The Australian National Audit Office began investigating the Coalition government's Community Sport and Infrastructure Grant Program at the request of Labor, after Liberal candidate Georgina Downer gave a $127,000 cheque to a South Australian bowling club as part of the scheme.

But in a scathing report handed down on Wednesday, Auditor-General Grant Hehir found the giant novelty cheque was just the beginning.

The minister's office ran its own "parallel" assessment process for determining where grants went under the $100 million scheme, that was "inconsistent with the published guidelines" from Sport Australia.

While her office did take into account how Sport Australia ranked projects, it also took into account factors that were not in the criteria.

For instance, it also considered past grants the electorate had received under separate programs. Her office also relied on "local knowledge from MPs" about the need for the project and whether it was viable.

"This was not a perfect science," the list of rules provided to the Australian National Audit Office reads.

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As a result, nearly two in three grants went to organisations scored below Sport Australia's cut-off for funding.

The minister also increasingly ignored Sport Australia in successive grant rounds.

In the first round, 41 per cent of projects that the minister approved for funding were not endorsed by the Sport Australia board.

But by the third round, that rose to 73 per cent.

The audit also uncovered evidence the minister's office was awarding grants based on marginal electorates held by Coalition members or electorates held by other parties or independent candidates that the Coalition was targeting at the 2019 election.

"There was evidence of distribution bias in the award of grant funding," the audit said.

"Applications from projects located in those electorates were more successful in being awarded funding than if funding was allocated on the basis of merit assessed against the published program guidelines."

There was also no evidence the minister had the legal authority to approve grants under the program.

While the Department of Health flagged this as a problem in June 2018, it never sought legal advice to clear the question up once and for all.

Labor's sports spokesman Don Farrell said Prime Minister Scott Morrison must urgently stand Senator McKenzie down over the "orchestrated misuse of sports grants as part of his re-election strategy".

"More than 400 grassroots sports club had their applications, which were highly regarded by Sport Australia, thrown out by this government so they could funnel money into marginal seats instead," Senator Farrell said.

But Senator McKenzie's former chief of staff Richard Hyett told the audit office they had used their own rules to avoid accusations of pork barrelling.

"The success of the program relied on the support across parliament so needed to make sure the spread of projects reflected the statistics and could be seen as fair," Mr Hyett said.

"Equally, we were sensitive to the accusations of pork barrelling so we were very conscious of projects for the Nationals, as National Party deputy leader, for Victoria as Senator for Victoria or with independents as her electorate office was in Indi so we made sure that we were not overrepresented in these areas."

In a statement, Senator Mckenzie defended how she decided to award the grants.

"The Community Sport Infrastructure Program was a very popular program that funded 684 projects right across the country to help get people up and moving," Senator McKenzie said.

"All projects selected for funding were eligible to receive it."

Current sports minister Richard Colbeck pointed to the positive impacts the program had.

"Projects include upgrades to female change room facilities, lighting upgrades for local sporting clubs and surface upgrades to ensure a safer sporting environment," Senator Colbeck said.