By Lee Carter BBC correspondent in Toronto

Mr Martin was applauded by MPs after he promised an inquiry

Auditor-General Sheila Fraser said much of what she found was a "shocking" waste of Canadian taxpayers' money.

"I am deeply disturbed such practices were allowed to happen," she said.

Prime Minister Paul Martin - who was finance minister at the time the alleged abuses took place - has promised an inquiry.

The report was long awaited and its conclusions were more or less anticipated.

But it still could not have been a more damning condemnation of how Canada's governing Liberals systematically funnelled funds from a government programme to a select group of businesses.

Between 1997 and 2001, up to C$250m ($188m) went to a project designed to promote national unity in Canada.

This followed a 1995 referendum where the primarily French-speaking province of Quebec voted by only the thinnest of margins to stay in Canada.

At least half the money was siphoned off by Quebec advertising and communication agencies with ties to the Liberal Party.

Mrs Fraser says that many of the transactions involved false invoices or contracts, or no contracts at all.

She calls the practices a blatant misuse of public funds and says she finds them shocking and completely unacceptable.

The scandal has already caused one head to roll.

Canada's ambassador to Denmark, Alfonso Gagliano, who was the minister responsible for the programme at the time, has been summarily sacked.

Although the fraudulent practices occurred during the leadership of the previous Prime Minister, Jean Chretien, opposition MPs have been keen to try and taint the new Canadian leader, Paul Martin.