Melt 3 tablespoons butter or margarine in a large skillet over medium heat. Add the onion and sauté for 5 to 10 minutes, or until tender.
In a separate medium bowl, combine the bread crumbs with 2 tablespoons of evaporated milk and stir, allowing the crumbs to absorb the milk. Add the ground beef, onion, egg, salt, ground black pepper and parsley to taste. Mix well and form into golf ball sized meatballs.
Heat remaining butter or margarine in the same skillet over medium to medium-high heat and add the meatballs. Carefully shake the skillet to turn the meatballs, as needed. Sauté for 10 to 15 minutes, or until meatballs are browned on all sides. Transfer the meatballs to a serving platter, reserving the liquid in the skillet.
Add the flour to the skillet and stir until smooth. Then gradually add the evaporated milk, tomato sauce and nutmeg to taste; again stirring until mixture is warmed, smooth and creamy. Strain over meatballs.