The probation service has suspended four officers after a report found "collective failure" in the handling of two criminals who killed John Monckton.
Hanson killed the banker three months after his release from jail
The report, into how the pair came to kill the London banker in 2004, said probation staff had failed to reduce the risk the men posed to the public.
Damien Hanson was jailed for 36 years for the murder committed while he was on early release for attempted murder.
His accomplice Elliot White was on bail for drugs charges at the time.
White, 24, was jailed for 18 years for charges including manslaughter.
Hanson, 25, who was let out of jail half way through a 12-year sentence for attempted murder, was also convicted of attempting to murder Mr Monckton's wife Homeyra at the couple's home in Chelsea, London.
Following the report's publication, the Home Office said the chief probation officer in London had suspended four staff while a review into their conduct was carried out.
Hanson had been released on the lowest supervision level and was allowed to return to his old haunts despite a plan to resettle him elsewhere.
White was jailed for 18 years for manslaughter, wounding with intent and robbery - he had been out on bail on heroin and cocaine charges at the time of the attack.
The chief inspector of probation, Andrew Bridges, in his report into the supervision of the pair by London Probation Area, said there were "many serious deficiencies".
"While it is not possible to eliminate risk altogether when managing an offender in the community, the public is entitled to expect the authorities to do their job properly in managing serious and dangerous offenders - which simply did not happen in the cases of Hanson and White," he said on Tuesday.
Among the errors, Hanson was not considered to be a high risk to the public "despite being previously assessed as such".
He was also required to report to a probation office in an area of London that he had been excluded from, the report said, describing it as "an extraordinary situation".
London Probation Area also "failed repeatedly" to enforce the conditions of White's drug treatment and testing order.
Mr Bridges criticised staff for not taking greater initiative to improve the management of the pair, but said it did not reflect a wider problem within the probation service.
"Nevertheless, our report is clear that the mismanagement of these cases did fail to reduce the risk posed to the public by these two men."
He added: "While no-one can ever truly know whether Mr Monckton would still be alive today if Hanson and White had been managed properly, we owe it to his family and friends, other victims of crime and the public generally to ensure that lessons are learned from this dreadful chain of events."
He made five recommendations, including ensuring that offenders comply with treatment orders and staff try to minimise the risk they pose to the public.
There also needed to be better "clarity of responsibility" in managing offenders.
Home Secretary Charles Clarke said he took responsibility for the mismanagement of the offenders and passed on his "full regret and apologies" to the Monckton family.
Accepting the recommendations unequivocally, he said the failures were unacceptable. "Beyond that, I believe the report raises serious questions about the operation of our system of public protection in these areas."
While the Criminal Justice Act 2003 gave greater power for supervision, Mr Clarke said there was still a need to examine the supervision of people who were convicted before 2004.
The Chief Executive of the Probation Boards Association, Martin Wargent, told BBC News 24 that a lot of work had to be done to change the system.
"It looks like there have been mistakes at all levels.
"We thought originally that mistakes would just be at the operation level - but it looks as though the system went wrong, things weren't properly organised."