The Auditor General told Prime Minister Scott Morrison he was "completely unaware" why information in his report on the Hawkei light protected vehicles needed to be suppressed for national security reasons, a newly released letter shows.
In September last year, ahead of the redacted report being tabled in parliament, Auditor General Grant Hehir wrote to the Prime Minister, presenting the unredacted report and an account of the extraordinary events that led to its tabling.
Attorney General Christian Porter last year used his powers to issue a certificate under section 37 of the Auditor General Act, which enables information to be suppressed in audit reports for reasons including endangering national security and negatively impacting commercial interests.
Thales Australia supplied Defence with the Hawkei vehicles at a cost of about $2 billion. The company took action in the Federal Court to limit the publication of the report and applied to the attorney general for the certificate.
The redacted section relates to whether value for money was achieved and a cost comparison between the Australian-built Hawkei and a similar American vehicle.
In the letter to the Prime Minister, released to the parliamentary inquiry investigating the first time such a certificate has been issued, Mr Hehir sought a meeting with Mr Morrison to explain his concerns about the attorney general's decision.
"I believe the Attorney has operated in a way that has resulted in an unexpectedly broad interpretation of this check and balance," Mr Hehir said.
"Much of the particular information I am required to omit from the public report is analysis by the Australian National Audit Office. Further, the required omissions reach into my audit conclusion."
Mr Hehir said his reports on issues relating to defence often dealt with issues of national security and in this case he had already extensively dealt with the department to allay its concerns.
"After having worked through all the national security issues with the Department of Defence, I remain completely unaware as to why the reasons set out in paragraph 37(2)(a) of the Act apply to the information that the Attorney-General has required to be omitted from the public report," Mr Hehir wrote.
The Prime Minister was warned the suppression of parts of the report could limit the independence of the auditor general and "has the appearance of the government suppressing my view of the evidence analysed in the course of the audit".
The new documents also show Thales Australia threatened legal action in the week before of the release of the redacted report, after its release had already been delayed 10 months by the company's demands.
The company's vice president of Legal and Contracts James Couche had requested the company be provided with a full version of the audit report, "to avoid litigation" under the Auditor General Act.
Officials at the audit office told the company it was not required to be issued a copy of the full report, as it was Defence, not Thales Australia, that had been audited.
Thales had already been provided with extracts of the report relating to the company, had requested an injunction in the Federal Court and twice applied for information to be removed under section 37 of the Auditor General Act to protect its commercial interests.
The information subject to the second application was removed by the auditor general without a decision by Mr Porter.
Crossbench senator Rex Patrick said the letter showed the attorney general's intervention was "scandalous".
"It is an extraordinary state of affairs that the Attorney General completely failed to justify his unprecedented action to censor a report by the independent auditor general to parliament," Senator Patrick said.
"It is utterly unacceptable that the auditor general was left 'completely unaware' as to the national security issues that supposedly underpinned the attorney's action."
Senator Patrick accused Mr Porter of using national security as a way to protect the supplier.
"It is hard to avoid the conclusion that the attorney general invoked a wholly bogus claim of national security to meet the demands of a large corporate defence supplier and to obscure the fact that taxpayers were being ripped off to the tune of hundreds of millions of dollars," he said.