Gardaí are investigating the case and a decision has yet to be taken on potential charges.
The case is separate to the prosecution of one of its employees, Tom Gilboy, of Mount Gregory, Castlebar, Co Mayo, in 2011.
Gilboy pleaded guilty to 117 charges of defrauding the council of €43,225 by falsifying expenses’ claims from 2002 to 2008.
The latest case emerged subsequent to Gilboy’s conviction.
It is not known how much the council has lost in the incident but it was referenced by the Local Government Audit Service in the internal review of its 2012 accounts.
In his management letter to the county manager in November 2013 the auditor, Hugh Neville, highlighted the problem.
“A member of staff, who has since been dismissed, defrauded the council of monies, [the issue] remains with An Garda Siochána. A decision as to whether or not this individual is going to be prosecuted should be sought from garda authorities,” it said.
The council refused to release documents relating to the case under the Freedom of Information as it said at this stage, such disclosure could prejudice the investigation.
But it said it was still awaiting a decision from the gardaí, and when the matter was resolved, the issues would be in the public domain.
In his letter, the auditor warned the council that it had not done enough to properly deal with fraud.
He said a draft fraud contingency plan was draft in 2009 but it had not been adopted by management so that there was a clear policy on what to do.
Separately, the auditor raised concerns with the oversight of entertainment expenses.
Mr Neville said the level of accountability was “not adequate” and more information was required to justify expenses.
The auditor also examined the controversial Community Gain Investment Fun that arose from the gas pipeline servicing the Corrib gas field.
The report said payments and allocations appeared to be done correctly but the procedures used needed to be changed “in the interests of transparency and accountability”.
The changes proposed surrounded the work of the evaluation committees that decided on grant payments and people who are party to applications should not be allowed on the panels that assess the proposals.