The Morrison government's PaTH youth internship program has received a lukewarm response from businesses.
A business that didn't offer jobs to 17 interns it hired through a government program, has been asked to return $17,000 of taxpayers money.
Jobs Department officials confirmed the unnamed business had been kicked out of the Prepare, Trial, Hire (PaTH) program late last year.
The Coalition's youth internship scheme has been criticised by unions as a way for businesses to use cheap labour to do work that would otherwise be done by fully-paid casuals.
In December, fast food giant Hungry Jacks came under fire for using the scheme to recruit interns over its busy summer period, offering to pay them the equivalent of $6.60 an hour.
Hungry Jacks later withdrew the ad after it was highlighted by the union.
"It looks like it's got some pretty dodgy businesses on the hook," Senator O'Neill said.
Liberal frontbencher Linda Reynolds said the department had proved it had strong compliance measures in place.
"It is a very successful program," she said.
The business was asked to give the cash back by December but has not responded.
Department official Greg Manning did not believe the firm was trying to rort the program, saying it was a new organisation that had promised something it couldn't deliver.
Senator O'Neill also questioned the merits of 119 "shelf-filling internships" provided through the scheme.
"How can that be an internship - to fill a shelf?"
Senator Reynolds defended the positions.
"The point is these are people who are not in work and what this does is it gets them into a workplace, into a regular routine and having a job experience."
Low take up
The internship program has fallen well short of its target of 30,000 placements a year, with a little more than 5000 people successfully completing it.
Since April 2017, 3933 business have signed up to the PaTH program, significantly fewer than the 18,000 to 20,000 the government said would be needed to achieve the target.
Figures revealed at Senate estimates on Wednesday showed 5619 young people have completed internships through the scheme.
"The fact that it's not even expended to a quarter of its capacity looks like a policy failure," Senator O'Neill told the hearing.
Senator Reynolds said of the 8234 young people who started placements through PaTH, 70 per cent were employed three months later.
The government has spent at least $4.2 million on advertising PaTH, which aims to help young people gain skills and work experience for employment.
The government changed the eligibility criteria at the mid-year budget update in December to scrap a six-month waiting period in a bid to get more people involved.
Additional reporting Rosemary Bolger