The Dunedin City Council has laid a police complaint claiming 152 of its fleet vehicles were sold and the money pocketed.
The council called in accounting firm Deloitte in May this year to investigate its Citifleet and Citipark departments after finding a discrepancy in the number of vehicles on the books.
The investigation follows the sudden death two weeks earlier of the departments' long-standing team leader Brent Bachop.
The council has announced it laid a formal police complaint alleging fraud of more than $1.5 million because it received no proceeds from the sale of the 152 council vehicles which took place over at least a decade.
The council will not say how many people have been implicated, though it says it has employment processes under way relating to a small number of staff due to a lack of checks and balances which should have been in place.
The council's chief executive, Sue Bidrose, said today it appears that the alleged fraud was possible because of inadequate internal checks and balances within the council.
Dr Bidrose said she is committed to keeping ratepayers and residents informed about the case, but will not be releasing the Deloitte investigation report at this stage so the police investigation is not prejudiced.
She said the council has been doing many things to tighten up its processes, including creating an Audit and Risk sub-committee, a central contracts register and updating its whistleblower policy.
The local government sector says the fraud case is not acceptable for public money. Local Government New Zealand president Lawrence Yule said he is surprised and disappointed.
"The allegation is that one and a half million dollars has effectively been stolen from the ratepayers over a long period of time 150-odd vehicles, and I just don't think that that's acceptable and we need to make sure that actually ratepayers are protected from these type of events."
Mr Yule said the Dunedin City Council is doing the right thing cleaning up all parts of its operations.