A probe into a scandal-plagued federal program to promote Canadian unity on Tuesday uncovered blatant misuse of public funds and plunged new Prime Minister Paul Martin into his first big crisis.  

Auditor-General Sheila Fraser said Ottawa had misled Parliament and broken many rules as it funneled 100 million Canadian dollars* (US$75 million) in questionable payments to Quebec advertising firms with close ties to the ruling Liberals.

Fraser identified massive problems with the 250-million-Canadian-dollar sponsorship program that ran from 1997 to 2001 as part of a campaign to boost Ottawa's profile in French-speaking Quebec, where a referendum on secession was narrowly defeated in 1995.

"I think this is such a blatant misuse of public funds that it is shocking ... I am actually appalled by what we've found," she told a news conference.

Martin immediately announced a public inquiry into the affair and said government lawyers would seek the return of any money which had been improperly paid out.

"What happened was unacceptable.... It was intolerable. Canadians deserve better," he told reporters.

Martin, under attack from opposition parties, also fired Alfonso Gagliano, Canada's ambassador to Denmark, who oversaw the payments in his previous job as Public Works Minister.

Opposition parties grumbled that an inquiry would bury the affair until long after a federal election, expected on May 10. They said Martin, finance minister during the period in question, should have been aware of what was happening.

"The prime minister knew about the scandal, and yet he said nothing, and he did nothing," Grant Hill of the Conservative Party said in an angry exchange in Parliament.

Martin replied that the payments had been the responsibility of Public Works.

Fraser's report said documentation of contracts handed out under the sponsorship program was "very poor" and there was little evidence of analysis to support the expenditure of 250 million Canadian dollars, including 100 million Canadian dollars in commissions.

"Some sponsorship funds were transferred ... using unusual methods that appear designed to provide significant commissions to communications agencies while hiding the source of funds and the true nature of the transactions," she said.

Opposition parties suspect the money was in fact disguised payments to the firms for work they did during the 1997 federal election -- a clear violation of electoral financing rules.

"We have seen a money-laundering system that would make Saddam Hussein look proud ... This is a scandal of major proportions," said John Williams of the Conservative Party.

Fraser said the complex web of dubious payments extended to the Royal Canadian Mounted Police and Canada's Post Office.

But she was able to uncover why so much money had been given to a few firms, in some cases for doing no work at all.

In one case, invoices worth 179,570 Canadian dollars were approved 5 weeks before a contract was even signed.

The scandal involved a section of Public Works which was supposed to boost Ottawa's profile across Canada, but virtually all the money was spent in Quebec.

"(Ottawa) ran the sponsorship program in a way that showed little regard for Parliament ... contracting rules and regulations, transparency and value for money," said Fraser.

"The pattern we saw of noncompliance with the rules was not the result of isolated errors. It was consistent and pervasive. This was how the government ran the program."

One of Martin's first actions after becoming Prime Minister last December was to shut down the sponsorship program, which had been frozen in 2001 before being restarted. 

*US$1=1.33 Canadian dollars

(China Daily February 11, 2004)