The report highlighted the shortcomings of the Lords computer system, developed in-house, which is used by Customs officials to record and track applications from traders registering for VAT.
Customs & Excise officials estimate that indirect tax fraud costs the department up to £7.3bn a year.
The NAO report said, "Customs has been aware for some time that there are weaknesses in its computer systems, including poor controls over the data input to Lords which could affect the accuracy of information held on traders."
The system also has poor logical security and cannot produce transaction and audit logs, it added.
Customs & Excise already plans to replace the Lords system by 2005 as part of the department's wider IT strategy, although auditors urged it to complete this as a matter of urgency.
The report said, "Customs needs to make the planned improvements to its Lords computer system for registering traders as soon as possible."
Edward Leigh, chairman of the Commons' Public Accounts Committee, backed calls for Customs & Excise to make its management information more reliable. He said, "It is alarming, for instance, to find out that the computer systems which Customs uses for registering VAT traders are not entirely reliable." The department must get a better grip in key areas, he added.