A MAJOR charity with close ties to the council is being investigated by police, the Guardian can reveal.
The O-Regen group, also known as Orient Regeneration, is being probed following "an allegation of fraud" made by Hackney Council.
The shock revelation comes after the Guardian revealed last week that Waltham Forest Council had stepped in to help O-Regen after it reported problems with its finances.
It has also emerged that it has gone into administration and many community groups have not been paid promised funding.
O-Regen owns a number of key community facilities including the Epicentre and Click Centre in Leytonstone, the Score centre in Leyton and a training college in Blackhorse Lane, Walthamstow.
It also runs training, provides resources for community groups and allocates funding.
A police spokesman said: "The allegation was brought forward by Hackney Borough Council in March 2011 after an audit conducted by an external company showed discrepancies in funds."
No arrests have been made.
Meanwhile the chair of O-Regen's board of trustees, Conservative opposition leader Cllr Matt Davis, has spoken for the first time about its financial crisis.
In a statement, he said: "Very sadly the board has had to place O-Regen into administration.
"For the sake of the community and the people employed by O-Regen I hope it will be able to have a future and continue.
"I cannot comment further for legal reasons."
In a statement last week the council defended using its resources to help the independent O-Regen group.
A spokesman said: "O-Regen asked for our assistance in this matter and we obliged. There is no financial risk to the council in doing so."
Clive Morton, the council officer in charge of culture and leisure, is said to have been brought in to handle the crisis.
ANGER AS GROUPS MISS OUT ON FUNDING
Mohammed Ilyas, from Waltham Forest Islamic Association, was told by O-Regen about ten months ago that his group's application for £5,000 to help run social events and outings for their elderly members had been successful.
But in the months following, Mr Ilyas said he had to make several calls to find out when he could pick up the cheque - only to be told there was no money and he had to wait.
He claims at a meeting last November he was told his association would not be getting any money because their application contained errors.
Mr Ilyas said: “I am very angry because it feels like they have broken their promise.
“This money was to help the more vulnerable members of our community and we have now had to scale down our original plans because we just can't afford it.”
Flash Bristow, a co-organiser for the Leytonstone Arts Trail, said it was due to get funding earmarked for an animation project in schools.
She added: "The prospect of not getting any money is quite worrying.
"We have already put money into the project, because we thought we would be receiving some funding.
"If this doesn't happen this could affect other areas of the arts trail that need money."
'BUSINESS AS USUAL' AT SCORE CENTRE
In related news, the Leyton Orient Community Sports Programme (LOCSP) has moved to reassure residents that the services it runs out of the Score centre are not under threat.
A LOCSP spokesman said: "Leyton Orient Community Sports Programme have been managing the majority of SCORE services since it opened in 2005, and will continue to do so – ensuring that the facility continues to provide a range of sports, education and training programmes to the local community."
Its chief executive Neil Taylor added: “Quite simply it’s business as usual”.
Last week O-Regen's business operations manager De Mason denied all knowledge of financial problems.
No-one from O-Regen has since been available for comment.
The group employs 31 full-time staff and began operating in 1998.
It has also worked with the council under its Local Strategic Partnership and Neighbourhood Renewal Fund (NRF).
Accounts published by the Charity Commission show O-Regen has spent more than it received in income every year since 2006, adding up to a total loss of £1.6million.
A statement on its website says administrator A D Kent was appointed on Thursday May 5.