conflict of interest in the hiring process...

My office had an open position due to a promotion. They decided to fill the position and use a generic job posting for the position. Hence I applied for the position since I was the senior person in the office in terms of longevity and I knew every task and job in the office cause at certain points in the past I assisted in each area. When the posting was issued eveeryone including me dervied from the posting that it was just an position that would fill any void due to the generic nature of the posting.
I was scheduled for an interview and I prepared. My first inclination of unfairness was the question that were asked during the interview. The questions were centered around and were focused on one general area of the office, so I answered them to the best of my knowledge, I knew the answers and the issues but not the particular terminology. So after my interview concluded I realized that the job was for a position in the back office and only one person would know the answer to all of the questions being asked. After that I inquired who authored the questions that were asked and found out that the position reported directly to the person writing the questions were the same person, I was in shock. The person who works inthe back office has only been there for 7 months. The appauling thing is that the author of the interview question, and his immediate supervisor are one in the same creating a conflict of issues. The supervisor has purchased him shirts, brought him other gifts, he walks her home at night.

I took this issue to the department manager and he said yes the position was for that office. I asked well why not just promote him. Why place a generic job posting and have people apply and know that you were going to give him the job in the first place, it was not fair, and the manager said it was fair the interview process was fair, but it was not due to the conflict of interest in the personal relationship, the creation of a test that is bias, and not informing the people applying for the position that it their were certain qualifications and job knowledge that is required...
My question is was there any unfairness in this process or am I crazy...