In retrospect, it is hard to believe that councillors were so delighted when plans for a Millennium Gallery at Lewes Town Hall were unveiled in 1999.

They even decided to return Graham Mayhew as town mayor for a second term so he could see the £1.5 million project through to its conclusion.

By the time they axed the plan and sacked Dr Mayhew, just six days before his mayor-making ceremony in May 2000, the wholly Liberal Democrat council had already spent £32,950 on fees for the architects and surveyors.

Dr Mayhew duly resigned as a town councillor and as a member of the Liberal Democrats.

The town council referred Dr Mayhew's financial conduct to the district auditor for investigation into overspending on his annual budget.

The council said it repeatedly asked Dr Mayhew for a business plan for the Millennium Art Gallery project but it had not arrived.

However, the report by district auditor Peter Arkell reveals the council only started asking for a business plan and risk assessment four months after approving the scheme.

Meanwhile, the accusations levelled at Dr Mayhew about overspending on his mayoral budget were not upheld by the district auditor, though his report confirmed the council should have had closer controls on the budget and asked for invoices and receipts from its mayors.

Dr Mayhew is now calling for a public retraction of comments made about him by the town council.

He said: "I am very sad it has taken this long for everything to come out. When the accusations were first made, I wondered if I dare show my face in public but in the event most people were very nice to me. However, a certain amount of mud sticks and will do until such a time when the council publicly withdraws its comments.

"I am still a district councillor and have no intention of giving up public office. However, if I ever went back to the town council, I would want to be convinced that it had cleaned up its act before I was associated with it."

According to the district auditor's report, the project was doomed for three reasons: confusion over responsibility for the project; confusion over financial issues and contracts; and because the initial costs of the proposed projects were never adequately explained to members.

Lewes Millennium Gallery Trust (LMGT) was set up with six trustees to keep the project separate from the town council in August 1999.

The then mayor, Dr Mayhew, was appointed chairman of the trust, Councillor Michael Chartier was appointed a trustee, representing the council, and town clerk Chris Walsh was appointed LMGT clerk on an interim basis.

Consequently all three should have declared an interest when the gallery plan was discussed at council meetings but there was no record of this being done.

It was not until January 2000 that the town clerk resigned because of a possible conflict of interests, followed by Coun Chartier and Dr Mayhew in February 2000.

According to the report, the administrative and financial control structures were also inadequate.

The report concluded: "There was no evidence here to cause me to consider taking any action in regard to the council or any individual. However, it is clear that standards of public administration and financial control have been less than could be expected of a public body.

"These events serve as a warning that clear procedures and protocols must be established."

Dr Mayhew said: "Many of the councillors are naive and inexperienced and I think they genuinely believe this is a standard report. I have never seen a district auditor's report as grave as this one.

"I find it incredible that people think they can just brazen this out."

Current Lewes Town Mayor John Webber said: "I think whenever, as a head teacher of a school, I had the auditors in, I always used it as an opportunity to review proceedings. This is what has happened here.

"There was a need to do some tightening up. We have done most of it."