Pembrokeshire Council has been told to pay compensation to a woman after social workers wrongly put her four children on the 'at risk' register.
Compensation will be discussed at a council meeting at county hall
A watchdog found the council guilty of "repeated, prolonged and serious maladministration" in its dealings with Stephanie Lawrence and her family.
She said she and her children were ostracised by neighbours after she was falsely accused of assaulting them.
The council said it would hold a formal review after the ombudsman's report.
Local government ombudsman Adam Peat has recommended that the council pays Ms Lawrence £5,000 compensation and holds a formal review to prevent another family being put through a similar ordeal.
Ms Lawrence lost her business and her children suffered unnecessary distress, the report found.
Four years ago, when she was in the process of splitting up with the children's father, they came into contact with a child psychologist and the case was referred to social services.
In his report, the obudsman said that during a heated argument at a meeting in 2002, the children's father was heard to claim Ms Lawrence disciplined the youngsters with a wooden spoon, although she strenuously denied ever harming them.
Later the same day a social worker and council officer went to the bridal shop she ran and in front of her daughter, 15, accused her of child abuse.
They then wanted to pick up her sons, aged nine, 11 and 13 from school to interview them but Ms Lawrence refused.
Mr Peat said: "To have entered (the) shop and to have accused her in front of her daughter, and to have insisted on picking the children up from school where their teachers, friends and their friends' mothers would be witness to the event, was grossly insensitive and unnecessarily indiscreet."
Despite repeated complaints the children were not removed from the 'at risk' register and Mr Peat said had preliminary inquiries been made social workers would have concluded there were no child protection issues.
Successive investigating officers and review panels had vindicated complaints made by Ms Lawrence, the report said.
He said the failure to remove the children from the register was not based on "real risk to the children" but on their mothers alleged "failure to co-operate with social service intervention."
Pembrokeshire Council will discuss the case and compensation, and a formal review will be carried out.
Council leader John Davies said many changes had been made and the authority accepted the ombudsman's report although with "some reservations."
"It must be remembered that the county council's responsibility in cases such as this, is always the children," said Mr Davies.
"It appears that one of the principal mistakes in this matter has been one of over-caution."