Environment Minister Melissa Price has warned terminating a controversial $444 million grant to the Great Barrier Reef Foundation would delay urgent protection of the world heritage site.
Labor has reiterated its plans to claw back whatever it can of the money if it forms government at this year's election, after the auditor general identified major shortcomings in the grant process.
The independent Great Barrier Reef Foundation was paid the grant in a lump-sum by the federal government last year without soliciting it or going through a competitive tender process.
In a report released on Wednesday, the Australian National Audit Office said all decisions that led to the grant being awarded were informed by advice from the Department of Environment and Energy.
Guidelines were paired with the funding, as per commonwealth grant rules, and included "relevant and appropriate eligibility requirements".
But the auditor-general says the guidelines also had two key shortcomings, being the level of detail provided on desired outcomes for the program and a lack of clear assessment criteria.
"The approach taken in the guidelines for this $443.3 million partnership grant did not enable an appropriate assessment of whether a partnership proposal represented value for money," his report states.
Labor environment spokesman Tony Burke said the report showed the foundation should never have been given the money.
If elected, Labor would demand all remaining funds and interest be returned.
Labor would then reinvest the money based on advice from the department.
"Every single cent returned will be spent on the Great Barrier Reef. Every cent," Mr Burke told ABC's Radio National on Thursday.
"I've never objected to the level of funding. I completely reject privatising the work of all our agencies, so they then have to go cap-in-hand to a small private foundation begging for money."
But the environment minister said the government's partnership with the foundation is an effective way to boost the health of the reef.
Ms Price says stopping or delaying the grant will only delay the urgent increase in reef protection activities it will provide, such as improving water quality and tackling the crown-of-thorns starfish.
"This is an investment we are immensely proud of - long-term funding to address the most urgent threats to the reef and to help manage further protection initiatives," she said.
The Senate's environment committee is investigating how the Great Barrier Reef Foundation received the grant last April.
A report from its inquiry was originally due last August, but will now be handed down on February 13, possibly following more public hearings and submissions.
© AAP 2019