A private eye whose company was paid £500,000 from a public fund to find Madeleine McCann squandered the money on a series of bizarre schemes that had no chance of locating the missing child.

Kevin Halligen, who claimed to have experience in the British secret services, was arrested last week in an Oxford hotel after an FBI manhunt over an unrelated £1.3million fraud case in America.

His investigations company, Oakley International, was taken on in March last year by the Find Madeleine Fund and her parents Kate and Gerry McCann.

Mystery man: Kevin Halligen, the private eye whose company was employed by the McCanns, pictured with girlfriend Shirin Trachiotis in Washington, where in one month he spent more than £3,000 on dining out

But The Mail on Sunday can reveal today that despite setting up a hotline for potential informants and witnesses, none of the hundreds of calls received by a call centre hired by Halligen, 48, was listened to by Oakley investigators - and Halligen also bragged to his colleagues that he had executed a series of peculiar tactics to find Madeleine.

He claimed to have hired an actor to pretend to be a 'drunken priest' who would seek confessions as he toured the bars of Praia da Luz, the resort where Madeleine disappeared in May 2007.

And he told colleagues that a family with a Madeleine lookalike daughter had been paid to set up home in a nearby resort in order to tempt out a potential kidnapper.

Meanwhile, a paper trail obtained by The Mail on Sunday shows that Halligen, a former director of a catering firm, launched an extraordinary spending spree on hotels, cigar bars, restaurants and luxury goods while he was in the pay of the Find Madeleine Fund, and in the period shortly after he was fired last summer.

Missing: Madeleine McCann disappeared in May 2007

Documents show that in his first two months as lead investigator in the search for Madeleine, Halligen spent £7,000 on a personal chauffeur.

A few months later, on a short trip to New York with a girlfriend, he lavished £1,600 on Salvatore Ferragamo leather goods, £5,500 on handbags, £500 on an Italian meal, £150 on a pair of designer glasses and £900 on a three-night stay at the five-star Renaissance Hotel.

And in a one-month visit to Washington, where he owned a £1.5million mansion, he spent more than £3,000 on dining out and £6,000 on a room at the US capital's Intercontinental Hotel.

He also paid out more than £50,000 on plumbing and mosaic tiling for his house in Great Falls, Virginia - a property in which he has never spent a night because of constant home-improvement work.

The revelations will dismay everyone who donated to the Find Madeleine Fund. But perhaps of most concern is the lack of attention paid to the hundreds of phone calls received by the Madeleine hotline.

Halligen and Oakley International, based in Washington, failed to listen to a single call received on the hotline set up for potential informants by Kate and Gerry McCann last year.

Johan Selle, the director of operations at iJet, the US firm that managed the Find Madeleine phone line, revealed that for a year nobody even asked his company if they could listen to any of the calls received.

Mr Selle said his operators, in Annapolis, Virginia, had answered 'hundreds of calls', but the information seemed wasted - possibly squandering valuable leads.

He said: 'We delivered Oakley a report with a summary of the calls and said if they wanted to come back they could listen to the recording, but nobody did.

'For someone with an understanding of the case it would be very easy for some to say that maybe 80 or 90 per cent of the calls were hogwash, but there may be a percentage where one would say maybe we should listen to this one or listen to that one. But our understanding is that this never took place.

'We are not sure whether Halligen provided our report to the family or to the trust or to those working with them or to the teams working after him, because no one came back to us.

'We sent the report to Oakley group and our assumption was that they were using it as a piece in the puzzle. But it appears that wasn't the case.'

The firm says it was not paid for it services by Halligen or Oakley International.

Arrested: Kevin Halligen being led away by a policeman in Oxford

Two of Halligen's former colleagues in the investigation, John Taylor and Dr Richard Parton, said they became concerned early on in their working relationship with the self- styled 'super-spy'.

Dr Parton, whose company Psyintel was employed for its expertise on interview techniques, said he and his partner had been encouraged by Halligen to get involved with the high-profile case.

Halligen had also mentioned other future projects that could net them millions of pounds, although these schemes never came to fruition.

But Dr Parton said fears over Halligen's suitability for the job first arose when the private detective suddenly asked him to stop calling him Richard, the name by which they had known him for several years. He then also raised details of Halligen's extraordinary tactics to find Madeleine.

Dr Parton, who claims he was later left with an unpaid invoice for £50,000, said: 'It was very strange. I had met him years earlier and it had been Richard. Then before a meeting with some people who wanted a presentation on my techniques, I was asked to call him Kevin from then on. I thought it was odd but he was so secretive and that was just the way he was.

'Whenever we had a meeting he would also always immediately say that he needed to leave for a flight. Every time. He would always also try to get the conversation around to talking about the psychological characteristics of a sociopath.'

Dr Parton added: 'I repeatedly told him his investigators on the ground in Portugal were not doing a proper job but he insisted lots of things were going on I didn't know about.

'That is when he told me about some of his schemes, such as the drunken priest seeking confessions from people drinking in the bars of Praia da Luz and the family with a girl who looked similar to Madeleine. This family were set up, apparently, in a resort near to Praia da Luz just to sit and wait and see what happened.

'It was all such a waste of money and time.'

However, it was only later, when tape recordings of interviews undertaken in Praia da Luz were sent to Dr Parton and Mr Taylor, in Washington, that they started to fear the worst for the investigation.

Mr Taylor said: 'The quality of the interviews was terrible, very amateurish. The noise in the background was bad, the interview questions were useless and the subjects were irrelevant. I told them to stop wasting time and money on such low-key figures - homeless people and receptionists who knew nothing.'

Kevin Halligen's US identity card

Things came to a head after Halligen reneged on repeated promises to pay their invoice. Dr Parton said: 'I took him to one side and asked when I was due to be paid. Three days later he disappeared. He had fled to Rome with his girlfriend.'

It was then that Dr Parton and Mr Taylor started to contact others who had been hired by Oakley International. Mr Taylor added: 'He would hire lots of people to do work but only pay a few of them. Meanwhile, he was spending lots of money on his own lifestyle. It only gave the appearance that work was being done.'

They also contacted Maria Dybczak, a trade lawyer for the US Commerce Department, whom they understood to be Halligen's wife. It emerged she had agreed to go along with a fake wedding service to keep up appearances for Halligen.

Dr Parton said: 'She admitted she wasn't proud of it but she had been tricked, too. He claimed that a job he was doing with the CIA meant that he couldn't have his name on a marriage certificate.

'She was manipulated into going along with a fake wedding with an actor posing as a priest. He said they would get properly married a few weeks later, but that never happened.'

Shortly afterwards Halligen fled to Rome with a girlfriend, named in a writ filed by another former colleague as Shirin Trachiotis, a glamorous doctor based in Washington.

Almost immediately after arriving in Rome on their first-class Lufthansa tickets, Halligen withdrew hundreds of thousands of pounds more from Oakley International's bank accounts and spent £8,000 on a luxury hotel before slinking back to the UK a few months later.

Dr Parton said: 'He has left a trail of debts across America and the UK. But the horrible truth is that he stole from the McCanns what they really couldn't afford - time.'

Following a short hearing at Westminster Magistrates' Court last week, Halligen was refused bail and was remanded in custody until December 2, when the next stage of his case for extradition will be heard.

The US Department of Justice issued an indictment for Halligen, from Surrey, earlier this month alleging that he tried to defraud a London law firm.

They claim he took £1.3million as part of a deal to secure the release of Dutch business executives arrested in the Ivory Coast. Instead, it is claimed, he spent it on a mansion, a gift to his girlfriend, cash machine withdrawals and debit-card transactions.

Kate and Gerry McCanns' spokesman Clarence Mitchell refused to be drawn on the details of Oakley's investigation, much of which, it is understood, the McCanns were unaware of. He said: 'The first phase of the contract was satisfactorily seen through, such as the setting up of the hotline. Towards the end of it there were question marks about delivery and the relationship was terminated.

'Given Mr Halligen is in custody it is inappropriate to comment further.