The Australian federal agency in charge of ordering the detention of hundreds of New Zealanders is staffed by people that lack the knowledge and skills to follow the law, a scathing independent review has found.

The report looked into the Department of Immigration and Border Protection (DIBP), and was ordered by the Australian Government after two Australian citizens were illegally detained last year.

Following a law change three years ago, anyone who is not an Australian citizen and who had served more than a year in prison can have their visas cancelled and be deported.

The policy has resulted in hundreds of New Zealanders being held in immigration detention centres, awaiting deportation or the outcome of an appeal.

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The policy has been a talking point between the Australian and New Zealand governments, and it has been criticised because people are detained before they can appeal the visa cancellation, and are often held in detention centres for long periods.

The review into the two cases of unlawfully detained Australian citizens found that DIBP staff "do not consistently demonstrate the requisite knowledge, understanding and skills to fairly and lawfully exercise the power to detain".

One of them, who was also a New Zealand citizen, was detained for 97 days despite repeatedly telling officers that he was a citizen of Australia, that he was born in Australia or that he had lived there his whole life.

"Current quality assurance processes and reporting are not effective. DIBP's executive cannot have any reasonable level of assurance that cancellation and detention decisions are compliant with the policy and legislative framework," the review said.

"In both cases the Australian citizens provided critical information to DIBP in the context of requests for revocation of the visa cancellations. This information was not considered by any DIBP officer, including those making detention decisions."

The findings, by former inspector general of intelligence and security Vivienne Thom, meant that the department's executive cannot be sure that the data it uses is the best data available when officers make cancellation and detention decisions.

"In these cases, some decisions were based on erroneous assumptions, did not consider all relevant information or seek to resolve complexities. Officers did not assume personal responsibility for decisions."

Given the systemic failings, Thom said it was possible that other Australian citizens could have been illegally detained in similar circumstances.

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The report makes a number of recommendations to the department, which has now been absorbed into the Department of Home Affairs.

The Australian Government has said it was making changes to prevent the mistakes from happening again.

The report was completed internally last year and released under freedom of information laws to The Guardian Australia.

It follows another report, from Commonwealth Ombudsman Colin Neave, from a year ago that found the system was struggling to cope with the volume of people in detention centres.

The majority of those being held for "unnecessarily prolonged" periods of time were New Zealanders, Neave said.