A review carried out during the organisation's short existence warns that the Department of Health would suffer 'significant embarrassment' if anyone probed the value for money provided by the NHSU.
It also said there was a lack of clarity about where the NHSU fitted into the 'crowded healthcare education and training sector'.
The report, written by former NHS Appointments Commission chair Sir William Wells, was produced before the announcement, in November 2004, that the NHSU would be scrapped as part of the government's review of NHS arms-length bodies, but the government did not publish the report.
As reported in last week's HSJ, health informatician Rod Ward lodged a request for the report in January 2005 - the first ever Freedom of Information request to the DoH - but it refused to hand it over until an Information Commissioner ruling last week.
According to the report, the NHSU was flawed from the outset. 'We have been struck by the absence of simple, clear descriptions of the NHSU's purpose and the parameters of its role,' it states.
The lack of clear boundaries with other training organisations caused 'confusion and friction', it says.
The NHSU's reputation among stakeholders was poor as it was 'delivering too little too late to establish credibility in the eyes of the NHS', Sir William wrote.
Course take-up was well below projected volumes, and efforts by the NHSU to achieve genuine university status were a 'distraction'. The status was pressed for by ministers but was unlikely to happen.
The report also reveals that NHSU had a budget of£28m in its first year, rising to£44m in its second year, and it was bidding for£73m the following year.
The report was finally given to Mr Ward last week, more than two years after his request. He was told by the DoH that it had not released the report earlier because 'it would prejudice any future reviews which might be conducted by the department into the economy, efficiency and effectiveness of sponsored bodies'.
Mr Ward said: 'Hopefully we can learn some lessons from this so we don't repeat the same mistakes. It is about having clear proposals when you are spending taxpayers' money and being more open with information that should be freely available.'
A Department of Health spokesman said: 'We have learned valuable lessons from NHSU and have implemented the main recommendations in Sir William Wells' report.'