Douglas Sinclair: "Failures and omissions"

He received payments while he was still claiming full Westminster expenses as an MP.

The report by the council's chief executive Douglas Sinclair said that a number of employees had taken "inappropriate action" when dealing with Third Age.

Copies of the document have been sent to Fife Police and Audit Scotland, the financial watchdog.

There had been "failures and omissions", the investigation found.

Mr McLeish's wife Julie, a senior social worker with the council, gave the go-ahead for payments to the charity even though it had ceased to exist, according to the report.

'Serious allegations'

Most of the employees implicated are members of the Labour Party. They now face disciplinary action.

Mrs Marwick previously asked Audit Scotland to investigate the contributions to Third Age.

The party said the council gave two �20,000 payments to the group in April 1998 and May 1999, despite the fact that its management committee had been disbanded.

Tricia Marwick: "People's right to know"

Speaking on Friday, Mrs Marwick said: "It is clear that the allegations contained in this report are extremely serious and I believe that a full investigation by Fife Police is the only way forward.

"Cheques were signed and cashed after the Third Age management committee had been wound up, documents have been shredded and Fife Council staff are alleged to have access the accounts of the charity.

"The people of Fife have a right to know what happened to the missing money and Fife Council's report has failed to answer this question.

"It is now time for the police to take over from the chief executive of Fife Council and get to the bottom of this whole affair."

Mrs McLeish has taken legal advice and her representatives are now "urgently reviewing" the results of the council's inquiry.

'No further comment'

In a statement, they said: "While we can see that there may be a need for our client or this firm to issue a statement in due course fully identifying the various inconsistencies and inaccuracies in the reports, we have advised Ms Fulton (Mrs McLeish) that no further comment should be made until our review has been completed."

Before the report was published, Mr McLeish hit out at the treatment he and his wife had received over the Officegate scandal.

"She is now being treated, in my view, very badly by the council and the report has outraged her and made her very angry indeed," he said.

"I'm not Catholic, I'm not Protestant, I didn't go to Glasgow University, and I'm not part of the Lanarkshire mafia."

Fife Council's standards committee accepted the report's main findings and recommendations at a private meeting on Friday.

These included:

• There was no evidence that any money went astray

• There were failures and omissions by council staff

• The boundaries between politics, friendship and work were not maintained.

There will now be a review of the authority's financial procedures.

A register of interests will also be established for charity managers applying for grants.