A missing $3.6 million and an app that was funded with a grant but never delivered are among management failures identified in a report on the former Office of Living Victoria.
Former auditor-general Des Pearson said the now-axed office, set up by previous water minister Peter Walsh, was poorly managed and it is not known what happened to money it sent out the door.
"This was a dodgy organisation, it was a dodgy process that was allowed to continue," Water Minister Lisa Neville told reporters on Thursday.
But Mr Walsh said the money had been spent on projects that would deliver results in coming years and decades.
"This government is looking for every excuse it can to stop water-saving projects and turn on the desal plant," Mr Walsh said.
Labor built the Wonthaggi desalination plant but it has never been used, despite costing taxpayers $1.8 million each day in guaranteed payments to its private operator.
Ms Neville said the Pearson report showed that poor record-keeping meant $3.6 million is unaccounted for, and the final outcomes for one third of all projects could not be established.
She said 19 projects were on hold while the government examined them to see if they stacked up.
One developer got a $500,000 grant from the office and two weeks later donated $15,000 to the Liberal Party.
Another got money for an app that the report found did not exist.
But Mr Walsh, now leader of the Nationals and deputy opposition leader, said the government was releasing a political-motivated report to distract from allegations of rorting among Labor's electoral offices.
"As I understand, it's been sitting on the minister's desk for several weeks, if not months," he said.
Labor shut down the Office of Living Victoria immediately after taking power in November 2014.
Ms Neville said the staff involved had "left" the government.
