About 43 per cent of projects that shared in the coalition's $100 million fund were not eligible despite the prime minister repeatedly claiming otherwise.

Representatives from the audit office told a Senate inquiry the groups should have been disqualified because they had already started work on their projects before funding arrangements had been finalised.

But Mr McCormack rejected that evidence.

"All the projects ... put to final funding by Sport Australia were indeed eligible," Mr McCormack told reporters at the Sunshine Beach Surf Life Saving Club on Friday.

"I appreciate too that the Senate inquiry had its first night, I appreciate that it is a very politically charged environment in the Senate inquiry."

The surf club secured $2.5 million for its club redevelopment project in March 2019 to demolish its aged clubhouse dating back to 1983, paving the way for a new clubhouse.

Mr McCormack said that funding came from the $841.6 million Building Better Regions Fund.

He urged sports groups that missed out on funding under the first three rounds of the community sports grants program to "apply, apply again".

Nationals backbencher David Gillespie dismissed the evidence as a mere "technicality" while Liberal senator Mathias Cormann also stood by the eligibility of the recipients.

But Opposition Leader Anthony Albanese said the evidence proved Scott Morrison was "loose with the truth".

The prime minister claimed on at least 16 occasions that all the projects funded were eligible.

"Scott Morrison thinks that marketing and spin will solve every problem and that marketing is more important than telling the public the truth," Mr Albanese told reporters in Sydney.

An explosive audit uncovered political pork-barrelling in the program, with grants awarded by the Morrison government based on colour-coded electoral margins.

The Senate inquiry on Thursday heard there were at least 28 versions of the spreadsheet, detailing which groups would receive funding and the electorate they were located in.

The document was shared with the prime minister's office and showed applications could swing from approved to denied within hours without explanation.

When asked after the hearing about his defence of the program, Mr Morrison said he was quoting the auditor-general's report.

"I haven't seen that (verbal) evidence, I haven't seen that statement, so I will review that," he told reporters.

Auditor-General Grant Hehir told the committee Mr Morrison's office made "direct and indirect" representations on behalf of clubs but those suggestions were not always approved.

Former sports minister Bridget McKenzie had the final say.

Mr Hehir said the parallel process run by Senator McKenzie's office alongside that of Sports Australia "was not informed by clear advice and was not consistent with the program guidelines".

"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," he said.

But Mr Hehir said there was no legal requirement for the minister to provide reasons why projects received funding.

Mr Morrison had the head of his department - his former chief of staff - conduct a separate review that 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 wants Mr Gaetjens to explain how he reached his conclusion.

Australian Associated Press