Lambeth faces fraud inquiry into £22m housing black hole

COUNCIL bosses are facing an investigation over a possible £22million overspend in housing budgets.

A catalogue of errors and mismanagement led to the shortage in Lambeth council's finances, which could cost each taxpayer an average of £220.

Now a cross-party commission has recommended investigation into the possibility of fraud after private landlords were paid for houses that were lying empty. Their report, to be released on Thursday, says the group was "astounded" at the "reckless" behaviour concerning the use of private sector properties to house the homeless.

Houses were left empty while the Labour-controlled council continued to pay private landlords for their use, and it regularly took six weeks for new tenants to move in once occupants had left. In one incident 300 squatters moved into the Limerick Court housing estate for six months, costing the council an estimated £500,000.

Bosses also failed to account for a cut in funding from the Department for Work and Pensions. All these factors led to an overspend of £6million in 2007/8, a projected overspend in 2008/9 of £7.5million and a shortage of between £6.38million and £8.65million for 2009/10.

The total overspend could be as much as £22million. It is unclear how much of this is down to the funding cut, genuine errors or alleged fraudulent practices.The commission also heard that contractors were completing inspections of their own work without it being checked by council officers and that this led to the "the danger of fraud and corruption."

The findings come as the leader of Lambeth council, Labour's Steve Reed, becomes lead member for housing on London Councils, which represents all 32 boroughs. He has blamed Lambeth's housing problems on the former Lib-Dem leadership.

A spokesman for the Labour party in Lambeth today defended its actions, saying it had launched an investigation, before accusing the Lib-Dems of "hysterical accusations".

"An immediate investigation was ordered after which appropriate actions were taken against the managers who made the mistakes. The report entirely vindicates this firm approach," the spokesman said. "Furthermore, after two thorough investigations absolutely no evidence of fraud has been found."

The row comes amid growing concern at council bosses' reliance on private landlords. Evening Standard has revealed that £2.4million of taxpayers' money is spent every year to house just 16 families in London. The families, all on benefits, are living in properties worth millions of pounds.