Kinnock in the firing line of investigation into Brussels fraud claims

Neil Kinnock, the European Commission vice-president, and another commissioner could "have their heads on the block", a senior MEP warned yesterday on the eve of crucial findings from an EU fraud inquiry.

Tonight, a chosen few MEPs are allowed into a sealed room to view at least two highly sensitive reports on Eurostat, the EU's statistical agency. Revelations that up to €920,000 (£638,000) of cash, generated by Eurostat, was funnelled into unofficial slush funds have provoked the most serious scandal to hit the European Commission president, Romano Prodi.

Yesterday, Pat Cox, the president of the European Parliament, said there was "a dreadful sense of deja vu" from the events of 1999 when the previous Commission was forced to resign en masse.

The row broke in May when questions emerged over the funds raised by Eurostat, which sold data to the private sector via a network of firms including Planistat, Eurogramme, Eurocost and CESD. Not only did investigators find cash was channelled into phantom accounts, outside the scrutiny of auditors, they also discovered the value of some contracts issued by Eurostat was artificially increased, that others did not exist and that some contractors held Eurostat funds.

Three of the three most senior Eurostat officials, Yves Franchet, Daniel Byk and Photius Nanopoulos, were moved to different posts. All deny benefiting personally. But German newspaper reports suggest cash may gone to fund activities ranging from travel and dinners to volleyball.

First in the firing line is the European Commissioner responsible for Eurostat, Pedro Solbes. Graham Watson, leader of the Liberal Democrats in the European Parliament, said he should quit if earlier allegations were borne out.

But Mr Watson widened his attack to include Mr Kinnock, who is responsible for reforming the administration, arguing the Eurostat case raisef questions on the effectiveness of Mr Kinnock's much-trumpeted clean-up. Mr Watson said if "there is a more general problem in the implementation of the package of reforms ... there is a question to answer and I think Kinnock's head is on the block."

Most MEPs believe Mr Kinnock will survive, and last night the European Commission began to fight back, announcing the results of an internal questionnaire to senior staff, which found no other phantom banks account in the Commission. The trawl of departments discovered only one questionable practice since the formal mandate of the Prodi Commission began in 2000, with €62,000 unaccounted for from the Office of Publications.

How hard MEPs will push for resignations will become clear from the reaction to today's reports. The MEPs believe the internal audit service, in particular, will give a good idea of how widespread the problems were at Eurostat.

But they also want to know why Eurostat was investigated for three years before commissioners say they learnt of a looming scandal.