The D.C. inspector general has concluded that there is “insufficient evidence” that any D.C. Council members “acted improperly or violated standards of conduct” when they selected a new lottery vendor and voted to legalize online gambling, according to a draft report obtained by The Washington Post.

But the report raises further questions about the gen­esis of the online gambling provisions, finding that the District’s chief financial officer improperly added them to the lottery contract after bidding had closed.

The report, expected to be released within days, explores the city’s controversial effort to award a $120 million lottery contract starting in 2008, as well as approving what some have hoped will be a first-in-the-nation Internet gambling program with little input from the public.

The 19-page report submitted by Inspector General Charles J. Willoughby raises questions about whether procedures were followed during a three-year period in which D.C. Chief Financial Officer Natwar M. Gandhi solicited bids and awarded a contract that the council rejected, forcing Gandhi’s office to complete a second solicitation.

The report finds that while there was a great deal of political pressure placed on the contract award, there is little evidence that any of the D.C. Council activity rose to the level of illegality or ethical wrongdoing.

The findings could help the council and Mayor Vincent C. Gray (D) move past a steady stream of news stories questioning their roles in the contract process. Gray, who was council chairman when the contract was considered, was unavailable to comment late Friday. Council Chairman Kwame R. Brown (D) declined to comment, saying he had yet to review the report.

Investigators were more critical of other actors.

Much of the report considers whether it was appropriate for the winning bidder, Intralot, to enter into an agreement with the newly formed Veterans Service Corp., owned by Maryland businessman Emmanuel Bailey, after the contract was awarded to Intralot.

The report questions why the city’s Department of Small and Local Business Development awarded VSC preference points as a D.C.-based business when a site visit to its offices suggested that it was not a bona fide local business. The decision took place months before its alliance with Intralot.

Bailey noted that the preference points never came into play because the partnership occurred after the contract was awarded to Intralot. He said his company has addressed any issues raised by the city and continues to be certified. VSC now runs its lottery operations out of offices on M Street SW.

But once the contract was awarded to Intralot, investigators found that the company was within its rights to partner with VSC before it sought D.C. Council review — a decision, the report says, made to ease political concerns on the council.

A former employee in Gandhi’s office told investigators that the decision to allow the contract to go forward after VSC’s addition represented an “anomaly.” But investigators concluded that Gandhi’s office was under no obligation to reconsider the contract award.

The partnership between Intralot and VSC, the report holds, was “appropriate.”

The report does, however, criticize Gandhi for adding Internet gambling provisions to the contract without issuing a written notice that the underlying contract requirements had changed and allowing another round of bids from interested companies.

Because of that, the report finds, Gandhi’s office “may not have received the best price for the District.” Gandhi’s office did not immediately return a call for comment.

Among Willoughby’s recommendations are that the council “consider clearly defining the purpose” of its contract review powers and consider whether its member code of conduct needs to be updated with respect to involvement in the contracting process.

Council member Michael A. Brown (I-At Large) quietly pushed council authorization for Internet gambling in December 2010, as the council was trying to close a midyear budget shortfall.

The report concludes that a council member, identified by The Post as Brown, pursued the legal change even though he was working as a lobbyist at a law firm whose clients included members of the gaming industry.

But Willoughby “found no evidence” that Brown “lobbied or received anything on behalf of any gaming entity or did anything improper which resulted in the council voting for the legislation.”

“The OIG finds that the mere fact that a legislator who is associated with an entity that provides or performs work in a subject area that may be the subject of possible legislation under consideration . . . in and of itself does not constitute a use of public office for private gain,” the report concludes.

Brown — who has since left the firm in question, Edwards, Angell, Palmer & Dodge — said in an interview Friday that the report “speaks for itself.”

A D.C. Council panel is set to meet Jan. 26 to hear testimony on lottery issues, including whether online gambling should proceed. Willoughby is expected to testify.