A government department made "irregular payments" to a museum in a loyalist area of west Belfast, the Northern Ireland Audit Office has said.
Tommy Kirkham said the museum would remain open
The watchdog said the Department for Social Development informed it that the Fernhill House Museum was closing after getting a £98,175 rescue grant in 2004.
But museum manager Tommy Kirkham denied it would be closing, and said it had now secured private funding.
The museum houses exhibits about the history of the Greater Shankill area.
In October 2004, it successfully applied for a one-year rescue package to the Department of Social Development (DSD).
'Novel and contentious'
The Audit Office said in its report that no established rules existed for fast-tracking assistance of this kind so the package was "novel and contentious" and required prior approval by the Department of Finance and Personnel.
As it had failed to obtain this, the Audit Office said the payment was irregular.
The Audit Office report said the DSD had informed it the museum was to close.
However, Mr Kirkham said it would be staying open.
"In fairness, what they are saying is there's no more public money going in and it may have to close," he said.
"But what I am saying quite clearly on behalf of the staff and the board of directors is that we have found alternative methods of keeping it open."
It is understood the museum intends raising money by renting out office space.
In its defence, the DSD denied there was any question of favouritism and that they were satisfied the request for money was subjected to appropriate assessment and appraisal.
Sinn Fein West Belfast MP Gerry Adams said it was not "simply bureaucratic ineptitude" but a "highly political decision taken by DSD to drive a coach and horses through the regulations".
Mr Adams said he intended to raise his "fundamental questions about structured political bias and discrimination" about the Belfast Regeneration Office and the DSD with minister David Hanson.