More than £20 million a year will be cut from the London budget over the next three years to cover irregularities in the 2012 Olympics accounts, councillors were told yesterday.

The threat to services comes after the London Development Agency discovered a big hole in its books during a routine audit. The anomaly means the agency, the Mayor of London’s economic and business unit, does not have the cash to cover compensatory commitments owed to businesses forcibly relocated from the Olympic Park in East London. The shortfall is thought to be between £60 million and £100 million.

Andrew Travers, the agency’s risk and resources director, conceded that projects would have to be delayed or scrapped over the next three years. “We are reviewing poorer value programmes and looking at whether new projects should be taken forward or whether they will have to wait,” he told the London Assembly’s budgetary monitoring committee.

Mr Travers declined to discuss details of an investigation by forensic accountants from KPMG into the irregularities before they delivered their report at the end of the month.

As reported in The Times last month, two members of staff at the agency have been suspended while the inquiry establishes whether or not the oversight was a genuine mistake.

The Olympic Legacy Directorate is the department at the centre of the investigation. It has paid nearly £750 million to date to assemble the land for Olympic development but in the coming months will transfer the assets to a new arms-length company chaired by Baroness Ford.

Suspicions of a financial irregularity were raised in March after Boris Johnson, the Mayor of London, ordered an agency-wide financial audit.

Mr Travers says he noticed in May that there was not enough money to cover a compensation payment and ordered a review of all land budgets before calling in KPMG.

“There were no warning flags through our proper management processes,” he said. “I don’t think anything was hidden. It is simply the case that in any organisation improvements could be made. These cases are complex and take time to resolve.”

The investigation has caused further embarrassment to an agency beset by financial scandal and has raised serious questions of corporate governance in the way taxpayers’ money is spent.