The State's ethics guidelines should be changed immediately, according to the Standards in Public Office Commission.
This is necessary to to stop directors of State boards accepting major gifts, such as the €9,000 Cartier watches given last year to some retiring Aer Rianta board members, it says.
Some people would try to justify gifts such as these on the grounds that "there is inadequate recognition" of the work done by directors, the commission said in its annual report.
"Whether or not that is the prevailing view and regardless of its merits, the standards commission considers, as in all cases, that the proper course for dealing with compensation of directors of public bodies is through officially sanctioned remuneration agreements, and not by way of ad-hoc arrangements which constitute inappropriate use of public funds," the body said.
The watches were given by the retiring Aer Rianta chairman Noel Hanlon last October to three directors of the company, and to two more who had retired in June 2003.
The recipients were former CIÉ chairman, Dermot O'Leary; former GPA executive Liam Meade; Cork businesswoman Freeda Hayes; ESB chairman Tadhg O'Donoghue and Mr Hanlon himself. Following the disclosure of the presentation at a farewell dinner for directors the watches were returned or paid for.
"The possibility of occurrences demonstrates the urgent need to finalise the proposed code of conduct for State bodies which is being drawn up by the Minister for Finance," said the commission, which is chaired by former High Court judge Mr Justice Mathew P Smith.
However, the commission is still extremely unhappy at the refusal of the Department of the Environment to accept its amendments to a code of ethics for councillors and local authority staff.
It had wanted local authority officials to be barred from having any extra job that "could reasonably be regarded as weakening public confidence. The commission felt that there should be a general prohibition on any such business, occupation or activity while the person was in the employment of a local authority, with the proviso that the matter should be referred to a supervisor in the event of uncertainty".
Moreover, it also wanted restrictions ensuring local authority staff could not quit and immediately take private sector jobs where their contacts and experience would have significant value.
"In such circumstances, it was felt that the imposition of a moratorium for a specified period would not be unreasonable," the annual report noted.
The commission had wanted guarantees for whistleblowers who complained if they had been asked to act illegally, improperly, or in an unethical way.
However, the fact that former minister for the environment Martin Cullen refused to take the commission's observations on board was "disappointing" and the commission said it was "surprised" the department had not consulted further on the issue.
Criticising ministers and ministers of state, the commission said they should not use or allow their offices to be used for electoral purposes during campaigns.
Meanwhile, the commission once more called on the Government to amend the ethics legislation so that it could appoint inquiry officers to handle the early stages of investigations.
The commission abandoned its investigation into a public relations contract awarded by Mr Cullen to a Waterford-based consultant, Monica Leech.
It did so because the evidence presented to it did not establish that a prima facie case existed against him.
