Boston’s Inspectional Services Department mistreated an employee, mismanaged contracts and spent more than $400,000 of Boston taxpayers’ money to settle a wrongful termination lawsuit that they might have lost in court, according to a report released Wednesday.

The report offered several critical findings and recommendations for the department – which oversees inspections and safety in all of the city’s residential and commercial buildings – based on an investigation carried out over the course of several months by the Boston Finance Commission. It also held ISD Commissioner Kevin Joyce responsible for much of the personnel and contract problems.

In response to the report’s findings, Mayor Thomas Menino announced he would form a committee to assist the ISD with department management and training.

But it remained unclear whether Joyce, a friend of the mayor who was described in the report as acting occasionally “in a manner that is inappropriate for any department head,” will keep his job.

“The report does raise some issues about personnel matters and those will be looked into,” said Menino spokesman Seth Gittell. But Gittell also said Joyce, in carrying out his duties as commissioner, “has done a great job in the neighborhoods of our city.”

The commission was charged with examining the ISD’s administrative practices after the city settled a wrongful termination lawsuit last fall filed by a former ISD employee for $240,000. Among other things, the report speculated that the city would not have settled that case “without determining that the city faced the prospect of losing the case in court and paying an even larger sum of money.”

Julie Fothergill, who had worked in the ISD since 1997, sued the city in 2001, claiming that Joyce and the ISD fired her because she refused a request by Joyce to rig a contracting bid. Between the settlement sum and lawyers’ fees, the report estimates “the cost in this case was a waste of over $400,000.”

In investigating the circumstances of the settlement, the commission found that in addition to poorly managing Fothergill’s case, ISD employees also ignored competitive contract-bidding rules and regulations in favor of granting contracts to several people who had previously worked for the city.

One of the reasons for the mistakes is that city employees are poorly trained in contracting procedures, said Matt Cahill, a managing analyst for the Boston Finance Commission who worked on the investigation. Despite the fact that standardized training has been recommended before, the department has failed to act on that advice, Cahill said.

“There is no centralized location for training,” he said. “There is no standard practice.”

City Councilor-At-Large Maura Hennigan, who originally called for the investigation in October, said the report illustrated more “systemic problems” within the ISD.

“This kind of abuse could be occurring on a regular basis,” she said, adding that while it might not be intentional, “ignorance is no excuse.”

Though she praised Menino for taking the commission’s advice regarding training, she said he needs to go a step further and make sure there are repercussions for Joyce.

“He does need to ask him to leave,” she said. “You can’t let friendship interfere.”

The commission’s report, though critical of Joyce, did not go so far as to call for his resignation or removal.

“We’re a watchdog agency, but we don’t make decisions on firing or hiring,” Cahill said. However, he did acknowledge that while some contracting errors could be blamed on employees who did not know procedures, “as far as Kevin Joyce went, it was certainly not a lack of knowledge.”

Until Wednesday, this “very visual department in the city” was essentially “left on their own” to do everything from condemn residences to approve building permits, Cahill said. Now, he said the department has more incentive to comply with rules and regulations.

One local group said the report highlighted just one case in a long list of Joyce’s offenses. The findings are merely “an example of Kevin Joyce’s high-handedness,” said Lenore Schloming, president of the Cambridge-based Small Property Owners Association.