Charity funds from the National Lottery are not being handled properly, according to a powerful Commons committee.

The Community Fund, which distributes £2.3 billion to good causes, was accused by the public accounts committee of having "weaknesses at every stage of its work".

In its report on Tuesday, the watchdog called for stronger risk assessments of the recipients of lottery grants and tougher penalties for groups that fail to meet conditions of their grant.

The fund was also ordered to come up with new strategies to stem falling lottery receipts.

Ministers ordered the investigation after the fund made controversial grants of more than £500,000 to the National Coalition of Anti-Deportation Campaigns which works on behalf of asylum seekers. The government argued the cash was being used for political purposes.

The fund also received criticism from the committee for not implementing recommendations it made in 2001.

Opposition attack

Conservative culture spokeswoman Julie Kirkbride said the report was a “shocking indictment" on the management of the fund.

"The fund was set up by the government to deliver it's own political priorities and has proven itself an absolute shambles," she said.

"Many worthwhile organisations should be outraged at the choices the Community Fund takes as to who receives vital funding.

"It is an organisation which goes to the heart of this government's inability to deliver value for money.”

Liberal Democrat spokesman Don Foster urged ministers not to abandon funding for community schemes.

"These criticisms serve as a timely reminder of how important it is that Lottery funding is allocated in an independent, fair and rigorous way," he said.

"With an ill-advised merger of the Community Fund and the New Opportunity Fund imminent, let's hope the government doesn't use these criticisms as an excuse to cut back on community based schemes."

A spokesman for the Community Fund welcomed the report and said it would take on board the committee's conclusions.