However, Police Ombudsman Marie Anderson said she could not conclude the former Sinn Féin official’s murder in 2006 could have been prevented.
His family said the police had been negligent in a duty of care to him “for reasons that remain unexplained”.
Mr Donaldson’s murder was admitted by the dissident republican terror group Real IRA.
Police believe RIRA members from Derry were involved in his murder.
The 55 year old, who once held a senior administrative role for Sinn Féin at Stormont, admitted in December 2005 that he had been working for MI5 and the police for 20 years.
He then moved to a family cottage in Glenties, where he was murdered in April 2006.
Two weeks before his killing, the Sunday World newspaper published a story on him that included a photograph of him standing outside the property.
The Police Ombudsman found no evidence police had leaked information on his whereabouts.
Shortly after the story appeared, the PSNI received information indicating Mr Donaldson’s life “may be at increased risk”.
This information was shared with An Garda Síochána.
But Mrs Anderson found no evidence of a PSNI risk assessment having been carried out following the Sunday World article.
“It is likely that this important measure to assess the threat to Mr Donaldson’s life was not undertaken,” her report stated.
“I am of the view the family’s concerns about the steps taken by PSNI in management of this threat are legitimate and justified.”
Mr Donaldson’s family issued a statement through their lawyers.
It read: “For reasons that remain unexplained and unaccounted for, the PSNI abandoned its routine practice of risk assessments.
“This course of action was taken at precisely the moment when the risk to Denis’s life was at its greatest.
“The key question has always been: ‘Did the PSNI do enough to protect Denis’s life?’ The ombudsman’s answer today was no, they did not.”
The PSNI said it recognised “the pain and suffering” of the Donaldson family.
Ass Ch Con Mark McEwan added: “We note the findings of the investigation and will now take some time to review her comprehensive report.
“We have reviewed our operational policies and service procedure regarding the management of threats to life and will continue to do so on a regular basis.”
The ombudsman’s report also found that the PSNI had provided “a high-level of co-operation and assistance” to the the Garda’s murder inquiry.
During the course of its investigation, the ombudsman’s office questioned one officer under caution and he denied sharing information about Mr Donaldson’s whereabouts.
As he has subsequently retired, the issue of disciplinary proceedings could not be considered by the ombudsman.
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