UP to £34m may be missing from the accounts of a controversial North-East development agency, it is revealed today.

An official report into the Teesside Development Corporation (TDC), wound up almost four years ago, has detailed a "damning indictment of corporate mismanagement".

Following complaints by local MPs, an investigation by Parliament's independent financial watchdog, the National Audit Office (NAO), has concluded that £23m is currently unaccounted for. But it warns that figure could yet rise to as much as £34m.

The report says that a significant proportion of the £23m black hole was a deficit of nearly £18m for the building of the Tees Barrage.

It also details how the TDC committed multi-million pound funding for projects without getting the necessary approval of the Department of the Environment.

In some cases, official proposals were submitted to the Government long after money was committed.

In November 2000, Cleveland Police closed an investigation after finding no evidence of criminal offences involving the TDC.

But Ashok Kumar, Labour MP for South Middlesbrough and East Cleveland, described today's report as "a damning indictment of corporate mismanagement". It showed "the levels of arrogance and mismanagement that characterised the TDC".

He pointed out that warnings about the conduct of the TDC in its transactions were not picked up by DoE officials, and plans to intervene were abandoned when chairman Sir Ron Norman threatened to resign.

The MP said: "This shows the cavalier fashion that characterised the way the TDC was run, and it provides a timely warning to government that quangos should never again be allowed to run in this fashion."

The report reveals how the TDC failed to follow official guidelines and broke Government rules in its financial dealings.

At its last meeting in 1998, the TDC's board approved payments of £5.1m without the knowledge of the Department of the Commission for New Towns, which took over responsibility for the TDC's assets.

In the dying weeks of the TDC's life, chief executive Duncan Hall granted a developer a £500,000 loan - a practice banned by the official rulebook. The developer subsequently went bust and the loan was never repaid.

Mr Hall and the DoE's top civil servant, Sir Richard Mottram, will be cross-examined at a special hearing of the Commons Public Accounts Committee on Monday.

Other findings of the NAO report include the sale of land below its market value - resulting in losses of a possible £4m; other transactions leading to a shortfall of £5.3m; and £1.6m compensation to developers when projects did not proceed.

The TDC board also approved Mr Hall's full performance bonus each year, up to and including 1998. In March that year, he was paid the full ten per cent bonus of £6,800 - £1,700 of which he was later made to repay.

Vital documents relating to marketing and developers' contracts could not be found by investigators, and may have been shredded.

The DoE's lack of proper oversight of the winding-up of the TDC is also attacked.

Dari Taylor, MP for South Stockton, said: "When you then find out that key files could not be found and that there had been a shredder in the Corporation's main office you ask, is this the tip of the iceberg?

"It was a misuse of taxpayers' money that has left me thoroughly disenchanted with an organisation so arrogantly dismissive."

She also said that the DoE had ignored rules being broken by the TDC.

Mr Hall speaking from his home in Staindrop, County Durham, last night refused to comment but said he would make a statement later today.

However, Mr Hall has always insisted that official guidelines were followed and that there is no mystery over the disposal of TDC assets.

Former TDC chairman Sir Ron, who lives near Hartlepool, said that he had not seen the report but had a "fair idea of what it says".

He added: "The people of Teesside will judge the TDC and in particular its Chief Executive on its achievements of regeneration throughout its lifetime.