Controversial welfare-to-work firm A4e was facing fresh police investigation last night as it emerged it had once sent a jobseeker to look for work in a lap dancing club.
Three whistleblowers yesterday handed MPs a 'damning' dossier of alleged fraud at the firm, which is one of five prime contractors on the Government's flagship £5 billion Work Programme.
Following an extraordinary row between Labour and Tory MPs on the powerful Commons public accounts committee they were 'gagged' from giving their evidence in public - partly because of fears it could compromise future police investigations.
But their evidence, including details given during a two-hour session behind closed doors, is now expected to be handed to police, who are already investigating alleged fraud at the firm, the investigative website EXARO revealed.
Some of the allegations are believed to relate to events this year, which leaves the company's claim that it has stamped out fraud open to question.
The three whistleblowers told the Daily Mail they could not speak out in public because they did not want to interfere with possible police investigations.
Labour MP Austin Mitchell said the whistleblowers have provided 'a damning indictment of processes and structures at A4e' and 'several indications of possible fraud'.
Robert Devereux, permanent secretary at the Department for Work and Pensions, who sat in on the private session, conceded that the evidence 'did indeed sound damning'.
Mr Devereux three times refused to say whether A4e was a 'fit and proper' company to hold public contracts, despite holding £438million of contracts on the Work Programme.
But he said many of the allegations related to previous back-to-work schemes, where he acknowledged contracts were flawed. He said the risk of fraud on the Work Programme was all but eliminated because contractors were paid only when people left benefits and were placed in a job.
Yesterday it emerged that in the past at least one jobseeker was sent to look for work in lap dancing clubs through A4e - a practice that has since been banned.
An internal audit conducted by the firm in 2009 found that its Bootle office had placed one jobseeker in Liverpool's 'X in the City' club, a lap dancing bar frequented by Premiership footballers.
The placement was not against the rules at the time, but auditors warned that placing people in inappropriate jobs could damage A4e's reputation.
A4e hit the headlines this year when it emerged that the firm's founder Emma Harrison had paid herself a bonus of £8.4million last year, almost all of it resulting from public sector contracts.
Mrs Harrison, then David Cameron's 'back to work' tsar, quit after it emerged the firm was being investigated for fraud, although she retains an 85 per cent stake in the company.
A4e, which was locked out of yesterday's evidence session with whistleblowers, yesterday branded the committee's inquiry 'highly irregular'.
The firm insists it has a 'zero tolerance' approach to fraud and last night said it would co-operate fully with any fresh police inquiry.
But a spokesman added: 'It is highly irregular for the committee not to call witnesses from a company it is being highly critical of.
'We have a transparent whistleblowing process and it is a shame that these individuals chose not to use it.'
But Margaret Hodge, Labour chairman of the committee said the firm had already been asked to give evidence twice.
Mrs Hodge said: 'We are looking at fraud across the Government's employment programmes. We have already heard from A4e and we will do so again if necessary.'
Ministers at the DWP are said to be furious at the committee's decision to probe one of its main contractors. Tory MPs on the committee are said to have been pressured to tone down the inquiry.
One Tory source yesterday said it would have been 'inappropriate' to hear yesterday's evidence in public before it had been given to the police.