Waugh suffered fatal head and spinal injuries in the accident when she fell from a mount named Dargo during a jillaroo course.
TAFE's internal investigation found no failures in practices or procedures.
Deputy State Coroner Sharon Freund, who presided over the inquest in Glebe, noted: "The investigation and subsequent report was essentially not worth the paper it was written on."
She identified several failures around the death of Waugh, an inexperienced rider.
Freund said that Dargo had been "patently unsuitable for use with beginner riders".
The inquest was told that the horse given to Waugh was a former thoroughbred racehorse six and a half weeks into retirement.
About three weeks before Waugh's death another student had been in difficulty controlling Dargo.
Waugh was unable to control Dargo when he bolted, resulting in the fatal fall.
Freund noted that TAFE introduced a new system for its horse-riding units in 2009, where training took place on the campus. This meant TAFE contracted a horse supplier to provide animals twice a week.
It failed, said Freund, to undertake any meaningful risk assessment over the new system.
The trainer teaching Waugh lacked formal training and assessment qualifications and had little formal experience in teaching beginners, the court was told.
The coroner found the selection and assessment method for horses was flawed, and lacked detail over the types of horses required for beginners.
Freund recommended several policy changes to the state education minister, the managing director of TAFE NSW, the Australian Skills Quality Authority and AgriFood Skills Australia.
Piccoli, in announcing moves to implement the coroner's recommendations, said: "Such a devasting event should never happen again, which is why I have asked the department to report to me as soon as possible on how it can turn the recommendations into action.
"My condolences go to Sarah's parents, other relatives and friends for their terrible loss.
"The death of someone so young is simply tragic.
"While I understand TAFE has already examined the use of horses in such training, I am sure the coroner's recommendations will further increase student safety."