Out-of-court sanctions include reprimands, cautions and fixed penalty fines Watchdogs have criticised the "piecemeal and largely uncontrolled" use of out-of-court punishments.
The chief inspectors of constabulary and prosecution said the powers were sometimes used for persistent and more serious offenders.
The report calls for a strategy on the use of penalties across England and Wales to protect public confidence.
Almost half a million crimes were dealt with through cautions or other out-of-court powers in 2010.
Out-of-court sanctions also include reprimands, fixed penalty fines and restorative justice projects. The powers were expanded to help police clear up more crimes while at the same time avoid clogging up courts with minor offences.
But the report says while they are now important criminal justice tools, they are being used inconsistently.
The inspectors said they found wide variations in their use across police force areas, with some offenders given repeated cautions when they should be in court.
The watchdogs sampled 240 cases, 190 of which were dealt with out-of-court, and found about a third of the decisions had been wrong, largely because they involved repeat offenders who should have been in court.
In one case, inspectors said a "prolific" shoplifter who had also assaulted a police officer had never been to court, despite four years of offending.
"The substantial growth in the use of out-of-court disposals has created some disquiet among criminal justice professionals over inconsistencies in their use, in particular for persistent and more serious offending," said the inspectors.
"In view of the growth and wide variations in practice, and the consequences for offenders and victims as well as for public confidence in the criminal justice system, we believe the time has come to formulate a national strategy to improve consistency in the use of out-of-court disposals across England and Wales, and we have made this our primary recommendation.
"There is nothing more likely to diminish public confidence in the criminal justice system in its widest sense than a sense of unfairness."
The report's criticisms come amid doubt over Justice Secretary Ken Clarke's proposals to reform sentencing and rehabilitation.
On Wednesday it emerged that a controversial proposal to offer offenders a 50% sentence cut for early guilty pleas is likely to be scrapped or significantly curtailed.
Mr Clarke's remaining sentencing proposals include a plan to expand restorative justice and community penalties. Both elements are a key part of his strategy to reduce criminal justice costs.
A government spokesman said: "Criminals must be punished appropriately and the police and prosecutors must have the right powers available to stop crime in communities.
"Out-of-court disposals are an important way of ensuring there are swift consequences for offenders, but it is crucial such powers are used in the right way.
"That means consistently and not against serious criminals who should face tougher sanctions."
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Source: http://www.bbc.co.uk/go/rss/int/news/-/news/uk-13706836
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