The findings by the U.N. Monitoring Group on Somalia says much of the country's food aid ends up going to a web of corrupt contractors, radical Islamic militants and local U.N. workers.
Investigators questioned why just three Somali businessmen were in control of the majority of the U.N. World Food Program's transportation contracts.
The report said the transporters, armed groups and other players often collude with each other to sell food aid illegally and split the profits.
The group recommends rebuilding the distribution network to break up the de facto cartel now pilfering much of the supply.
It also recommends that U.N. Secretary-General Ban Ki-moon open an independent investigation into WFP operations in Somalia.
Officials with the WFP said they would not comment until they had a chance to review the report.
The group points out that the majority of assistance in the country comes in the form of food aid, which was worth $485 million in 2009.
Besides problems with food aid, the monitoring group also accused regional Somali authorities of collaborating with pirates, and said officials have auctioned off diplomatic visas.
Somalia has not had a stable central government since the fall of Mohamed Siad Barre in 1991. The current transitional government has United Nations backing but has little power outside a few sections of the capital, Mogadishu.
Years of fighting has displaced well over one million Somalis and left more than half of the population dependent on foreign food aid.
The insurgent group al-Shabab, which controls much of southern and central Somalia, recently ordered WFP to halt its operations in the country, accusing the agency of hurting farmers and giving out expired rations.