The Department for Communities and Local Government has appointed the professional services firm PwC to investigate Tower Hamlets Council after allegations were made that its mayor awarded grants to Bengali-run charities in return for electoral support.
Lutfur Rahman, who was elected as an independent mayor of Tower Hamlets in 2010, was accused by opposition councillors in a BBC Panorama documentary shown last week of awarding £3.6m to Bengali and Somali groups, despite recommendations by council officers that they should receive £1.5m.
Rahman, who denies the accusation, has executive power over the allocation of some grants made by the local authority.
The CLG said it had hired PwC to investigate the borough’s spending since 2010, including the authority’s payment of grants. A file has also been passed to the Metropolitan Police for consideration, the CLG said.
Eric Pickles, the Secretary of State for Communities and Local Government, said he had "long been concerned about a worrying pattern of divisive community politics and alleged mismanagement of public money by the mayoral administration in Tower Hamlets. This central action is not undertaken lightly, but localism requires local transparency, scrutiny and accountability, and these vital checks and balances must be upheld."
A Tower Hamlets spokesman said government auditors were meeting senior officers at the council last Friday.
"We welcome the opportunity to demonstrate that council processes have been run appropriately and to date we have seen no evidence to suggest otherwise," a statement from the council said. "This inspection affords the borough the best opportunity to demonstrate that the borough has acted in the best interests of all residents."