OTTAWA - The Conservative party vigorously defended its in-and-out financing scheme in pointed correspondence telling Elections Canada the watchdog had no business judging how candidates spent their money in the 2006 campaign.

Susan Kehoe, then interim executive director of the party, said in a newly disclosed letter that the elections agency's decision to red-flag advertising expenses by dozens of Tory nominees represented a departure from accepted practice.

Kehoe said it would result in Elections Canada providing "an infinite number of advance rulings" on spending on a continuous basis throughout an election campaign.

"I cannot imagine how this would be workable."

Hundreds of pages of records turned over to Elections Canada by Tory ad-buying firm Retail Media were made public Tuesday as controversy continued to simmer over allegations the party misled the elections agency.

An affidavit signed by Elections Canada investigator Robert Lamothe alleges that Conservative advertising transactions allowed the party "to spend more than $1 million over and above" its legal campaign limit of $18 million.

It maintains that the Conservative Fund Canada, the party's official agent, filed financial returns "that it knew or ought reasonably to have known contained a materially false or misleading statement."

The Liberals and NDP contend the additional monies may have helped Stephen Harper's Tories sneak through with a minority government in the January 2006 election.

Liberal Leader Stephane Dion said Tuesday the Conservatives must co-operate fully with investigators and answer outstanding questions about the serious allegations.

The search warrant and other court records contain allegations that have not been proven in court, and the Conservative party denies it violated the elections law.

At a North American leaders' summit in New Orleans, Prime Minister Stephen Harper said the Conservatives followed the spending rules in the last election - but if the official interpretation of those laws changes, the party will adapt as well.

"This is the same story as before," he said. "We always follow the law as it has been interpreted."

The elections watchdog raided Conservative party headquarters last week seeking documents about ad spending in the last election.

Elections Canada also obtained a raft of documents from Retail Media through a court-approved order to turn over relevant records.

The newly released documents show chief electoral officer Marc Mayrand met with senior Conservative party officials, including Kehoe, on April 11 last year about the disputed interpretation of the Canada Elections Act.

Elections Canada has alleged that the Conservatives orchestrated a scheme to exceed the party's spending limit by funnelling cash through 67 ridings to pay for national advertising.

The program involved the party headquarters sending funds to local organizations, which in turn sent the money right back - following explicit instructions from Ottawa on how and when to return the cash by wire transfer.

The idea was that the local groups had room under their allowable expenditure caps for more ad spending, but didn't have the cash. The central party had the money, but was fast running out of spending room under the legal limits.

Elections Canada discovered during its probe that Conservative candidates and their official agents knew next to nothing about election advertising that their campaigns had helped finance.

They scratched their heads trying to recall details of the ad-buying arrangement orchestrated by the party's headquarters. Several simply remember Conservative officials telling them money would land in their accounts, cash that must be swiftly returned to Ottawa.

Kehoe, however, characterized the transactions as "regional media buys," not national ones.

In her letter to Mayrand, she noted that whenever a local campaign contributed to the cost of an ad, "it was broadcast in at least part of the electoral district."

In addition, the participating local campaigns were identified in the broadcast of the ad, having paid "a substantial" share of the costs.

"Respectfully, I suggest that it is not up to Elections Canada to pass judgment on whether the candidate's strategy to use a regional media buy is appropriate, or on the amount spent on such strategy."

A former national director for the New Democratic Party says the Tory transactions sounds like normal practice that's been followed by all parties for decades.

Robin Sears, the NDP's national director from 1974 to 1981, says central parties have always transferred money to help out local candidates and they've always asked local candidates to help pay a share of national advertising.

"I have a hard time understanding what it is, beyond what everybody's always done, that (the Tories) are being accused of here," Sears said in an interview.

"To claim that national and local expenditures were always rigorously divided and it was a very clear definition of what fell into which camp, it's just bullshit."

In an odd twist, Sears has since become a spokesman for prime minister Brian Mulroney concerning the former prime minister's dealings with businessman Karlheinz Schreiber.

Sears said he's not familiar with the details of the current election spending controversy. But he said it doesn't sound much different from the regional ad packages that all parties have produced during campaigns for years, wherein national ads are paid for by groups of candidates in a region, whose names are identified in microscopic type at the bottom of the ad.

The Conservatives filed a civil lawsuit last year challenging Elections Canada's interpretation of campaign law. Local candidates cannot collect rebates on the advertising expenditures as long as they are not deemed legitimate local expenses.

Kehoe expressed concern in her letter about the refusal to approve them.

"You will appreciate that some 15 months after the election and in a minority Parliament, this delay is becoming serious in many ridings since in many cases it may be preventing them from budgeting for a possibly imminent election."

Documents officially released Monday list several cabinet ministers whose ridings received ad money from Conservative headquarters during the last election with instructions to swiftly send the money back to the party.

They include Foreign Affairs Minister Maxime Bernier, Communications Minister Josee Verner, Public Safety Minister Stockwell Day and Transport Minister Lawrence Cannon.