Image copyright Getty Images Image caption Baroness Scotland is head of the Commonwealth Secretariat - the organisation's main intergovernmental agency

The secretary-general of the Commonwealth, Baroness Scotland, has been strongly criticised by internal auditors for awarding a lucrative consultancy contract to a company run by a personal friend.

The international organisation's Audit Committee accused her of "circumventing" the usual competitive tendering rules by awarding a £250,000 commission to KYA Global.

The firm, owned by fellow Labour peer, Lord Patel of Bradford, was contracted to carry out a review of the Commonwealth Secretariat, the body headed by Lady Scotland from London.

But the audit committee report claimed that Lord Patel's firm was "apparently insolvent" at the time with debts worth more than £40,000. And it stated that the Commonwealth Secretariat was unable to provide the auditors with KYA Global's final report setting out its recommendations.

The committee's report - obtained by the BBC - expressed concerns that the Secretariat's "acts and omissions" in relation to the contract - and other alleged failings it identifies - "[endanger] the integrity" of the institution and risk "serious reputational if not actual damage".

Lady Scotland's lawyers insisted the decision to award the contract was fully justified and complied with procurement procedures at the time.

The Secretariat is the central administrative hub for the Commonwealth, made up of 53 countries - many of them former British colonies - which encompass almost a third of the world's population.

The critical report may raise fresh questions about whether Lady Scotland will be given a second term of office by Commonwealth heads of government when they meet in Rwanda later this year.

There is already disquiet among some member states about the way the Secretariat has been run.

The BBC understands that one leading Commonwealth country has recently stopped giving funds to the institution.

Lady Scotland and Lord Patel were once Labour ministers together in the House of Lords.

Image copyright Twitter Image caption Baroness Scotland tweeted a photograph of herself with Lord Patel in 2016

The investigation into his appointment was carried out by the external accounting firm KPMG in September last year at the request of the Commonwealth High Commissioners in London, who together form the international organisation's board of governors.

KPMG found that the consultancy contract was given to Lord Patel in April 2016 on "the personal recommendation from SG Scotland" because he had "a high level of proven trust with the secretary general".

Lady Scotland asked one of her deputies to fill out a form waiving the usual competitive tendering rules, which she then approved.

The audit committee said the initial contract was for £90,000 inclusive of VAT for three months' work.

That was then extended for a second contract worth £162,000 for a further six months' work, it claimed, and no other firm was considered.

According to KYA Global's accounts, the firm at the time had assets of £971 and debts of £48,762.

In its report, dated 21 November 2019, the Commonwealth's audit committee said: "Awarding an apparently insolvent company two contracts totalling £252,000 is unusual."

The committee said it was concerned that "disclosing a real or perceived conflict of interest and then instructing a subordinate to prepare the waiver in order to approve it circumvented a fundamental control in the procurement process".

It also found that the Secretariat had no register either of tender waivers or conflicts of interest and was unable to explain why not.

Under Commonwealth rules, competitive tendering procedures can be waived in certain circumstances, such as if a decision has to be taken urgently or if there are not enough suppliers.

The committee identified no fewer than 50 occasions between July 2015 and June 2018 when the usual procurement tenders had been waived by the Commonwealth Secretariat.

Some of these decisions predated Lady Scotland's appointment in April 2016.

Image copyright Twitter Image caption Baroness Scotland tweeted a photograph of Lord Patel in 2015

The report concluded: "The audit committee is concerned that the acts and omissions set out above as well as the absence of any explanation for those failures endangers the integrity of the Secretariat.

"At the very least the failures identified risk serious reputational if not actual damage to the Secretariat."

It added: "Despite requests, the audit committee have not been provided with the report prepared by KYA Global and delivered as a final document by 30 June 2016 as required in the initial contract."

In a statement, Lady Scotland's solicitors, Carter-Ruck, said that KYA Global Ltd was awarded the two contracts "on the basis of its proven track record in change management consultancy" and its services were "dearly needed" at the beginning of Lady Scotland's term of office.

It said: "This decision was wholly justifiable and SG Scotland was advised that this complied with the procurement procedures that were in force at the time.

"SG Scotland began her post as Commonwealth Secretary-General on 1 April 2016 when the Secretariat was in a very poor financial position and was in dire need of reform. "She was tasked with transforming the organisation urgently.

"The appointment of KYA, a leading change management consultancy, was one of the steps SG Scotland took to bring about that change in haste."

Image copyright Getty Images Image caption Commonwealth boss Baroness Scotland

Carter-Ruck insisted that KYA Global "has never been deemed insolvent and it is false to insinuate otherwise".

It said: "The assertion that KYA Global was a legally insolvent company is wrong and has been made clear to the Secretariat's audit committee chair.

"In addition, it is false and misleading to say that KYA Global was awarded contracts totalling £252,000.

"Rather KYA Global was actually awarded two contracts worth £75,000 (plus VAT) each. These contract awards constitute heavily subsidised rates from the fees which KYA Global could have charged the Secretariat."

The statement continued: "The decision to award KYA Global the contracts has been fully justified in light of the recent success of the Secretariat which has gone from strength to strength in recent years and has successfully undergone a modernisation process.

"The Secretariat has complied fully with the request of its auditors and has adopted and implemented, or is implementing, their recommendations."

The BBC made repeated attempts to contact Lord Patel but there was no response.