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HACKNEY Council last week appointed a senior barrister to head an internal inquiry into its record on tackling fraud and corruption in the recruitment of town hall staff.
Ian MacDonald QC will conduct a six-month investigation before reporting back to the north London authority with a set of recommendations.
Other inquiry panel members are Hackney councillors Ian Sharer, Madeleine Spanswick and Simon Matthews.
Hackney's announcement came a week after neighbouring Islington was condemned in an independent report for allowing sex offenders access to children in council homes.
Both inquiries were sparked by allegations that 'politically correct' policies had allowed malpractice to flourish. In Islington they were said to have let paedophiles and pimps operate unchecked.
In Hackney it was said the council failed to tackle widespread fraud.
It has been claimed a drive to increase ethnic minority staff numbers led to a reluctance to take disciplinary action against fraudulent officials.
Acting chief executive Mike Craig denounces the connection between racism and fraud prevention. "We reject any suggestion that these issues are in any way linked," he says.
Among the incidents which have sparked controversy are the dismissal of Bernard Crofton, former housing director, for alleged racism. His supporters say he was sacked for trying to expose fraud.
The inquiry's terms of reference are: "To consider the measures taken by the council to detect, investigate and prevent fraud and corruption in recruitment and to determine whether further action is required."