An inspection of Rainsbrook Secure Training Centre (STC) in Rugby, which is run by G4S, found that there had been "serious incidents of gross misconduct by staff", including some who were in positions of leadership.
Inspectors found evidence of drug use among prison staff and smuggling of contraband for young people held at the establishment, which can hold up to 87 young people aged between 12 and 18.
"Poor staff behaviour has led to some young people being subject to degrading treatment, racist comments, and being cared for by staff who were under the influence of illegal drugs," the inspection report, which was compiled jointly by Ofsted, the Prisons Inspectorate and the Care Quality Commission, states.
"A finding of contraband DVDs in the centre is likely to be attributable to staff smuggling these in and raises a concern that young people were allowed to view inappropriate material they should not have been.
"It also raises a concern that some staff may have colluded with young people to elicit compliance by wholly inappropriate means.
"Senior managers are unable to reassure inspectors that this is not the case."
Inspectors said the examples of gross misconduct were compounded by poor decision-making by senior managers, which had led to delays in young people receiving essential medical diagnosis and treatment, and in referring matters for independent external scrutiny.
On a number of occasions clear clinical advice was overruled by non-health qualified senior managers.
Because of this one young person did not receive treatment for a fracture that could have been caused by use of restraint by prison staff, for approximately 15 hours.
Although in most cases senior managers took robust action in terms of dealing with inappropriate staff behaviour, in a few cases, there were “unacceptable and inexplicable delays” in removing staff from their role in caring for young people pending further investigation.
There were also cases where the disciplinary outcome was “too lenient”.
“Notwithstanding the appropriate action taken in most cases, the volume of very poor staff behaviour warranting disciplinary measures is a serious concern and must have impacted negatively on young people in the centre,” the report states.
The report also reveals that significantly more young people than in other STCs reported feeling threatened by other young people.
Inspectors found that children were restrained 166 times in six months – with 72 of the restraints incidents in response to children harming themselves.
Overall, inspectors judged the STC to be ‘inadequate’.
Frances Crook, chief executive of the Howard League for Penal Reform, has called for Rainsbrook to be closed immediately.
"No child is safe in this jail," she said.
"This is the worst report on a prison I have ever seen because it is a catalogue of abusive practices that have been inflicted on young children who have no escape.
"I visited Rainsbrook some years ago and found it to be claustrophobic and obsessed with security, a recipe for exactly the disaster now happening.
"These child jails run for profit are secretive and should never have been set up in the first place."
Lin Hinnigan, chief executive of the Youth Justice Board (YJB), said her organisation was notified by Ofsted earlier this year of serious concerns in performance at Rainsbrook.
"As the safety and wellbeing of young people in custody is of paramount importance, and the YJB sets high standards to ensure it is maintained, we immediately required G4S to address the issues swiftly and effectively," she said.
"Rainsbrook has new leadership in place and an action plan to improve recruitment and training is being implemented.
"We are confident that Rainsbrook will return to the high levels of performance and care it previously delivered."