THE advertising giant WPP is investigating allegations that the former head of its Italian operations was involved in a complex internal fraud.

Kroll, the corporate investigator, and Deloitte, which is WPP’s auditor, have been appointed to undertake an urgent review of the group’s media-buying operations in Italy. The inquiry centres on Marco Benatti, who left the group three weeks ago.

Deloitte and Kroll have been drafted in alongside three Italian law firms to examine a series of companies and overseas accounts in places that include Scotland and Madeira. One line of inquiry focuses on Benatti’s alleged interest in firms that WPP either owned or traded with.

Benatti, who was employed as a consultant, is alleged to have introduced a media-buying firm called Mediaclub to WPP. The advertising group agreed to pay Benatti a commission of about £140,000 for introducing Mediaclub.

WPP acquired Mediaclub about three years ago for a sum equivalent to £14m. Further commission payments were due to be made to Benatti, depending on the performance of the business.

However, subsequent inquiries by WPP are understood to have uncovered that Mediaclub was ultimately controlled and majority-owned by Benatti. He is alleged to have manipulated performance figures for some of the subsidiaries under his control to secure higher earn-out payments for himself and business associates.

The investigation is also focusing on other alleged conflicts of interest and illegal payments. The investigation was triggered when a row broke out between Sorrell and Benatti over the size of the earnout that the Italian thought he was due. WPP believed the figure was about €300,000 (£205,000) while the Italian wanted €8.9m. Sorrell then ordered a more detailed investigation of Benatti’s financial affairs.

Benatti’s contract was terminated personally by Sorrell on January 9. Sorrell and Benatti have since met in London, but a settlement has not been reached.

The probe will be an embarrassment to Sorrell, who is renowned for his forensic knowledge of WPP’s hundreds of subsidiaries around the world. It will also be awkward because he had a relationship with Daniela Weber, the chief operating officer of WPP’s Italian arm, who was hired by Benatti six years ago.

Weber still sits on the board of WPP Italy alongside group finance director Paul Richardson.

The WPP board has been kept informed about developments. No formal statement has been issued because any losses are not believed to be material to WPP’s worldwide operations.

WPP’s revenues in Italy in 2004 were $250m (£140m), with about half of that figure accounted for by media-buying operations. To put this in context, WPP’s total group revenues are in the region of $10 billion. But the Italian operation is involved with media billings worth $2.5 billion. Sorrell, who was at the World Economic Forum in Davos last week, declined to comment. Benatti could not be reached.

Times Recommends

• Lies and cover-up at MG Rover exposed by report
• High oil prices push manufacturing costs up
• Primark founder steps down as chief executive