NEW YORK—Christine Quinn was widely thought to have a shot at becoming New York’s first female and openly gay mayor. But that bid may be complicated by revelations that the New York City Council, under her leadership, allocated millions of dollars to fake organizations.

Quinn admitted this week that the council has appropriated some $17.4 million dollars since 2001 to groups that didn’t exist.

Quinn, considered a likely Democratic mayoral candidate for the race to succeed Mayor Michael Bloomberg next year, has tried to make open government a hallmark of her agenda. With federal and city investigators now looking into the fake funding and other council finance issues, she could end up paying the political consequences.

Quinn, who is in her third year as speaker of the 51-member council, is the third council speaker since 1989, when the position was created. It is widely considered to be the second-most powerful seat in city government, largely because of its influence over budget matters.

After the story was first reported in the New York Post, Quinn said she first learned about the practice of faking budget appropriations last spring while working on the fiscal 2008 budget plan.

The maneuver of setting aside what she called “reserve funds,” which could then be doled out later in the year, dates back at least 20 years, she said. Using phony names to conceal where the money was going goes back to 2001, she said.

She insisted that she ordered an end to the reserve fund practice when she learned of it, but said her staff kept doing it anyway.

“I was obviously deeply troubled when I found out about this information. I had no knowledge of it,” she said.