We expect public bodies...to operate to the highest possible standards

Janet Davies, chair of the Welsh Assembly's audit committee

The Welsh Assembly's audit committee - which looked into the case - said disciplinary action must be taken against staff, if necessary.

The investigation revealed that the Cardiff museum's human resources manager had raised allegations concerning Mr Arnold, who was accused of mismanagement in 1998.

But instead of holding a full inquiry into the allegations, the museum agreed a settlement after initially telling staff Mr Arnold had gone on sick leave.

The compromise included a payment of �31,470.

Mr Arnold, who had been at the museum for 14 years, was also given a reference.

The report said the reference was "silent on the reasons for his departure".

Disrepute

The inquiry report said: "We do not consider it acceptable for a public body to use taxpayers' money to terminate the employment of a member of staff as a substitute for dealing with poor performance."

It also criticised the museum's then director Colin Ford for his role in the affair.

Janet Davies, chairwoman of the Assembly's audit committee, said: "We expect public bodies...to operate to the highest possible standards.

"To do otherwise would bring the organisation concerned into disrepute and could also undermine the credibility and reputation of the entire public sector in Wales."

Current director of the NMGW Anna Southall was not told about the details of the payments when she took up her post in November 1998.

Ms Southall later applied for retrospective permission for the payments from the Assembly, but this was turned down.