SCOTTISH Secretary Donald Dewar will today take action against North Lanarkshire Council over a #4m deficit, which he said appeared to represent an intolerable level of failure.

Mr Dewar announced yesterday that a statutory notice would be served on the council, requiring leaders to explain the hole at the centre of the council's direct labour organisation's (DLO) accounts.

He could then order the council to put lucrative contracts out to tender or even shut down the DLO altogether.

The row centres on the discovery of a deficit of more than #4m in the building and roads accounts at the council.

Auditors investigating the deficit also uncovered what appeared to be an #800,000 stock ''write off''. In addition, they revealed that a plumber working for the authority earned #54,000 one year, #4000 more than his department head.

The plumber was reported at the weekend to be Jim Smith, of Overtown, Lanarkshire. Other manual workers were said to have received huge salaries from bonuses and overtime payments.

It was also claimed yesterday that an unnamed plumber at the authority was paid for working a ''25-hour day''. It was said he had worked for the DLO 24 hours-a-day, every day, during a three-month period. On one of those days, he submitted a worksheet for 25 hours, stating he had done so because he had worked during his lunch hour.

SNP group leader Richard Lyle made the claims after receiving the information in an anonymous telephone call from a man in Holytown, Lanarkshire.

The auditor's investigation reported a ''fundamental breakdown'' in monitoring and control of the DLO's results.

The council's own chief executive, Mr Andrew Cowe, admitted the preliminary investigation amounted to a ''damning indictment''.

A senior official has been suspended, and the council has said it will not hesitate to call in the police to investigate, should this be required. The authority has already put the #30m-40m housing maintenance contract out to tender. It is the main contract for the DLO, which has a turnover of around #75m.

One Labour source said yesterday the scandal had placed a question mark over the accountability of the council's leaders who are hoping to stand for the Scottish Parliament.

Leader Harry McGuigan had put his name forward for selection as a candidate and was not expected to encounter any problems. However, the latest developments are likely to prove a setback.

Scottish National Party chief executive Michael Russell said the

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Scottish Secretary must ''come clean'' about Labour's attitude to Mr McGuigan and finance convener John Pentland after the party's ''boasts that they would stand only the highest calibre candidates''.

He said: ''It is clear that, with a deplorable record like this, Labour can't be trusted to run the Scottish Parliament or Scotland's local authorities.''

A Scottish Labour spokesman declined to comment on individuals involved in the selection process for reasons of confidentiality.

Mr Dewar said in a statement issued yesterday: ''I am very concerned about the picture which is emerging in the North Lanarkshire direct labour organisation.

''I have had information from the council and reports from my officials which, on the face of it, show a level of failure which the Government cannot tolerate. I have therefore decided to take swift action and use my formal powers to deal with inefficient DLOs.

''I will not hesitate to use my powers if I think they are the best way of ensuring efficiency and value for money.

''DLOs exist to provide quality services competitively. If they cannot do that, then others will have to provide them. That is what the public deserve and expect.''

A spokesman for the council said speedy action had already been taken to tackle the deficit problems. He added: ''We are doing everything we can to get to the bottom of this and deal with it as quickly as possible.''

The council will be given up to a month to respond to the Secretary of State's statutory notice before any action is taken.

Meanwhile, a new row was brewing last night over a town-twinning trip to Tuscany by Lord Provost Vincent Mathieson and director of administration, Mr John O'Hagan, at the height of the DLO affair.

SNP councillor Kathleen McAlorum said she was appalled that the ''junket'' had gone ahead at a time when key council figures should be on hand to cover the deepening crisis at North Lanarkshire.

She said: ''The twinning was hastily finalised on May 14. The Provost and Mr O'Hagan were aware of the DLO crisis a week before it blew up and should have cancelled the jaunt.

''To me it shows that not even the collapse of an entire department and the possible loss of 1600 jobs will stop our leaders going on these foreign jaunts.''

The council said the trip had been organised two months ago.

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