The future of Big Brother was hanging in the balance last night as Channel 4 faced accusations of a cover-up over racist bullying.

The channel’s head was defying calls to resign despite being ordered to screen an unprecedented three apologies after a damning report on the broadcaster’s failure to respond to the incidents.

New transcripts reveal that some of the contestants made up a racist limerick about the Bollywood star Shilpa Shetty that referred to the word “Paki”.

The scenes were never shown and Ofcom, the media watchdog, concluded that channel executives were unaware that the footage existed until three days later. Hertfordshire Police ended their investigation into alleged racist behaviour in March, saying that no further action would be taken. But officers were unaware that the footage existed because Channel 4 refused to hand over tapes of unbroadcast material. The police will now examine the transcripts.

Channel 4 could now face accusations of misleading the public over the existence of the secret footage.

Andy Duncan, the head of Channel 4, was ordered yesterday to screen the apologies for “serious editorial misjudgments” exposed during this year’s celebrity series of what is the channel’s most important show, which usually thrives on controversy.

He told The Times: “We accept that what occurred was racially offensive and we should have done more to challenge and reprimand the housemates. But the Channel 4 board is unanimous that this is not a resignation issue. It was a case of human error.” He added: “Ofcom recognised the power of Big Brother to raise social issues. We don’t want people to be afraid to express their opinions.”

On Wednesday 12 new contestants will start the latest series of the show, which attracts up to 8 million viewers and contributes 10 per cent of Channel 4’s annual revenues. But, with Gordon Brown sizing up the channel for a £1 billion privatisation, its credentials as a public-service broadcaster will come under scrutiny.

The row centred on the alleged bullying of Shetty by her fellow contestants Jade Goody, the model Danielle Lloyd and the singer Jo O’Meara. The furore prompted 46,000 complaints and became an international incident, drawing a reaction from Mr Brown.

Ofcom discovered that Channel 4’s grip on events was so lax that it often did not even know what was being said by contestants during the programme.

The watchdog has imposed an unprecedented “statutory sanction”. Channel 4 must broadcast an Ofcom-approved apology before three big programmes – the first show of the new series on Wednesday, the first show the next morning and the first eviction show. Channel 4 avoided a fine by accepting Ofcom’s verdict and an agreement to introduce a strict new compliance system for Big Brother, including a welfare producer to monitor housemates and “diversity” training for staff.

Ofcom cited three occasions on which Channel 4 failed to handle the events appropriately: Goody referring to Shetty as “Shilpa Poppadom”; Lloyd saying that Shetty should “f*** off home”; and the argument over Shetty’s cooking that ended with Lloyd and O’Meara making derogatory comments about Indian eating habits.

Channel 4 breached the Broadcasting Code by failing to challenge racist behaviour that offended thousands of viewers and by offering no context or justification for its broadcast. Ofcom also made public the unseen footage which showed that housemates had joked about calling the actress a “Paki” in a limerick, before the row exploded on screen.

The incident was logged as “racist” by Brighter Pictures, the independent production company that makes Big Brother. But Channel 4 bosses said they were not told by producers about the atmosphere of increasing hostility for days.

‘Joke’ C4 tried not to tell

Transcript of unbroadcast Celebrity Big Brother footage from January 16 logged as racist:

O’Meara begins a limerick: “There once was a house that was happy, and then there entered . . .”

Goody “I’ve got a great one, but I’m not allowed to say it.”

Cleo Rocos “You’re all going to Big Brother prison.”

O’Meara “But it ends with ‘a nappy’. What’s wrong with you people?”

Jack Tweedy “But if you say ‘Along came some people who were tacky . . .’”

The “joke” carries on, with the housemates inviting each other to finish the limerick.

Rocos “Oh God, don’t give that to Danielle, for God’s sake.” Lloyd is called in to the Diary Room. The housemates debate why.

Goody “I think I know. I think maybe Danielle used the ‘P’ word . . . I can imagine her saying that under her breath.”

Lloyd emerges from the Diary Room and denies using the word.

On Jan 20 Big Brother calls Jo O’Meara into the Diary Room.

BB “Do you understand how it might have been considered racist to be using a rhyming slang that rhymed with ‘Paki’?”

Jo “Yeah, I can now, but do you know what, I didn’t really take much notice of it at the time.”

BB “Jo, as a result of this incident, Big Brother has no option but to issue you with your first and only formal warning. Big Brother has arranged for you to have a short conversation, off camera, with Steven, the psychologist.”

Source: Channel 4/Ofcom

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