Two senior staff at the Education Ministry are being investigated over the advice they gave Cabinet Ministers prior to the 'go live' of Novopay.
Those two staff members are still working at the Ministry while the investigation continues.
A Ministerial Inquiry into the failed school payroll system has found key ministers were misled in an Education Ministry document they read prior to signing off on the go live.
The 113 page report that makes 15 recommendations finds ministers were not given quality advice about the project from the Ministry.
Finance Minister Bill English, Education Minister Hekia Parata and Associate Education Minister Craig Foss were issued a document by the Ministry on June 5 last year, inviting them to approve the go live decision.
The inquiry found the report misrepresented the situation in two key ways - it suggested that a go live decision was supported by three members of the Ministry's ICT Council, which was false, and it stated that confidence point two criteria had been met, when it had not.
The report found the project had not even met "a lower criterion'' and the project's readiness had been overestimated.
"Reporting to ministers was inconsistent and at times unduly optimistic, and sometimes misrepresented the situation.''
It also found there were weaknesses in project governance and leadership from the Ministry which led to a go live with many risks both the ministry and Talent2 were overconfident in managing.
These risks resulted in services issues, and the Ministry and Talent2 were unprepared and overwhelmed by their nature and scale.
The Novopay payroll system is $23.9 million over budget, costing $56.8m.
Minister Responsible for Novopay Steven Joyce said there was a lot of blame to go around.
"There are substantial lessons to be learnt by the Ministry of Education in a number of areas.''
The Acting Secretary for Education Peter Hughes said the Ministry did not have the capacity, skills, processes and governance for a project of this scale and complexity.
"There is not enough oversight from the leadership.''
He said schools and their staff had been badly let down.
The report shows the Ministry of Education failed to meet its obligations from the requirements to the go live stages.
The Ministerial Inquiry was carried out by former Department of the Prime Minister and Cabinet chief executive Sir Maarten Wevers and chair of Deloitte Murray Jack.
Mr Joyce said the Ministry had handled Novopay "badly'' and Government Ministers had already taken responsibility.
Mr Joyce said what the ministers were told was different from what the go live project board were saying.
The State Services Commissioner Iain Rennie said the findings of the inquiry "serve as a wakeup call to the State Services".
"Large technology-enabled projects, such as Novopay are complex and require a high level of attention and expertise. This is true for both the public and private sectors, given the opportunities, and the challenges, of rapidly developing information technology", Mr Rennie said.
"In this environment, there can never be a guarantee that nothing will go wrong but, as the Head of State Services, I have made it absolutely clear to public service chief executives that they are responsible and accountable for ensuring the effective delivery of technology-enabled projects.
Mr Rennie said he expected public sector chief executives to seek advice from professionals.
He also noted Cabinet had given the Government Chief Information Officer (GCIO) Colin McDonald the mandate "to provide assurance to Ministers and to offer support to agencies on these types of project".
He planned to " move urgently" to improve the capability of senior managers and project managers across the public sector to do a better job of implementing technology based projects.
Mr Rennie noted that the commission had a role in monitoring the delivery of high risk technology projects across the public sector. However in the case of Novopay, as noted in the inquiry it " got too close to the mechanics of the project, and in doing so lost the distance and independence needed for effective monitoring and assurance".
The commission had learnt a lot from Novopay and its major project monitoring function had been strengthened in response.