Energy regulator Ofgem (the Office of Gas and Electricity Markets) failed to effectively advise the Department for Enterprise Trade and Investment about a loophole in the bungled Renewable Heat Incentive (RHI) scheme, the inquiry heard yesterday.
The loophole meant scheme users could install multiple boilers and claim higher level of subsidy, instead of installing a larger, more efficient system.
Giving evidence, Ofgem official Edmund Ward admitted that although his organisation had written to Deti on the issue, the warning could have been made "much clearer".
Suggesting that a "more robust" approach should have been taken, inquiry chairman Sir Patrick Coghlin said OFGEM should have made it clearer that installing mutiple boilers was a "potentially exploitative option that people might take up".
Seventy-five per cent of installations under the Northern Ireland scheme had multiple boilers.
The inquiry was told that several key officials who were tasked with administering the RHI scheme in Northern Ireland were under the mistaken impression that multiple boiler installations attracted a lower rate of public subsidy.
Panel member Dame Una O'Brien said Ofgem had been a "passive participant in allowing the abuse of taxpayers' money".
The Department of Enterprise, Trade and Investment (Deti) set up the botched energy initiative in 2012, with energy regulator Ofgem tasked with running it.
However, the scheme lacked effective cost controls, allowing the eco-friendly state subsidy initiative to spiral out of control, leaving the Stormont administration facing a potential £700m overspend bill.
The RHI inquiry - chaired by former judge Sir Patrick Coghlin - was established to examine the design, governance, implementation and operation of the Renewable Heat Incentive scheme from its conception in 2011, and to examine efforts to control the costs of the scheme.
It has taken evidence from civil servants - including David Sterling, Head of the Northern Ireland Civil Service, as well as functionaries further down the chain of command - and from political figures, including Arlene Foster, the former First Minister, who was the minister in charge at Deti during the time the scheme was being implemented.
Earlier this week, senior auditor Elaine Dolan accepted responsibility for a failure to properly scrutinise flaws in the Renewable Heat Incentive.
Ms Dolan was the department's head auditor at the time and she told the RHI inquiry that Ofgem's arrangements should have been scrutinised more effectively.
She added that under-resourcing in the department had been an issue and her team had been too "stretched" to give the matter more attention.
A lack of professional scepticism, she said, had been applied to assurances over Ofgem's responsibility to manage the scheme.