Wasendorf, 64, confessed to creating fake bank statements with inflated balances and submitting them to the NFA for years. But in 2011, more than a year before the fraud was exposed, the NFA received an actual bank statement from U.S. Bank showing a balance of just $7 million—a $211 million discrepancy from the balance Wasendorf had reported. What happened next at NFA is in dispute. An NFA auditor claims to have alerted a field supervisor about the discrepancy, according to the report, but the supervisor claims she was not alerted.
Wasendorf, meanwhile, told investigators, "I am in shock—I'm caught," according to the report. But he did not need to worry. He simply claimed the real statement was a mistake, forged a "corrected" statement, sent it to the NFA, and the fraud continued for another year.
"We found no evidence that NFA auditors questioned the new version of the confirmation purportedly from (the bank)," the report said. "Instead, the NFA auditors accepted the new version, despite the vast difference between the numbers provided in the two versions of the confirmation, and did not extend their audit procedures."
(Read More: Wall Street Jailbirds.)
The report, which includes nearly two dozen recommendations for reforms, faults the NFA for inexperienced staffers who were easily intimidated by Wasendorf and his director of compliance, Susan O'Meara, who hasn't been accused of wrongdoing.
The report said NFA employees missed other warning signs, including the fact that PFG's audit firm was a one-person operation based in suburban Chicago. The NFA also failed to question some $60 million in capital contribution from Wasendorf himself, which the report said should have been a sign of potential shortfalls. And the report said the regulator did not pay enough attention to warnings signs elsewhere in the industry.
"We found that, while training at NFA was readily available and effective, particularly for the inexperienced auditors, there was not always consistency in training sessions after important events in the industry, such as the Bernard Madoff Ponzi scheme, or the MF Global collapse, where there were opportunities for significant lessons to be learned for NFA auditors," the report said.
(Read More: The Best Places to Go to Prison)
The report also notes that while both the NFA and CFTC monitored the firm, the agencies did not communicate with one another.
"There was little evidence of coordination between the CFTC and NFA with respect to their examination of PFG," the report said. "In two instances, NFA auditors were not aware of the results of CFTC reviews conducted immediately prior to or simultaneous with NFA audits."
In a statement, NFA said it planned to implement the report's recommendations, all of which were accepted by the association's board at a meeting Thursday afternoon.
Association President Dan Roth said the organization had already begun making improvements.
"For example, we have expanded our use of Certified Fraud Examiner training for our audit staff, increased our recruiting of experienced supervisors and directed our managerial staff to spend more time in the field during audits," Roth said.
"We are confident that the actions already taken by NFA and other regulators, along with the recommendations proposed by [Berkeley Research Group], will help us to create a stronger regulatory environment and a better industry," Roth said.
—By CNBC's Scott Cohn; Follow him on Twitter: @ScottCohnCNBC