A grandmother was "failed" by a council that ordered her to repay £11,500 after officials did not spot she had been overpaid for two years, a report found.
The woman, the sole carer of her three grandchildren, said she got the money in "good faith" and thought it related to her disabled grandchild's needs.
The Local Government Ombudsman found several failures in how the woman was treated by Northamptonshire County Council.
The council accepted the findings.
The woman, known as Mrs X, complained about the council to the ombudsman over her family's treatment.
The ombudsman found the council had caused an "injustice" to the woman.
She had been receiving a Residence Order Allowance for the child since 2005, a discretionary, means-tested allowance offered by the council.
The council, whose children services were rated inadequate by Ofsted earlier this year, blamed the overpayment on no reviews happening in 2016 or 2017 because of responsibility transferring to another department.
The council claimed the onus was on the woman to query the overpayment, according to the report published on 18 October.
A string of failures were identified, including the council "inappropriately" referring the family to a child protection conference while the demand for the repayment was being challenged.
The chairman of the conference said "the family had not received a service from the local authority" and they had been "let down for a number of years".
The woman had suffered "significant distress" because of the council's failures, said the ombudsman.
It ordered the council to apologise and write off the overpayment.
Former Northampton North MP Sally Keeble, Labour's prospective candidate for the constituency, told the BBC: "What is startling is this paints a picture of children's services in absolute chaos.
"I have never seen anybody give such fantastic care for children under such horrific circumstances."
Northamptonshire County Council apologised to the family for any distress caused.
It said it would be following the agreed actions as recommended by the ombudsman.