An inexperienced staff, a lack of communication and inexplicable delays in commencing examinations prevented the Securities and Exchange Commission (SEC) from detecting the fraud committed by Bernard Madoff, according to a report by H David Kotz, the SEC's inspector general.

SEC examiners and enforcement staff were "confused about certain critical and fundamental aspects of Madoff's operations" and "caught Madoff in lies and misrepresentations", yet they failed to follow up inconsistencies and simply accepted his explanations as plausible, Kotz said in his report.

He said the regulator received "more than ample information in the form of detailed and substantive complaints" over the years to uncover the scheme, including one compliant from a "respected hedge fund manager".

The complaints prompted the SEC to open three examinations and two investigations into Madoff. However, Kotz said a "thorough and competent investigation or examination was never performed".

SEC chairman Mary Schapiro responded to the report by outlining the steps the regulator has taken to bolster its ability to detect investment and securities fraud since she was confirmed to the post earlier this year.

These include surprise exams, proposed rules regarding the appointment of third party custodians and administrators, the recruitment of specialised staff and the introduction of "risk-based examinations" of financial institutions.

Schapiro said the SEC had instituted specific measures to detect fraud. This includes more rigorous reviews of companies before the examiners enter the premises and a focus on more subtle signals such as the use of an unknown accountant. Examinations will also include increased checks on outside entities to verify that assets actually exist.

She said the SEC was also working with the financial industry regulatory authority (FINRA) to establish "a new system to enhance the oversight and professional requirements of personnel performing back-office functions at broker-dealer firms".

Under the new regime certain back-office personnel would be subject to licensing and education requirements as well as enhanced oversight.