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Ottawa needlessly gave $2-million to a non-profit group that was so flush with federal cash that it had stashed millions in reserves, an audit says.

Since 1984, the Department of Foreign Affairs has handed a total of $24-million to the Asia Pacific Foundation of Canada, created by Parliament to foster ties and trade between Canada and Asia.

The money kept flowing in recent years, even when there was no specific need for it, said the federal audit dated April, 2003, and posted recently on the federal government Web site.

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The audit, part of a review of departmental grants and contributions, said the Asia Pacific Foundation had accumulated reserves of almost $2-million, while its two subsidiaries -- the Globe Foundation of Canada and the Canadian Education Centre Network Inc. -- had put aside a total of $4.8-million.

It said the foundation and affiliates had gathered "significant and growing reserves" due in large part to federal grants and contributions that "were in excess of need."

As a result, auditors questioned whether Ottawa should have kept on giving $1-million a year to the Asia Pacific Foundation, a well-established group with high-level connections in Canada and Asia.

"APF Canada had most of the funds needed to fund its core activities without need for the contributions entered into by [Foreign Affairs]for fiscal years 1999/2000 and 2000/2001," the audit said.

Auditors added that the "justification for the recent contributions . . . is not apparent."

The Asia Pacific Foundation says the reserve is a result of "prudent management," and is sparring with Foreign Affairs over long-term funding. Foreign Affairs chopped its base funding to the foundation over the past two years to $500,000 annually, forcing the group to use part of its reserve.

The government now says that if the foundation wants more money it will have to propose specific projects.

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"We recognize the seriousness of the concerns raised in the audit and have responded. We have moved to project-based funding, with clearer objectives," said Foreign Affairs spokeswoman Kimberly Phillips. "We are considering a range of options for any future funding beyond the current fiscal year."

The president of the Asia Pacific Foundation said the government has misunderstood the reserve, which was created to address liabilities if the foundation shuts down for any reason.

"I think they misread the situation," John Wiebe said of Ottawa's reaction. "All I know is that we need more money than what we're getting."

The Asia Pacific Foundation, a think tank on Asian issues, and its two subsidiaries organize exchange programs and workshops for students, journalists and business people that aim to increase the understanding of Asia-Canada ties, as well as promote trade. It also does research for academic groups.

Mr. Wiebe said the reserves are made up of funds from a wide variety of sources, not just the federal government.

But some critics said they cannot understand why money was given to a group that didn't seem to need it.

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Canadian Alliance MP Stockwell Day said the money could have been better spent on issues such as postwar reconstruction or programs to fight AIDS, malaria and tuberculosis in Africa.

He added that he was astounded when his proposal for performance audits on foreign-affairs spending was denied by Liberal MPs recently.

"When you do not require reporting back on how the money was spent and what were the results, you open the door, at the very least, to inefficiency and possibly worse," he said in an interview.

The federal audit said that beyond the reserve, the Asia Pacific Foundation has more money available in the form of future income.

"The resources available to the APF Canada may in fact be greater, given the existence of deferred revenue and deferred contributions, as reported in the financial statements of the APF Canada, Globe and CECN," the audit said.

The audit also said that the Asia Pacific Foundation had failed to produce timely annual reports in 1998, 1999 and 2000, as stated in its contract with the government. The foundation denied that claim, saying the reports were given to all members of the board, including federal officials who sit on it.

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