The boss of a Glasgow gay centre has been suspended from the Labour party after evidence of serious financial irregularities was uncovered.

The Castro centre, headed by Labour councillor Ruth Black and her partner Jeanie McDougall, has also had its council funding of £50,000 suspended, meaning it is likely to close down.

Ms Black is a close ally of shamed former council leader Steven Purcell, who stood down in March in bizarre circumstances.

She has been questioned by police three times since March over allegations she procured drugs for Mr Purcell and claims he used undue influence to award her the £50,000 a year centre contract. She has denied all wrongdoing.

According to the Herald, the new leader of Glasgow City Council, Gordon Matheson, removed the Labour whip from Ms Black last week after the authority’s internal auditors discovered the irregularities.

A second meeting cancelled the Castro centre’s grant.

The irregularities uncovered included non-payment of tax and NI for staff, despite deductions from wages, the employment of Ms McDougall’s son against council grant rules and running the centre with no public and employee liability insurance.

The newspaper reported that further investigations were made into “massive” phone bills, payments to and from gaming machines and the use of a grant to buy a car.

The centre has £44,000 worth of debt. Ms Black said it would continue trading without the grant although senior council sources said this would mean it was trading insolvently as it has received less than £20,000 of the grant.

Ms Black defected from the Solidarity Party in 2007 to join the Labour party. She won the contract to run the Castro centre in October 2009.

She was the head of a previous incarnation of the LGBT centre but left in December 2007, six months before the centre collapsed with debts of £300,000.

The Herald claims it has been given documents showing that Ms Black allegedly said Mr Purcell supported her bid to run the centre five months before the contract was awarded.

She has not commented on her political future or the Castro centre.

Mr Purcell fled his Glasgow home after quitting as the city’s leader.

He told the Sun four weeks after resigning that he had used cocaine a “handful” of times.

He said he had checked into rehab and attempted suicide in the week following his resignation.

Mr Purcell was once regarded as one of Scottish politics’ brightest stars.

He was elected, unopposed, as leader of Glasgow city council in May 2005 at the age of 32 and came out in 2006.