THE Auditor-General has exposed unprecedented government abuse of a $328 million grants program, undermining the Coalition's credentials as a careful financial manager nine days before the federal election. A damning report shows that a third of the money from the controversial Regional Partnerships Program from 2003 to last year was pumped into just 10 rural Coalition seats - including one held by John Anderson, who as minister for transport and regional services had ultimate responsibility for the scheme. The 1200-page Australian National Audit Office report found that the Transport and Regional Services Department and some ministers had breached the Government's own financial management guidelines for $110 million worth of projects - more than a third of program spending for the period. "The manner in which the program has been administered over the three-year period to 30 June 2006 examined by ANAO had fallen short of an acceptable standard of public administration," it says. It found some ministers were more likely to overrule departmental opposition to specific projects if the applications came from Coalition seats, and more likely to knock back funding for projects supported by the department if they were from Labor seats. If found that in some cases grants were approved before formal applications had been submitted and that the approval process accelerated markedly in the lead-up to the 2004 election. Before the election, then parliamentary secretary DeAnne Kelly asked the department to compile a list of 100 projects - by electorate and bid amount - for her consideration over a nine-day period. Other grants were being approved up to the 5pm start of the caretaker period, with 16 projects winning funding in the last 90 minutes of the Government's term. New grants were also announced during the campaign - in some cases without the recipients having filled in an application form. The approval rate for applications jumped to a record 81 per cent in the lead-up to the 2004 poll, compared with one of 57 per cent the year before. The report also revealed that the introduction of a three-member ministerial committee to oversee the program in November 2005 initially had little effect, with more grants approved by the relevant minister despite departmental opposition. In the past year, however, the Government has made major steps to overhaul the grants process. Kevin Rudd said yesterday he was outraged by the "arrogant abuse" of the scheme. "Mr Howard must today explain to the Australian people how this abuse of such a massive amount of taxpayer's dollars occurred. How did it happen on his watch?" he said. But the Prime Minster defended the scheme as Regional Services Minister and Deputy Prime Minister Mark Vaile yesterday announced another regional partnership grant in his own electorate of Lyne. "I think the regional partnership scheme has brought lots of benefits to lots of communities in lots of areas of Australia," Mr Howard said. Mr Vaile denied there was anything untoward in the department rushing project approvals through in the lead-up to the 2004 election. "In a period before an election is called, obviously departments try and process a lot of work - they try and get a lot of work through," Mr Vaile said. He conceded there could be further "room for improvement" with the program. The ANAO's three-volume report detailed more than a dozen examples of blatant breaches of accountability and management guidelines, as well as no-holds-barred electioneering. Of the politicians given absolute discretion over whether grants were approved - most notably, former parliamentary secretaries Ms Kelly and John Cobb, current Roads Minister Jim Lloyd and Ian Campbell - none was asked to justify in writing a decision, even when it ran counter to the department's recommendations. Breaches of the program guidelines were common, with applications being submitted by third parties for projects ultimately carried out by ineligible organisations, or being rebadged to circumvent other criteria. The decision-makers were prone to closed-door contact with project backers or their local MP, and regularly ignored both their departments and the area consultative committees set up to advise them on the worth of the projects. A spokesman for Mr Lloyd referred questions about the regional partnership program to Mr Vaile. Mr Cobb could not immediately be reached for comment. Ms Kelly last night dismissed claims the grants scheme was used for pork-barrelling and questioned the motives of the ANAO in releasing the report one week before the election. "If you talk about mismanagement, I think the taxpayers should have more worries about the Australian National Audit Office," she told The Australian. Ms Kelly said the grants program funded "necessary projects that created opportunities, jobs and/or services". She pointed out that of the 12 projects identified by the ANAO, three were in the Labor-held seat of Capricornia in Queensland. "Sorry, but that debunks the idea that we are favouring Coalition seats," she said, adding that the Coalition held far more regional seats overall than Labor. She said she personally read through and signed off all of the applications. "They were all recommended by the department ... That is my understanding," she said. One of Mr Howard's senior advisers, Peter Langhorne, then serving as Mr Anderson's chief of staff, actively intervened in one high-profile instance. He told junior minister Mr Campbell to give $1.1 million to an ethanol biorefinery in his boss's electorate of Gwydir (which has since been abolished in a redistribution) - only for the plant never to be built. In that case, and others, the department compounded the problem by failing to safeguard the funding offered. One entire volume of the detailed audit report was devoted to case studies of projects gone wrong, where millions of dollars went into companies that were ultimately liquidated or that failed to follow through with the plans for which they won funding.