Defence is investigating claims an Australian government official misappropriated money during the construction of the highly secure offices in France where the nation's new submarines will be designed.
The revelations came after senator Rex Patrick of the Nick Xenophon Team asked about the claims during a Senate estimates hearing on Friday.
Defence officials initially looked poker-faced but eventually acknowledged an investigation was underway, though they insisted they had no concerns about the security of the new building at Cherbourg on the west coast of France.
"Defence is conducting an investigation into some allegations in relation to financial management around aspects of that," Defence Department head Greg Moriarty said.
But he added "we are confident about the building".
The facility, where the cutting-edge fleet of 12 new boats will be designed, was opened with fanfare by Prime Minister Malcolm Turnbull in July. Named Hughes House, it will house submarine designers, naval architects and engineers, with the team made up of more than 50 Australians, as well as workers from the French firm Naval Group and the Australian arm of Lockheed Martin, the US giant that will integrate the boats' combat systems.
Kim Gillis, the head of Defence's capability acquisition and sustainment group, told the hearing he had "full confidence in the construction of that building, the security of that building and I'm happy that we've ended up with a fine facility."
But Senator Patrick indicated he was concerned if the processes of the building construction presented problems, saying "I'm not talking about the facility, I'm talking about the process we've gone through to fund that facility".
Stephen Johnson, Defence's general manager of submarines, said that being a secure facility, an "appropriate part of the Australian government" would "monitor" the building and its operations to ensure "we are carefully following all the rules for security".
Senator Patrick, who has replaced the high-profile crossbencher Nick Xenophon, is a former submariner. He made headlines earlier this year himself when it emerged he was the source behind a newspaper story revealing that classified documents for a submarine designed by the same French firm Naval Group had been taken from the company in a significant security breach.
The Turnbull government however played down any security implications for the Australian program.
Cherbourg, where the new office has been built, is the site of Naval Group's major French shipyards. The firm was chosen in a three-way race against German and Japanese firms to partner with Australia.
