Accounts Committee questioned the BBC earlier this year that there was a degree of exasperation over this issue. And their report pulls no punches.
Excessive pay-offs are said to have been unacceptable. Excuses, such as the need to keep one manager "focused", are described as "extraordinary". And it "beggared belief" that certain key documents could not be found.
The BBC Trust, the PAC said, had failed in its duty and the system of oversight was broken.
In its defence, the BBC has now brought in a cap to pay-offs and announced changes to clarify the relationship between the Trust and Executive.
But the PAC says the BBC has only a limited time to prove the system can work.
Criticising the "sweeteners" given to departing staff, the PAC, which is the Commons spending watchdog, said: "There was a failure at the most senior levels of the BBC to challenge the actual payments and prevailing culture, in which cronyism was a factor that allowed for the liberal use of other people's money.
"Both the BBC executive and the trust have let down licence fee payers by allowing this culture to develop."
PAC chairwoman Margaret Hodge said: "The BBC is the world's leading public sector broadcaster, but recent revelations over severance payments to departing senior managers have put its reputation at risk.
"These revelations have also been a kick in the teeth for the thousands of journalists and creative talents working at the BBC who produce the high-quality programming that sustain its worldwide reputation, and who do not receive generous salaries."
The PAC warned BBC bosses and the BBC Trust, which oversees their work, they had a "limited amount of time" to prove they could get their house in order.
It welcomed the imposition by new director general Tony Hall, in April, of a £150,000 cap on future severance payments.
However, it also recommended that:
- The BBC should remind its staff that they are all individually responsible for protecting public money and challenging wasteful practices
- The BBC should establish internal procedures that provide effective scrutiny of severance payments
- The BBC Trust should be more willing to challenge practices and decisions where there is a risk that the interests of licence fee payers could be compromised
- The BBC executive and the BBC Trust need to record and communicate decisions properly
The MPs expressed concerns over the evidence BBC bosses gave to Parliament, criticising the "unedifying spectacle of witnesses from the BBC executive and the BBC Trust disputing each other's evidence on severance pay".
The report also criticised testimony given by the BBC's outgoing head of human resources, Lucy Adams.
Ms Adams told MPs she had not seen a note detailing plans for pay-offs to Mr Byford and marketing director Sharon Baylay - but later admitted helping to write it.
'Inflammatory language'A BBC spokesman highlighted the new cap on pay-offs and, responding to the criticisms in the report about the corporation's governance, added: "There needs to be absolute clarity over the responsibilities of the trust and the BBC executive and we have already acted and announced a range of changes to deliver that."
BBC Trust
- One of the Trust's roles is to act as the "guardian" of licence payers' money and ensure the BBC fulfils its remit to inform, educate and entertain
- It sets the BBC's strategy, approves how and where money is spent, sets editorial guidelines and reviews the performance of all BBC services
- Its chairman, Lord Patten, and 12 trustees are separate from the BBC's executive board, which is led by the director general and controls the day-to-day running of the corporation - in line with a framework set by the trust
- It is also responsible for protecting the BBC's independence
He also said Ms Adams had made it clear to the committee that she "did not attempt to mislead them" and had "clarified her position as soon as Parliament returned".
A BBC Trust spokeswoman said: "We greatly regret that licence fee payers were let down by this episode. They are entitled to expect that their money is spent wisely. Since 2009, the trust has worked successfully with the executive to drive down senior manager pay.
"We have already announced measures that address the committee's call for more rigorous scrutiny of the BBC's performance and clarify the charter's requirement that the BBC executive manages the BBC while the trust represents the licence fee payer."
In a statement, former director general Mark Thompson said the "sole reason" for making the severance payments "was so that the BBC could rapidly reduce the number of senior managers and make far larger savings on behalf of the public".
He added: "Despite some inflammatory language in the PAC report, there is absolutely no evidence of any wrongdoing by anyone at the BBC in relation to these severance payments."
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