In an unexpected statement, they say: "A range of evidence suggested that overall funding levels were not sufficient to sustain the levels of provision to which the council had committed its education and lifelong learning services, despite the financial mismanagement which clouded the issue."
They continue: "As a matter of priority, it still needs to clarify the levels of provision which can be made within available funds."
David Parker, depute council leader, replied that the authority's education budget had risen this year by pound;4 million and would continue to be a top priority. Councillors are themselves condemned in the recent past for being "too passive" and failing to question officials.
The inspectors slam the quality of strategic management and leadership over the past three years, with fewer than one in three headteachers believing that senior managers had communicated a clear overall vision for the service.
The HMI describe John Christie, the former education director, as a "good educational thinker" who had been a "motive force" behind the drive to improve education in the absence of a political direction.
"However, there were major weaknesses in that key aspects were not well managed and some were not given sufficient priority. There were difficulties with communication, and teamwork at various levels was not well established," they report.
Turning to other senior managers, they say that while headteachers felt the directorate was committed to the promotion of quality, there were major weaknesses. "They were overly involved with schools at an operational level. They did not engage sufficiently rigorously in the improvement of quality or lead effectively some key aspects of provision for which they had strategic responsibility."
The crisis in the department deteriorated when Mr Christie was on sick leave or working part-time, mostly between May 2001 and February 2002. Educational improvement was virtually passed to the advisers as the remaining senior staff were wrapped up in audits and investigations. The authority's own internal inquiry added to the stress, the HMI says.
On a more positive note, the inspectors comment favourably on the new administration, the new chief executive and changes to the education directorate.
The council now has eight weeks to reveal its action plan to deal with the strong recommendations.