A COUNCIL has been criticised over its handling of a controversial land deal that sparked a fraud squad inquiry.

The investigation last year led to the arrest of Durham City Council's chief executive, Colin Shearsmith, and local businessman Robert Fulton Senior on suspicion of defrauding the council - but ended with no charges being brought.

Now District Auditor David Parkin has investigated the deal and found no evidence of impropriety.

He concluded that the deal was legal, but has criticised the way the council acted and recommended changes for the future.

The deal centred on a car park in Claypath, to the rear of The Northern Echo's rented offices, which the council needed for its £25m Millennium City development, part-funded by the Millennium Commission. The car park and office were owned by British Gas but bought by Mr Fulton in 1998.

The auditor said the council, which knew in 1997 it might need the car park, acquired it from him in 1999 in exchange for property valued at £825,000 which it owned.

As part of the deal, Mr Fulton paid the council £375,000.

The auditor said the land acquired a "ransom value" because it was vital to completion of Millennium City.

He said: "I understand that Mr Fulton paid £300,000 for both the land and the premises. He received £450,000 from the council for the land alone, within a period of less than two years.

"The council might have acquired the land at a lower cost had it acted earlier to make the purchase, or had a decision to purchase both the land and the premises been taken.

"However, uncertainty over the final project design, the conditions for grant funding and the council's limited financial resources appear to have made such decisions difficult," he added.

Mr Parkin, who said land values were confirmed by the District Valuer, said there was a lack of involvement of councillors when major decisions were made.

Mr Parkin's recommendations include keeping councillors fully informed on all matters of significance, particularly on major projects, and giving them greater involvement.

In a statement issued by the city council yesterday, Mr Shearsmith said: "This report draws a line under this issue.

"I acknowledge the comments made by the District Auditor within the report and his recommendations for the future.

"Even though councillors took all executive decisions in this project, they are already being given more opportunities to be involved with major matters at strategic level as part of the comprehensive modernisation of the city council.