Stuart Rosser, Interim Chief Executive of Caerphilly Council, welcomed the WAO report and acknowledged that errors had been made by Council officers in not following appropriate procedures.
However, he stressed that the finding that the decision was unlawful is not new.
Stuart Rosser said:
"This issue dates back to early 2012 and it should be noted that the Council voluntarily referred the matter to the auditors for investigation in April 2013.
"Residents can be assured that the Council has already taken steps to address the areas of concern identified in the report.
"In addition, the Council has been working very closely with the Wales Audit Office over recent months to address concerns about its governance arrangements and has introduced a number of improvements to ensure processes are much more robust."
A report has found Caerphilly County Borough Council acted "unlawfully" when it paid its Chief Officers to 'buy out' their entitlements to car and leave allowances.
In the second report by the Wales Audit Office, it found there was a failure in governance arrangements and inadequacies in the processes it adopted in making the payments at the council.
The council's two senior officers were arrested in July as part of an investigation into wage rises at Caerphilly Borough Council.
In October, the first Auditor's report found five of the council's chief officers received more than £94,000 of unlawful payments.
Appointed Auditor and Assistant Auditor General, Anthony Barrett, said today:
"There are clear lessons to be learned by the Council around the processes that were followed when deciding to buy out the Chief Officers from their entitlement to car and annual leave allowances.
"The informality of meetings and decisions, the conflicts of interest, the lack of record keeping, the failure to follow advice and publish decisions - these are all of significant concern and the public needs to be aware of what has happened.
"The Council now have one month to respond to my report and to highlight the steps it is taking to ensure this never happens again."
Caerphilly Council leader Harry Andrews will face a motion of no confidence in a meeting today.
The motion states that the council has no confidence in Cllr Andrews after it was revealed by the Wales Audit Office (WAO) that the council had acted unlawfully when it awarded pay rises for 21 senior officers.
The matter will be discussed at a full council meeting today. The investigation by the WAO led to the suspension of Caerphilly Council's Chief Executive Anthony O'Sullivan.
The Chief Executive of Caerphilly council has been suspended following a report by the Wales Audit Office (WAO) that found his £27,000 pay rise was unlawful.
The WAO said they had discovered a number of issues with how the decision was carried out.
On Wednesday, Gwent Police referred the matter to Avon & Somerset Police to complete an investigation.
Avon and Somerset Police says it has been asked to follow up a report which labelled pay rises made to senior members of staff at Caerphilly Council "unlawful."
Caerphilly Council's decision to award pay rises to senior members of staff is to be investigated by police, according to the Caerphilly Observer.
"In light of our close proximity and working relationship with Caerphilly County Borough Council, it’s not appropriate for it to be investigated by the Gwent Force, and as such the investigation has been referred to Avon & Somerset Police", a Gwent Police spokesperson told the paper.
The UNISON union has given its support to today's Wales Audit Office findings.
“UNISON has always argued that the decision to award such lucrative pay awards to the Caerphilly Council’s Chief Executive officers was immoral, insensitive and unjustified" said the union's Caerphilly branch secretary Gary Enright.
“The workforce in Caerphilly has suffered a three year pay freeze and many are struggling to make ends meet. The Chief Officers’ pay award has left a bitter taste in workers’ mouths and morale has been affected.
“The officers involved have an opportunity to stand alongside the workforce, do the right thing and to forgo any award given.”