Labour-controlled Merton's direct services organisation ended up pounds 16,294 in the red on the contract. Under Whitehall rules the organisation is expected to make a profit, or break even, running the service to provide meals on wheels and food to residential homes and day centres.
It made a pounds 6,520 profit in 1991-92. Final accounts for 1993-94 are likely to show another profit.
In 1992-93 unexpected staff sickness meant more cash spent on agency staff and overtime.
That has led Mr Gummer to serve a notice on the council, forcing Merton officials to explain. If he is not satisfied, he could take the contract away.
The Department of the Environment said: 'Where a local authority does not make a profit the loss is borne by the council tax payer and we want it to account for making a loss.'
But Peter Holt, chairman of the DSO board, said: 'The circumstances of the deficit were isolated and the problem was dealt with. I'm confident the DoE won't take it any further.