Almost half of the projects funded under the coalition's $100 million sports grants program were ineligible, despite assurances from the prime minister that no rules had been broken.
A Senate inquiry launched on Thursday also heard there were at least 28 versions of a colour-coded spreadsheet detailing which groups would receive funding and the electorate where they were located.
The spreadsheet was shared with Prime Minister Scott Morrison's office and showed applications could swing from approved to denied within hours without explanation.
Auditor-General Grant Hehir gave evidence on the first day of public hearings into the so-called sports rorts affair, which led to the resignation of former sports minister Bridget McKenzie.
Prime Minister Scott Morrison with then sports minister Bridget McKenzie. Source: AAP
Under questioning from Liberal Senator Eric Abetz, audit office executive Brian Boyd revealed that 290 - or 43 per cent - of the successful applications were actually ineligible.
He said those projects were initially assessed by Sport Australia as eligible, but circumstances had changed by the time the funding was signed off on.
Prime Minister Scott Morrison has previously claimed there were no ineligible projects funded.
When asked after the hearing about his defence of the program, Mr Morrison said he was "quoting the auditor-general".
"I haven't seen that evidence, I haven't seen that statement, so I will review that," he told reporters.
Mr Hehir told the committee Mr Morrison's office made "direct and indirect" representations on behalf of clubs, but those suggestions were not always approved it was Senator McKenzie who had the final say.
"We concluded the award of grant funding under the Community Sports Infrastructure Program was not informed by an appropriate assessment process and sound advice," he told the inquiry.
He said the parallel process run by Senator McKenzie's office alongside that of the government agency Sports Australia "was not informed by clear advice and were not consistent with the program guidelines".
"It is poor practice for entities to be instructed what their advice should recommend rather than providing their own recommendations that are developed through an evidence-based approach," Mr Hehir said.
"Potential applicants and other stakeholders have a right to expect program funding decisions will be made in a manner and on a basis consistent with published program guidelines."
The audit report found blatant political pork-barrelling in the program, with grants awarded by the Morrison government based on colour-coded electoral margins.
But Mr Hehir said there was no legal requirement for the minister to provide reasons for which projects received funding.
Mr Morrison had the head of his department - his former chief of staff - conduct a separate review that reportedly absolved the government of any wrongdoing.
Philip Gaetjens' report has not been released but according to Mr Morrison it found "no basis for the suggestion that political considerations were the primary determining factor".
The committee also wants to hear from Mr Gaetjens to explain how he reached his conclusion.
