The reports author, Lady Justice Hallett said there was a lack of strategy and structure but not a breach of the law.
It's believed 200 Republicans were given the letters - which told them they weren't wanted by the police.
The inquiry was set up by the British Prime Minister after the collapse of the trial of Donegal man John Downey - who was suspected of involvement in the 1982 Hyde Park bombing in London.
Police in Northern Ireland mistakenly told Downey in 2007 that he was no longer being sought by Scotland Yard.
In her report today Justice Hallet painted a picture of an unprecedented, flawed system.
She said only those suspects against whom there was insufficient evidence to prosecute should have been given "letters of comfort," she said, but police and prosecutors made independent decisions in a system that seemed to have no framework.
John Downey, suspected of the Hyde Park bombing, should not have received a letter, she said. The error was the fault of the Police Service of Nothern Ireland, who spotted it in 2008 but did nothing to rectify it.
Justice Hallett confirmed there are two other cases where letters were sent out in error in a scheme which was kept quiet but not deliberately obscured.
It is unclear what now happens to those suspects who received letters of comfort but it is thought unlikely that they will be rescinded.