Stevenson Funeral Directors is under investigation over sales of Avalon Funeral Plans, and it is understood that the trustee, Avalon, has received none of the money.
Stevenson has offices in Kirkcaldy, Cardenden, and Rosyth.
And this week its parent firm Funeralcare Scotland applied to be struck off the register at Companies House.
The insider at Stevenson, who asked not to be named, says the amount of money being investigated at the firm could be as much as £250,000.
The source said: “Originally there were more than 67 families, totalling about £194,000.
“To date, because it’s been so publicised now, we’re looking at more than 80 families, so you’re in excess of a quarter of a million.”
“When the families came in, they were sent out a certificate saying ‘thank you for taking out a Stevenson Funeral Directors Plan’ with a random number.
“They handed over money and this came through the post – they thought nothing of it.
“They didn’t realise that it should have been taken via Avalon.
“The funeral plans are the tip of the iceberg.
“The problem is the industry isn’t legislated.
“Unfortunately it takes something catastrophic for people to stand up and take notice.”
A number of attempts have been made to contact Stevenson Funeral Directors for comment. However management were said to be unavailable.
A Police Scotland spokesperson confirmed that enquiries are ongoing.