The council has come under fire over a ‘shocking’ report showing the extent of the financial risks it is facing.

Audit officers said the council’s ability to control its finances deteriorated during the past year – including in areas such as basic fraud prevention.

It comes shortly after details emerged of a £2 million fraud case involving a former council employee on the Re contract with Capita.

Audit officers gave the council a ‘limited assurance’ rating for the most recent financial year – a decline on the ‘reasonable assurance’ rating given for the previous year.

Speaking at a meeting of the audit committee last night (Tuesday, July 17), Cllr Alison Moore, Labour member for East Finchley, said: “I find this report really quite shocking.

“Not only that we have got limited assurance but that it is a deterioration on the last year and a weakening of the control environment in the council.

“For so many reasons, that is disturbing.

“I welcome the thoroughness of the report, but I am quite shocked we have a deteriorating control system and the threat it creates.”

The audit officers reported “a number of areas where evidence could not be provided to confirm that basic fraud prevention controls were operating”.

Weaknesses were found in financial controls over the money the council receives from developers in Section 106 agreements and the Community Infrastructure Levy.

In total, the proportion of audit reports receiving a ‘limited’ rating rose from 11 per cent to 25 per cent year-on-year, with a decline in reports receiving a ‘reasonable’ rating.

Officers also said pressures on the council had risen due to “concerns around the financial sustainability of major external service providers”.

Kathy Levine, Labour member for Brunswick park, said: “I presume this is a reference to the state of Capita.

“We were raising for a year or two that Capita was likely to be in trouble. We raised it at the council meeting when Cllr Finn told us ‘we can sleep easy in our beds’- and the next day Capita’s shares fell through the floor.

“You really need to be less dismissive about it. You are far too defensive about wanting to show that the decision to go with Capita was the right decision that you are not scrutinising properly.

“I hope there has been a lesson learned and this audit committee is not going to be frightened of criticising and warning.”

Director of finance Kevin Bartle assured members that additional financial controls had been put in place and the council was committed to strengthening the “control environment”.

The council was also praised for the thoroughness of the report.

Co-optee Richard Harbord said: “As an independent member, I welcome this report. I think it indicates clearly that senior management understand the extent of the challenges they face.”

In June, the council came under fire after it emerged a £9.5 million black hole had opened up in its budget for the coming year.

Councillors will discuss bringing a range of outsourced services back in-house at a special meeting of the policy and resources committee on Thursday (July 19).