The Australian National Audit Office cast doubt on whether Senator McKenzie had the authority to decide where grants went in its scathing audit of the scheme last year, which found there was a "distribution bias" in how money was given to community sporting clubs.

The Health Department had flagged this as an issue in June 2018 and proposed to get legal advice on the matter. The department told the audit office in November 2019 it never actually followed through on getting the advice.

Sport Australia this week told a parliamentary committee investigating the scandal it received legal advice in February 2020 about the minister's legal authority. That advice was not shared with the minister or her office, and only a summary was provided to the committee on the proviso they did not publish it.

Senator McKenzie was forced to resign as deputy leader of the Nationals on February 2 after an investigation found she breached ministerial standards by giving grants to two gun clubs she had an undisclosed interest in.

The open question over whether the minister had the legal authority to make the final decision on grants has opened the scheme up to a potential class action challenge.

But on Friday, Senator McKenzie said the public service dropped the ball by not informing her of the potential issue with her legal authority to be the final decision-maker.

"If there was any issue around the legality of how this program was going to be run, then my expectation of the Australia public service is that they would've raised it with me," Senator McKenzie told the ABC.

"The ANAO report also goes on to say that both Sport Australia, the Department of Health and other entities did not raise it with me - there is no evidence of that being raised with me as an issue. And, I'm sorry, if there is an issue around the legality, then that should've been raised with the appropriate minister."

The Health Department said the legality of the processes was a matter for Sport Australia. Sport Australia was also contacted for comment.

Sport Australia did warn Senator McKenzie's office of the reputational risk of making funding decisions "that could be perceived as favouring localised projects that did not meet the assessment criteria" as early as December 2018.

"The minister is advised that as the delegate she may need to defend the decisions at Senate estimates i.e. if the changes were made she could not state that she approved the recommended decisions of the industry panel that followed due process where a rigorous transparent and defensible process took place," the email to Senator McKenzie's office read.