An investigation is under way at Midlothian Council into serious fraud allegations over the awarding of road servicing contracts to at least one private company.
It is understood a senior official is alleged to have set up a “fake” company or companies and effectively handed himself up to £2 million worth of council work.
It is not known whether other individuals were also involved in the fraud.
The council confirmed the investigation was taking place.
A source said the fraud was alleged to have been carried out over a period of about three years up to the middle of last year.
The matter came to light when other council staff raised concerns with senior councillors. More than 50 people have already been interviewed about the claims which are focused on the council Fushiebridge depot near Gorebridge. Police have been informed about the allegations but are understood to be waiting for the council to complete its investigation before taking any action of their own.
A Midlothian Council spokesman said: “Following serious allegations being raised by members of staff regarding suspected procurement irregularities, a full investigation is being conducted.
“The council takes such allegations very seriously and is prioritising the conduct of the investigation to ensure that public monies are protected.
“The investigation report and subsequent actions will look to identify and resolve any procedural failings and take all appropriate further actions.
“We are keeping our external auditors and Police Scotland fully informed on the progress of the investigation. The council is not in a position to comment further until this work has been completed.”
A police spokesman said: “Police Scotland is aware of an internal investigation being conducted by Midlothian Council and officers await the conclusion of their inquiries.”
Audit Scotland also said it was aware of allegations about “suspected procurement irregularities” and was being kept informed by the council’s external auditors, Ernst & Young.
A spokesman said: “Once the investigation being carried out by the council is complete we will decide whether further action is needed.”