Three senior council officers have been suspended over concerns about how a road building contract was awarded.
The Isle of Wight Council is investigating the circumstances surrounding how a company was chosen to carry out repairs to Undercliff Drive.
The road was badly damaged during a landslip in 2001.
The council said High-Point Rendel, which completed the work and is now due to carry out the construction of a new £13m road, had not acted dishonestly.
'Lack of action'
The deputy chief executive, the director of regeneration and development and the director of finance were suspended from duty following an independent report by a senior officer of Southampton City Council.
Stephen Taylor, head of audit (South) at the Audit Commission, said: "I share the concerns of the council in relation to the Undercliff Drive contract and overall procurement processes and in particular the lack of action since concerns were pointed out to the council in 2005.
"I am however satisfied with the rigour of the independent review by Southampton City Council and the steps currently being taken by the Isle of Wight Council to regularise the position.
"This demonstrates that the council is now taking the matter very seriously and in the light of this, there is no further action for me to take at the present time."
The council has appointed external lawyers to "remedy the procurement position and ensure it is acting within the law".
It now plans to set up a cross-party committee to investigate the Undercliff Drive contract.