Gerard Hampson's body was found on the shores of Lough Neagh near Toomebridge, County Antrim, in 2008, six weeks after his family reported the 53-year-old missing.
The ombudsman has recommended that 10 police officers be disciplined.
Police have issued an apology for the failings in its investigation.
Mr Hampson was wanted for questioning in connection with an alleged kidnapping in Mullingar in the Republic of Ireland when he disappeared in 2007.
His naked body was found by a man walking his dog six weeks later.
The Police Ombudsman found what he described as "serious failings" in the police investigation.
He said police made little effort to find Mr Hampson, and failed to conduct basic witness and CCTV enquiries because of a police belief he was "on the run and would turn up when it suited him".
This meant that opportunities to gather evidence were missed, and resulted in an "overall poor investigation which failed the Hampson family".
The ombudsman has called for an independent review into the police's handling of the case.
Eight police officers have since been disciplined.
Ass Ch Con Stephen Martin has issued an apology to the Hampson family, and said he accepted there were police failings in the investigation.
He said the case remains under active investigation by the PSNI.
However, Mr Hampson's son, Denis, said he feared he would never get the truth about his father's death.
"Basic checks were not carried out. My father would have been always on the phone to us two or three times a day.
"Once all the contact stopped, we knew that something was wrong. They just dismissed it.
"Years later we are still trying to find out what happened to my father."
Paul O'Connor from the Pat Finucane Centre said that the family's concerns six years ago when they first lodged the complaint had been vindicated.
"The report shows a litany of mistakes and failures from the moment that the family made the decision to walk into Strand Road police station," he said.
"I notice in the report that they said they have learnt lessons, but there are some serious outstanding questions for the family."
Earlier this month, a 49-year-old man was arrested as part of renewed enquiries into the death.
He was later released pending a report to the Public Prosecution Service.
A police ombudsman investigation into the search for a former republican prisoner has heavily criticised the police reaction to his disappearance.