City of York Council paid the former chief executive more than £117,000 more than they were contractually obliged to, according to independent auditors.
Auditors Mazars raised concerns about the appropriateness of severance payments made to former chief executive Mary Weastell.
The council said its payments to Ms Weastell were contractual entitlements, but Mazars disagree.
In a Public Interest Report, they say the council paid out an extra £24,884 in redundancy payment and a £65,779 ex gratia payment, effectively a gift, neither of which had to be paid.
They say the council also paid Ms Weastell a full salary of £138,135 for 11 months and 16 days while she was off sick – but that it should have been reduced to half pay after six months which would have saved the council a further £27,165.
The auditors’ report says: “We have enquired why a decision was made, in the absence of the requested occupational health assessment, to maintain the chief executive’s remuneration at full pay beyond the contractual entitlement.
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“The responses we have received do not confirm one consistent explanation but officers have confirmed that the leader, as line manager, was made aware of the payment arrangement and of the delays that led to an occupational health report being received on 11 February 2020 and after the settlement agreement had been negotiated.
“Until the underpinning causes of the delays in delivering occupational health assessments are addressed, they present an ongoing threat to the council’s ability to safeguard the welfare and resilience of its workforce and to ensure payroll costs accurately reflect entitlements.”
The council says extra work is taking place to monitor health assessments.
The auditors say they have seen no evidence that a redundancy payment was necessary or that the chief executive role was deleted at the time of the payment.
They say: “The amount paid has not been properly approved and is arguably an unlawful payment. The facts suggest to us that this was not a genuine efficiency of business situation but involved the settlement of threatened claims.”
Ms Weastell had lodged an employment tribunal claim against the council and council leader.