The former head of the Immigration Service has been criticised over her involvement with her family's residency applications.
The State Services Commission investigation into Mary-Anne Thompson's conduct has found she consistently failed to manage conflicts of interest relating to family members from Kiribati.
It also concluded that her boss, James Buwalda, the Labour Department's chief executive at the time, was lenient and ineffectual in his handling of the matter.
Ms Thompson resigned from the Immigration Service in May this year.
The Auditor-General is also conducting an inquiry into Ms Thompson and the Immigration Service, while police have referred their investigation into her academic qualifications to Crown Law for a legal opinion.
Between 2004 and 2005, Ms Thompson on six occasions got involved in helping two nephews and a niece get either visa waivers, visa extensions a work permit and then residency.
In 2005, Ms Thompson's nephew and family were granted residency after filing late applications that she signed - a decision which the commission says was in breach of immigration policy.
In his report, State Services Commissioner Ian Rennie says Ms Thompson consistently breached the Department of Labour's requirements to disclose conflicts of interest, and her behaviour was "wholly inappropriate."
Mr Rennie says the investigation found that her family members were not seeking preferential treatment. However, they did receive personal benefits due to Ms Thompson's position. He said her behaviour also endangered the public's trust in state servants.
Ms Thompson admits it was unwise of her to get involved in residency applications for members of her family. She says she acknowledges that if she ever finds herself facing the same dilemma again she would approach the situation differently.
Prime Minister Helen Clark says the report shows the Labour Department did not deal with the matter effectively and the Immigration Service had a significant problem going on under its nose which it did nothing about.
However, Miss Clark says she is confident that the department's current chief executive, Christopher Blake, is dealing with the matter appropriately.
Mr Blake says the department had codes of conduct in place to deal with the issues raised, but they were not observed. He says the report found people at several levels were put in positions they were not suitable for.
The department is preparing advice for Immigration Minister Clayton Cosgrove as to whether Ms Thompson's relatives should be able to stay in New Zealand.
Failures at department
The report also singles out former departmental chief executive James Buwalda for ineffective handling of concerns about visa waivers, which would not normally have been granted.
It says the department failed to deal with serious concerns raised by staff about the situation. But it leaves the issue of any action against individual staff members in the hands of the current chief executive, Mr Blake.
Mr Bulwada says he regrets that he did not deal with the matter more effectively and formally. He says his trust in Ms Thompson and the assurances she provided to him were misplaced.
Fresh start needed, says National
The National Party says the report shows there is a desperate need for a fresh start at the Immigration Service, under a new administration.
Immigration spokesperson Lockwood Smith says the report raises questions about the culture within the department.
Dr Smith says Government ministers have not accepted the accountability they should have for the performance of the Immigration Service.
