The Catholic Church decided not to tell a Canberra primary school a priest living next door had been accused of inappropriate conduct with children because it was concerned about his privacy, an independent report has found.

The historical allegations involve two girls, and include the priest putting his arms around an 11 or 12-year-old from behind and nibbling her ear when they were alone in a Tumut church in the Riverina.

While the alleged victims decided not to press charges, a church report found the complaints were sustained and the man was removed as the parish priest.

But his lawyers denied he was guilty of any misconduct.

In 2014, the then 77-year-old was moved to Lanigan House, next to Sts Peter and Paul Primary School and near the Malkara specialist school, in the Canberra suburb of Garran.

Today, a review commissioned by the Archdiocese of Canberra revealed how the priest came to live in the Catholic-operated home and why his alleged past was hidden from parents and staff.

It found the Archdiocese did not have a policy for suitably housing priests accused of inappropriate conduct and senior church officials gave little, if any, consideration to Lanigan House's location.

"As it apparently did not occur to anyone for some time that placing him next to a school could be problematic, there was not consultation with Catholic Education about his placement at Lanigan House," the review's author Juliet Lucy noted.

Archbishop of Canberra and Goulburn Christopher Prowse says the Archdiocese apologises unreservedly. ( ABC News: Caitlin Johnstone )

A risk assessment in 2016 determined the priest's proximity to schools was "not ideal" but the Archdiocese said it was difficult to find suitable alternative accommodation.

That assessment was given to the principal of Sts Peter and Paul Primary School, but it did not include the allegations against the priest.

"The main reason IPSS [Institute for Professional Standard and Safeguarding] did not provide more information was a belief that it was not entitled to do so under privacy laws," Dr Lucy said.

The principal first heard about the priest's alleged past when a member of the Catholic community phoned the school four days before the story broke in the media.

Archdiocese apologises 'unreservedly', accepts recommendations

Among the report's 20 recommendations, it suggests the church find suitable properties to house priests who have had "adverse allegations or findings concerning children".

The Archdiocese has also committed to developing a privacy and information sharing policy, training staff in the new guidelines, and setting up a panel to advise it on child protection issues.

"The report reveals failure in our policies, procedures and protocols," Archbishop of Canberra and Goulburn Christopher Prowse said.

"Again, the Archdiocese apologises unreservedly for the stress and hurt to people and the whole Garran community. We must learn from this."

The review was also critical of the Archdiocese's initial public response to the story and recommended developing a crisis management strategy.

"We accept all the findings and recommendations of the independent review and are eager to fully implement them," Archbishop Prowse said.

The priest has since been removed from Lanigan House.