OTTAWA—An explosive report suggesting the Conservative government misinformed Parliament about wasteful G8 summit spending has put leader Stephen Harper on the defensive as he heads into crucial election debates.

Just as the mid-campaign revelation of an RCMP investigation into leaks of income trust tax changes derailed the Liberals in 2006, the story has the potential to destabilize the Harper campaign.

The Conservatives awoke Monday to a story by The Canadian Press based on a reading of a draft report by Auditor General Sheila Fraser telling a tale of federal largesse and deception.

The Star already revealed ahead of the twin summits last summer that much of the $50 million meant to spruce up the Huntsville location of the G8 went to irrelevant projects like gazebos and to raise sidewalks high enough to bury a fire hydrant far away from where the world leaders met.

Now comes word that Fraser concluded the Harper government misinformed Parliament, and skirted legal guidelines to approve the flow of $50 million into the G8 Legacy Infrastructure Fund. That fund lavished money on dubious projects in a riding held by Conservative cabinet minister Tony Clement (Parry Sound—Muskoka).

Among the questionable projects funded were:

•$274,000 on public toilets 20 km from the summit site.

•$100,000 on a gazebo an hour’s drive away.

•$1.1 million for sidewalk and tree upgrades 100 km away.

•$194,000 for a park 100 km away.

•$745,000 on downtown improvements for three towns nearly 70 km away.

Harper’s political rivals pounced on the story and called for the immediate release of Fraser’s report. The Conservatives who came to power in the wake of the Liberal sponsorship scandal on a promise of transparency and accountability quickly agreed.

Yet despite the unanimous agreement of all political parties, Fraser refused to release her final version, saying the Auditor General Act barred her from doing so.

“The Office of the Audit General of Canada remains the custodian of its reports until they are presented to the Speaker of the House of Commons for tabling,” Fraser wrote in a statement to the media Monday.

A Jan. 13 draft of the chapter on the G8 legacy infrastructure fund was obtained by a supporter of an opposition party and shown to The Canadian Press.

Fraser urged the public to wait until the final version is tabled before jumping to conclusions about its contents. She said an early draft appeared to have been released by someone outside her office.

“These are shocking revelations,” Liberal Leader Michael Ignatieff said. “We knew they’d been spraying money around like drunken sailors in Tony Clement’s riding. What we didn’t know was that they lied to Parliament … and may have broken the law.”

The Conservatives sought to cast Fraser’s report in an entirely different light, saying it had been revised, and the “inflammatory” language of the early version is no longer there.

“I can’t say what’s in it, but I can say that the phrase ‘Parliament was misinformed’ is not contained in the next draft of that report because in fact that is not what happened,” said John Baird, the Conservative house leader running for re-election in Ottawa West—Nepean.

Baird said he hadn’t seen the final version, and denied the Conservatives put any pressure on Fraser to purge her audit of politically sensitive characterizations.

New Democrat Leader Jack Layton renewed his call for a public inquiry into the G8 and G20 summits.

Fraser was to have tabled her confidential final report in Parliament on April 5. It was put on ice when the Harper government was defeated on a vote of non-confidence that cited the Conservatives for contempt of Parliament.

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That motion related to what the Opposition parties claim was a failure to fully account for the costs of combat jets, prison expansions and corporate tax cuts.

Fraser’s report may not be released until sometime after the May 2 election.

The draft reveals that a local “G8 summit liaison and implementation team” — Industry Minister Clement, the mayor of Huntsville and the general manager of Deerhurst Resort, which hosted the summit — chose the 32 projects that received funding. It says there was no apparent regard for the needs of the summit or the financial guidelines laid down by the government.

The report provides campaign fodder for opposition critics who’ve long maintained the legacy fund was a thinly disguised slush fund for Clement.

Clement issued a statement denying he and the so-called liaison team made any decisions on infrastructure funding.

“At no time were any decisions made by Joseph Klein (general manager of the Deerhurst resort), Claude Doughty (mayor of Huntsville,) or me with regard to infrastructure funding and I am confident the final report will reflect this truth,” Clement said.

The draft report says that in November 2009, the government tabled supplementary spending estimates that requested $83 million for a Border Infrastructure Fund aimed at reducing congestion at border crossings. But the government did not reveal that it intended to devote $50 million of that money to a G8 legacy fund, even though Huntsville is nowhere near the Canada-U.S. border.

The Canadian Press was not given access to the entire report on the overall $1 billion in G8 and G20 spending and Fraser’s conclusions on overall spending were not available. Fraser noted that the normal process requires her preliminary findings to be distributed to departments for “validation” and feedback.

“We found that money expended for the G8 infrastructure projects under the Border Infrastructure Fund were approved by Parliament without any indication that $50 million of the appropriations for border congestion reduction would be spent on G8 legacy projects.

“Therefore, in our opinion, Parliament was misinformed,” Fraser writes.

Treasury Board officials reportedly disagreed with the auditor general’s finding, and said the spending was booked in this manner “to avoid any delays that might occur if a new funding mechanism was created for the one-time (G8) event,” the draft report says.

But Fraser says lumping the legacy fund into the border fund “created a lack of transparency about the purpose of the request … in our view, Parliament was not provided with a clear explanation of the nature of the approval being sought.”

Click here for a full list of the projects and the allotted funding.

With files from The Canadian Press