The watchdog found that local authorities are giving Schedule 1 status of those who offend against children to young people convicted of minor sex and assault crimes against other under-18s, even though there were no child protection issues at stake.
Anyone with Schedule 1 status is treated as a risk to children for life.
They are barred from working with children and vulnerable people and are subject to a child protection investigation if they live with children.
The findings were left out of the commission's recent report on youth justice because of space limitations (YPN, 7-13 January, p4).
Judy Renshaw, senior manager at the Audit Commission, said that while the watchdog had not gathered figures on the issue, it was still a concern.
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