A review into the award of a £38 million public housing contract by Dumfries and Galloway Housing Partnership (DGHP) to a local builder on the verge of collapse has concluded that the award was the "logical outcome" of the procurement process.

The conclusion, described as "farcical" by a local councillor, was reached despite the report's detailing of clear breaches of the housing association's own policy, and the consistently poor scoring of successful tenderer R&D on internal and external tests.

R&D Construction Ltd and its parent company R&D Holdings, both led by John Hume, entered administration in April 2011, leaving £7.9m in debts to more than 500 creditors.

The failure led to the collapse of several local and national suppliers, as well as the loss of hundreds of jobs, and widespread accusations of shoddy building practices on some of the 200 houses it did complete. One tenant, Jamie MacDonald, has recorded 10 separate "snags", some hazardous, he ascribes to corner-cutting by the builders.

While the conclusion of the review - conducted and paid for by Dumfries and Galloway Housing Partnership itself via its own auditor, Beever and Struthers - exonerates DGHP of "non-compliance with its own procurement process", it simultaneously details a long list of failures in DGHP's methodology.

These oversights allowed a company with nearly £30m of debt and only £2m in net assets to be awarded a multi-million-pound public project in the middle of a property crash, when overstretched landbank-based development companies similar to R&D were being foreclosed across Scotland.

The report - for which Beever & Struthers was paid £5400 by DGHP on top of an undisclosed annual audit fee - lays out what the accountants consider "as a minimum" the checks that should be undertaken on a company considered for a capital tender. These include "full assessment of all financial information publicly available … full assessment of draft/management accounts … a review of the parent/holding company, and confirmation from the company's funders [in this case Bank of Scotland] of continuing support into the foreseeable future". Only one out of four of these boxes was ticked by DGHP, a fact ­ommitted from the report's conclusion.

The review revealed that the housing association can produce no audit evidence of checks on R&D's accounts after 2006, the year before the housing crash, although the auditors accept the "advice" of DGHP finance director Hugh Carr that R&D's 2007 accounts were examined but "this was not formally documented". It added that "there is little else to indicate that [R&D's dependence on Bank of Scotland loans] had been considered in any detail" by DGHP.

It also emerges from the report that, despite the plunge in the landbank values on which R&D's survival depended, DGHP showed no interest in accessing the draft accounts that would accurately reflect the company's ability to complete the 500 houses it was to build in Stranraer and Dumfries. The report also excused DGHP from complying with tighter guidelines, as directors could not be expected to notice these guidelines had only recently changed: "We believe the omission is reasonable … given that the new policy was approved less than two weeks prior to the Tender Assessment Panel."

Also left unclear in the report is the reason that DGHP was prepared to overlook R&D's consistently mediocre scores in credit checks - commissioned by the social landlord itself - prior to the signing of the deal in August 2009.

The previous October, Checksure scored R&D Construction at 47/100, an "above average risk". Two months later, it rated R&D at 42/100. DGHP claims to have received "parent company guarantee" from R&D Holdings to offset the identified risk of failure, but produced no evidence of this and declined to explain what security it could have provided beyond a signed undertaking. DGHP carried out no further credit checks until a month after the contract was signed, when R&D's score had plummeted to 12/100 and "very high risk" - a clear portent of eventual collapse.

However, the directors failed to alert their partners, the Scottish Government and Dumfries and Galloway Council, or the company's subcontractors or its own tenants of the threat to the project - and in the case of suppliers, to their livelihoods. A source close to the housing association said the directors did not do so because they "believed this credit score to be a blip" and that they "didn't want to undermine R&D".

Out of the three companies competing for the project, R&D received the lowest scoring by a panel headed by James Shirazi, DGHP's director of investment and regeneration, which also included representatives from the council and the Scottish Government. R&D scored 66.4, against 76.38 and 80.66 by the other contenders.

Despite all of the flaws identified, Beever & Struthers concluded that "in our opinion, the choice of R&D Construction was the logical outcome from the procurement process undertaken".

Independent Stranraer councillor Willie Scobie told the Sunday Herald: "This is a bizarre report. DGHP has been charged by themselves to look into themselves. That is not my understanding of how the regulatory system is supposed to work. I would have preferred to have the regulator appoint a truly independent body to scrutinise those accounts and determine whether due diligence has been carried out, and if sanctions should follow.

"It cannot give anyone any confidence that this system is working, in this case of a disastrous contract with serious knock-on effects in terms of poor building standards which vulnerable people now have to put up with."

A spokesman for Dumfries and Galloway Council said: "The council were not aware of the poor credit rating of R&D prior to awarding the funding but would note that it was not within the council's remit to undertake this due diligence."

DGHP - whose chief executive Zoe Forster received a 13% salary increase to £123,000 last year - said: "DGHP's priority is always to protect the interests of our tenants and the taxpayer."