Under-achievement by ethnic-minority pupils is not being tackled because Welsh councils say they have only enough cash to help refugees and others with little or no English.
But many local education authorities do not have enough information about their pupils to address problems - and some heads do not even know how many ethnic-minority children are on their school roll, according to inspection agency Estyn.
The findings come as cutbacks in support staff are being made in some inner-city schools with high numbers of pupils with English as an additional language (EAL).
Rita Austin, chair of the All-Wales Ethnic Minority Association, said there was "no excuse" for not doing more to promote achievement. She also criticised LEAs' management of their resources and said the Welsh Assembly was "taking too long" to compile data on ethnic-minority achievement. "If Estyn wanted to know what achievement levels were like for ethnic-minority children at key stage 3 or at GCSE they wouldn't be able to tell because there is no data available, unlike in England.
"If LEAs don't know where the problems are, then they can't address them," she said.
The Assembly hopes to have a national pupil database, including information about ethnicity, available by next spring. Around 3 per cent of Welsh pupils are from minority backgrounds, mostly Asian or mixed-race.
Estyn reviewed how councils and schools spent ethnic-minority achievement grants (EMAG) worth pound;3.82 million in 2003-04. LEAs, it says, maintain there is not enough cash to tackle under-achievement by, for example, African-Caribbean children, in addition to providing EAL services. But Estyn is critical of how authorities manage the resources they do have. It found most councils were not considering the number of pupils and their English-speaking abilities when allocating support staff.
Children arriving at school faced "unduly variable" assessments of their abilities, and only a few authorities properly assessed EAL children suspected of having special educational needs. And while standards seen in classes were satisfactory overall, there was "not enough co-operation" between mainstream teachers of EAL pupils and support teachers - a criticism first made by Estyn four years ago.
In a "significant" number of schools, children were being consistently withdrawn from the same subject - often Welsh - for tutoring in English.
Some schools sent girls to home economics because teachers felt the language demands would be easier, rather than considering the pupil's ability or subject preference.
Except for those with large EAL populations, many schools paid too little attention to promoting racial awareness. Most had race equality policies, but these were largely models developed by LEAs with "little if no amendment to meet the particular circumstances of individual schools".
Many heads, however, were praised for their "high level of commitment" to ethnic-minority pupils and their "clear vision" in delivering EMAG services.
Estyn's findings come amid confusion for some LEAs over the Assembly's funding for asylum-seeker pupils. The Assembly says it has increased EMAG funding to pound;4.5m this year, while specific grants for asylum-seeker pupils are up from pound;2.1m to pound;2.3m.
Yet some inner-city schools in Cardiff are cutting EAL support, and the city council says its final funding has "still to be confirmed".
Mal Davies, head of Willows high in Cardiff, believes his school has lost out because the increased grant is being shared between more local education authorities.