Last week councillors in Keighley were urged by two of their own members to cease all trading at the town’s civic centre apart from the Police Museum.
Town councillors Amjid Ahmed and Javaid Akhtar put forward the proposal after warning that the council did not have enough money to cover the running costs of the centre.
The budget for the civic centre saw a £20,000 overspend last year and is heading for a projected £20,000 overspend this year.
The most recent figures suggest the civic centre is costing around £250,000 a year to run and bringing in only about £40,000 in income.
The recommendation to stop trading was defeated by 13 votes to 10, with one abstention.
One member, Councillor Gary Pedley, said continuing to trade would mean the council was breaking its own regulations.
Campaigners in the town who recently exposed a catalogue of poor decision making, highlighted in an audit report, have reported the issues to external auditor PKF Littlejohn.
In November PKF Littlejohn issued a public interest report which said the council may have broken the law by trading via the museum shop.
Civic campaigner Elizabeth Mitchell, who helped expose the previous wrongdoing, has written to Keighley MP Kris Hopkins, PKF Littlejohn and internal council auditors Veritau with her concerns.
Mrs Mitchell said councillors had voted to continue trading despite being over budget and having heard advice which suggested standing orders were being breached.
Her letter states: “The council has never declared any powers under which it has traded and, although on December 18 they decided to encompass the general power of competence (which gives councils the power to do anything an individual can do), they have not declared that this will be used.
“Under the Localism Act, trading for commercial purposes should be only done through a company.”
Mrs Mitchell referred in her letter to a covenant relating to how the civic centre can be used. Critics have claimed that the covenant forbids trading unless a licence is in place.
Last month the town council said it was investigating all aspects of the covenant and the legality of trading within the civic centre.
Mrs Mitchell’s letter adds: “I have had written confirmation from the Duke of Devonshire’s estate that there is no signed agreement in place with the council, to enable a licence to lift the covenant which prohibits trading.
“The estate also confirmed that no money had been paid over and that the restrictive covenant licence to trade could be granted to any other body.
“The council initially told the public that the council had to buy the building because the licence could not be granted to any other organisation, only the council.
“So, I would like to ask you whether continued trading of the café, bar, functions and museum by Keighley Town Council are lawful? And, if not, what will be done about it?”
The council is currently under investigation by West Yorkshire Police after Mr Hopkins wrote to the Force following the damning audit report.
The council’s new clerk, Tom Ferry, said recently he did not believe there was criminality within the council.