A local government watchdog has criticised the handling of millions of pounds of funding for a flagship regeneration project on one of London’s most deprived estates.

The Audit Commission found both Lambeth Council and Clapham Park Project (CPP) guilty of financial mismanagement of Government funding given from 2006 to 2008 to improve the Clapham Park estate.

Some 2,000 homes in the area were transferred to the community-led organisation by Lambeth Council in 2001 to unlock the £56m, 10 year regeneration funding programme.

But in a report published last week the commission criticised CPP’s financial practices, including a lack of evidence some funding was spent correctly.

It criticised the way some contracts to do work on the estate were tendered, and said insufficient inventories were kept of some of the assets funding had been spent on.

The investigation followed complaints from residents.

The report’s author Kash Pandya, then district auditor for Lambeth Council, said there were also significant weaknesses in how the town hall monitored the grants.

He said:“Although these were not unlawful and do not represent a failure to carry out minimum ‘accountable body’ responsibilities, the council and public should be aware of these weaknesses, especially in regard of how the council handles other partnership arrangements.”

Its criticism included inaccurate and uncertain information on some of CPP’s spending being included in the council’s accounts. The report does note new procedures were put in place after May 2008.

A spokesperson for Lambeth Council said: “We are satisfied that the issues raised in this public interest report have either been dealt with satisfactorily, or will be dealt with, and the council will continue to work effectively with its new external auditors Deloitte LLP to ensure any other actions identified in this report happen.”

A CPP spokeswoman said: "Since this issue was first raised in 2008, CPP has worked closely with Lambeth Council to ensure that all expenditure is reported in accordance with the Audit Commission’s guidelines.

"We would like to point out that every penny of public money has been accounted for and that recent audit reports have raised no further matters of concern."