Northamptonshire County Council 'spent £41m of ring-fenced money'
A cash-strapped council spent £41.2m of ring-fenced money on "general expenditure", a new report has found.
Auditors KPMG said the sum, which was earmarked for specific projects, was instead spent on general purposes by Northamptonshire County Council.
This included £13m-worth of Section 106 cash paid by housebuilders to offset the impact of new developments.
The Conservative-run council said it would not be appropriate to comment during an investigation.
In August, the authority backed "radical" cuts to services to tackle a £70m funding shortfall.
KPMG, which is reviewing the council's accounts, found the £41.2m which was "ring-fenced" for projects was actually used for general purposes.
In July, the auditors' progress report said the council had "misappropriated" £8m of funds earmarked for public health projects.
The latest report has adjusted this figure down slightly to £7.9m and "extended testing over other ring-fenced grants".
"Evidence now exists which shows that projects previously presented to audit as time-limited one-off projects are in actuality ongoing costs," KPMG said.
As a result, just under £17m does "not meet the necessary criteria to be funded via capital receipts".
The auditors also revealed £13m was wrongly spent from Section 106 funds - money provided by developers for projects such as schools, roads and GP surgeries.
The report said: "Following subsequent discussions with officers, the authority has confirmed it no longer deems the use of this S106 money to be appropriate to fund general expenditure."
KPMG also found a company owned by the council had not had its books independently scrutinised for 20 years.
NEA Properties was set up in 1995 to promote the county and managed a number of units at the University of Northampton campus.
The report says it wrongly classified an £80,000 payment to Northampton Saints Rugby Club as a grant.
Councillor Andrew Gonzales De Savage told the auditors it was paid out with no expectation of repayment in July 2015 and authorised by Jim Harker, who was council leader at the time.
KPMG said it "should not have been classified and reported" as a grant and there was no evidence it had subject to oversight by the council.
The BBC has been unable to reach Mr Harker or Mr Gonzales De Savage for comment.