Former Sport Minister Bridget McKenzie is under fire, after the Australian National Audit Office discovered her office was running its own "parallel" assessment process to dole out grants under the $100 million program.

The Deputy Nationals leader on Thursday defended her handling of the grants, saying no rules had been broken and all recipients had been eligible.

But the audit also said there was an issue within Sport Australia - the corporate Commonwealth entity administering the grants program.

While potential conflict of interests for staff members assessing grant applications were managed well, the same could not be said for the rest of the organisation, the report found.

"A shortcoming in Sport Australia's framework is that it does not require employees to declare that they have no conflicts of interest. Rather, a declaration is only required in situations where the employee considers they have a conflict," the audit office said.

"The ANAO's analysis was that there was an undeclared and unmanaged conflict of interest involving a senior Sport Australia employee with responsibilities for the .... program and their relationship with an organisation linked to applicants of the [grants] program and ongoing engagement with that organisation."

This conflict was known to Sport Australia but the organisation did not require the staff member to declare it formally, or put in place any strategies to manage it.

As a result, the audit office deemed there was a "risk that the sport linked to this organisation was provided with a competitive advantage compared to other sports and potential applicants by that Sport Australia employee".

It is understood the staff member in question no longer works for Sport Australia. It is not outgoing chief executive Kate Palmer, who was formerly the head of Netball Australia.

In a statement, Sport Australia said it would not provide any more details about the staff member or the sport they were linked to "for privacy reasons".

"The ANAO Report found that a strong conflict management approach was evident for all Sport Australia employees who were directly involved in assessing grant applications," a spokesman said.

"We don't believe any single sport received an unfair advantage. The majority of successful applications were for multi-sport facilities, benefitting numerous sports."

Nevertheless, Sport Australia agreed to strengthen its management of conflict of interests upon a recommendation from the Auditor-General.

Ultimately, Sport Australia played a declining role in determining where grant money went in each round of the program.

Senator McKenzie's office increasingly relied on a set of criteria it developed to distribute grants more "fairly", which was separate to the published criteria from Sport Australia.

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There was also 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.

The audit was sparked by the presentation of a giant novelty cheque to a South Australian bowling club by Liberal candidate for Mayo Georgina Downer - who was not the sitting MP.

It is the second time in recent months the Auditor-General has lashed the Coalition over its handling of grant programs.

In November, the audit office revealed ministers overruled department advice and approved nearly $80 million worth of grants through the Regional Jobs and Investment Packages, including to one project that was technically ineligible.

The program also doled out money to a South Coast caravan company believed to be trading insolvent, and a Sydney factory that went bust less than a year after receiving the grant.

The administration of the program was outsourced to a company originally hired to run a call centre for the Commonwealth.

Federal parliament's Public Accounts and Audit Committee is holding an inquiry into that program.

Greens senator Janet Rice said the party would pursue the issue through Senate estimates, and consider seeking the support of the Senate for an inquiry.