The source said £1m had been due to arrive on Friday, but had not done so. The source said the charity's Transforming Lives programme, which works with marginalised young people in Cornwall, Wales, Northern Ireland and the Scottish Highlands, would be an immediate victim of any cuts. Its 4front Awards for leadership and development in deprived communities, which were announced only last week, would also be affected.
The source said the foundation had been inundated with calls from worried beneficiaries, adding: "We have managed prudently and can pay for projects we have committed to, but we are facing a situation where we will be in operation until 2009 but have nothing to spend."
A spokesman for Camelot denied that £1m had been due to the foundation today. He said: "As was envisaged, Camelot's relationship with the Camelot Foundation will not continue beyond the second national lottery licence, which ends in early 2009. Accordingly, in the run-up to the third licence, Camelot will be bringing its funding to an end.
"Camelot's overriding duty is to maximise returns to the good causes; ceasing its funding to the foundation will enable Camelot to be even more cost-efficient and return even more money to the good causes."