Government yesterday asked Governor Sir John Vereker to hold an investigation into how the Auditor General's report into Bermuda Housing Corporation (BHC) was leaked to The Royal Gazette.

Housing Minister David Burch described The Royal Gazette's publication yesterday of Auditor General Larry Dennis' report, which had not been made public, as "a sad day for Bermudian journalism".

He seemed to imply the report may have come from Government House.

And he claimed reporter Karen Smith had what he described as an "extraordinarily close relationship with Government House".

But in an unusually brusque response which departs from the normal diplomatic statements from Government House, Deputy Governor Nick Carter said yesterday: "Government House does not propose to dignify Col. Burch's remarks with a response."

The terse Government House statement made no reference to Lt. Col. Burch's request, sent through Premier Jennifer Smith yesterday, for an inquiry into the leak.

Lt. Col. Burch claimed the story was politically motivated to hurt the Progressive Labour Party (PLP), which the newspaper's Editor Bill Zuill strongly denied.

Mr. Zuill said the newspaper believed it was in the public interest to publish the damning report - which detailed rampant over-charging and an "out of control" management - and it would not reveal who leaked the document.

He said the newspaper did not publish the story earlier because it did not have the information, adding it would not have been in the public interest to have delayed publishing until after the election.

Lt. Col. Burch said the story may have come from theft or a civil servant abusing their privileges and he hoped whoever leaked the report would be punished for breaking the law.

He said the report was prepared by a civil servant, Mr. Dennis, and submitted only to the Governor, and he believed it was covered under the Official Secrets Act.

In fact, the report was also sent to Premier Jennifer Smith, who sent it back unread. It is understood the report was also sent to the Police, BHC board, Director of Public Prosecutions and Health Minister Nelson Bascome, who then had responsibility for housing. It is understood Mr. Bascome also returned Mr. Dennis' report unread.

At a news conference yesterday, Lt. Col. Burch said he had acknowledged on a number of occasions the dire state of BHC, with 77 projects which had overspends, and had put in place measures to get the quango back on track.

He had also threatened to name those firms and individuals who had not behaved honestly towards the corporation in cases where a court case would be unlikely to get a result.

"Of far more serious import is the fact that a report which is meant to be between the Auditor General and Government House finds its way into the hands of a reporter, a reporter who has, from her columns, enjoyed an extraordinarily close relationship with Government House," he said.

"Accordingly, I have today asked the Honourable Premier to write to His Excellency the Governor to specifically request that an inquiry be launched into this matter without delay.

"It is worthwhile noting that the chairman of the Audit Committee is none other than Shadow Minister of Finance, the current Opposition leader - one Grant Gibbons. I leave it to the people of Bermuda to decide the motivation for today's story."

But the United Bermuda Party hit back at Lt. Col. Burch's "wild allegations", pointing out Dr. Gibbons is not even a member of the Audit Committee.

The only MP on the Audit Committee is Finance Minister Eugene Cox, who also appoints the committee members.

Lt. Col. Burch continued: "Today's story strains our faith in the constitution, it causes concern about the inner workings of areas outside of Government's control, and, further, it impedes the Auditor General from properly executing his function when he must do so with the knowledge that his findings will end up in the press prior to the proper processes being followed."

He said Works Minister Alex Scott was the victim of "incredulous allegations in a clear attempt to influence the outcome of the election" from The Royal Gazette.

"These tactics, not surprisingly, are transparent and it does nothing to enhance what little credibility the daily has, as fair or even-handed. This is a sad day for Bermudian journalism.

"We have stopped the haemorrhaging at Bermuda Housing Corporation, placed it on a proper footing and are headed in the right direction with sufficient checks and balances in place to prevent this type of abuse occurring again.

"With the exception of the Opposition and some media, everyone else in the community concurs with that assessment."

When asked what he hoped the inquiry Government was demanding would achieve, Lt. Col. Burch said: "Normally when someone breaks the law, you have an investigation and someone is punished.

"In this case, someone has broken the law and I would expect there to be an investigation and someone to be punished."

He said legislation is passed and reports are submitted to the Governor and the Speaker. Referring to how The Royal Gazette obtained the report, he said it could "theft or someone abusing their privileges as a civil servant".

When asked if he thought the report fell under the Official Secrets Act, he said: "I think it does. It is tantamount to me disclosing matters that take place in Cabinet. We all sign the document (Official Secrets Act) saying we abide by the rules."

The UBP said yesterday: "It is unfortunate that in the wake of today's news, the Government continues to blame the press, the Auditor General, and anyone else they can find, instead of taking responsibility and being accountable for their actions.

"Bermudians deserve good government that is open, honest and accountable; and government that provides real solutions to the problems facing our Island, not finger pointing and placing the blame on others.

"We are also troubled by the wild allegations put forward by Lt. Col. Burch today, including the charge that the Opposition leader Dr. Grant Gibbons is chairman of the Audit Committee.

"This assertion is simply false. Dr Gibbons is neither a member of nor does he have any connection with the Audit Committee.

"In fact, the only Member of Parliament on the Audit Committee is the Minister of Finance, Eugene Cox, who also appoints the committee's members.

"The United Bermuda Party reiterates is call to the Premier to release the more recent 2003 Auditor General's annual report so that Bermudians can make an informed decision when going to the polls on Thursday."