Thursday’s report from the Special Inspector General for the Troubled Asset Relief Program, Neil Barofsky (right), assesses how Treasury chose fund managers for a high-profile effort to ease the credit crunch.

The program, known as the Legacy Securities Public Private Investment Partnership, or PPIP, eventually selected nine firms that raised some $30 billion from investors and the government to acquire troubled bubble-era securities. Eight of the nine firms, led by giants Invesco , BlackRock and AllianceBernstein , continue to manage and invest funds, largely in residential real estate-backed securities.

Barofsky, who was appointed by Congress to make sure TARP funds weren’t wasted or stolen, says the government’s plan for selecting asset managers was well conceived but could have been carried out better.

“While Treasury designed and adequately documented a reasonable selection process, the implementation of that process is vulnerable to criticism,” the report says.

It takes issue with how Treasury communicated the criteria it would consider in selecting participating asset managers and for failing to explain how it would actually weigh those factors.

The department’s shifting views on those matters caused “confusion and uncertainty” among possible applicants, Sigtarp said. When Treasury reconsidered its approach, it added a new requirement that the applicant demonstrate a capacity to manage at least $1 billion in assets — but didn’t tell anyone. The change had the effect of secretly slimming the pool of possible managers by 40%, Sigtarp said.

A recommendation that applicants have at least $10 billion of real estate securities under management “risked unnecessarily discouraging applications from smaller asset managers,” Sigtarp said. It probably ended up being “unnecessary” to boot, given the entire PPIP pool now is just three times that size.

The report also says Treasury failed to clarify its expectations for minority-owned firms brought on to act as partners to the big asset managers, with the result that just two such firms ended up playing a role in the asset management process. One firm ended up playing no apparent role in the program whatsoever, Sigtarp found.

Barofsky didn’t audit the operations of the PPIP but said he is doing so now, to make sure Treasury established controls to prevent conflicts of interest.

The so-called PPIP was launched with much fanfare last year at the height of the banking crisis. Treasury initially billed it as creating as much as $1 trillion in toxic asset purchasing power, and the plan was duly criticized as a giveaway to bankers.

But neither of those predictions came to pass, and PPIP now rates barely a footnote in any account of the various kitchen sinks the government threw at the financial crisis.

Coming up on a year after PPIP got up and running, the firms that raised private capital and got federal matching funds have invested barely half the money under their management. Meanwhile, the program’s ultimate goals — to restore the health of the financial sector and get loans flowing again — remain unmet. TARP expired this past Sunday after distributing some $400 billion to banks, financial firms, car makers and homeowners.

Though the report is hardly scathing, it won’t probably show up in the administration’s retelling of the financial crisis. Treasury told Barofsky in its official response that it objects to some of the findings without, oddly enough, specifying which ones.

“We strongly disagree with a number of your statements and your conclusions regarding certain details of the fund manager selection process that you believe not to be sufficient,” acting assistant secretary for financial stability Timothy Massad wrote in a letter to Barofsky this week. “We will continue to review it in detail and may respond more fully to your findings at a later date.”

There’s a word for that, but “transparency” probably isn’t it.