A council apologised today and admitted paying £12,000 in compensation to two girls who were sexually abused by two children in care.
Torbay Council in Devon paid £6,000 to each abused girl after their parents complained and agreed to review its risk management policies and procedures.
The case emerged in the Local Government Ombudsman's annual report for the financial year 2009/10.
It revealed the council failed to adequately assess the risk posed by placing the children next door to the girls.
It also failed to offer appropriate support to the complainants and their daughters following the abuse.
Torbay Council chief executive Elizabeth Raikes said: "We completely accept the Ombudsman's decision to award these four local settlements and apologise for any distress caused to the complainants.
"Torbay Council has agreed to make the compensation payments and has learnt from these experiences.
"Children's services has already taken numerous steps to address the issues. These include reviewing our risk management policies and procedures."
She added: "The percentage of complaints investigated by the Local Government Ombudsman which resulted in a local settlement is also much lower in Torbay than the country's average - the figure is 15% for Torbay Council, compared with 26.9% countrywide.
"However, there is still hard work to be done to achieve our goal of being a first-class customer-led authority."
In 2009/10, the ombudsman investigated 43 complaints against Torbay Council, which paid a total of £18,500 in compensation.
In another case, the council paid £6,000 after wrongly supporting court proceedings brought by natural grandparents trying to re-establish contact with their grandson, who had been adopted.
The council apologised for the distress and anxiety it caused in failing to take the wishes and interests of the boy and his adopted family into account.