Government commissioners are to be sent into Rotherham Council after a culture of “complete denial” over child sexual exploitation in the town was exposed.
A report commissioned by Communities Secretary Eric Pickles said the authority was “not fit for purpose”.
Council leader Paul Lakin has resigned and the council’s cabinet is also to step down.
An earlier inquiry found 1,400 children were abused by gangs of men, mainly of Pakistani origin, from 1997 to 2013.
The National Crime Agency (NCA) said the latest report, by Louise Casey, the director-general for troubled families at the Communities Department, identified “a number of potentially criminal matters”.
Files passed to the NCA relate to one former and one existing councillor arising from the inquiry, Ms Casey’s spokesperson said.
Investigators found the council had a “deep-rooted” culture of cover-ups and silencing whistleblowers, Ms Casey said.
It also found the child sexual exploitation (CSE) team was poorly directed, suffered from excessive case loads, and did not share information between agencies.
Ms Casey said: “This inspection revealed past and present failures to accept, understand and combat the issue of child sexual exploitation, resulting in a lack of support for victims and insufficient action against known perpetrators.”
A spokesman for the NCA said it would “examine a number of potentially criminal matters identified during a recent inspection of Rotherham Metropolitan Borough Council.”
Mr Pickles said he planned to give control of the council to a team of five commissioners, including an overall lead and one tasked specifically with looking at children’s services.
They would “provide new leadership” and take over the roles of the “wholly dysfunctional cabinet,” he said.
He also plans to impose early elections in 2016.
He said the elections would give people a chance to “renew the membership of their council and elect those they have confidence in”.
The council has 14 days to respond to his “wholly exceptional” proposals, he said. He hoped control would be returned to Rotherham Council as “rapidly as possible,” he said.
A statement announcing the resignation of Rotherham’s cabinet was released shortly before Mr Pickles outlined his plans.
A victim’s story
“You could tell with my appearance. I went to five-and-a-half stone and different coloured hair. I was a totally different person.
“Obviously, there were warning signs there. I wasn’t going to school, I wasn’t going home so there’s no way that they couldn’t have realised that something was wrong.
“A worker got involved with me. She was trying to tell people what was happening but nobody would listen.
“There were various authorities that knew what was going off and decided to ignore it. I had a child protection officer, she ignored it, someone from social services, they ignored it.
“There were various meetings about me, which were saying if there was anybody found to be dead it’d be me.”
It said: “[Louise Casey] clearly has no confidence in the current political leadership of Rotherham Borough Council.
“As a cabinet, whatever the details, as the political leadership of the council we must take responsibility.”
Ms Casey was asked by Mr Pickles to inspect the council in the wake of theJay Report in August 2014.
The inspection team reviewed about 7,000 documents, looked in detail at case files and met more than 200 people, including current and former staff, council members, partners, victims and parents.
According to the report, child abusers in Rotherham are identified but “little or no action is taken to stop or even disrupt their activities”.
Rotherham Council demonstrated a “resolute denial” of the child abuse that was taking place, the report found.
Ms Casey said the local authority was “repeatedly told” by its own youth service what was happening.
It chose, she said “not only to not act, but to close that service down.”
Michael Buchanan, BBC Social Affairs Correspondent
In the days after the Alexis Jay report was published, Rotherham council promised much – they’d learn lessons, they’d support victims, they’d change. It hasn’t happened.
Behind closed doors, they’ve poured scorn on the Jay report, still fear being called racist rather than acknowledge problems with Pakistani heritage men and most damningly of all are still failing to protect vulnerable children.
Faced with such appalling incompetence, the government have acted in the only way they could.
Changing the culture and practices of the council won’t happen overnight but it’s necessary.
The people of Rotherham – in particular the children at continuing risk of sexual abuse – deserve nothing else.
Attitudes within the council include dismissal of Prof Jay’s findings, denial of knowledge of the “scale and scope” of CSE, blaming others and denial that CSE remains a serious problem in present-day Rotherham.
The council also had an “excessive deference” to South Yorkshire Police, preventing the use of council powers to tackle perpetrators, and a lack of scrutiny over the police’s actions.
Former council leader Roger Stone was labelled “a bully” in the report
Investigators were told that former council leader Roger Stone had been “a bully”.
“What Stone said, went,” a senior officer told the investigation. “Everyone was terrified of Stone.”
A councillor said: “He is a bully, in my opinion. In Labour group he would impress himself on people, male or female. A lot of women have felt a sense of suppression and macho culture.”
Mr Stone declined to be interviewed by investigators but sent a statement instead.
Multiple perpetratorsMs Casey’s report is the latest in a series of investigations following the publication of the Jay Report in August 2014.
Prof Alexis Jay found an estimated 1,400 children had been sexually abused in Rotherham between 1997 and 2013.
Children as young as 11 were raped by multiple perpetrators, abducted, trafficked to other cities in England, beaten and intimidated.
Staff at the council did not report issues for fear of appearing racist, Ms Casey’s report found.
But the investigators said that by failing to take action against the abusers of Pakistani heritage, the council had “inadvertently fuelled the far right and allowed racial tensions to grow”.
The report added the lack of action had done a great disservice to the Pakistani community.
Two investigations by Commons committees have been launched since the Jay Report was published and a number of high-profile figures have resigned including Shaun Wright, South Yorkshire’s police and crime commissioner, who had been a councillor in the town and responsible for children’s services.
Roger Stone, the chief executive Martin Kimber and the council’s director of children’s services Joyce Thacker also quit.
Mr Wright also refused to be interviewed for Ms Casey’s report and sent a statement saying he had been unaware of the extent of the abuse.
The National Crime Agency has taken over the investigation into child sexual exploitation in Rotherham and is in the preliminary stage of its inquiry.
Last month, Ofsted admitted to the Communities and Local Government Committee that its inspections of children’s services in the town had been “not good enough”.
Inspectors from the regulator failed to spot the extent of child sexual exploitation in the town over several years, rating the council as adequate.
Meanwhile, police watchdog the Independent Police Complaints Commission (IPCC) is investigating 10 South Yorkshire Police officers over their handling of child sexual exploitation in Rotherham.