The Security and Intelligence Service failed to follow basic procedures when it granted a security clearance to Stephen Wilce, the former director of defence technology, Prime Minister John Key said today.

In October last year, a military court found Mr Wilce had embellished claims about his former military work, academic qualifications and life experience, although he did not lie in his CV.

Mr Wilce resigned in September when inquiries into his background began.

Considerable changes have been made to the vetting system in the last two years, but Mr Key - who admitted the lapse was "a little embarrassing" - said he could not guarantee the Wilce case was the last.

"The probability is it's reasonably low, not many people invent the sort of things Wilce did," said Mr Key, who earlier released the State Services Commission's report into the granting of a security clearance to Mr Wilce.

"But the system needs to change - it has improved, some changes have been made but not enough to my satisfaction or the state services commissioner."

The system had not been "fit for purpose", but the intelligence service had also made basic mistakes.

"They just didn't follow up, they should have made phone calls and asked more questions."

Mr Key had asked State Services Commissioner Ian Rennie to reconsider the recommendations of a previous investigation. Foreign Affairs Ministry secretary Neil Walter had probed into the SIS's vetting of Mr Wilce, in the light of the military court of inquiry's findings.

Mr Walter's report and that of the court addressed the same three lapses in the vetting process, Mr Rennie said:

* That the SIS did not check with its counterpart overseas agencies to see what they knew about Mr Wilce. This was contrary to standard practice in cases where the application for a securing clearance had worked overseas;

* That the SIS did not follow up on Mr Wilce's failure to disclose convictions once a police check revealed that he had convictions; and

* That the SIS did not record or follow up on information received on Mr Wilce after the announcement of his appointment.

Mr Rennie said the failure to check with overseas agencies was found when the SIS reviewed the file last year.

Mr Walter considered that Mr Wilce's failure to disclose his criminal convictions was serious enough to warrant further inquiries and while it may not have changed the outcome of the review, it was an unfortunate oversight on the part of SIS vetting staff.

Mr Rennie said this oversight precluded the SIS from properly following up and scrutinising Mr Wilce's credentials.

Also, the absence of any SIS record of information it received from a confidential witness about Mr Wilce's integrity and suitability for the job was significant, Mr Rennie said.

"It is evident to me that the NZSIS failed to follow basic procedures in the provision of a professional security service. While these failings may not have altered the outcome in the case, the Wilce case raises doubts about the quality of the overall vetting system at the time."

Mr Rennie said the SIS director Warren Tucker had assured him - and it was confirmed in both reports - that since the vetting of Mr Wilce in 2005 the service had strengthened the criteria and rigour it applied to high level security clearance vetting.

Independent assurance was required about the current vetting system, and Dr Tucker had arranged for an international reviewer to do this.

Dr Tucker was sampling 5 percent of the "Top Secret" vettings that were undertaken around the same time as Mr Wilce's so assurance could be given that the vetting failures were an exceptional event. A top secret vetting is higher than the other two grades of confidential and secret.

Mr Walter said in his report that apart from two procedural irregularities, he was satisfied the vetting process of Mr Wilce was conducted in compliance with the relevant provisions required at the time.