Paddy Ashdown on Tuesday was commenting on a report by Sarajevo daily Dnevni Avaz, which published a military personnel file showing Mladic was discharged from the army in 2002.
The wartime commander of the Bosnian Serb Army was indicted for war crimes in late 1995.
"The fact that as recently as two years ago, the VRS (Bosnian Serb Army) had an employer-employee relationship with Mr Mladic is scandalous," Ashdown said in a statement.
The document proved that the Serb Republic had for a full seven years cheated the international community by keeping Mladic on its books and perhaps even paying him while claiming not to know where he was, he added.
"This is proof of systematic institutional weaknesses that exist - in particular in the ministry of interior and ministry of defence," Ashdown said.
Ashdown has sweeping powers in Bosnia. He fired 60 Serb officials in June for not doing enough to arrest Bosnian Serb wartime leader Radovan Karadzic.
"This is proof of systematic institutional weaknesses that exist - in particular in the Ministry of Interior and Ministry of Defence"
Bosnia's International Peace Overseer
He has said he would not allow Republika Srpska, the Serb half of Bosnia, to continue blocking the country's integration into Nato and Europe through its lack of cooperation.
The UN war crimes tribunal in The Hague indicted Mladic and Karadzic over the Srebrenica massacre of about 8000 Muslim men and boys and the siege of Sarajevo. Both men are still at large.
The UN war crimes prosecutor alleges that Mladic is hiding in Serbia under the protection of sympathisers and that Karadzic is sheltering in Bosnia or Montenegro.
The Bosnian Serb authorities, who have repeatedly pledged to co-operate fully with the tribunal, are under international pressure to arrest war crimes fugitives or face sanctions.