Senior officials in Tony Blair's government were aware of the technical issues with the Horizon post office computer system, the inquiry into the IT scandal has heard.
Between 2000 and 2014, more than 700 sub-postmasters and sub-postmistresses (SPMs) were prosecuted based on information from the accounting system.
Since then, many have had criminal convictions overturned - and millions of pounds in compensation has been awarded.
On Tuesday, Jason Beer KC, counsel to the inquiry, referred to a briefing from the Treasury in 1998 to then-prime minister Tony Blair which outlined a "list of failures" in relation to the rolling out of the system.
That briefing stated independent reviews of the Horizon project by external IT experts had concluded its accounting system, known as ICL Pathway, had failed, and that "we are failing to meet good industry practice in taking this project forward".
The list showed that out of nearly 16 million people who should have been paid by a benefit payment card, only 30,000 were actually being paid.
It also stated delays to the programme had cost the government more than £200m in savings they would otherwise have expected to make.
The opening of the inquiry's phase two was delayed after Mr Beer raised an issue about Post Office Ltd's disclosure to the hearing.
The Post Office, he said, had notified it was "undertaking a significant organisation and review of a large number of boxes of hardcopy documents and files held at various Post Office locations throughout the UK".
Mr Beer noted that having to begin the second phase of the inquiry with a discussion on problems around disclosure was "something of a paradox, if not a matter which is dripping in irony", when one of the central issues in the probe was the Post Office's "past non-disclosure to the criminal and civil courts".
Lawyers for the victims of the scandal called for an adjournment.
"The Post Office has denied sub-postmasters and mistresses any choice in their lives," said Sam Stein KC, representing more than 150 of the participants.
"They demanded of them investment, demanded of them application of their work, they demanded with them that they comply with a contract that effectively said that they must pay up no matter whose fault it is.
"They then, of those individuals, prosecuted them for the civil courts and criminal courts and many went to prison. Their lives have been dogged by lack of choice by the Post Office.
"It is a significant matter that we ask you to take into account, Sir, and that their choice is to adjourn."
Kate Gallafent KC, for the Post Office, said the company "emphatically" denies any allegation it has deliberately sought to make late or partial disclosure of relevant documents.
Chair of the inquiry Sir Wyn Williams concluded it should proceed as planned, as he was "satisfied that I can manage disclosure" and having considered the "significant impact" any further delay would have on the inquiry's timetable.