Inspectors have raised concerns about how many children go missing from care homes.
Care Inspectorate Wales (CIW) did not provide any figures but said there was sometimes "almost an acceptance" that children would disappear from homes.
Some were also repeatedly moving around the system because arrangements to look after them had broken down.
Despite examples of good practice, chief inspector Gillian Baranski said some children were being let down.
She said this was "often because those in a position to ensure they received the care and support they needed did not work together to make this happen".
In its first national overview of care homes, CIW said "almost all" homes provided a warm and comfortable environment.
But some children did not get the education they were entitled to and their emotional needs were not met.
There are 178 children's homes in Wales, with places for 774 children.
Inspectors visited 56 to look at the quality of care between July 2018 and March 2019.
The Welsh Government is setting targets to bring down the number of children going into care.
Around 6,400 were under local authority care at the last count.
But CIW said going into residential care should be seen as a "positive choice... and not a last resort".
It said councils find it difficult to get accommodation that meets children's needs.
And care home operators, councils, the NHS and the police should all make sure children go into care as close to home as possible, the report says.
"The number of children who go missing from care in some areas of Wales has increased, as have children who are at risk of sexual exploitation," it adds.
"We were concerned to find that in some situations where children absented themselves from the home there was almost an acceptance of this by providers, placing authorities and local safeguarding teams.
"We found little evidence to support a proactive response with consideration of alternative strategies to safeguard children."