The Office of the Auditor-General has cleared Thames-Coromandel District Mayor Philippa Barriball of any conflict of interest over her involvement in a subdivision application.
Ms Barriball was accused of taking part in council discussions over a proposed amendment to the district plan.
The law prohibits a council member from discussing or voting on any matter in which he or she directly or indirectly has any pecuniary interest.
The Office of the Auditor-General says it is unlikely Ms Barriball breached the law or that the council decision could have financially affected her.
It says, however, that there was enough of a link between her interest in the subdivision application and the council decision to create a risk of a perceived or actual conflict of interest.
It says Ms Barriball should have identified that risk and taken steps to remove herself from the decision, but it is neither in the public interest nor justified to prosecute her.