Written by Sir John Caines, former Permanent Secretary at the Department for Education, the Further Education Funding Council report accuses the governors at St Philip's VI Form College of "seriously defective management" and of lacking "understanding, compassion and efficiency".
It is understood the FEFC will go on to recommend removing the entire governing body.
St Philip's has been at the centre of dispute since 1987 when the owners of the site, and trustees, the Oratory Fathers, first announced that the number of Catholic students was too low for it to continue. The discontent heightened when in 1992 the Fathers appointed a governing body with a new management style, apparently determined to close St Philip's or give it away - moves bitterly opposed by the staff.
There was also alleged financial impropriety, which led to questions being asked in the Commons.
The FEFC began investigating after a complaint from the Secondary Heads' Association about the principal's suspension.
The Oratory Fathers want to close St Philip's in 1996.
Although the teaching staff is criticised for disloyal behaviour, Sir John Caines lays most blame at the door of the governing body which, he says, treated employees autocratically.
"As one witness put it to me, 'It is hard to understand how priests with a high reputation for pastoral care in their parish could have behaved in the way they did to the staff in the college under their care.' "As governors themselves had effectively become the executive, I must find the governors directly responsible for any mismanagement during the period," he said.
Sir John recommends removing Father Guy Nicholls and Father Gregory Winterton, chair and deputy chair, from the governing body, and involving the FEFC in appointing a new Foundation of Governors. He points to a conflict of interest between the Fathers' role as trustees, and their role as governors, and says that no more than one Oratorian should be on the board.
The report does not dispute the Oratory Fathers' right to close the college, but it does criticise the way that the decision was taken.
Staff pointed to Vatican II, the major 1960s policy shift which introduced a more welcoming attitude towards other faiths, to justify the continued existence of St Philip's - where the numbers had been rising.
The Oratory Fathers, however, said that a nominal Catholic population of only 35 per cent was insufficient to allow a Catholic ethos. The proportion of Muslims was almost as great.
Speaking before the contents of the report were known, Father Gregory Winterton said: "As far as we're concerned the whole question of Catholic education is at stake in the present issue. It all came to a head in the past few years when the college had gone completely multi-faith."