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A GO Transit train heads west after leaving Union Station in Toronto on April 22 2013.Fred Lum/The Globe and Mail

GO Transit has launched a sweeping internal investigation into accusations it was overbilled by CN Rail on a project worth tens of millions of dollars.

The audit relates to a project from 2005 to 2008, when the Southern Ontario regional rail service contracted CN to build a line for its commuter trains between Hamilton and Burlington, Ont.

Scott Holmes, a former CN supervisor, told The Globe and Mail his former employer used GO's money to pay for track repairs and other things that were not related to the regional rail network.

He said that he related these accusations to the Ontario Provincial Police roughly one month ago.

In a statement, CN denied the accusations, saying, "Mr. Holmes has made repeated spurious allegations against CN in recent months."

The company fired Mr. Holmes in 2008, claiming that he diverted CN's money to his own companies for services that were never performed.

CN is suing him for fraud, and he is countersuing. Furthermore, CN said, there was a process in place at the time for GO to review the work.

"The vast majority, if not all, of the contractual work carried out by CN on behalf of GO was done on a fixed-price basis.

"CN provided GO with an estimate of the work to be carried out and the cost associated with it prior to ordering material or performing specified work," spokesman Mark Hallman wrote in an e-mail.

"GO had full authority to review and question the estimates, and approved the scope and cost of the work before CN started it."

Metrolinx, the provincial transit agency that oversees GO Transit, will audit 10 years' worth of financial information after learning of allegations in the last few days that CN had overcharged GO, spokeswoman Anne-Marie Aikins said.

"They're unproven allegations at this point, and we're taking them seriously and immediately called an audit," she said.

There is no timeline on the length of the audit, and Ms. Aikins said she could not say exactly how the alleged overbilling was carried out or how much money was involved.

She said the investigation will involve looking into both CN's documents and GO's.

"As part of our agreement with CN, in our contracts with CN, we have the right to audit their books," she said.

"We have to go through our own documents, though, as well. We'll go through both."

In a statement, Ontario Transportation and Infrastructure Minister Glen Murray said that Metrolinx is "taking this seriously."

"I understand they have a team of auditors looking into it. These are just allegations right now; nothing has been proven," he said.

"GO Transit is doing its due diligence. I want to know the facts before I comment further."

In an interview, Mr. Holmes alleged that GO's payments to CN were used for the company's own operating expenses that had nothing to do with GO.

He also said CN used partly worn materials on the GO construction instead of new materials.

"CN had a bad habit of billing anything to do with them to GO," he said.

CN, however, has for years maintained that it was actually Mr. Holmes who was misappropriating funds.

In a lawsuit, CN alleges the former employee approved construction and maintenance contracts for companies he controlled.

Mr. Holmes denies these accusations.

Mr. Holmes was also charged criminally in the matter, but the case was later stayed by prosecutors.