A lack of senior management capacity poses a "major risk" and a shortage of experienced staff continues to "hamper progress towards improvement", it said. The overall quality of case files for children in care is not adequate.
The inquiry into the city's social services was commissioned after inspectors found weaknesses in care for at-risk children last December.
Councillor Len Clark, who chaired the inquiry, said: "Many of the findings of this children's social care inquiry will not make comfortable reading for the council. This was not the intent.
"But if we are to make sustainable progress and not just short-term fixes, we must address the underlying issues identified in our report. This must be the city council's top priority."
Councillor Mike Whitby, leader of the council, accepted the report's findings. He said: "I welcome the scrutiny report, which represents a serious examination by the council of the challenges facing children's social care in Birmingham.
"Our focus remains fixed on putting in place the changes needed to ensure the most vulnerable young people in our city get the care and support they need."
