The council paid 65% of Christine Laird's costs
Cheltenham Borough Council incurred more than £2.1m in costs during its dispute with a former managing director, auditors have revealed.
The council lost its civil claim in June last year. It alleged Christine Laird failed to disclose health problems which affected her work.
A report by auditors KPMG also highlighted flaws in the council's decision-making process in the case.
It made 26 recommendations and will be discussed by councillors on 22 March.
The total costs incurred by the council as a result of the dispute were £2,132,000.
The biggest expenditure was the pursuit of legal action which contributed £1,045,000 to these costs.
The council was ordered to pay 65% of Mrs Laird's legal costs as well as its own.
KPMG's auditor director Ian Pennington said: "The council was right to consider its options over whether it could recover some of the significant costs it had incurred, but mistakes were made which, if avoided, may have limited the further costs that the council incurred.
"There was no single issue of failing, rather there were a series of issues that taken together over time created the situation.
"The council did not recognise this as events were unfolding and did not respond effectively or early enough.
"Part of the legacy of this dispute is that it continues to absorb time, energy, attention and money."
He said the council needed to "move on" and build positive working relationships that would benefit the people of Cheltenham.
Council Chief Executive Andrew North said improvements had already been made.
He said: "Over the last four years or so we've really improved our processes considerably. So much so we got really good results in a recent assessment by the Audit Commission of the council's performance.
"The problem is we didn't always apply those improved processes to what was an existing case and it almost slipped through the net."