Nine out of 10 children in Northern Ireland who serve a custodial sentence after breaking the law re-offend within a year of being released.
A report by the Audit Office also reveals that it costs £324,000 a year to keep a young person in custody.
The report says repeat offenders are responsible for 72% of all youth crime and disorder.
Violence against the person, theft, criminal damage, and public order offences are the most common crimes.
Following the report, the Commissioner for Children and Young People in Northern Ireland said the criminal justice system needed to be overhauled.
'New strategy needed'
The report says a new strategy is needed to deal with young offenders who repeatedly commit crimes.
The Youth Justice Agency is the organisation responsible for dealing with children aged 10-17 who have offended, or are at serious risk of offending.
The audit office report, Managing Children Who Offend, examines the cost of youth crime, and what is being done to try to reduce it.
It says the agency spent £17.4m and employed 277 staff last year.
Kieran Donnelly, the Comptroller and Auditor General, concludes that the agency and the Department of Justice "cannot currently demonstrate that the interventions to reduce re-offending by young people represent value for money."
Custody for young people in Northern Ireland is provided at the Woodlands Juvenile Justice Centre in Bangor, County Down.
Last year, 163 young people passed through the centre, some of them multiple times.
The majority were persistent offenders, or young people on remand waiting to go to court.
There are currently 26 children held there. The youngest of them is 14.
The audit office says that while the number of first-time offences committed by children has been falling in recent years, the rate of re-offending has been rising.
89% re-offending rate
According to the most recent figures available, for the year 2013-14, the re-offending rate for young people released from custody was 89%.
That means 31 out of every 35 of those released commit another offence within a year.
The most prolific 1% of young offenders accounts for about 13% of all incidents.
The report says children looked after in care homes are about five times more likely to become involved with the justice system than those outside the care system.
It reveals that around one third of all those admitted to the juvenile justice centre are from care backgrounds.
The report also examines the effectives of alternatives to custody.
Youth conferencing, often referred to as restorative justice, is aimed at giving young offenders the opportunity to understand and make amends to their victims for the consequences of their offending, and to take steps to stop future crime.
It involves victims, the young person's family, the police, the community, and supporters to reach an agreed decision.
The audit office reveals that during the year 2013-14, more than half of young offenders dealt with through community orders re-offended.
"Youth conferencing has a central role in the response to youth crime," the report states.
"Although regarded well internationally, it has not been demonstrated that youth conferencing has reduced re-offending in Northern Ireland."
It says "earlier assertions that youth conferencing has been a success are not necessarily supported by subsequent evidence."
The report says there is a need for a strategic review of how current arrangements for dealing with child offenders are working.
The Northern Ireland Commissioner for Children and Young People, Koulla Yiasouma, said there is a lack of focus and loss of momentum in how children who offend are dealt with.
She said: "The NIAO report clearly shows that the current system's interventions and services are not effectively tackling offending and reoffending and is not therefore delivering for these children and young people.
"We now need urgent and sustained action from government following today's report and we expect departments to fulfil their duties under the Children's Services Co-operation Act, which requires them to work together in the best interests of children.
"I am pleased to see some of my previous advice to the department echoed in the recommendations of this report."
Vivian McConvey, chief executive of the charity VOYPIC (Voice of Young People in Care) said: "For several years, reviews and reports have indicated flaws and inefficiencies in a system which responds to some of the most vulnerable and complex young people in our society.
"The lack of urgency and pace to redress these issues is at best frustrating and, at worst, of grave concern.
"The evidence that custody is not used as a last resort for young offenders continues to frustrate me and others who seek to protect the best interests of this group of vulnerable young people.
"We should learn from the experience of others and from what young people tell us and introduce interventions with proven impact."