The news came less than two months after another police inquiry was launched into the disappearance of hundreds of highly valuable texts from a religious library.
A Metropolitan Police spokesman said the latest investigation, involving tens of thousands of pounds, was focusing on the Waltham Abbey cemetery on the London-Essex border. The consecrated burial ground is owned by the United Synagogue. Although Dr Sacks is seen by many Jews and non-Jews as the spiritual leader of British Jewry, he is technically the Chief Rabbi only of the United Synagogue, the main orthodox movement with 70 congregations in the United Kingdom.
In recent years, the United Synagogue has been beset by financial problems, declining attendances, tensions with non-orthodox Jewish groups, increasing disenchantment among women and younger members and a declining Jewish community. "The United Synagogue is the troubled House of Sacks," according to one community insider.
The latest problem emerged when United Synagogue officials discovered massive overspending at the Waltham Abbey cemetery in June and called in the police. The gardening bill was found to be out of all proportion to the cemetery's size. There were also inexplicably high costs for the maintenance of roads and paths, as well as for equipment.
Several caretakers and maintenance workers responsible for the Waltham Abbey site and half a dozen other Jewish cemeteries in east London have been sacked since the financial irregularities were revealed, said Elkan Levy, President of the United Synagogue.
Adding to the embarrassment for Dr Sacks and the United Synagogue, the investigation also revealed that due to an administrative error - unconnected to the alleged fraud - two corpses were buried in a single grave in 1988, causing great distress to the relatives. The United Synagogue is currently waiting for Home Office permission to disinter the coffins.
Meanwhile, the first police investigation into the disappearance of hundreds of valuable Jewish texts from a religious archive is continuing. A senior religious judge at the United Synagogue Beth Din (religious court), Dayan Casriel Kaplin, 66, of Golders Green, London, was sacked over the removal of the valuable documents and books - one of which turned up for sale in Israel. Mr Levy said: "There are certain people who you naturally assume are beyond reproach."
The total value of the material removed from the Beth Din library over several years was estimated as being more than pounds 500,000. Inquiries began after a 500-year-old edition of a work by a medieval Spanish rabbi was bought in Israel by a London-based collector for around pounds 55,000. On his return, the collector wanted to compare the volume with a copy supposed to be in the Beth Din library, only to discover that his edition in fact belonged to the Beth Din. Since the discovery of the missing texts, Dayan Kaplin has paid pounds 200,000 to the United Synagogue. An expert has now been employed to audit the library.
The two scandals had exposed lax management, admitted Mr Levy. "It provides us with a major opportunity to get our house in order and reconsider our entire organisational structure," he said.
A spokeswoman for the Chief Rabbi said he was "fully aware and being kept informed" about the latest developments in both scandals. Dr Sacks attempted to revitalise his leadership recently when he launched a pounds 900,000 appeal to fund a "new phase" in his "Decade of Renewal", which he launched when he took over the Chief Rabbinate in 1991.
With Anglo-Jewry now below 300,000, his proposed projects include actively reaching out to young people and a website communicating his "vision and teachings". Dr Sacks said: "What the Jewish world needs most today is an Orthodox presence that is clear, confident and consistent, one that speaks in the language of compassion and tolerance, intellectual openness and ethical integrity."
But sceptics claim the vision being outlined is not so much a new phase in his programme as a bid to relaunch it, after a period fraught with controversy over his flagship initiatives and, most bitterly, over his response to the death of Britain's leading Reform Rabbi, Hugo Gryn.
Rabbi Gryn, who was known to millions through BBC Radio 4's The Moral Maze, was denigrated by Dr Sacks in a leaked letter written to an ultra- Orthodox rabbi, as "one of those who destroy the faith".
When Dr Sacks came to office, he was feted as a towering intellect, a man combining a passion for Orthodoxy and a sense of the modern world. And while few have argued that Dr Sacks's prominent national profile brought credit to the community, some of his most loyal supporters have begun to ask whether this has come at the price of his core constituency.
A former leader of the United Synagogue, Judge Anthony Ansell, recently launched a blistering attack on Dr Sacks. "The Chief Rabbi should put to one side the Government, the Royal Family, The Times and the BBC and concentrate on United Synagogue communities," he said.Reuse content