SCOTTISH Local Government Minister Calum MacDonald yesterday detailed a raft of measures to tackle financial mismanagement in councils, but denied he was conducting a ''witch hunt''.

Addressing the Association of Direct Labour Organisations conference in Glasgow, he said there had been a ''massive'' failure in the management of DLOs in North Lanarkshire and East Ayrshire, and action must be taken to ''flush out any further problems and root out mismanagement and incompetence''.

His comments follow the discovery of a #4.8m deficit in the North Lanarkshire DLO budget and a #3m loss in East Ayrshire. DLOs in East Dunbartonshire and Argyll and Bute have suffered less severe problems.

Mr MacDonald stepping up the attack on inefficient councils following a similar hard line by Scottish Secretary Donald Dewar - who called for investigations into the management and finances of Scotland's 32 councils - said he wanted to see audited accounts for all DLOs by September, threatened the private sector could be given more control over council services and said the powers of the Accounts Commission would probably be enhanced.

He added that the Government would also widen the powers of the Scottish Parliament to allow it to intervene when councils failed to deliver on its ''Best Value'' programme - which requires councillors to provide high quality, efficient and effective services.

As to whether those services were run by in-house bidders or private companies, he expressed ''no prejudice'', but although blaming the Conservative policy of compulsory competitive tendering for creating the current problems, he admitted that tendering may have to be used to replace failing DLOs.

Proposals to strengthen the powers of the Accounts Commission could be beefed up to look at DLO management systems and the organisation of councils, Mr MacDonald said, including comparing the performance of councils using ''league tables''.

It could also provide advice and guidance when councils developed performance plans and then monitor those plans and report back to the Scottish Secretary where failures occurred.

''This Government is not content to sit and wait for more nasty surprises, and the taxpayer wouldn't expect us to do so. Councils must be seen to be democratically accountable, responsive, and efficient. This is not a witch hunt - they have a responsibility to provide good jobs and services,'' he said.

Later, he declined to comment on who should take ultimate responsibility at the beleaguered councils until blame had been established, and would not predict the scale of the problem throughout Scotland.

Also at the conference, the SNP's Andrew Welsh, MP for Angus, called for a public inquiry into the DLO scandal, saying the problems which had arisen recently were endemic within local government.

''We must get to the root of these problems and tear them out of our system once and for all. From today's crisis might come tomorrow's progress,'' he said.

But Liberal Democrat MP for Edinburgh West, Mr Donald Gorrie, said it would be sad if good DLOs were ''swept away in knee-jerk reactions''.

The new chairman of the UK-wide Association of Direct Labour Organisations, Councillor Narendra Makanji, defended the role of the organisations.

He said: ''If there are some that are currently being looked at for failures and difficulties, there are many others which contribute back into the community.''

Meanwhile, Scottish Tory chairman Raymond Robertson yesterday wrote to Minister without Portfolio Peter Mandelson calling for Labour councillors involved in the financial scandal to be excluded from standing as candidates in the Scottish Parliament.

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