The conviction for fraud of a former employee of a joint venture set up by Barnet council is a 'textbook example of why outsourcing fails', according to Labour.
Shadow communities secretary Andrew Gwynne, responding to the publication of the audit report on the £2m fraud case, said it showed the 'mass outsourcing experiment with our public services' had failed.
The report by Grant Thornton said there were insufficient financial controls in place for the outsourced finance and regeneration services.
Last month 38-year-old Trishul Shah, who was working as a capital investment manager for Regional Enterprise Ltd, set up by the council and outsourcing giant Capita, was jailed for five years.
He admitted two offences of fraud the result of 62 fraudulent payments on compulsory purchase orders in 2016 and 2017 totalling more than £2m.
The report by Grant Thornton said the council had insufficient oversight of the joint company which 'gave the individual access to cost centres on the ledger for illegitimate purposes'.
It said the council was aware of 'deficiencies in the governance arrangements' and had started work to address them, but it was not completed in time to detect or prevent the fraud.
Capita has pledged to underwrite the financial loss to the council.
Mr Gwynne said: 'In Tory-run Barnet, outsourcing has led to a litany of services problems, unstaffed library buildings, Ofsted ruling that the council is ‘failing vulnerable children’, and now accusations of major fraud linked to a Capita contract.
'Internal processes and monitoring clearly failed in this case - we urgently need action from the Government to ensure that this could not happen again.'