«Applications for citizenship by conferral have not been processed efficiently by the Department of Home Affairs,» the auditors concluded.
«Processing times have increased and long delays are evident between applications being lodged and decisions being taken on whether or not to confer citizenship.
«Significant periods of inactivity are evident for both complex and non-complex applications accepted by the department for processing.»
In April 2017, the Coalition government froze citizenship applications when it announced an overhaul of the eligibility criteria, including a tougher English test and longer waiting times before permanent residents could apply. However, these changes failed to pass the Senate.
The audit found a key driver of the delays and a decrease in approvals was the introduction of «increased integrity screening checking processes» occurring from June 2017.
The ANAO recommended the Department of Home Affairs publish more information on processing times and refusal decisions, including reporting on a month-by-month basis.
But the department rejected this suggestion, saying: «Given that each application for citizenship is assessed upon its merits and individual circumstances, in our view this information would not be meaningful and may be misleading to our clients.»
However, Home Affairs undertook to work with the Finance Department to better fund activities related to citizenship applications, and acknowledged it must «continue to evolve the way it operates to keep pace with increased lodgements and changing risk profile».
Labor MP Julian Hill has previously criticised the department for delays in processing citizenship applications, accusing Mr Dutton of presiding over a «black hole». He said it was one of the «big four» problems constituents complained about in his electorate.
«The impact of the delay in human terms is appalling,» Mr Hill told Parliament last year.
«We have every week in the foyer of my office grown men crying. That is not an exaggeration — they come in in a state of hopeless and despair.
«They are people who want to formalise their commitment to this country. We should expect them to do so … and we should welcome it.»
Michael Koziol is a political correspondent for The Sydney Morning Herald and The Age.