The auditor intervened in May, two days before candidates were due to be interviewed, raising concerns about the retirement package agreed for Colin Nye.
Mr Nye was appointed to the post in 1991, aged 50, on a five-year fixed-term contract. He announced earlier this year he would be retiring at the end of his term. He receives an immediate pension and seven added years, as stipulated in his contract.
'I think this shows the problems with five-year contracts and the need to be careful in drafting them,' said Mr Nye.
Deputy leader Alistair Cameron said Mr Nye's retirement package was not discussed by members until it was raised by the auditor. 'We had not had a chance to consider whether it would be in the interests of the service for him to retire,' he said.
The district auditor argued that it could not have been predicted five years ago that the contract's termination would have been in the interest of the service.
Members had to reconsider Mr Nye's departure, and voted at full council on Monday to approve retirement with full benefits. Members decided to allow Mr Nye to retire because they wanted a change in leadership style and a new chief executive to lead their new management and strategic plans. They also agreed that Mr Nye's desire to retire should be taken into account.
The contract for the new post was originally drawn up along the same lines as Mr Nye's, but was altered after the auditor raised concerns.
Mr Nye leaves in August. Resources director Lawrence Davison takes up the post in September on a salary of between £53,000 and £66,000.