The Independent Monitoring Board report on HMP Featherstone, near Wolverhampton, says a lack of staff is having a serious impact on prison life.
The report reveals drug use is rife across the prison; the use of weapons has increased over the last year; thousands of pounds of damage was caused to one unit by disruptive prisoners; staff shortages have led to hospital appointments and gym classes being cancelled and prisoners' property has gone missing on 26 occasions in the past year.
Psychoactive substances and synthetic cannabis like Black Mamba are described as a "major problem" in the report.
Security and the use of intelligence have been stepped up in a bid to reduce the amount of drugs in the prison, although drug testing was reduced in the last year due to staff shortages.
The report added: "The extent of the ingress of illegal substances concerns the board because of its effect on prisoner behaviour, with debt and consequent bullying being ongoing issues."
The report, which covers the period from November 2013 to October 2014, raised concerns that the use of weapons in the prison had increased, although the prison's Safer Custody Group was said to be working hard to try to reduce the number of incidents.
According to the report the Care and Separation Unit (CSU) – a segregation wing where violent prisoners are sent as punishment – was not sufficiently staffed. This meant that at times the wing did not have the required number of staff to lock away violent prisoners.
A number of cells in the CSU were repeatedly vandalised. It is the second year running that expensive repairs have been carried out on the wing. The prison now operates a policy of charging prisoners causing damage with the cost of repairs.
Some prisoners had to be held in other units while their damaged cells were repaired, the report added. The lack of staff also resulted in gym activities being cut.
Prisoners' property going astray during transfers from other prisons was highlighted as a key area for concern in the report.
Featherstone is one of a number of jails in the region to be blighted by staff shortages. Across the region there are 700 fewer workers in place than are required.
Last month it was revealed that at least two officers have been forced to travel from Stoke Heath Prison, near Market Drayton, to Brinsford Prison near Wolverhampton.
They are among more than 230 officers who were asked to work in other prisons in the run-up to Christmas.
Last year prison management at Featherstone were given a vote of no confidence by staff who said they feared for their safety due to low numbers.
Despite staff shortages, the report said the prison continues to exhibit a clear sense of direction and purpose.