The Canadian government led by Prime Minister Paul Martin, which was in office for less than three months, has suffered a big setback as an auditor's report last week said the ruling Liberal Party was connected to a major financial scandal.  

A poll published Tuesday showed that public support for the ruling Liberal Party fell from 48 percent a month ago to 35 percent in the wake of the scandal, while support for the largest opposition Conservative party rose 8 percentage to 27 percent.

A report by Auditor General Sheila Fraser showed that funds for what was called a government sponsorship program in 1997 to uplift the profile of the federal government in Quebec was funneled instead to agencies with close Liberal ties between 1997 and 2001.

The report said more than 100 million Canadian dollars (about US$75 million) were paid to communications companies as fees and commissions and that the way the agencies were chosen and the way the contracts were awarded violated government rules.

Some of the money was sent to government agencies "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 added.

"I think this is such a blatant misuse of public funds that it is shocking," Fraser said.

Prime Minister Martin has called a public inquiry into the scandal, which took place when he was serving as finance minister. He has also promised to resign if the inquiry shows he was implicated in the affair.

Last week, Martin fired Alfonso Gagliano as ambassador to Denmark. Gagliano was public works minister at the time of the reported diversion of funds.

Martin has come under strong criticism from the opposition, which criticized him for asserting that he had no knowledge of the diversion.

"What a wicked web the prime minister weaves when he suggests he knew nothing," said Peter MacKay, the former leader of the Progressive Conservative Party.

Conservative party leadership contender, Stephen Harper, said Tuesday that Martin is "up to his neck" in the Liberal sponsorship scandal and Canadians should be skeptical of his claim he did not know the extent of it.

The opposition has alleged the sponsorship scheme was not only a source of individual enrichment but also of illicit funds for the Liberal Party.

The opposition is insisting that investigation of the scandal be done before the elections. Martin, battling to contain the scandal, has so far declined to say whether he will put off the elections which officials initially said was set for May 10.

Analysts believe that if the investigation shows that some government officials, or high ranking Liberal Party members, are involved in the scandal, the Liberal Party is expected to suffer a big setback in the coming elections.

(Xinhua News Agency February 18, 2004)