The 1,650 page report, which took six years to compile, criticises the accountants Spicer & Oppenheim, now part of Touche Ross, who were also criticised.
But the report, commissioned by the Department of Trade and Industry, also says: "The DTI did not demonstrate in relation to Barlow Clowes the characteristics of a competent regulatory authority."
The two DTI inspectors added that they were "slightly surprised" by some of the Bank of England's actions in the saga.
The report charts the way the Manchester businessman Peter Clowes used money siphoned off from some 18,500 investors to invest in a variety of secret company deals and for his own grand lifestyle.
Investors were attracted by high rates of interest in Barlow Clowes funds, which were supposed to be invested in ultra-safe government bonds.
But when the company went bust in 1988 the liquidators found that, in the words of Cork Gully's Michael Jordan, "there were no gilts".
Clowes was jailed for 10 years in 1991 for his part in the collapse of his Barlow Clowes group, which lost more than pounds 100m, made up mostly of small savers' money.
The Government reluctantly agreed in December 1989 to pay compensation of pounds 153m, including interest, to those who lost out in the crash.
The then Trade and Industry Secretary, Nicholas Ridley, did not accept a finding by the ombudsman that his department had been guilty of five acts of maladministration in regulating Barlow Clowes.
The solicitor Lawrence Ziman and the accountant Walter Hoffman were appointed by the DTI in 1988 to investigate Barlow Clowes Gilt Managers (BCGM) and the associated stock market company, James Ferguson Holdings.
They acknowledge in the three-volume report that people would be surprised it took so long to write. This was because of a number of factors: the need to unravel a large number of complex transactions over a number of years in the mid-1980s; the overlapping criminal and regulatory investigations; and the sifting of tens of thousands of documents
The report is however, the only truly comprehensive review of the whole fraud, they say.
The basic finding of their investigation is that the affairs of both Ferguson and Barlow Clowes Gilt Managers "were conducted in a comprehensively dishonest manner over a period of years up to 1988".
"Our task has not been confined to analysis of a few or even a large number of specific irregularities; rather we have found it necessary to investigate and unravel virtually the entire business dealings in Ferguson from May 1985 and the Barlow Clowes businesses for rather longer than that".
However, the report concludes: "Essentially this was a 'simple' case of fraud, the misapplication - amounting to theft - of client monies".
Investors' claims amounted to pounds 191m and the inspectors detected misapplication of some pounds 100m, much of which is likely to be "irrecoverable".
"Funds went into poor investments, high lifestyles (yachts, houses, private jets and so on) and artificial support to Ferguson (both by inflating Ferguson's income and by purchasing Ferguson shares)."
The inspectors said auditors, solicitors, merchant bankers and other advisers were deliberately misled by Clowes and his colleagues, who included the Ferguson directors Guy Cramer, Peter Naylor, Christopher Newman and others.
But the firm's professional advisers were not "without fault".
The inspectors made a number of recommendation, but investor protection law has been tightened up since 1988 so that they did not feel there was still a need to make further changes.
There were a number of turning points at which the fraud could have been stopped under laws then existing. These included the granting of an investment licence by the DTI under the Prevention of Fraud Act in 1985, and the failure to require an audit of the overseas funds, which would have revealed the funds were not being invested in gilts.
The reverse takeover by Barlow Clowes of Ferguson presented a missed opportunity to say that the newly enlarged Ferguson was not "suitable for listing" on the Stock Exchange.
The inspectors said two further missed opportunites for whistle-blowers were the audit of the Ferguson accounts for the year to 31 March 1987 by Touche Ross and the decision by the DTI to renew BCGM's licence under the Prevention of Fraud Act in October 1987.
The inspectors said there were a number of ways to prevent another Barlow Clowes scandal.
Firstly, they said, there were serious limitations to the Prevention of Fraud Act for protecting private investors, now superseded by the Financial Services Act. "Even under the new regime . . . it would seem possible for (financial) intermediaries to promote products which they do not truly understand and the scope for fraud remains."
The inspectors stressed the need for regulators to enforce the new rules in a strict and effective manner. "There must be no room for 'giving the benefit of the doubt' to a regulated entity which fails to comply fully with the requirements which have been imposed on it."
They also said that regulation of financial services relied heavily on periodic reports by companies to the authorities that they have the assets they claim.
"The confirmation that these returns are correct and that the assets exist is the primary responsibility of auditors and it is vital that reliance can be placed by the regulators on this work being carried out effectively."
The inspectors said they suggested a vetting procedure for investment products sold by intermediaries, but this got the thumbs down from the regulators they spoke to. Instead, they suggested that customers' money should be paid directly to a custodian, rather than an intermediary, and the custodian's duty would be to make sure the funds were invested properly.
The inspectors called for interim audit statements to be issued with companies' normal half-yearly results. They said if Touche Ross had been required to review the half-year figures for Ferguson to 30 September 1987 "it is possible such a review would have brought to light some of the deficiencies months sooner".
They also recommended the Stock Exchange clear up apparent confusion over the responsibilities of a company's sponsors in a relisting following a reverse takeover, and whether this should be treated just like an inital listing.
Any professional advisers coming across businesses in offshore tax havens that have "no immediately apparent commercial justification" should bear in mind this may be to conceal matters from the UK, and should reflect this in their work, the report said.
Main points of the report
o"The basic finding of our report is that the affairs of both Ferguson and Barlow Clowes Gilt Managers were conducted in a comprehensively dishonest manner over a period of years up to 1988."
o"The DTI did not demonstrate in relation to Barlow Clowes the characteristics of a competent regulatory authority."
oThe report took six years to produce and is almost 1650 pages long in three volumes.
oAuditors Spicers (now part of Touche Ross) fell short of professional standards - if they had not the main frauds might have been discovered.
oTouche Ross's Leeds office was "at fault" in not applying common sense and professional competence.
oMerchant bank Singer & Friedlander "did not take sufficient steps to ensure they they fully understood" several Barlow Clowes deals.
oInspector "slightly surprised" by some of the Bank of England's monitoring operations.
o"The volume of improper transactions was so great that this report is inevitably much longer than we would have wished."Reuse content