The welfare-to-work company A4e was forced to withdraw from part of a £900,000 project to place vulnerable people into work after an employee forged signatures on official forms.

A4e was helping to place 630 youngsters with disabilities and mental health difficulties into jobs in Teesside in a project funded with European Union money.

Former colleagues said the employee invented signatures to increase the number of people who appeared to have been placed in jobs or on courses.

The disclosure will add to questions concerning governance within A4e. The company, which has £180m worth of public contracts, is at the centre of a fraud investigation in Slough, where four people have been arrested. A subcontractor of A4e is also subject to an official inquiry. An inquiry into its Hull office resulted in one former employee being fined for falsifying job outcomes.

On Monday, Margaret Hodge, chair of the public accounts committee, told MPs she has received new allegations of fraud against the company. A spokesman for A4e said the company did not know about these allegations.

In February company founder Emma Harrison, who was paid an £8.6m dividend last year, resigned as an unpaid Downing Street adviser and as chairman of A4e. She denies any wrongdoing.

David Cameron told the parliamentary liason committee on Tuesday that if allegations of fraud against A4e are proven and show that problems in the company are systemic, then government contracts with the company could be halted.

The inquiry into forged signatures dates back to 2009 when A4e was among subcontractors working to Redcar and Cleveland borough council in the Elite Project, funded with European Social Fund cash, to help hundreds of young people who might otherwise slip through the net.

They included teenage parents, those with learning difficulties and disabled people. But a council inquiry found that learners' signatures had been forged. A source close to the inquiry said: "The fraud was obvious and was an attempt to make it look as if the individual had got more vulnerable people involved than was the case."

A spokeswoman for A4e said the employee resigned before disciplinary action was taken. "We would have treated this as a disciplinary matter," she said.

There had been no financial gain and no evidence of criminal activity. "This was a case of poor administration, nothing more," she said. "The individual involved admitted that she was the only person involved in this activity and had undertaken this activity of her own volition."

A spokesman for the council said: "In 2010, Redcar and Cleveland council had a contract with A4e to deliver part of a programme to support young people who were not in education, employment or training. After scrutiny regarding some of this work, part of this contract was discontinued."

Another part of A4e's contract – to evaluate the Elite project by interviewing young people – continued, sources close to the project said.

In a further development, Labour accused the prime minister of misleading parliament by failing to disclose A4e was subject to a fraud inquiry when Harrison was recruited as his adviser on troubled families in December 2010.

Last month, Cameron told MPs: "At the time she [Harrison] was appointed there were no formal investigations into A4e, there was just the company's own probe into irregularities."

The Department of Work and Pensions said in a statement that an inquiry into fraud in A4e's Hull office – first reported in the Observer in November 2009 – resulted in a successful prosecution in July 2011. A DWP official said this was a "live case" in 2010.Liam Byrne, the shadow cabinet office minister, called for Cameron to apologise to MPs.

"Incredibly, David Cameron is simply flat wrong. There was actually an investigation under way when he appointed Emma Harrison that was so serious that someone has been convicted.

"The government must publish all correspondence between officials and A4e so that we can start to get to the bottom of what's going on in this huge government contract."Downing Street has been accused of ignoring warnings that appointing Harrison as an adviser could lead to a conflict of interest.

Figures released to this newspaper show that the DWP has launched nine fraud investigations since 2005 into A4e's involvement in the Labour government's Flexible New Deal scheme and has asked the company to pay back money on five occasions since 2005. There was no case to answer in three of the inquiries, and there was no evidence of systemic problems in any of them, officials said.

DWP officials have told the Financial Times they warned No 10 of their concerns. Cameron told the Commons that information about alleged fraud at A4e had not been passed to ministers quickly enough and he had asked the cabinet secretary, Sir Jeremy Heywood, to investigate.

It has also emerged that A4e has been advising No 10 on value for money in privatisation, including writing a guide on contracting out.