Jim Speechley stands accused of abusing his power, intimidating officers and making illegal decisions in a 65-page report by KPMG.
The auditors began investigations into a£150,000 payment to QV Foods two years ago, after concerns were raised by the chief executive and leader of the opposition Labour group.
They also began investigations into the departures of former chief executive Jill Barrow and former education director Norman Riches, the re-grading of a principal officer and the appointment of a divisional surveyor.
Ms Barrow and Mr Riches were given 'unlawful' severence payments which will cost the council a total of£410,000. The
auditor was concerned about the 'absence of justification of payments of such
In another case, the auditor found that Mr Speechley - who has been a councillor since 1974 and Conservative leader since 1993 in the 77-member council - ordered his secretary's post be graded higher than 'that which was indicated by the evaluation process'.
'In my view, on a number of occasions, Mr Speechley and former councillor David Mawby sought to interfere with the established process and criteria used by the council to evaluate the proper level or remuneration for the principal officer,' the report said.
In the case of the appointment of a divisional surveyor, the report found Mr Speechley threatened to dismiss the director of highways and planning, Paul Kirby, if he did not appoint a particular officer to the post in the south.
Mr Speechley's behaviour was described as 'totally unacceptable' and 'unlawful' by the auditor.
'This illustrates how certain majority group councillors, in particular Mr Speechley and Mr Mawby, have stepped beyond the proper bounds of conduct for members in staffing matters,' the report said. 'In certain instances their conduct has been in breach of the National Code of Conduct.'
Several of these incidents exposed the lack of sound legal advice from monitoring officer Peter Burns, the report found.
The report said: 'There is dysfunction at the heart of the relationships between certain members and senior officers.' This led to a climate of 'suspicion and distrust' which in turn caused 'a breakdown in the normal decision-making processes'.
'Officers have spoken of being put under pressure, being subject to strong criticism, and in extreme circumstances fear they would lose their jobs if they failed to follow the wishes of certain majority group councillors,' the report said.
Robert Parker, leader of the Labour group, said there had been a 'systematic abuse of power and process for a number of years' which prompted him to write to the auditors in 1999.
Though the report said the issues it covers 'are not isolated incidents', Conservative central office refused to declare its position on Mr Speechley's future, but said it was 'looking very closely at the reports findings'. Mr Speechley was unavailable for comment.