Some of the council's procedures were criticised, however, although the ombudsman describes these reservations as "minor".
But Clive Murray, a management consultant, who has been pursuing the council for three years on behalf of Lynne Donaldson, a Forres businesswoman, accused the ombudsman of being "mealy-mouthed".
Mrs Donaldson claims the Scottish Further Education Funding Council defamed her in a report in 2001 into the running of Moray College. This said that she failed to declare an interest during a board discussion on the supply of staff to the college.
Mrs Donaldson has made repeated, but unsuccessful, attempts to persuade the council to withdraw what she believes is the insinuation that she misused her position as a board member to favour her business. The council said she had the right to appeal to the ombudsman, but she refused on the grounds that she was entitled to compensation which the ombudsman is unable to provide.
The council then decided to "break new ground", in the words of Esther Roberton, its chairperson, and refer the case to the ombudsman itself.
George Hunter, the complaints investigator, concluded that the council's internal investigation "was carried out correctly, with the report's conclusions being in line with the evidence presented".
Mr Hunter continued: "The SFEFC appear to have undertaken a full and frank enquiry into the relevant issues. I believe the enquiry has been carried out professionally and in line with SFEFC procedures.
"Based on the information provided, the ombudsman does not see any need to pursue this matter to formal investigation."
But Mr Hunter did take the council to task over "minor" errors in its handling of the case, which have become major bones of contention for Mrs Donaldson. He said that:
* "It would have been better" if Mrs Donaldson had been interviewed prior to the publication of the council's original report.
* "It would have been better" if the official who investigated Mrs Donaldson's complaint had not been the same person who helped compile the first report.
* "It may have been helpful" if the council had included a correction in the main text of an amended report instead of as a footnote, following its original report.
Mr Hunter stressed, however, that as far as he was concerned none of these criticisms affected the "substantive issues in question".
Mr Murray says "mealy-mouthed" references that "it would have been better if . . ." do not square with the rules of natural justice.
He has now complained that Mrs Donaldson was not told the funding council was referring the case to the ombudsman and she was not interviewed. The council was also allowed to see a draft of the ombudsman's findings, a privilege not granted to Mrs Donaldson.
"As far as they are concerned, there is no guilt, no shame and it's a case of might is right," he said.
Mr Murray called on Ms Roberton to resign as chair of the funding council during the council's open meeting in Dundee two weeks ago. But Ms Roberton declined, commenting: "The conscience of myself and the council is clear.
We have conducted the case fairly, we have offered you the option of taking the case to the ombudsman and you chose not to do so and, as far as we are concerned, the matter is closed."
One criticism in the ombudsman's report which the funding council is likely to take seriously is that it does not have a procedure for dealing with "persistent and vexatious complaints".