Labor has raised concerns that a new round of government drought grants could be politically exploited, as parliament’s audit committee agrees to examine the Coalition’s troubled regional jobs and investment scheme.

On Monday, the Joint Committee of Public Accounts and Audit announced it had agreed to commence an inquiry into the Regional Jobs and Investment Packages (RJIP) program, along with the Australian Research Council’s administration of the national competitive grants program.

Labor had written to the audit committee asking it to look into the program’s administration after the auditor general released a scathing report into the Coalition’s handling of the $220m regional jobs scheme.

The shadow infrastructure minister, Catherine King, welcomed the committee’s inquiry, and warned against a repeat of the government’s failings with the administration of a new $200m special drought round to be awarded under the building better regions fund (BBRF).

King said the criteria for the new funding round were “so loose he [regional development minister Michael McCormack] can decide eligibility based on his feelings”.

“Rural and regional Australians living through this extended drought need support from the government, not uncertainty,” King said.

“I don’t want to see councils and community organisations spending thousands of dollars and countless hours preparing an application only for the minister to arbitrarily rule them ineligible.”

King said McCormack needed to urgently clarify the rainfall and socioeconomic benchmarks for grant funding, and reveal how he would deem a location as eligible.

In November, the government announced it would direct $200m from the BBRF to create a special drought round for drought-affected councils, providing up to $10m per project in regional local government areas.

According to the guidelines, a ministerial panel chaired by McCormack has been established to make funding decisions for the program, and applicants must provide evidence that they are in a drought-affected region.

The guidelines say that “in addition to the assessed application and availability of grant funds, the ministerial panel, in consultation with cabinet, then decides which grants to approve”.

King said the RJIP process had exposed shortcomings with how grant funds were awarded, with the ministerial panel approving funding for 17% of applications against advice from the department, while overturning 28% of the department’s recommendations.

“Hard-working organisations missed out to companies that were trading while insolvent, under investigation from Asic and trying to raise matching funds with aqua tokens,” King said.

She also criticised the government for refusing to comply with a senate order to produce documents relating to the ministerial panel’s decisions.

On Monday, McCormack advised the Senate that he would not comply with the document order, claiming public interest immunity.

“The documents requested if they were publicly released would damage commercial interests, including reputational damage to companies involved in open tender processes,” McCormack said.

Guardian Australia has reported a series of projects that received funding under the RJIP scheme that have raised questions about the assessment process, including a $205,000 grant to a dog breeder to build an aquaculture project on the south coast, with the venture to be funded by raising $5m in “aqua token” cryptocurrency.

A different project in the same electorate received $750,000 while possibly trading while insolvent, and in another instance, a grant in north Queensland was provided to a bus and ferry project that is losing money and is unlikely to happen for two more years.

A former Nationals candidate was also a successful grant applicant, receiving $300,000 for a crocodile farm in the marginal seat of Capricornia, while in the Wide Bay Burnett area, the top eight projects recommended for funding based on the department’s merit assessment were all overlooked, while two known political donors to the LNP were successful.