The government didn’t tell Parliament it was approving $50 million for a G8 legacy fund that doled out cash for projects in cabinet minister Tony Clement's riding based on his advice, according to the auditor general, who could find no paper trail to explain how the projects were chosen.

The findings are contained in the Spring 2011 report written by former auditor general Sheila Fraser who retired on May 30. Acting auditor general John Wiersema presented the report Thursday and said the government didn't follow at least two policies designed to ensure the government acts in a transparent and accountable manner, and that the report's findings are "troubling."

The report contains highly-anticipated chapters on the costs associated with last summer's G8 and G20 summits in Huntsville, Ont., and Toronto and covers a number of other audits of government programs and services.

It slams how the government managed the finances of the back-to-back summit meetings and its overall lack of transparency.

Foreign Affairs Minister John Baird and Treasury Board President Tony Clement responded at a news conference that "legitimate observations" about transparency were raised in the report and that the government accepts its recommendations.

Prime Minister Stephen Harper echoed those statements in the face of opposition accusations in question period Thursday that his government abused public trust and funds.

"The auditor general did suggest a number of recommendations and changes to the process that might be used in the future and we have accepted those recommendations," Harper said.

Your handy guide to G8 projects

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Come on a virtual tour to see how those Canadian taxpayer dollars were put to use in the region surrounding the site of the 2010 G8 summit.

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Thursday's report shows that government departments scrambled to come up with their estimated budgets for the two meetings of world leaders and in the end, vastly overestimated their costs. Once all the cheques have been processed, the government is expected to have spent $664 million on security and other hosting costs, far less than the $1.1 billion that was approved by Parliament.

The auditor general's biggest concern had to do with the G8 Legacy Infrastrucutre Fund, announced in February 2009, and how funding for it was approved months later.

The government decided to put funding for the G8 infrastructure projects under the existing Border Infrastructure Fund, but didn't inform Parliament of that decision. When MPs approved $83 million for the border congestion fund, they didn't know $50 million of it would be diverted to pay for 32 infrastructure projects in Huntsville and surrounding communities.

"When government presents a request for funds to Parliament, it should be transparent about the intended use of the money," Wiersema said at a news conference following the tabling of the report in the House of Commons.

The opposition parties accused the government of misleading Parliament and carrying out a "bait-and-switch" scheme and they describe the legacy fund as a slush fund.

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Interim auditor general John Wiersema says the government did not follow its own policies in approving projects for the G8 legacy fund, at a news conference in Ottawa following the tabling of his Spring Report, June 9, 2011. (Adrian Wyld/Canadian Press)

Wiersema said the audit found no evidence that the government deliberately neglected to inform MPs about the G8 fund, but didn't let Clement, Baird and their government colleagues off the hook.

"The evidence that we saw suggests that this was done for matters of expediency. We have no evidence to suggest that it was a deliberate attempt to mislead. Having said all that, going to Parliament requesting money for one purpose and using it for something else is a serious matter that we think deserves Parliamentary attention," he said.

No paper trail, policies not followed

The auditor general's other major concern is that there is no paper trail to show how or why the 32 projects were chosen out of 242 that were proposed by the municipalities. 

Wiersema said they were selected by the infrastructure minister at the time, Baird, based on the advice of Clement, who was then industry minister and is now president of the Treasury Board. No public servants were involved in the decision-making process, the audit found.

Normally bureaucrats evaluate project proposals, forward recommendations to their ministers, and the ministers make the final decisions.

"That didn't happen in this case," he said. "In my experience, that is very unusual," he said. Wiersema said it presents "serious issues" because a paper trail is necessary to form the basis for accountability and transparency.

Wiersema said there are clear rules for how public money is spent, including a requirement for documentation, and in the case of the G8 fund, they weren't followed.

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"There were at least two government policies that weren’t followed here," said Wiersema. The government has policies on documentation and on payments being transparent, according to Treasury Board rules, he said. "Those policies weren’t respected in these cases."

"I’m not aware of any specific law that was broken," Wiersema said. But he noted the legal profession could probably have an interesting debate over whether what happened falls in or outside of the Appropriations Act, which authorizes the government to spend money. "We chose not to go there," he said.

He added, however, that the way the funding request was presented to Parliament "was not right."

More than a dozen communities in Clement's riding, some more than 100 kilometres away from the summit site, benefited from the fund. In many of the small towns near Huntsville  money was used to improve roads, sidewalks, parks and streetscapes. Other projects included new public washrooms, a gazebo in one town and a new bandshell in another. The bulk of the money went to Huntsville.

Government defends the G8 fund

Baird and Clement defended the G8 legacy fund at their news conference Thursday and how it was administered.

The idea to use the existing border fund to get the G8 fund approved came from his department, Baird said, and the rationale was to speed up the timeframe for approving and spending the money. He said the government was trying to act quickly because of the global economic downturn and the need to stimulate the economy.

Asked whether it's acceptable to ignore proper procedures for the sake of expediency, Baird said the government accepts the auditor general's recommendations and will "improve the process going forward."

Wiersema said he was at a loss to explain how the 32 projects were selected to receive funding but Clement shed some light on the process. He said he consulted with six local mayors in the region, and together, along with "representatives from the government," a final list was drawn up that was presented to Baird, and he made the decisions."

"There's no mystery here," said Clement. "We accept the recommendations of the auditor general that in the future there should be some paperwork and some public functionaries as part of that process. But at the end of the day, as the auditor general did say, not a penny was misallocated, or misappropriated and every penny is accounted for."

Opposition parties were quick to react to the report and said Parliament was misinformed about the funds it was approving to be spent on the summits.

The NDP's Paul Dewar said "Parliament was misled, time and time again."

"What we had was the 'Huntsville Amigos' cutting up the dough in the backroom and seeing that if you're a friend of Tony [Clement], you do well, but if you're a small business person in Toronto, you're left out in the cold," Dewar said.

Interim Liberal leader Bob Rae said the government carried out a classic "bait-and-switch" scheme, saying they were going to spend money on one thing and then spending it on another, and he came down hard on Clement, who is now in charge of leading a government spending review to find $4 billion in savings.

"I don't think he has any credibility," Rae said at a news conference. He called the G8 legacy fund a "monument to waste."

Summit costs overestimated

The spring report, which was supposed to be released in April but was delayed because of the election, also found that MPs weren't given a clear picture of how much money was being requested to host the back-to-back G8 and G20 meetings last June.

The audit found that Parliament was given seven separate funding requests for 14 different federal organizations in four different packages of submissions. The way the information was presented made it hard for MPs to know the total estimated price tag for the summits, Wiersema said.

"Government should ensure that parliamentarians have a clear picture of the total funding being requested for initiatives involving many departments," he said.

He said that requests for funding were made based on incomplete information and that departments ended up overestimating how much money they needed. At the time of the audit, they were projecting expenditures of $664 million for the two summits — about half of the $1.1 billion approved by Parliament.

Part of the audit was dedicated to seeing if the money was spent on what it was supposed to be spent on, and it found that the funds were used for their approved purposes.

Problems in delivery of reserves' pensions

The spring report also contains a chapter on how National Defence implemented a new pension plan for reserve members of the Canadian Forces. It found many problems in the delivery of the pension plan including major backlogs.

Wiersema also tabled a status report with seven chapters that cover a variety of government departments and services.

Auditors followed up on seven past reviews of federal government services provided to First Nations members living on reserves. The progress was mixed and remained unsatisfactory in several key areas.

In a preface to the latest results, the auditor general's office concludes that problems in this area go beyond specific programs' effectiveness, and result from greater structural problems in the relationship between First Nations and the federal government. The auditor general's office suggests new legislation to define the scope of the relationship, new funding mechanisms and new organizations to deliver defined services on the ground may all be required.