Glastonbury was one of more than 100 towns in the UK to receive investment from the government’s Town Fund scheme.
The Life Factory project was meant to see a derelict former factory block transformed into a community events space, offices and youth facilities.
But Somerset Council froze funds to the scheme in January 2024 after bosses said they were not “able to adequately reconcile invoices” included in grant claims with the actual spend and progress on site.
The authority commissioned an independent audit which found it had “no assurance” there was sound governance or financial controls in place at Red Brick Building Centre Ltd or Somerset Council.
It highlighted failings by Red Brick, the council and Beckery Construction Company Ltd, a subsidiary set up by Red Brick to deliver the project.
Somerset Council said it was seeking repayment of £2.29m paid to Red Brick.
It is also seeking the return of £115,715 from the Glastonbury Food and Regenerative Farming Centre.
Red Brick was in charge of delivering both projects, although the council said there were “no issues” with the food and farming centre.