However, Nombembe found no evidence that the police minister was aware of the source of the funding, and the minister was therefore not implicated in a policy breach, he said on Friday.
"There is no evidence that indicates that the minister knew that the wall was being erected using secret service funds," said Nombembe.
He could also not find any evidence that Mthethwa gave instructions to conduct a risk assessment at his home, or that he was involved in the eventual process.
"Nombembe called for better oversight by the minister, to prevent any future abuses escaping his attention.
"As a result of the minister not being aware of the activities of the South African Police Service's crime intelligence, our recommendation is, among others, that the monitoring and accountability practices between the department and the minister be strengthened, and that timely action is taken in instances of non-compliance should this occur again."
The findings were released three months after Mthethwa asked the AG to probe press reports that R200 000 from the slush fund was used to pay for the wall around his home in KwaZulu-Natal.
According to the reports, the fund was also used to pay for a Mercedes Benz for the minister.
Nombembe said he was not presented with any evidence linking the minister to the car.
Mthethwa welcomed the findings and said he felt vindicated.
"While I noted with concern the continued innuendoes of corruption levelled against me and my name being dragged in the mud, I nevertheless allowed the auditor general to conduct the investigation," he said.
"Today, I feel vindicated, because the truth has been confirmed."
Mthethwa's spokesperson Zweli Mnisi said the risk assessment at the minister's home had been undertaken by the police "as they would do with each and every executive authority".
Mthethwa had acted on the understanding that it was normal for the government to pay for certain security measures and he had expected that those who conducted the risk assessment would follow proper procedures.
"He had an understanding that in terms of the ministerial handbook and other legislative frameworks such as the PFMA (Public Finance Management Act) some security measures to his private residence might be taken care of by the state," Mnisi said.
"As the minister does not get involved in day-to-day operational matters, he therefore expected any official[s] who carries through their operations and responsibilities, would follow due process and procedures."
The minister would support disciplinary steps against any official found to have breached finance management rules, Mnisi said.
Allegations of abuse of the crime intelligence slush fund have been rife in recent months.
Suspended former crime intelligence boss Richard Mdluli faced fraud charges for allegedly misappropriating money from the fund. The charges were withdrawn before he was reinstated in that position in March.
He was subsequently moved sideways by Mthethwa and was finally suspended by then acting police commissioner Nhlanhla Mkhwanazi in May.
Mkhwanazi was in turn accused of using R35-million from the fund without proper authority to buy vehicles for the police. He refuted the claims. – Sapa