Sheffield City Council has not implemented the 2014 disability and SEND reforms consistently and swiftly enough, according to the report by Ofsted and the Care Quality Commission.
This has resulted is a string of weaknesses in provision, including that children and young people with SEND and their families have "widely different experiences of the local area's arrangements for identifying, assessing and meeting their needs".
"Too many children and young people do not have their needs assessed accurately or in a timely way."
The report requires the local area to submit a written statement of action to Ofsted that explains how it will tackle the "significant areas of weakness in the local area's practice".
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A letter from the inspectorates to the council highlighted areas needing attention, including meeting expected timescales for the completion of education, health and care (EHC) plans.
In mainstream education, inspectors said weakness in identifying, assessing and meeting the needs of children and young people with SEND was resulting in high levels of fixed-term and permanent exclusions of pupils with SEND, who were "not achieving as well as they should".
"Work to challenge this situation is beginning," the letter said.
"Fewer pupils have been excluded or absent compared to the same period last year. However, overall exclusion and absence rates are above the national averages."
The letter also criticised health services for "unacceptable delays" in assessing and meeting health needs for children and young people with SEND.
It states that some children waited three years before seeing a clinical psychologist, while waiting times for assessments at the child and adolescent mental health service and the neurodisability team at Sheffield Children's NHS Foundation Trust exceed National Institute for Health and Care Excellence guidance.
"Although checks of the waiting lists are undertaken, there is a risk that children's changing needs may be missed and the delays hinder their achievement of better outcomes," the letter warned.
The inspectors did identify some strengths in the service, for example, good links between maternity and neonatal care services meant health needs such as a hearing impairment were being identified early.
They also noted that autism training provided to schools and settings, alongside outreach support from specialists, had led to better identification of children and young people's needs.
A parent and carer forum was also praised for providing accurate information and guidance to parents of children with SEND.
Sheffield City Council cabinet member for education and skills Jayne Dunn said the authority had been, and would continue be, working hard to improve services.
"We know that further success will only happen if everyone works together - the health services, schools, post-16 institutions, families, social care and the council," she said.
"We are supportive of the changes brought in in 2014 and we know that it has taken us longer than it should have to implement these changes but in a time of significant budget cuts we have been able to maintain the funding we have invested in SEND.
"Whilst we have continued to invest and not reduce funding to SEND we remain underfunded via the government's own calculations. We recognise that the challenging financial times are hitting the most vulnerable the hardest."
In December 2018, children's services leaders warned that extra government funding announced to meet the costs of educating rising numbers of pupils with SEND was insufficient to avert a funding "crisis".