The pound;40 million Graduate Teacher Programme, which enables recruits to earn up to pound;13,000 while training in the classroom, is riddled with weaknesses, inspectors say.
Trainees who should not be in the classroom are being approved as teachers, according to an Office for Standards in Education report.
Schools have taken up the programme to tackle recruitment problems. But the report suggests many are out of their depth when it comes to taking responsibility for a trainee, with little time to prepare or undertake relevant training.
Inspectors are critical of the whole programme, from the approval of applicants to the assessment of candidates for qualified teacher status.
Six trainees seen by inspectors and judged to be failing were later passed by their schools or partnerships of schools and colleges.
There were also problems in assessing trainees' needs, providing appropriate training, monitoring and assessing progress, and maintaining quality, according to inspectors who visited 72 trainees from late 2000 to early 2001.
As The TES went to press, the Teacher Training Agency's board was meeting to discuss recommendations to put to ministers to improve the scheme, which currently has around 2,250 trainees.
An agency spokesman said it wanted to ensure training was of high quality, and proposals to improve standards would help by reducing the number of single schools involved.
The Department for Education and Skills said: "The report showed that quality assurance procedures could have been better in fewer than 24 of the trainees observed. That is not a criticism of the quality of the provision itself."
Problems were particularly acute in primary, where more than half of trainees were judged to have weak knowledge of English and maths. Secondary subject knowledge was better, but a quarter were in departments with serious weaknesses.
Around half of all initial assessments, training plans and portfolios of evidence (used to judge if candidates have attained QTS) had significant weaknesses. Management and quality assurance was poor in a third of schools, and weak in another third.
And while almost all trainees did meet QTS standards, too often they had not achieved their full potential - and were "adequate" rather than good.
However, the good practice seen shows that "GTP can be an effective alternative route for training teachers," note the inspectors.
The National Association of Head Teachers has repeatedly expressed concerns about the scheme.
David Hart, general secretary, said: "We have consistently expressed concerns about the lack of planning and the fact the programme has been badly thought through.
"Schools with no experience of teacher-training or partnership arrangements have for very understandable reasons taken on graduate teachers in the hope of solving their recruitment problems."
John Dunford, general secretary of the Secondary Heads' Association, added:
"The issues raised must be addressed because the GTP is a vital component in solving the teacher shortage problem."
* Six trainees awarded QTS were judged failing by HMI.
* More than half of primary trainees had weak subject knowledge.
* A third of all schools (half of primaries) were judged to be only adequately suitable for providing training.
* One in 10 assessments of trainees' needs rated poor.
* More than half of training plans had significant weaknesses, one in eight was poor. One in five primary plans was poor.
* Only a quarter of trainees had written assignments; most had significant weaknesses and one in three was poor.
* Management and quality assurance was poor or weak in two-thirds of schools.