A 44-year old man has been arrested in Wolverhampton by West Midlands police in connection with the fraud which has cost North Ayrshire Council £270,000 and South Lanarkshire Council £102,000.

The local authorities were duped into paying bogus invoices to sophisticated swindlers posing as contractors.

The fraudsters pretended to be bona-fide firms and claimed their bank details had changed before siphoning-off the cash from the councils.

A Strathclyde Police spokeswoman said: “Officers from Strathclyde and West Midlands Police economic crime units are working closely together to investigate alleged acts of fraud within local authorities in North Ayrshire and South Lanarkshire.

“At present, a 44-year-old man has been arrested by West Midlands Police in connection with an alleged fraud at North Ayrshire Council.

“We work closely with all police forces, sharing information in order to expedite the arrest and conviction of individuals involved in criminal activities.”

North Ayrshire Council’s director of finance Alasdair Herbert said that the scam was discovered in September.

The council had been reviewing its procedures for updating creditors’ bank details following e-mail alerts regarding a nation-wide fraud.

He said: “It has now emerged that – prior to that review – we had processed a forged document from a bogus company claiming to be one of our creditors.

“The forged document was used to fraudulently obtain a significant sum of money from the council between September and October.

“We contacted the police as soon as we discovered that the fraud had taken place and this resulted in an individual being arrested and charged in Wolverhampton.”

He added: “We are confident of recovering at least £117,000 of the £270,000 which was fraudulently obtained and will work with the police, banks and our insurers to recover as much of the money as possible.

“We have alerted other local authorities and local businesses to the methods used in this fraud and would be willing to share any information they may require to ensure they do not fall victim to the same crime.”