Warnings that police were investigating fraud allegations involving Emma Harrison's company were not passed to David Cameron before he appointed her as his "families tsar", Downing Street said yesterday.
It sought to distance the Prime Minister from the controversy as it stressed he was unaware of the inquiry into the alleged misuse of public money at her firm, A4e. The Department of Work and Pensions is understood to have been told by the company about the investigation in November.
But it appeared not to have relayed that information to Number 10. A month later, Mr Cameron appointed her an adviser on helping problem families get off benefits and into work. She was unpaid in her post, but A4e won further Government contracts worth £400,000.
Police arrested four people last month as part of the inquiry. Liam Byrne, the shadow Work and Pensions Secretary, said: "Downing Street is trying to 'pin the blame' on the Work and Pensions Secretary, Iain Duncan Smith.
"It simply beggars belief that no proper checks were made before this high-profile appointment. David Cameron must now explain why there was a fundamental breakdown of communication inside the Government."
The Prime Minister's official spokesman said: "There is an on-going police investigation that hasn't concluded. It would be wrong for us to pre-empt that investigation."