Serious questions have been raised about the city council's financial relationship with a Winchester-based mental health charity which went bust, owing them £350,000.

The chairman of New Alresford Town Council has described the council's dealings with the Winchester Alliance for Mental Health (WAMH) as " scandalous".

Robin Atkins, a former accountant, is now calling for the District Auditor to probe the relationship between the charity and the council and to re-examine the charity's books.

He says the authority, which has bankrolled the charity since 1997, blindly lent the money without knowing whether it would be seen again and allowed a huge debt to build up. He is furious that the city's taxpayers will have to foot the bill.

WAMH ran the Bird in Hand activity centre in Parchment Street. The centre was forced to close last week, leaving dozens of clients without facilities over the Christmas period.

Cashflow problems caused by the difficulty of securing loans, particularly from Europe, meant it collapsed, the receivers being called in last week.

Creditors have until February 11th, to send in the details of debts to liquidator, Harold Wilkes, of Wilkes and Associates, who said the city council was "by far" the largest of the charity's creditors.

"The council lent the money based on expectations that never materialised," said Mr Atkins. "They obviously failed in realising the fact that their loans were at risk because the charity wasn't being funded. No bank would have lent on that," he added.

Freddie Allgood, chairman of the city council's principal scrutiny committee, admitted there had been no security on the loan and the first he heard of its financial problems was in March, when the debt had grown to as much as £400,000.

"We felt badly let down. Mrs Learney was in charge of money and she took a long time to inform us. It's basically her fault. She should have alerted us much earlier. The council deals with £20m a year and it's difficult to pick things up, but that's no excuse," he added.

Despite the charity reducing its debt by £50,000 via monthly payments since the spring, Mr Allgood conceded that the council would never fully recover its costs.

Commenting that the situation was "messy," he said the loss would hit city residents, as the debt would have to be recovered from the £5m reserve pool the council had set aside for public services. "We want to spend the money on things of benefit rather than soaking up debts," he said.

Cllr Kelsie Learney, responsible for finance and resources, described Mr Allgood as "forgetful" and said all councillors had been shown papers and informed of the debt over several years.

But she said the council's view was that the service was vital. "If we had shut it down, we would have taken the loss full stop, but as long as it was kept running, there was always a chance of getting the money back," she said.

Mrs Learney added that officers had been sent to assist the charity with the accounts when it was realised there was a problem but WAMH's business plans had looked positive.

Because it was a venture "run through a charity", she said, there was no "cast iron" security, and a lot had been taken on trust, which had unfortunately failed.

Admitting taxpayers would be footing the bill for what could not be recovered, she said: "It's significant, but not enormous and would have had to come out of the public purse one way or the other."

This week, Bird in the Hand users received a further blow when it was revealed that the Park Club would not be able to extend hours to cater for members over the Christmas period.

However, bosses at the centre are hopeful the Parchment Street centre will be reopened by Solent MIND early in the New Year.