Merton has been branded a “fraudster’s paradise” after a range of measures to stop council employees abusing the system were found to be inadequate.

Auditors highlighted 10 cases of “fraud or irregularities” in 2011-12, with three members of staff accused of incorrectly claiming housing benefit, with one resigning prior to being brought before a disciplinary hearing.

Only one council department had properly declared their interests last year – a safeguard against senior managers being able to personally gain from the way they spend public funds – and across the council £37,788 had been wrongly spent on duplicate payments to external suppliers, with another £39,754 highlighted for further investigation.

The revelations, which also include queries over credit card spending, come as the council’s standards committee were told last week that nearly a fifth of financial reporting recommendations were ignored by last year, including three deemed to be “high risk”.

Councillor Richard Hilton, a member of Merton’s standards committee, said the council was not doing enough to tackle potential fraud.

He said: “Only 15 people were prosecuted all year by Merton Council – a fraudster’s paradise paid for by hard-working and struggling families.

He added: “The chief executive needs to be held to account for this and he needs to prioritise some of these actions because this is extremely worrying.

“I think we need to look again at having an audit committee, which we scrapped last year because Labour thought it was unnecessary, but this report shows that we’re just not up to scratch.”

A separate report also raised concerns about the lack of controls on the 200 employees with staff purchasing cards, which are intended for buying “low value” items but in some cases were used for tens of thousands of pounds in one year.

Fifteen cardholders spent more than £10,000 on council credit last year, the highest being a manager in the Children Schools and Families department, whose bill totalled £66,000 for 33 transactions – an average of £2,000 spent each time.

The report said: “It could be argued that some cardholders are not using their cards in the way it was intended... some cardholders are using the purchasing card as their preferred method of paying for goods and services.”

When asked what the 33 payments were for, a Merton Council spokesman was unable to provide examples but said: "On this occasion the purchase card was used for normal council activities in the area of children's services, to the benefit of young people in the borough."

Concerns were also raised as to why the bank did not reject payments when council officers had spent more than their spending limit, which are generally set at £1,000 a month although some officers do have higher limits.

It was also found some purchases were made with non approved suppliers – including the buying of computers and computer accessories, which is in breach of the council’s information technology policy.

The council has now ordered a general review to be undertaken and will decide whether credit and transaction limits should be tightened.

The council’s head of audit, Margaret Culleton, concluded: “Weaknesses in internal controls have been identified and audit advice and recommendations have been provided where necessary for improvement in controls.”

Merton's cabinet member for finance, Councillor Mark Allison, said: “Overall our careful approach to spending people’s money, including recovering money when repeat payments are made and trying to use purchase cards only when that’s the best way of paying for something, has helped us keep council tax low and deal with reductions in our government funding."

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