The ABC reports "Commonwealth Ombudsman John McMillan says there are serious issues that need to be addressed in the way the Immigration Department deals with people who have mental health issues.
He has released three reports into the detention of 20 people between 2000 and 2005.
Ten of those detained were Australian citizens and Professor McMillan says in all cases the Department of Immigration made significant administrative errors.
Professor McMillan says a training program and decision making system with far more rigour is needed.
"The officers can certainly be better trained in what the requirements of the law are," he said.
"Officers in many of those cases have too easily jumped to the conclusion that a person who was quite obviously born overseas was an unlawful non-citizen," he said.
The department has announced it will implement all the recommendations.
These include better training for department officers in citizenship law and developing more appropriate ways to deal with people who have a mental illness.
The department's secretary, Andrew Metcalfe, says there could be payouts.
"We would clearly be highly responsive if any people sought to pursue compensation claims," he said.
The Ombudsman is still investigating more than 200 more cases.
Immigration Minister Senator Amanda Vanstone says the department has already made changes in several areas.
"Why this is a good day is it's a confirmation of open government," she said.
"An example of problems being spotted and instead of a Government saying, 'well I hope there's no more', actually saying 'it's our job to go and find them'."
The Herald Sun reported on specific tales of woe, including:
"a mentally ill Australian resident, originally from East Timor, was detained by the Immigration Department for six weeks despite having held a valid visa for eight years."
"In many cases in which mentally ill people were detained, immigration officers had too easily jumped to the conclusion that a person who was born overseas was an unlawful non-citizen."
"The report on the detention of 10 children found DIMA officers had not considered the children's best interests and failed to consider that a child's immigration status could be different to their parents.
In eight of the 10 cases of children being detained, the child was either an Australian citizen or lawful visa holder"
"The reports come just days after the federal Government agreed to compensate Ms Solon for her wrongful deportation in 2001."
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