The Scottish Government has pledged to take action, including £100 million of new funding targeted at improving support for children and young people.
The report found the current system of support is geared towards specialist care and responding to crisis, with “limited” action around early intervention and prevention.
It found demand for specialist services has risen by 22 percent since 2013/14, while children and young people are waiting longer to begin treatment. Just over a quarter of those who started treatment in 2017/18 waited over 18 weeks - the Scottish Government’s referral to treatment waiting time target for child and adolescent mental health services (CAMHS).
Meanwhile, average waiting times for a first treatment appointment increased from seven to 11 weeks between 2013/14 and 2017/18.
The report also noted that while children and young people are waiting, they may receive “little or no support or advice”.
The number of rejected referrals has also risen, up 24 percent since 2013/14.
“It is difficult for children and young people, their parents and carers, and professionals to understand how the referrals process works,” the report stated.
It found children can “drop out” of the system during the process.
“For example, if their referral is rejected, or if it is accepted but they do not opt in to services, there is no routine monitoring of what then happens to them.”
Services to prevent and intervene early in mental health problems, such as school counselling, are patchy across Scotland, the report found.
Auditors also found it was not possible to identify total spending on CAMHS, and assess the effectiveness of services.
Caroline Gardner, the Auditor General, said: “The mental health system is complex and fragmented, making it difficult for children, young people and their families to get the support they need.
“Improving mental health and wellbeing is a public health priority for the Scottish Government.
“For this to happen, a step change is required in the way services respond to the needs of children and young people.”
Ministers have been under pressure to address issues around access to services and rejected referrals in recent months.
Data published earlier this month showed waiting times were the worst on record between April and June.
Meanwhile, a government-appointed taskforce this week made a series of recommendations including immediate action to address issues with rejected referrals, a stronger focus on prevention and early intervention, and better data quality.
Additional funding will help provide counsellors in every secondary school, 250 more school nurses and training for teachers among other measures.
Mental Health Minister Clare Haughey welcomed the report, adding “too many children and adolescents are being let down”.
She added: “I have been clear that this is unacceptable and that we must look at making the changes necessary to ensure young people get the care they need and deserve.”