Fraud by charities worth millions is going undetected

The government's spending watchdog has warned that failure to grant full access to the accounts of private and voluntary bodies that spend billions of pounds of taxpayers' money every year leaves the door open to fraud.

The government's spending watchdog has warned that failure to grant full access to the accounts of private and voluntary bodies that spend billions of pounds of taxpayers' money every year leaves the door open to fraud.

But in a Commons debate today, the Treasury will defy a demand from Sir John Bourn, head of the National Audit Office, for an automatic right to open the books of non-government bodies. Ministers have also been accused of behaving in a "constitutionally improper" way by David Davis, chairman of the powerful Public Accounts Committee.

The row will come to a head today as the National Audit Office highlights the case of the Focus Housing Association in the West Midlands where a £1.6m fraud remained undetected for four years. An audit office investigation was delayed by six months because it had to negotiate the right to step in.

The problem has worsened in the past few years as a growing proportion of government funds has been spent by such organisations. These include the Housing Corporation, which spends more than £1bn a year on social housing, and private contractors building hospitals and prisons, as well as a vast range of voluntary bodies that receive government grants. Public Finance Initiatives already in the pipeline are also due to take £75bn from the public purse.

While the spending watchdog does not want the right to track public money "down to the paper clips", as one source put it, he believes it should be allowed to inspect any books that the Government can see, though access to the most sensitive projects could be denied.

Two employees from the Focus Housing Association were jailed in April this year along with a Birmingham property dealer who admitted offering them bribes in return for inflated prices on properties they bought from him.

Focus had paid £1.1m more than the market price for 50 houses costing a total of £1.8m while a further £500,000 was lost on maintenance work that cost far more than the market rate.

Treasury ministers will propose a compromise today after its defeat during debates on the Resources and Accounting Bill in the Lords last week.