The ex-treasurer siphoned the cash over a period from 1996 to 2007 from the inter-municipal association in the Morges region (ERM), west of Lausanne, the 24heures newspaper reported on Thursday.
The man, who was not named, cannot be prosecuted because he died several years ago.
It is not clear why it took more than six years to uncover the theft.
But officials expressed consternation and anger over the revelations.
“The municipality was made a aware of this a few days ago and we are all angry,” Vincent Jacques, the mayor of Morges, told 24heures.
“This shakes the confidence established,” Jacques said.
“On top, our town contributed 50 percent of the financing for the (association).”
Nuria Gorrite, the former mayor of Morges, now a Vaud cantonal cabinet member, told 20 Minutes newspaper she was shocked by this “serious” case.
Gorrite distanced herself from involvement in the matter, however, by saying that she never sat on the board of the association.