Eric Pickles has appointed inspectors to investigate ‘worrying’ allegations of fraud and governance failure made against Tower Hamlets LBC.

Firm PricewaterhouseCoopers is already on site at the local authority, while a file has also been passed to the Metropolitan Police for consideration – the Department for Communities and Local Government confirmed.

Laws that came into force today allowed the communities secretary to appoint investigators to examine the council. The government department said numerous documents had raised ‘serious concerns’ about the town hall.

‘It is a matter of public record that I have long been concerned about a worrying pattern of divisive community politics and alleged mismanagement of public money by the mayoral administration in Tower Hamlets,’ Pickles said.

‘I hope this sends a strong signal that robust processes are in place to investigate allegations of failures in financial management and governance in local government, under the new regime introduced by the Local Audit and Accountability Act which replaces the Audit Commission.

‘This central action is not undertaken lightly, but localism requires local transparency, scrutiny and accountability, and these vital checks and balances must be upheld.’

Set to report its findings in the summer, the PricewaterhouseCoopers investigation will look into evidence of the council’s payment of grants, transfer of property, spending decisions in relation to publicity and other contractual processes from 25 October 2010 to the present day.

A Tower Hamlets Council spokesman said: ‘We welcome the opportunity to demonstrate that council processes have been run appropriately and to date we have seen no evidence to suggest otherwise.

‘This inspection affords the borough the best opportunity to demonstrate that the borough has acted in the best interests of all residents. We will release further information in due course.’

The mayor of Tower Hamlets, Lutfur Rahman, said: 'I welcome the secretary of state's decision to send independent auditors to review our grants processes. This review will demonstrate that the council acts in the best interests of all Tower Hamlets residents.

'I have written to the secretary of state inviting him to visit the borough. I hope he will make an early visit and observe for himself the great things the council, community organisations and businesses are doing working together with all our residents.'

A BBC Panorama investigation earlier this week alleged the Bangladeshi Tower Hamlets mayor Lutfur Rahman had more than doubled funding recommended for Bengali run charities, claiming allocations had motivated by gaining electoral advantage.

Responding to the claims made by Panorama, Rahman said: ‘Councils are complex organisations and we found that the production team had made many incorrect assumptions. It is our belief that the Panorama team formed a view and then sought the evidence to fit their story.’