An independent panel should assist the Home Office in devising a new funding formula for police forces in England and Wales, a committee of MPs has said.
A statistical error in October led some forces to wrongly assume they would be losing money for 2016-17, while others thought their budgets were to increase.
The Home Affairs Select Committee says it hopes its proposal will help remedy “the shambles we have seen so far”.
The Government said it would consider the recommendations carefully.
The amount of money each police force receives from the government is based on a funding formula, which assesses population size, social and economic factors, crime rates and other data.
Last month, the government delayed proposed changes to the way the money is allocated after acknowledging its plans had been based on flawed calculations.
It admitted the wrong set of figures had been used to decide deprivation levels within each police area.
The Home Affairs Committee suggests a panel made up of auditors, accountants, statisticians and police policy experts assist the government to reach the new formula.
Home Affairs Committee chairman Keith Vaz said the current police funding formula had become unfit for purpose, but the recent errors had “gravely damaged” the service's confidence in the creation of a new deal.
He added: “Police forces found themselves on a rollercoaster, where at the stroke of a pen they saw their funding allocation plummet in some cases and rise meteorically in others, with nobody able to explain why. It would be charitable to call it a shambles.
“Errors by senior officials in the Home Office and the process adopted were serious mistakes, which wasted time and resources and gravely damaged confidence in the Home Office in the eyes of their principal stakeholders, the Police themselves.
“Senior officials did not communicate with those who would be affected by the review, or seemingly with each other, and did not understand the significance of the errors which were made. The ease with which Devon and Cornwall exposed the error was almost farcical, in a modern day battle between David and Goliath.”
He also called on the Home Office needs “to state clearly what they expect the Police to do, and what they are prepared to fund.”