Internal auditors raised concerns that junior staff had access to the database and information was not being encrypted.

They also told Whitehall bosses that weak procedures meant mistakes and fraud were unlikely to be detected.

The worries were highlighted in a letter circulated by Treasury risk manager Richard Fennelly in March 2004, and obtained by the News of the World.

They could be particularly damaging for Prime Minister Gordon Brown - who was Chancellor at the time - because in the recent debacle a junior HM Revenue and Customs official has been blamed for losing the discs containing names, addresses and bank account details. The information was also apparently not encrypted.

Mr Fennelly reported that internal auditors had been assessing the security of the child benefit records system, and listed a succession of criticisms.

He wrote: "Fraudulent/malicious activity was not being detected...Live support staff had root access and could do anything without being detected with obvious risks." There were also worries that there was "no encryption between certain elements in the system".

Shadow work and pensions secretary Chris Grayling told the newspaper: "This document blows apart Gordon Brown's claims in Parliament that this was a one-off incident.

"Now we know that internal watchdogs in the government were warning three years ago that the child benefit database was at risk.

"Because no one took any action we now face a situation where millions of bank account details and information about all our children has been lost."