POLICE have launched an investigation into a tartan festival after it was abruptly cancelled leaving traders thousands of pounds out of pocket.

The International Tartan Festival was due to take place at the Thistle Hotel, Glasgow last weekend but was cancelled on Friday.

It was part of national tourism agency VisitScotland's official Homecoming Scotland 2014 events.

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Officers from Police Scotland are conducting inquiries after it emerged that concern had been raised about the event weeks earlier.

A force spokeswoman said: "Police Scotland are conducting inquiries into the circumstances surrounding the cancellation of the International Tartan Festival.Should any criminality be identified, the matter will be investigated by the Economic Crime Unit."

While Homecoming 2014 said the festival was included in a "partner programme" rather than receiving direct financial backing, many of the businesses who paid to be involved said the affiliation with the agency convinced them to invest. Following the cancellation, questions over the event's legitimacy have been raised.

The organisation admitted that a member of the public had raised concerns on July 3, saying they could not contact the event organiser Azra Mansha. Meanwhile, sponsor Lochcarron of Scotland has admitted that it had become increasingly concerned in the fortnight before the event.

A source at Lochcarron, a world leading tartan manufacturer, also revealed that items it had lent to Ms Mansha had not been returned, and that she had not replied to their efforts to make contact. The firm is taking advice about whether the sponsorship money it has paid can be recovered.

An email sent to some firms states that Ms Mansha has had to go to England due to "severe depression" and would contact businesses to discuss compensation "once she is recovered".

One small business owner said she had paid hundreds of pounds for a stall at the event, with materials and labour pushing her investment into thousands.

"I wasn't getting the information I needed, which should have been in black and white," she said. "There were a lot of alarm bells. VisitScotland was definitely a factor in us getting involved.

"I'm really surprised they didn't investigate further before endorsing it. They are a trusted brand so when you see they are involved you think it's going to be safe. They need to sharpen up."

Another designer who was to take part said that another exhibitor had lost £6,500. "VisitScotland and Homecoming 2014 should at least be trying to support us," she said. "They are washing their hands and walking away."

After the event was cancelled, Ms Mansha said that former associates had sabotaged it, leading to sponsors pulling out. But Lochcarron confirmed that it had paid its sponsorship money in full.

The firm said: "Having been introduced to the event organisers at a 'preparing to welcome the world' VisitScotland event at the Scottish Parliament in November of 2013 we subsequently agreed to become a contributing sponsor and exhibitor. Despite growing concerns we have had over what would actually be delivered by the organisers we were ready to travel to Glasgow on the afternoon of the 11th [July] when we received at midday information to the effect that the show had been cancelled."

Homecoming 2014 said it had spoken to the organiser on Thursday, but did not know the event would be cancelled at that stage.

A spokeswoman added: "VisitScotland is as disappointed as the businesses affected that this event did not take place and we sympathise with the suppliers who are currently trying to work with the event organiser on the financial implications of the event not going ahead."