The Australian Auditor-General took the extraordinary step of contacting police over a land deal where taxpayers paid 10 times what the property was worth, after uncovering a series of actions that could not be explained.
Auditor-General Grant Hehir confirmed it was the only time during his tenure that he'd taken such action.
Australia's public service commissioner also lamented explosive revelations the infrastructure department paid $30 million for land worth $3 million near the Western Sydney Airport.
The Australian National Audit Office was grilled over its audit of the Leppington Triangle land deal during Senate estimates on Monday night.
The Infrastructure Department in 2018 purchased about 12 hectares of land near the Western Sydney Airport from the Leppington Pastoral Company for $30 million.
When the land was re-valued, it was found to be worth $3 million.
"We thought this was a significant movement in 12 months," Mr Hehir said.
The agency began a performance audit but soon "gaps in the evidence" emerged.
"There was a whole sequence of actions we couldn't explain," Mr Hehir said.
While they did not find direct evidence of criminal behaviour, the picture that was emerging suggested the Commonwealth may have been defrauded, Mr Hehir said.
He wrote to the head of the Australian Federal Police on July 10, believing the agency was better placed than the audit office to resolve those unanswered questions.
Police confirmed last week they had begun investigating potential criminal actions related to the deal.
It capped off an extraordinary day of evidence regarding the controversial land sale.
Earlier, Secretary of the Department of Infrastructure, Transport, Regional Development and Communications Simon Atkinson said he'd tried to refer the deal to the AFP but found police had already been alerted.
He revealed a departmental official had been stood down while under a code of conduct investigation linked to the transaction.
Mr Atkinson also agreed it looked like people in his department tried to cover up what had happened with the land sale.
Public service commissioner Peter Woolcott also answered questions about the 2018 purchase.
"Clearly there are issues here which make for very grim reading in the auditor-general's report," Mr Woolcott said.
But he doesn't believe there's a "burning platform" of integrity issues across the public service, insisting checks and balances are working.
"Whether it's confined to one particular work unit or wider than that, all of this will come out in the wash," Mr Woolcott said.
The APS commissioner praised Infrastructure Department boss Simon Atkinson's move to instigate a series of independent audits, with two public servants under investigation.
Mr Atkinson agreed it appeared officials had tried to cover up the issue when auditors started hunting for answers.
"I want to get to the bottom of what happened, which is why I've pulled in an independent auditor of my own so that I can get to the bottom of the facts," he said.
"I'm trying to clean it up."
Former intelligence chief Vivienne Thom is investigating one public servant, who has been stood down, over the Leppington Triangle land deal.
Another officer is facing a separate investigation over allegations conflicts of interest were not declared on other matters. They have been reassigned within the department.
Labor frontbencher Penny Wong described the auditor-general's report as a damning indictment of the department.
"I actually find it gobsmacking," she told a hearing in Canberra on Monday.
Senator Wong said the report uncovered extraordinary conduct that was outside what any reasonable person would think was appropriate.
The audit found property owner Leppington Pastoral Company had suggested to the government the name of a valuer, which was agreed to by the department.
A departmental accountant flagged concerns the amount paid was much higher than the value of the land.
But the Western Sydney Unit - the part of the department which organised the deal - found there was nothing wrong.
- with AAP