Asylum seekers given homes and benefits were found to have iPads, mobile phones and flat screen televisions despite claiming they were "destitute", a report has found.
The National Audit Office found migrants seeking permanent asylum in Britain were earning an income above legal levels required for them to be given housing and pay-outs.
The report warned that these families were taking flats and houses from those asylum seekers whose need was far greater.
Housing officers who saw evidence of wealth, such as tablet computers or expensive plasma screen televisions, suggesting a high level of income, have a duty to inform the Home Office within a day.
The report said: "During the fieldwork for our investigation, we visited a sample of properties used to house asylum seekers.
"In some of these, it was clear that the occupants may have a level of income above that expected of someone receiving the minimum level of support."
It added: "There is a risk that individuals or families may be occupying properties to which they are not entitled, thus taking resources away from those more in need."
An NAO spokeswoman said evidence of prosperity included iPads, mobile phones and flat screen televisions, although he stressed that simply owning expensive gadgets did not necessarily disqualify an asylum seeker from being entitled to accommodation.
She said that inspectors had made around 10 visits in three areas - the North West, Yorkshire and the Humber and London - and in at least one instance in each area they had found "indicators of prosperity".
An asylum seeker qualifies for housing and financial support if they are "destitute", which means they earn no or very little money.
The extent of the problem emerged during an NAO investigation into the ways the private firms G4S, Serco and Clearel were carrying out the contract to provide the accommodation.
The report found that the conditions of the properties being provided for asylum seekers did not meet sufficient standards and that the Government was trying to recover rebates of as much as £4m because of poor performance.
Refugee Council chief executive Maurice Wren said: "Failure to provide adequate accommodation is always unacceptable. It's essential the Home Office sets clear standards, provides the resources required to deliver them and is tough on contractors who fail to meet them."
A Home Office spokesman added: "The UK has a proud history of granting asylum to those who need it and we are committed to providing safe and secure accommodation while applications are considered."
G4S and Serco are already under fire for overcharging the Government by millions of pounds for its criminal tagging service.
The private firms admitted they had even charged for tagging of criminals who had died.
Despite the damning findings in the NAO report and their vexed relationship with the Government, G4S and Serco are pushing to be allowed to expand their provision of asylum seeker housing to other areas.
As of April 2013, the Home Office provided accommodation for around 23,000 asylum seekers with around 60% receiving financial support from the department.
A G4S spokeswoman said: "We agree with all recommendations made and many of these have already been implemented as part of our ongoing commitment to service improvement."
James Thorburn, managing director of Serco's home affairs business, added: "We accept that there remains scope for further improvement and we are committed to working with the Home Office and our partners in local government, the NHS and the voluntary sector to achieve that."
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