Westminster council has dismissed one of its officers and set up a committee to monitor its corporate property department after an investigation by accountant PriceWaterhouse Coopers.
The investigation, which was requested in February, has concluded in an interim report that there was "an overall lack of compliance with the council's financial and contract regulations, leading to a high risk of error, mismanagement and/or fraud".
"Disciplinary actions are already under way in respect of two officers and others may follow if the work we have commissioned identifies any cause," the council said in a statement.
These measures have resulted in the dismissal of one officer and measures are being taken against a second.
A spokesperson for the council said there had as yet been no evidence of fraud or loss to the taxpayer.
The news came after a report by the council's head of property in January revealed Westminster had spent £583,000 on a Berwick Street development in Soho, which was later shelved.
The council report said "concerns were raised about the unusual level of expenditure incurred in the feasibility stages of this project", following criticism of the proposals at a planning committee in July last year. The council said that although European Union procurement rules had not been broken, there were concerns that the council's code had not been followed.