Downing Street asked a minister to approve a £150,000 grant to a "big society" charity despite officials' concerns about its poor performance and doubts over its financial sustainability, a report has revealed.
The decision was branded "alarming" by the chairwoman of the House of Commons Public Accounts Committee, Margaret Hodge, who said it was "hard to believe" that it was in the best interest of taxpayers.
The money was the last in a string of grants totalling £3.1 million paid by Government bodies and the Big Lottery Fund to the Society Network Foundation (SNF) and its subsidiary the Big Society Network (BSN), found the National Audit Office (NAO). Despite the funding, the SNF applied to be wound up in August this year.
The grants were made over three years following the 2010 launch of the BSN by David Cameron in 10 Downing Street, with the aim of encouraging the kind of community work and volunteering he had put at the heart of the Conservative manifesto for that year's election.
The then minister for civil society, Nick Hurd, approached the Prime Minister's Office in April 2013 after questions were raised about continuing to fund the network, which was judged to have underperformed against many of the objectives for a £350,000 grant made by the Cabinet Office a year before.
Payment of a separate £300,000 for BSN's Get In child obesity programme had already been halted by the Cabinet Office because of poor results.
The NAO found that Cabinet Office officials advised that it "would not be appropriate to grant-fund an organisation that is in financial difficulty or that is struggling to appropriately manage its financial affairs", and that Mr Hurd told Number 10 there were concerns about the group's performance and sustainability.
At this stage, the Cabinet Office was aware that BSN had failed to file annual accounts at Companies House within the required nine months. When they were eventually provided in May 2013, they showed a deficit of £181,000.
The NAO report showed that, in response to Mr Hurd's query, the PM's head of campaigns and strategy consulted the Number 10 Policy Unit and met SNF's director Steve Moore and chairman Martyn Rose to discuss their application for the grant to be renewed.
Within six days, Downing Street asked Mr Hurd to approve a £150,000 grant to SNF for 2013/14, and to advance £12,500 of the money to cover the cost of the planned Big Society Awards event to celebrate work in the community. The minister decided the grant should go ahead, but introduced tighter controls to monitor the use of the money.
Although results "improved against some measures", the Cabinet Office decided in February this year to take over the operation of the awards itself. A further grant of £15,000 was agreed in June to promote a smooth transfer of responsibility for the awards event, but has not yet been paid.
The NAO report also noted the results of a investigation by independent charity Nesta into claims that its predecessor body - the National Endowment for Science, Technology and the Arts quango - had been "forced" to support the Big Society Network with grants totalling £480,000.
Nesta's inquiry confirmed that the Government's then adviser on the big society, Lord Wei, had asked the quango to consider supporting BSN - of which he was co-founder, but was no longer involved with - but found that the grants were awarded only after being subjected to its standard approval processes.
Mrs Hodge said: " It's alarming that the Cabinet Office continued to fund the Society Network Foundation, despite concerns over the charity's poor performance and financial health.
"It's hard to believe that the Government's decision to renew funding was in the best interests of the taxpayer. Over a year later, the Society Network Foundation applied to be wound up and the Cabinet Office decided to take over the operation of its work."
A Cabinet Office spokesman said: "This Government is committed to backing and providing funding for organisations which encourage people to volunteer and use their talents to help others. We welcome the NAO's report today which finds no evidence of any systemic issues with our programmes."
Labour civil society spokeswoman Lisa Nandy said: "The `big society' has lost its last shred of credibility. The thousands of charities who have had their funding cut will be dismayed to read today's report, and learn an organisation with strong ties to the Prime Minister was allowed to waste millions of pounds of public money on pet projects.
"The Conservative donors and supporters that ran the Big Society Network were hand in glove with ministers and advisers, who didn't seem to care the organisation they were writing cheques to hadn't even filed its accounts.
She added: "David Cameron used to talk a lot about the `big society'. His silence on this is deafening. He owes us all an explanation."