This article is more than 1 year old

This article is more than 1 year old

A government fund under investigation for handing money to a business owned by a close associate of Boris Johnson has given £68,000 to a company that funds a Conservative minister’s private salary.

Grants given by the cybersecurity immediate impact fund are being reviewed after it emerged that Jennifer Arcuri’s company Hacker House was awarded £100,000 earlier this year.

Questions have arisen about the company’s eligibility for the fund, which is for the UK-based applicants, after it emerged that Arcuri lives in the US and calls to her company’s business number are diverted to a US reception.

Labour’s deputy leader, Tom Watson, has demanded the review should include a payment of £68,424 given to Crucial Academy Ltd, which is paying £85,000 a year to Johnny Mercer, a Tory MP and ally of the prime minister.

Johnson appointed Mercer as minister for military personnel in July.

Watson has raised concerns that the firm is ultimately funded by Surge Financial, which was paid for marketing a failed bond scheme, losing thousands of savers £236m.

Paul Careless, the owner of Surge Financial, was arrested in June by officers investigating the collapse of London Capital & Finance.

In a letter sent to the culture secretary, Nicky Morgan, Watson wrote that he raised concerns in April about a grant-in-aid payment of £68,423.93 to Crucial Academy made by the government fund.

“Crucial Academy is ultimately funded by Surge Financial Ltd, which took a 25% commission for marketing bonds from the corrupt London Capital & Finance Ltd (LCF).

“Almost 12,000 people put £230m into LCF which entered administration earlier this year. The administrators have found a number of ‘highly suspicious transactions’ to a small interconnected group of people who ended up with large sums of investors’ money in their own personal coffers. Crucial Academy also employed Johnny Mercer for £85,000,” Watson wrote.

In the letter seen by the Guardian, he said both grants were associated with “questionable business practices” and had connections to politicians.

“This raises questions about the appropriate use of public funds and the due diligence systems in place,” he said.

Mercer, a former army officer, stood down as a non-executive director at Crucial in June and was appointed as an executive director instead. He has maintained the same salary, despite becoming a defence minister.

Mercer told the Guardian he knew about the grant to Crucial but had not known which fund it came from.

“I was proud of my work as a non-executive director for Crucial Academy – an exciting project facilitating veterans into cybersecurity after a career in the military,” he said.

After the Guardian pointed out that he was still registered as a director at Companies House, Mercer said he would be stepping down from Crucial after discussing the job “just this week with the permanent secretary in the Ministry of Defence”.

A spokesman for Surge Financial said: “At no point did Surge ever touch a single penny of LCF bondholders’ money. Surge is a third-party marketing company that was paid a fee for providing a range of services to LCF.”

A spokesman for Crucial Academy said: “Due process was followed in every grant application.”

Arcuri, an American who moved to London seven years ago, was given £126,000 in public money and was treated to privileged access to three foreign trade missions led by Johnson while he was mayor of London.

The government has confirmed it has frozen a £100,000 grant to Hacker House, pending a review by the Department for Digital, Culture, Media and Sport. The money, which was awarded earlier this year, was intended to foster digital skills in the UK.

The government’s claim that it properly verified the grant appeared to be unravelling this week amid mounting evidence about the company’s tenuous links to the UK.

After a minister said necessary checks on the firm to ensure it was UK-based involved verifying it had “a British phone number”, the Guardian called the number and got through to a US-based member of staff who would not confirm her exact location.

According to LinkedIn, only four of the 11 employees recorded on the site are located in the UK, and one of them is Arcuri, who moved to the US last year.