Ministers have promised to investigate claims that a charity charged with caring for people with learning difficulties spent NHS money on a holiday cottage, caravan and boat.
The Charity Commission has set up a separate inquiry into 'possible financial irregularities' at Integrate Services, Home Office minister Paul Boateng told MPs last week.
North Cheshire health authority is set to end its grant of£440,000 a year to the charity next month and has demanded the return of assets built up with NHS funds. Integrate's 21 elderly clients will be transferred to another charity.
A report commissioned by Integrate's solicitors last year, after staff expressed concerns to Warrington Community Healthcare trust, says the charity developed two arms, one for care and one for holiday provision. Its holiday facilities 'far exceed what might be regarded as reasonable to provide for its own residents'.
A second report commissioned by the charity shows cottage lettings were made to private individuals and other charities.
Integrate chief executive Trevor Upshall said the cost of holidays was going up every year, so it made sense 'to buy our own holiday accommodation'.
The second report, from PricewaterhouseCoopers, found that the cottage in Oswestry, Shropshire, was bought 'out of reserves' at a cost of£120,000. In total,£167,000 was spent on the holiday assets 'over a number of years'.
Warrington North MP Helen Jones told the Commons last week that the report 'makes it clear beyond doubt that there was consistent underspending year on year to build up reserves. That money had been given for the care of residents.' She said 'the whole purpose of the charity became the perpetuation of its own existence'.
She claimed there were 'heart-rending stories' about the impact of underspending on residents, who were transferred to Integrate when the former Warrington HA closed Newchurch long-stay hospital in 1987.
Mr Boateng told Ms Jones, that health minister John Denham would 'look carefully into the concerns'.
The first report, by former assistant director of social services for Sefton borough council Frank Watts, says Mr Upshall's contract allowed him to claim travel expenses from his Oswestry home to Integrate in Warrington.
Mr Upshall and his wife, Jenny, who also works for the charity, also claimed payments for 'on call' work.
Mr Upshall said none of the investigations had found evidence of fraud or unlawful personal gain. 'That is crystal clear.'
Alan Doran, chief executive of Warrington HA, admitted there had never been a written contract between the HA and Integrate, and he said the charity did not tell the HA about its move into holiday facilities.
Mr Doran said no-one had been disciplined as a result of the problems, but said there were lessons for the NHS 'in terms of financial monitoring and the role of charity trustees and clinical governance'.
Mr Upshall said Integrate 'had asked repeatedly' for a contract from the HA spelling out what they should be spending the grant on. 'We are not mind-readers.'
Ms Jones said: 'I am concerned about the regulatory system that has failed here. There is a question about how tightly we draw these contracts and there appears now to be a major democratic deficit here about the use of public money