SCOTTISH Secretary Donald Dewar last night announced he is to ask the independent Accounts Commission to conduct a full audit of all 32 council direct labour organisations in the wake of the North Lanarkshire scandal.

The new inquiry, to be ordered next month, will be separate from the current Scottish Office investigations of council spending.

Two more councils yesterday admitted their accounts showed unexplained deficits in their DLO budgets. In addition to the #4.8m loss at North Lanarkshire and #3m at East Ayrshire, one of East Dunbartonshire's DLO units has made a loss of #483,000, and Argyll and Bute said it was projecting a potential financial deficit for the year.

Mr Dewar was speaking after making clear in a BBC Scotland TV recording of Words with Wark scheduled for transmission tonight that he foresaw the end of the ''cultural climate which assumed it was always important to keep work in-house''.

In his strongest language yet, he hinted that the days of old-style direct labour organisations are numbered. After the programme he said: ''We must always test the market by tendering exercises which must be absolutely genuine.''

Asked if this heralded a widespread loss of jobs in DLOs, Mr Dewar said that ''unpleasant'' decisions might have to be taken, and he added: ''Whatever happens the services must be delivered.''

He described events in North Lanarkshire as a ''disaster'' and said he suspected that ''financial disciplines collapsed and the original tendering processes were abused'' in those councils with deficits now emerging.

Financial problems now emerging in Argyll and Bute and East Dunbartonshire were ''not comparable'' with those in North Lanarkshire and East Ayrshire, Mr Dewar said, because they concerned overdrafts which had been known about for a considerable time.

Earlier, Tony Blair was forced to come to Mr Dewar's defence, as the row spread to Westminster.

Tory leader William Hague accused the Prime Minister of presiding over ''spectacular mismanagement'' and called for a public and independent inquiry into the misuse of direct labour organisation budgets.

In one of his most effective Commons attacks yet on Mr Blair, Mr Hague used Prime Minister's Questions to drag him into a controversy that has left the Scottish Secretary looking increasingly embattled, challenging him to take responsibility for what Labour ''is doing to local government in Scotland''.

Mr Blair hit back, saying Labour had acted swiftly to investigate each allegation of local government corruption in Scotland. The Tories, he said, had failed to act in the Westminster housing scandal a decade ago.

Mr Hague dismissed the counter-attack. ''It is talk, talk, talk - and nothing to show for it. When are you going to stop talking about these problems and start acting on these problems?''

Meanwhile, the Convention of Scottish Local Authorities yesterday issued two reports highlighting the urgent need for local authorities to clarify who was ultimately accountable.

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