Hackney Council knew of four complaints of sexual abuse against Mark Trotter by the late Eighties but failed to suspend him because of his powerful position as a trade unionist.
But John Barratt, who carried out the independent inquiry into the Mark Trotter affair, said that the way the latter was dealt with amounted to "impropriety" rather than corruption. "I criticised the failure to suspend [Trotter], not because of ... influence by councillors but by the fact that he had quite an influential position in the trade union in a council where trade unions have a lot of power," Mr Barratt said.
Trotter, who had worked for Hackney Council since 1981, was about to be arrested over allegations of sexual abuse when he died of an Aids-related illness in 1995. Four complaints of sexual abuse of children in Hackney and Liverpool had been made against him over the years.
The independent inquiry was set up by the council in 1996 after serious concerns about the activities and management of Trotter, who worked for the authority from 1981 to 1993. Newspaper revelations about the scandal brought the authority under attack for its handling of the affair and allegations of a cover up.
It was claimed that Trotter, who was openly gay, had strong links with the then- ruling Labour group and stayed in his job despite being suspected of child abuse.
A separate investigation by the National Society for the Prevention of Cruelty to Children, also commissioned by Hackney Council, concluded last year that Trotter had abused at least six children and teenagers in his care.
Mr Barratt, a former director of Cambridgeshire social services, said that there was no evidence of a cover-up: "My conclusion is that inadequacies in dealing with the Trotter affair are best explained by reference to overall organisational incompetence rather than to corrupt political conspiracies."
But he was "highly critical" of the way Hackney conducted its internal inquiry and said that there was a "poor quality" workforce, "mismanagement" and "uncontrolled power exercised ... in the managerial chaos of the 1980s".
The atmosphere at Hackney, where defamatory rumour was used as a "standard political weapon" and was combined with organisational incompetence meant that it was not difficult for people to believe in favouritism and undue influence.
The report calls on the council to review its childcare policy, including improving record-keeping for children, which it describes as appalling. It also recommends a multi-agency approach to looking after those in care.
Mr Barratt called for national guidelines to help prevent child abuse rather than leaving it to individual police forces and social services. "The Government should be looking at the results of a number of inquiries. Is it right to be leaving it to some ad hoc inquiries? ... There is a possibility, almost more a probability, that widespread abuse did occur in residential care in the 1980s which may need looking at more thoroughly with common standards of co-operation rather than leaving it to individual police forces and individual social services."
John McCafferty, Labour group leader on Hackney Council, where no party has overall control, said: "I am pleased the independent report has concluded there was no cover up. Hackney Labour was wrongly accused. This accusation has been completely rebutted by this independent inquiry." But the Liberal Democrats said that while the report was good in places questions must be answered by the Labour Party about its handling of the affair.