UPDATED 5.48pm The Auditor General has found no evidence of corruption in the Saudi sheep deal.

LISTEN ABOVE: Labour MP David Parker spoke to Chris Lynch

The office of the Auditor General received letters in June last year, raising concerns about money that the Government had paid to a foreign businessman.

It said questions were asked about whether the payments amounted to corruption or bribery and it launched an inquiry in August last year.

The Auditor General also highlights that $8.7 million was handed over in the hopes of removing an obstacle to signing a free trade deal, yet that deal still remains unsigned.  

However, the Auditor General did find some significant shortcomings in the Cabinet paper, and the quality of information that was provided to Cabinet on the matter.

These shortcomings included:

• Did not clearly explain that the Al Khalaf Group would own the goods and services costing the New Zealand Government $6 million
• Did not identify how the $10 million figure was arrived at (a figure that has since risen to $11.5 million)
• Signalled the risk of a claim against the Government based only on the $20-$30 million figure that the Cabinet paper said was suggested by the Al Khalaf Group (there was no assessment by Ministry officials of the substance of that legal risk)
• Did not include any analysis about whether there were any other potential obstacles to the signing or ratification of the free trade agreement, apart from the concerns of the Al Khalaf Group about the export of live sheep or the assertion by the Gulf Cooperation Council that this was the only obstacle to the free trade agreement
• Identified that New Zealand exports could double to $3 billion in five years if a free trade agreement was signed with the Gulf Cooperation Council, without including any analysis

Mr McCully's not surprised at the findings, though he says he knows there's a desire to think of this as stuff that's been done in dark room between two or three individuals.

But he says the whole of the foreign ministry has been involved in the process, so the idea there might have been something improper done by such a large number of senior public servants is frankly absurd.

Mr McCully said some very strong, colourful and defamatory statements were made suggesting there had been dodgy deals.

"The Auditor General has found clearly that there was no bribery, no corruption, no facilitation payments and that all of the payments were made lawfully."

John Key's not seen the full report as yet, but is standing by his minister and the way the issue's been handled.

"I'm totally comfortable the Government acted in the way that we should have, that the Minister did, and that we stand by the statements we made at the time.

"We had to be creative to try and find a way through, but I'm very confident we'll be found to have acted professionally."

Labour's David Parker uncovered several parts of the deal while he was trade spokesperson.

In an urgent debate in Parliament, Mr Parker says the incompetency revealed in the report is enough that Mr McCully should resign.

"If we've now reached the point in New Zealand, that the standard of conduct expected of ministers is so low that they have to be found guilty of a crime before they are forced to resign, that is a terrible state of affairs."

Green Party co-leader James Shaw lodged the original complaint that prompted the Auditor-General to investigate.

He said just because the deal was legal, doesn't mean it was ethical.

"They obfuscated the whole way through. They didn't make clear business cases. They had very poor grounds for most of the decisions they made."