LONDON - The government got too little for a stake it sold in defence firm QinetiQ and was wrong to let top executives pocket 200 times what they invested, the country's National Audit Office said on Friday.

The criticism comes at a bad time for the government, already reeling from revelations it lost computer discs containing critical details on more than 25 million Britons, and the fallout from a run on one of the country's largest banks.

QinetiQ was part of the Ministry of Defence's secretive technology development laboratories before a stake was sold to U.S. private equity firm Carlyle Group for 42 million pounds in 2003.

Carlyle cashed in its shares after QinetiQ floated in 2006, reaping more than 370 million pounds.

"The National Audit Office believe greater proceeds could have been secured from the 2003 sale," the NAO, which is charged with monitoring government spending and investigating waste, wrote in a report released on Friday.

It found fault with several steps taken by the ministry.

Carlyle was appointed preferred bidder too early, making the process less competitive than it might have been, and the ministry was wrong to negotiate the deal before finalising terms of a lucrative long-term partnering agreement between it and the company, the NAO said.

It also said the ministry failed to seek professional advice on how to structure an incentive scheme which resulted in QinetiQ's top 10 managers owning shares worth 107 million pounds after investing just 500,000 pounds.

"We consider the returns exceeded what was necessary to incentivise them," the NAO said.

QinetiQ Chief Executive John Chisholm, who advised on the incentive scheme, secured holdings worth 26 million pounds with an investment of just 130,000 pounds.

The NAO acknowledged the sale to Carlyle did lead to a successful flotation of the firm and noted the government had seen net proceeds of 576 million pounds while retaining a 19 percent stake currently worth about 218 million pounds.

But it said there were lessons to be learned from the 2003 deal, including the need to consider postponing such sales if market conditions are weak.

It also recommended that executives not be allowed to discuss incentive schemes with potential buyers "until the main principles have been agreed".

In a statement, QinetiQ said the sharp rise in the company's value following the deal with Carlyle reflected its strong financial performance, including a 261 percent jump in operating profit between 2003 and 2006, helped by acquisitions in the U.S. defence market.

The Ministry of Defence responded to the NAO report by noting Swiss investment bank UBS had led the process in line with normal market practices.

"It is the taxpayer who has gained the most from the increase in QinetiQ's value," the ministry said.