Frontbencher Greg Combet, who is in charge of cleaning up the insulation mess, has written to the federal auditor-general pressing for a full and fast-tracked audit.
The insulation scheme was canned after it was linked to the deaths of four installers, at least 93 house fires, and safety and quality problems potentially affecting hundreds of thousands of homes.
The federal opposition says a new problem has emerged. It alleges dodgy operators were claiming the government's rebate of up to $1600 per roof without installing any insulation.
Opposition climate spokesman Greg Hunt said some householders had received letters from the government asking if they were happy with their new roof insulation - which had never been installed.
Names had been taken out of phonebooks and signatures forged, and "(Environment Minister) Peter Garrett just wrote the cheque", Hunt said.
"It now appears as if there is systemic fraud and problems of phantom insulation under the disastrous home insulation program," he told reporters in Melbourne on Thursday.
Hunt raised the possibility of criminal fraud and an organised crime link.
Combet, the junior climate change minister, took a dim view of such behaviour.
"I am disgusted by the reports of alleged fraudulent conduct associated with the Home Insulation Program," he said in a statement.
Combet said he was taking advice on what to do about it and promised to take all appropriate steps available to investigate the fraud allegations.
Auditor-General Ian McPhee has yet to decide whether he will undertake an audit.
Combet urged him to make a decision "as a matter of high importance", adding that if the audit proceeded, it should be "expedited".
Three instances of alleged insulation fraud have been referred to Australian Federal Police.
Frontbencher Peter Garrett was in charge of rolling out the scheme but he has been stripped of the role.
Source: AAP NewsWire
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