Auditors have identified a catalogue of serious management failings behind a botched £14m computerisation project at Scottish Enterprise.

As revealed in The Herald two months ago, the scheme to standardise handling customer information across the entire network, including its computer and telephone system, was approved in 2003 and only completed last year. Now it is being replaced.

The agency initially admitted the extent of the problem after an information request from the SNP's Alex Neil, and for the past two months auditors KPMG have been looking at the whole project.

The key problem was that after it was decided to use a system supplied by PeopleSoft the company was taken over by Oracle Corporation, undermining the system. However, KPMG also found management and procurement failings from the outset.

Staff were informed of the damning findings of the auditors yesterday, but chief executive Jack Perry has assured them criticisms have been fully accepted and changes implemented to avoid any repetition of the errors.

Scottish Enterprise (SE) insists the principle of creating a single computer system remains sound, although the anticipated savings were overestimated. They have been forced to reduce their estimate of the annual financial benefits from £6m to £1.5m, making staff cuts to compensate for this and achieve their efficiency target of £16m last year.

Mr Perry said in a memo to staff yesterday: "The vast majority of the identified shortcomings are historical and would not now happen, particularly given changes we have made to our procurement and project management processes.

"Nonetheless, I am keen to share the report with you. As an organisation committed to continuous improvement, it is important that we share the lessons about potential pitfalls in delivering complex projects as well as best practice."

KPMG found the "customer relationship management" project, replacing up to 50 systems with a single unified system, was launched without a proper business assessment.

There was no initial approval from SE's own technology department and they did not appoint an outside partner company to share the risk, which it is now accepted was "ill advised".

There was then a failure to track progress of the project and the proposed timescale imposed was unrealistic. Contracts worth £8m were awarded without competition and no evidence was retained for market testing - against legal advice.

Lack of competitive tendering left SE unable to demonstrate it got value for money, and the failure to appoint an outside partner left SE paying contractors on high day-rates. The auditors said in future there must be better scrutiny.

A spokesman for Scottish Enterprise said: "Establishing a single CRM system across local, national and international offices for Scottish Enterprise was an ambitious and complex programme of work. Although it has helped us deliver better, more consistent services to Scottish businesses across the country, there are a number of lessons to be learned in how the system was implemented.

"We set out a series of improvements made in recent years in our response to KPMG's recommendations that should help assure people the vast majority of these issues are historical and could not now happen."

The KPMG findings have already gone to the Scottish Executive, where a spokesman said the report highlighted serious flaws in the procurement and project management processes associated with that project dating back to 2003.

He said: "The Scottish government welcomes the fact that Scottish Enterprise commissioned the report and have largely addressed the historical issues raised. We expect Scottish Enterprise to be committed to the continuous improvement of the services it delivers to its customers."