The former Aston Pride regeneration partnership paid more than £100,000 without authorisation to a firm of Birmingham solicitors despite the efforts of a whistleblower to expose what was happening.
Birmingham City Council, the accountable body for Aston Pride's £55 million budget, knew about the payments but failed for five months to take action, according to an official report.
A council fraud inquiry upheld a number of allegations made by Robert Cope, former programme manager at Aston Pride, who attempted on a number of occasions to warn about the organisation's financial difficulties.
The inquiry found that a "significant breach" of council standing orders enabled Aston Pride to pay more than £100,000 to legal advisers Anthony Collins Solicitors without going through a formal tendering process.
Former Aston Pride board members, who were given mobile phones for business use, signed agreements to pay for personal calls. They failed to do so.
Investigators found that Mr Cope first warned the council of unauthorised payments to Anthony Collins in May 2002. Officers finally ended the payments in November 2002.
