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By David Ljunggren and Randall Palmer

OTTAWA, Oct 28 (Reuters) – A Canadian legislator at the

heart of a spending scandal on Monday accused Prime Minister

Stephen Harper of being involved in a cover-up deal, deepening a

crisis that has engulfed the Conservative government.

Senator Mike Duffy made his allegations just days before a

Calgary convention of the ruling Conservatives, who have lost

support in the polls since the scandal broke in May and are now

trailing the opposition Liberals.

The crisis is the worst to hit the right-leaning government

since Harper came to power in early 2006 on a promise to boost

accountability. Harper exercises strict control over the

Conservatives – also known as the Tories – and such broad signs

of division and dissent inside the party are unprecedented.

Duffy made his allegations in the Senate chamber, where

comments are subject to Parliamentary privilege and make him

immune from prosecution.

Duffy and two other senators face suspension without pay for

allegedly charging too much in expenses. Duffy denies he did

anything wrong but he said agreed in February to repay C$90,000

in expenses after Harper told him to so on the grounds the

affair was becoming a political embarrassment.

Duffy said he had been coached by the prime minister’s

office to say he had taken out a loan to pay back the C$90,000.

In fact, Harper’s chief of staff, Nigel Wright, wrote him a

check to cover the amount.

Referring to the aftermath of the February meeting, Duffy

said: “So I’m back home … after the Prime Minister’s decided

we’re going to do this nefarious scheme”.

Harper’s chief spokesman said he would respond after

reviewing what Duffy had said. The government has said Wright

acted alone, and Harper was not aware of the C$90,000 payment.

Wright resigned in May after news first broke about the

check, a payment that caused anger among Conservative

legislators and supporters.

Duffy accused officials in the Prime Minister’s office (PMO)

of trying to make him a scapegoat. He said he had received a

second check to cover his legal expenses, which he said was

evidence that Harper’s office backed the deal.

“This monstrous fraud was the PMO’s creation from start to

finish,” Duffy told the Senate, adding that Harper and Wright

knew he had followed the rules on expenses.

“The millions of Canadians who voted for Prime Minister

Harper and the thousands of Tories gathering in Calgary this

week would be shocked to see how some of these people, how some

of these Tories, operate. They have no moral compass,” he said.

The next election is not due until October 2015. Harper has

a majority in the elected House of Commons, giving him effective

control over legislation. Members of the Senate, which has

limited powers, are appointed.

(Writing by David Ljunggren; Editing by Janet Guttsman and Eric

Walsh)