11/17/2011 03:40 EST | Updated 01/17/2012 05:12 EST

Federal Loan Fraud Widespread: Christian Paradis, Industry Minister, Calls Scam 'Repugnant'

MONTREAL - The federal government promises a thorough investigation into allegations of a multimillion-dollar fraud that feasts off a program providing loans to small- and medium-sized businesses.

Describing the reported scheme as "repugnant," Industry Minister Christian Paradis vowed any wrongdoers will be prosecuted to the full extent of the law.

"People must be accountable for what they do," Paradis told reporters Thursday. "If there are people who have acted against the law, they should be prosecuted."

Montreal's La Presse newspaper has reported that the scam involves people using false or inflated bills to get money from the federal loans program. Many of the bills come from restaurant franchises.

Under the scheme, the inflated invoices are used to get loans in which the federal government absorbs 85 per cent of the loss in case of bankruptcy.

The money is used for renovations but the surplus cash from the hiked bills usually ends up in the franchise manager's bank account.

La Presse reports that the scam has gone on for years and played out at dozens of restaurant franchises. Entrepreneurs have begun to denounce the practice, saying they are being hit by higher taxes as a result.

Paradis said the abuses were especially outrageous because the loans program has been helpful to legitimate, honest businesspeople. About 7,500 Canadians benefit from the plan, about a third of them in Quebec.

"It casts a shadow on all the benefits this program can bring," said Paradis, calling the situation "unacceptable" and "unfortunate." He added despite his anger that there would be no rush to judgment and a full investigation would be carried out.

"Before we make accusations, we will gather information."