Hundreds of thousands of pounds of public money was given to an organisation representing private businesses in Waltham Forest by the council without a formal agreement on how the money should be spent or monitored, evidence suggests.

Data released under the Freedom of Information Act shows the council gave Waltham Forest Business Board (WFBB), set up to promote commerce in one of London’s smallest economies, £421,000 between 2009 and 2012.

A large portion of the money was given to the E11 Bid Company, which was established to support businesses in Leytonstone and is now the subject of a police fraud investigation.

E11 Bid’s managing director, Fawaad Sheikh, was a director of WFBB’s operating arm, Waltham Forest Business CIC, at the time the payment of £150,000 was made.

The council has so far provided no evidence that required checks were carried out before the money was handed over.

It has also not explained why WFBB, which is not accountable to the public, was used to distribute the grant when the authority gave E11 Bid large amounts of money directly on other occasions.

The council has so far provided no evidence that a formal arrangement was in place on how the money should be spent and whether outcomes were monitored, as required by law.

The payment to WFBB raises further serious questions about Waltham Forest Council’s handling of taxpayers’ money following previous long-term mismanagement.

WFBB insist E11 Bid’s application for funding was assessed by the council.

But the authority, which was responsible for assessing E11 Bid’s annual accounts, has not explained why the application was approved despite audits in 2010 and 2011 showing financial turmoil, with chaotic accounts and staff not registered with Her Majesty’s Revenue and Customs.

Deputy council leader Clyde Loakes was a director of E11 Bid between November 2010 and August 2011.

The authority said the money was allocated in accordance with government requirements.

A council spokeswoman said: “The £400,000 paid to the WFBB was a non-ring fenced grant, the Local Authority Business Growth Incentive, released by the previous government to help councils promote business growth locally.

“It was given to councils on a discretionary basis for them to utilise in accordance with business needs in their respective areas.

“This was therefore under grant conditions, as applied by the government to the council, and not technically a contract.”

The authority also said payments and project outcomes were monitored through progress reports submitted by the WFBB.

However, the council has refused to provide the Guardian with the relevant documents.

The authority says this is because a Freedom of Information Act disclosure is pending.

Michael Polledri MBE, chairman of the WFBB, said the expenditure was audited in full by Barnes Rolfe, with a full monitoring process from the local authority.

He said the money was divided between business improvement districts and various activities in the borough, such as shop front improvement grants and an appeal against business rates.

“As a business board we are held up as an exemplar throughout the country of good practice arrangements between the local authority and the private sector and I’m happy to stand on our record,” he added.

Nick Tiratsoo, whose research has uncovered failings in the management of public funds by Waltham Forest Council, said: "Once again Waltham Forest Council is found to be passing round public money without proper controls, this time to the unelected and unaccountable ‘representatives’ of the business lobby.

"That a large portion of these funds apparently then ended up with the crisis-riven E11 BID Co. only goes to show what happens when normal procedures to ensure probity are ignored."