go on www, go and see the head guy and be very professional, act like it isn't your problem, you can always walk, but dump him in it completely with the stats. You must treat the boss completely like an equal, tell him what he should think of you, and then he will listen.
go in and say "look, I'm a freelance. I go in and out of a lot of organisations. I work for a lot of people who, if I was in a permanent post, would be working for me. Or, in fact, who I'd sack. I don't have a problem with that, I'm good at getting on with the good the bad and the ugly, and if I don't enjoy a job I leave. And I've never had to discuss a manager with his boss before. But in this case I really do feel I have to for all sorts of reasons. First, I'm not the first good person who is likely to leave the firm because of him, and unless he is dealt with I'm not going to be the last. This may just cause high staff turnover which you can live with, but it may eventually result in litigation which will be your problem.
Second, because the message he is providing the firm with about the department is untrue, the statistics are wrong. That is an issue for you, who has ultimate responsibility, and obviously also for the firm as a whole and its shareholders. Third, because he can't keep his trousers closed, and this results in bad team morale, undeserved promotions, and potentially more litigation.
So. There are all the issues - the only one I'm concerned about is - am I going to be able to carry on with my work in a professional and well managed environment - for example by reporting directly to you, or in fact taking over [wanker]'s job on a contract basis while you deploy him elsewhere and look for someone else for the long term role - or am I going to get paid out of this contract by you and part amicably?
Go on, give it a shot. It will be deeply empowering and satisfying.