Weaknesses in Westminster Council's investment strategy for £450million of taxpayers' cash have been identified by an independent report commissioned in the wake of the Icelandic bank fiasco.
The council lost £16m in the banks collapse in October and the report casts further doubt over Town Hall's ability to protect its investments during a recession.
Critics say the Icelandic losses were an example of unnecessary risks being taken with council cash and pointed at a failure to read the warning signs of imminent disaster.
It is a claim vigorously denied by the Town Hall, which says it ploughed cash into the banks when they had the highest credit rating - A1.
City Hall is still trying to secure the return of the millions frozen in the Icelandic institutions, but its reputation as a canny manager of public money has been tarnished by the affair.
The report, by leading accountancy firm KPMG, made several recommendations to avoid a repeat of the losses including:
Improvements in the control over investments
The council's treasury team needs to be strengthened
Changes to credit ratings holding council cash must be identified quicker
Senior managers need to be told quicker, and more frequently, how the investments are faring
The council should make better use of market information available to them
"This is a damning report exposing a catalogue of incompetence for which the Conservatives should take full responsibility," said Labour cllr Paul Dimoldenberg.
"We now know that the management and investment of more than £450m of public money has been put at risk."
Defending itself from the accusations, Westminster Council says it is a victim of economic forces beyond its control, and cited the commissioning of the independent report as proof of its determination to tighten control over its investments.
Cllr Melvyn Caplan, cabinet member for finance, said the study found the council's internal controls to check the status of investments were "essentially satisfactory" and were at no point "materially defective".
"Due to prudent management, we've ensured the council has sizable reserves to rely on times of need. We've not built up debts or squandered away money during the boom years, so we're in good shape to weather the current downturn," he added.
"I want to make it clear that at no point will frontline services be affected by the collapse of the Icelandic banking system."