A right royal whitewash? Catalogue of impropriety concludes no one behaved improperly

The vellum envelope was delivered by hand to Prince Charles on a spring day two years ago. Inside was the letter that was the centrepiece of a plot from within St James's Palace to avert the one event it feared above all – the prosecution of Paul Burrell.

The five-line message was addressed to Prince William. At first glance, it was a straightforward plea from Mr Burrell to the Prince, who had once played with Mr Burrell's children, that he was not a thief.

In reality, it was was the product of machinations by Prince Charles's press secretary at the time and a Fleet Street reporter designed to smooth over the Burrell affair before it became the biggest embarrassment to the House of Windsor for a generation.

Yesterday St James's Palace published the 104-page Peat report – its four-month project to resolve the issues raised by the collapse of the trial of two royal butlers with a "thorough and independent" investigation co-ordinated by Prince Charles's most senior aide, Sir Michael Peat.

The inquiry set out to answer four questions that cast a cloud over the Royal Household, and it duly found "serious failings" in its procedures. But, despite protestations that it "emphatically was not a whitewash", more questions than answers remain about the range of issues it had sought to resolve – from the trade in royal gifts and the dismissal of an allegation of male rape to the precise nature of royal involvement in the collapse of the Burrell trial.

The former butler to Diana, Princess of Wales, had written to Prince William on 19 April 2001, about three months after police found a treasure trove of royal belongings at his home in Cheshire. Mr Burrell wrote: "There is so much to explain. Items that have been taken from me, many of which were given to me for safekeeping, should be returned to you.

"I know that you realise that I would never betray the trust your mother placed in me and that I remain the person you have always known."

The significance of the letter lay in the fact that it was delivered to Prince Charles via Mark Bolland, the PR guru credited with restoring the Prince's image after the death of Diana and making his relationship with Camilla Parker Bowles publicly acceptable.

The letter was the product of a triangle of convenience between Mr Bolland, Mr Burrell and an unnamed journalist described in the Peat report as being "close" to Mr Burrell, a former footman to the Queen. The journalist was Richard Kay, a Daily Mail reporter credited with having the best royal contacts in Fleet Street.

Sources said the letter was the result of an effort to match Mr Burrell's efforts to defend his actions personally to Charles and William with the Prince of Wales's desire to nip the Burrell scandal in the bud. "There were people outside St James's Palace who could see this was always going to be a fiasco. This letter was an attempt to head them off at the pass on the Prince's say so."

The Peat report carries a statement from Fiona Shackleton, Prince Charles's divorce lawyer, who initially advised on the Burrell inquiry, that Mr Bolland was responsible for eliciting the letter to William.

In a note written on 30 April 2001, Ms Shackleton said the press adviser had told her that Charles "does not want it going any further", in a reference to the cases against Mr Burrell and Harold Brown, another royal butler. She added: "MBo [Mark Bolland] got that letter written ... It was hand-delivered to St James's and we knew it was coming, someone told Prince Charles that it was coming."

When, some 18 months later, the trial of Mr Burrell on theft charges collapsed at the Old Bailey after the intervention of the Queen, there was silence from St James's Palace and Buckingham Palace about whether the Royal Family believed the butler's defence that he had acted to guard the memory of the Princess. But it emerged yesterday that, far from being suspicious of Mr Burrell in April 2001, Charles and William would have actively welcomed the chance to accept his assurances.

The Peat report, co-written by the Edmund Lawson QC, said: "The opportunity was presented by Mr Burrell's letter for it to be said on behalf of the Prince of Wales and/or Prince William that they believed in Mr Burrell's good faith.

"If that had been said by either or both, the Crown Prosecution Service would have been in difficulty in pursuing a prosecution. But the opportunity was not taken, although it was made clear that the Prince of Wales would prefer it if the prosecution did not go ahead."

St James's Palace eventually decided not to pursue a deal with Mr Burrell after senior detectives wrongly told the princes in August 2001 that they had evidence of the butler selling stolen items abroad.

But the report failed to answer the question of why Mr Bolland's efforts to engineer a compromise with Mr Burrell were ignored. The episode was one of several glossed over by the inquiry – including why police did not interview the Queen about her trial-stopping recollection of being told by Mr Burrell that he was keeping some of the Princess's possessions.

Instead, readers of the report are given a glimpse of the patronage and power accorded to some senior servants inside St James's Palace as evidence of "deficient administrative procedures".

The allegation of male rape by George Smith against another member of staff at St James's Palace was found to have been "treated dismissively" by staff anxious about the publicity that such a claim would generate. But Sir Michael, perhaps disingenuously, found the "genuine belief" of those dealing with the allegations that they were untrue meant there was no suggestion of a cover-up.

Among the few people singled out individually for infringing palace rules were Michael Fawcett, the Prince of Wales's closest aide, who was found to have accepted a £3,000 membership to an exclusive London club from a supplier to the Royal Household that also included a £1,000 entertainment allowance.

His annual perks for last year also included a Tiffany watch, a Cartier alarm clock and a Pasha pen. But the inquiry found that because the rules about receiving such perks were not observed, "opprobrium cannot attach" to Mr Fawcett's actions.

Meanwhile, some 1,200 miles away, Prince Charles was ushering in a new era of tight regulation of royal gifts. At the beginning of a trip to Bulgaria, it was announced that the Prince would receive a painting and a jar of honey.

A St James's Palace spokesman said the items would be "very carefully logged indeed".

Unsolved mysteries

The "rape cover-up"

What the report said: Staff did not believe George Smith's claim.Sir Michael found the claim should have been fully investigated.

Unanswered questions: Why was there no independent inquiry?Should more attention have been paid to Mr Smith's concern that the position held by his alleged attacker would lead to him being sacked?

The trade in royal gifts

What the report said: The lack of a clear definition of an "official" gift and failure to keep adequate records meant that 19 presents given between 1991 and 2001 have disappeared, but only one has been sold. Gifts, including a rug worth thousands of pounds, have been destroyed or damaged. No gifts will be given away in the future.

Unanswered question: Why are royal presents, such as polo prizes, being offered by memorabilia dealers or in internet auctions?

Improper payments to staff

What the report said: No evidence of staff illegally selling or receiving commissions from suppliers or holders of royal warrants. But rules banning inducements have been ignored, with the knowledge of senior staff.

Unanswered questions: What measures are in place to ensure that any corrupt attempt to gain supply contracts is detected? Should there be a review of pay to end claims that gifts form a vital part of servants' incomes?

The Burrell trial

What the report said: Prince Charles had concerns and "several opportunities" to stop the investigation. But it insists none of those opportunities was taken and the intervention of the Queen to stop the trial was properly handled.

The questions that still remain: If the Prince believed in Mr Burrell's innocence, why did he not reach an agreement with him before the trial? Why were the police not askedto interview the Queen? What is the Prince's opinion of the police investigation?

Michael Fawcett's non-resignation resignation

What St James's Palace said: Mr Fawcett is leaving St James's Palace after 20 years to set up his own company. He will be offered "short-term" help through a contract with the palace for events management from next month.

Unanswered questions: If Mr Fawcett was exonerated by the inquiry, why did he resign? Why has he been offered work without any tender process and financial help in seeking a new home?