OTTAWA–Elections Canada is scrutinizing almost $800,000 worth of expenses filed by Liberal candidates in last fall's election campaign, The Canadian Press has learned.

The elections watchdog has asked the Liberal party to produce detailed invoices and documentation to prove that a mandatory riding services package was actually worth the $2,500 each candidate was required to pay for it .

Until Elections Canada is satisfied that the packages aren't really a thinly-veiled donation to party headquarters, the candidates won't receive their election expenses rebates, worth a total of about $3.5 million to the cash-hungry party.

"Until that's resolved, then it's holding the process up somewhat," Liberal party national director Rocco Rossi confirmed in an interview Wednesday.

Rossi called the hold-up a "no more than a nuisance" and insisted it had no bearing on Liberal Leader Michael Ignatieff's decision to come to a deal with Prime Minister Stephen Harper to avert a summer election.

He said Elections Canada is simply being more rigorous than it used to be in demanding proof of expenditures, as a result of the so-called in-and-out scandal.

In that case, which is still being fought out in court, the Conservative party transferred cash into and out of local riding campaigns during the 2006 election, ostensibly to pay for national advertising. Elections Canada maintains the scheme was designed to allow the party to skirt its national election spending limit and Tory candidates to claim rebates on expenses they didn't actually incur.

Rossi said he welcomes Elections Canada's scrutiny.

"I'm all for transparency. Bring it on," he said.

"We've got nothing to hide. There is no in and out here. There were legitimate services provided to the riding associations that we can show the costing of."

The riding services packages included buttons, posters, brochures, photos of the leader, and templates for lawn signs, websites and letterhead.

Elections Canada wants the party to account not only for the value of outside suppliers but also to break down the salary costs of party staffers who assembled the packages.

Rossi was somewhat less sanguine in an email sent earlier this month to all candidates' official agents, obtained by The Canadian Press. In that missive, Rossi referred to the "absurdity" of Elections Canada's request.

"As an example, we feel that this request could be compared to the Canada Revenue Agency requesting a full breakdown, including copies of invoices from suppliers plus internal labour and design costs, from a vehicle manufacturer for the sale of a vehicle to an end user rather than accepting an invoice from a dealership," he wrote.

Although the party has obtained "a legal opinion confirming the absurdity of this request," Rossi wrote that it is amassing the documentation to comply rather than risk having Elections Canada deny all the riding services package costs claimed by candidates – which would total almost $800,000.

Candidates are eligible for rebates of 60 per cent on valid campaign expenses. Under Liberal rules, they must give half their rebates to party headquarters.

Hence, if the service packages were not deemed to be a valid expense, candidates would forgo about $460,000 in total rebates and the party itself would lose out on about $230,000.

Rossi said the amounts involved are not significant enough to cause him "any anguish," even though the Liberal party is struggling to close a huge fundraising gap with the cash-hoovering Conservatives.

Rossi blamed the unresolved riding services issue for the fact that only four of 307 Liberal candidates have so far received their expenses rebates – compared to 84 Conservatives, 47 New Democrats and 23 of 75 Bloc Quebecois candidates.

Nevertheless, he pointed out that all parties would have been missing most of their rebates had they been forced into an election this week. They all would have had to borrow against their expected rebates, he said.

Elections Canada spokesman John Enright said the agency is on track for distributing rebates, which it hopes to have completed by the end of August. The rate of reimbursements for last fall's election is so far comparable to that after the 2006 campaign, he said.

As for the request for full documentation about the cost of the Liberals' riding services package, Enright said that's "not at all unusual." And he said all parties were warned before and during the campaign that all expense claims, including transactions between local and central campaigns, would have to be supported with documentation.

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"This information is required to ensure that all expenses are fully detailed and also to properly establish the commercial value of the transactions."