A LENGTHY investigation has cleared Bristol City Council and Bishop Road Primary School, right, of any "financial impropriety" over a £63,000 payment to the school for taking an extra class.
But the council has been criticised for "lack of transparency" and urged to learn lessons from the way it handled the situation with the school in 2009.
It has also been advised to review the guidance, support and training given to school governing bodies.
A report to the council's audit committee next week sets out the issues over payment of an "honorarium" to the school for senior staff who had the responsibility of maintaining educational standards while expanding the school.
The inquiry by chief internal auditor Richard Powell was ordered by the committee last February after members felt that a report from strategic director for children, young people and skills Annie Hudson had not fully addressed the high level of interest from a section of the school community.
That report conceded that a letter from the council to the school during negotiations should not have described the payment as an honorarium, as this was not permitted.
The school received £63,000 over two years in addition to £39,122 to fund the extra children and £150,000 to alter the school property and play areas.
Mr Powell's report finds Bishop Road's head teacher Gillian Powe and senior members of staff had their pay increased after the school expanded but "did not personally receive an 'honorarium' in relation to the additional duties and responsibilities".
"There was no financial impropriety by the council or the school. Internal audit found no evidence of fraud, dishonesty or improper financial benefit," the report says.
Mr Powell notes the council took no steps to rectify the inappropriateness of its original honorarium offer..
"There was also a lack of transparency in the decision-making process. Best practice requires transparency and the full disclosure of relevant information and this was not followed," the report says.
Council spokeswoman Katharine de Lisle said: "The council has revised its policy on the support for schools taking additional classes.
"The council is also planning to review the guidance, support and training to school governing bodies."