Next month, the Commons Public Accounts Committee will question council officials about the allegations, which have so far resulted in three people being charged. The council has an annual budget of pounds 408m and employs 6,000 people world-wide. It operates in 101 countries and is best known for its language classes, libraries and art sponsorship. This is the first time that its accounting procedures have been made subject to such scrutiny.
Earlier this year, officials discovered that cheques for large sums had been drawn on the council account used to make grants and loans. The police were called in and they found a total of pounds 520,000 had apparently been paid through a series of bank accounts bearing false names.
As they made their inquiries, the detectives are understood to have unearthed another instance of possible fraud of more than pounds 10,000 and a theft of around pounds 7,000.
Three people have been charged in connection with the largest alleged fraud - William Gamble, 62, a retired bank manager from Southampton; Julian Boles, 39, a diamond merchant from Covent Garden, London; and Edisson Ross, 39, managing director of Tryce International Plc of Regent Street, London. They have been charged with handling stolen money and committed for trial next spring. Police investigations into all three cases are continuing.
The National Audit Office, the public spending watchdog, has been asked to supply the PAC with a special memorandum detailing the suspected irregularities. The MPs' questioning could not come at a worse time for the council, which is struggling to fight Whitehall pressure to hive it off as an executive agency.
Currently, the council is run as a non-departmental public body, or quango. Officials, led by John Hanson, the director-general, argue that by becoming an executive agency it would no longer be perceived as independent from the Government and could lose credibility abroad.
Under Mr Hanson, the council is undergoing major reorganisation. Some 650 staff have been relocated from London to Manchester. Arts tours and exhibitions can now be jointly sponsored by private companies and the council has been competing for contracts from the World Bank and other agencies.
A council spokeswoman said: 'The British Council director-general, John Hanson, will be attending the Public Accounts Committee on 13 December.' She added: 'We understand the committee's main concern is a fraud involving some pounds 500,000 which was reported to the police and the Foreign Office on discovery in February 1993.'Reuse content