A public sector spending watchdog has urged all councils to learn lessons from a charity funding row which followed the downfall of former First Minister Henry McLeish.

The Accounts Commission endorsed a report clearing Fife Council of any wrongdoing in its dealings with the organisation at the heart of the Officegate affair.

But it said the matter held important lessons for all local authorities.

It has urged Scottish councils to examine and review their arrangements with bodies such as the Third Age Group, a luncheon club for the elderly in Fife which received funding from the council.

Henry McLeish resigned over the affair

The charity rented office space from Mr McLeish, whose failure to declare the sub-let forced his resignation and triggered several inquiries.

The Central Fife MSP stepped down as first minister last November over the Officegate row, which centred on six sub-lets of his constituency office in Glenrothes.

He failed to declare income from the tenants while also claiming full Westminster expenses as an MP for the area.

However, it also emerged that Fife Council had given the charity funding after it had been wound up.

'Wholly irregular'

In May, a report by Audit Scotland found that the council had given the charity grants of �98,000, a quarter of which was handed over after its management committee was wound up.

It expressed serious concern about this move, describing it as wholly irregular, but said that there was sufficient evidence to conclude that money was used for the purpose intended.

However, the report identified procedural shortcomings in the council's financial and other involvements with the Third Age Group.

The Accounts Commission, Scotland's local authority spending watchdog, has endorsed that report.

The commission said Fife Council had agreed a wide-ranging package of measures to be carried out following the Audit Scotland report.

Scottish councils are encouraged to identify and review their arrangements with arms-length bodies

Accounts Commission report

And it declared: "The commission endorses the need for a national review of councils' involvement with arms-length organisations and looks forward to the outcome of that exercise.

"In the meantime, Scottish councils are encouraged to identify and review their arrangements with arms-length bodies."

Bruce Merchant, deputy chairman of the commission, said that although the problems had been highlighted at Fife Council, the affair held important lessons for all local authorities.

"All councils need to have proper governance arrangements in place, in particular audit committees or their equivalent," he said.

"Equally important is the need for proper arrangements when dealing with arms-length bodies like the Third Age Group.

"In these circumstances councils need to be clear about why funds are being given to these bodies, how the money will be used and accounted for and ensure that proper monitoring arrangements are in place."