Allegations of suspected fraud and money laundering by a former employee of Tower Hamlets Council are being investigated by the police.

A report presented to councillors this month details that the concerns relate to ‘alleged inappropriate procurement and approval of services and payments involving undeclared conflicts of interest’.

This has ‘potentially led to the council suffering significant loss’ due to ineffective controls in place, says the value for money report by EY.

An internal council investigation, called Operation Nextwage, was launched after the council was alerted by police to potential criminal activity.

The EY report confirms this investigation looked at ‘how a member of staff was able to allegedly commit fraud against the council’.

It also confirms that this probe has since resulted in ‘the dismissal of the individual involved’ and that Tower Hamlets is continuing to investigate ‘whether any other individuals were implicated’.

A council spokesperson has confirmed police are still investigating the incident, which dates back seven years.

EY’s report also found ‘significant weaknesses’ in the council’s oversight and governance arrangements, adding that ‘while some steps have been taken, we remain concerned that the pace and urgency of the response have not matched the scale of the challenges’.

It concludes that Tower Hamlets Council ‘remains exposed to further risks in relation to its best value duties, internal control environment, risk management, compliance with laws and regulations, and the potential for fraud or unethical behaviour’.

In their response to the report officers say that the issues identified ‘stem from legacy arrangements and historic underinvestment, which the council is actively addressing through a comprehensive programme of reform’.

The council spokesperson added that the situation described in the EY report ‘covers a period from 20 months to eight months ago and therefore does not reflect the council’s current position as significant improvements have been made since that time’.