The CAG noted that the Defence Ministry and the IAF failed to devise realistic qualitative requirements leading to a long delay in replacing ageing Mi-8 helicopters.
The CAG report, tabled in parliament Tuesday, said the bench-marked cost adopted by the contract negotiating committee was unreasonably high compared to the offer cost for the helicopters.
"The acquisition process for the VVIP helicopters had to resort to several deviations from the laid down procedures," the report said.
It said that as the acquisition process was "inordinately delayed", the IAF continued to face operational disadvantage due to ageing helicopters.
"A critical requirement of replacement of ageing fleet of Mi-8 could not be fulfilled even after 13 years of initiation of the acquisition process due of failure of MoD (Ministry of Defence)/IAF to devise realistic SQRs (Services Qualitative Requirements)," the report said.
A case has also been registered against former IAF chief Air Chief Marshal (Retd) S.P. Tyagi.
The scam came to light when the Italian government arrested chopper maker Finmeccanica's CEO Giuseppe Orsi in February for allegedly paying bribes to clinch the deal.
The CAG report said the field evaluation trial was conducted abroad on "the representative helicopters of AgustaWestland and not on the actual helicopter (AW-101) contracted".
The report said there were violations of defence procurement policy in respect of fulfillment of offset obligations.
The Central Bureau of Investigation is probing alleged corruption in the helicopter deal.
The Defence Ministry had concluded a contract with AgustaWestland in February 2010 for supply of 12 AW-101 helicopters at price of Euros 556.262 million (Rs.3,726.96 crore). The helicopters were for the IAF's elite Communication Squadron, which ferries the president, prime minister and other VVIPs.
Three helicopters were received between November 2012 and Feb 2013.
The CAG report gives chronology of the deal from the time a proposal was made for replacing VVIP helicopters to the delivery of three choppers by AugustaWestland.
It says that trails took 26 months against the prescribed time of 15-21 months while negotiations up to signing the contract took 49 months against the prescribed time of 23-24 months.