Taxpayers need an assurance of no misuse of funds by Australia's peak environmental litigation group, the coalition says, as details of an investigation remain classified.
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Quizzed by the opposition at senate estimates hearings on Tuesday, Department of Climate Change, Energy, the Environment and Water officials refused to immediately table legal advice received on the Environmental Defenders Office (EDO).
The EDO was recently found to have "coached witnesses" and "confected evidence" in a case against gas giant Santos, according to a judge's ruling.
Senator Jacinta Price slammed existing grant guidelines if they allowed "exploitative" treatment of First Nations witnesses and demanded changes to prevent a repeat.
"Traditional owners have been made absolute fools of and have lost opportunities to have economic benefit in their region," she said.
After suspecting a breach of funding guidelines, department secretary David Fredericks said a recent review found no breach of contract.
But he conceded the department was taking a closer look at its grant agreement with the EDO out of an "abundance of caution" and said the lawyers would be "called out more strongly".
Mr Fredericks said there would be a "tighter requirement" of notification by the EDO where there was criticism of its conduct in court, and the organisation was facing an independent audit.
Liberal senator Jonathon Duniam also questioned a $1 million milestone payment due to the EDO by May 31, under the grant agreement with the department.
Mr Fredericks said the review determined that the EDO has been compliant with federal grant conditions to date and found no evidence of fraud.
The EDO has warned regional communities and farmers would struggle to represent themselves on environmental and planning matters if the coalition cut funding to the EDO, as it has vowed to.
Australian Associated Press
