Garvin Reed, 50, has been suspended from his post as deputy leader of Rotherham council and banned from the town hall during a South Yorkshire Police fraud inquiry into the National Local Government Forum Against Poverty.
Two Rotherham council officers seconded to work for the forum have also been suspended and at least six others implicated in claims that the Forum mis-spent an annual budget estimated at more than pounds 250,000.
The council said yesterday it had begun a "purge" of the forum's influence in Rotherham politics, including an investigation of evidence that separate "double expenses" claims had been submitted to the forum and the council for identical travel, accommodation and entertainment costs.
"We uncovered the web of influence the forum enjoyed," a senior council officer said. "We have been able to shut off the caucus."
Mr Reed was convener of the anti-poverty organisation, established in 1993 by a consortium of UK local councils "to help provide regional and national strategy bases, to campaign and to think". Rotherham council gave pounds 22,500 to the forum's running costs this year, and has spent a total of pounds 400,000 in grants, services and fees since 1994. More than 150 other local authorities are understood to have paid annual subscriptions of pounds 2,500-pounds 3,500 in return for briefings.
Five detectives have been assigned to the inquiry. They are members of the team investigating the affairs of neighbouring Doncaster council. "The council has underwritten the forum, and paid staff salaries," the official said. "But it has operated independently. We know now that a lot of its budget has gone on expenses, and some of it has involved what is locally known as `going to Manchester to get to Cleethorpes'." Mr Reed was in Dublin attending the Fianna Fail annual conference with a number of Rotherham council staff, including Bob Bone, a council employee seconded to work for the forum, when police raided the group's offices.
The two men have denied forum funds were misused. Mr Reed now faces suspension by regional officials of the Labour Party.
"I understand the police inquiry is into the misappropriation of funds, but it is nonsense. I haven't a clue what it is really about ... but I have nothing to hide," said Mr Reed.
Mr Bone has resigned as secretary of Hemsworth Labour Party, and from Crofton parish council, West Yorkshire. He said the allegations were "arrant nonsense".