Defence copped an $18,000 interest payment after an army major used a credit card to pay more than $1.1 million on rations for a military exercise.
Officials admitted to a Senate committee on Thursday it should have been paid through an invoice rather than an electronic funds transfer.
They insisted the purchase of the rations for Operation Talisman Sabre in Queensland was approved and known months ahead, but the issue was how it was paid.
"The person in this case took the decision that paying those suppliers' bills for that exercise, it would be a more efficient way to pay them by credit card," first assistant secretary David Spouse told senators.
"That clearly was a very bad decision."
Mr Spouse said he had been in the department for a long time and had not seen anything like it at that level.
His colleague Angela Diamond insisted officers were not spending money unnecessarily, but conceded the $18,000 charge would not have existed if the payment was made properly.
Labor senator Alex Gallacher said the committee was not questioning whether the money was spent keeping soldiers in the field in the right state.
"We're just questioning the absolute absurdity of the decision," he said.
Meryl Clarke, of the department's fraud arm, said an investigations concluded no fraud was involved, but admitted the payment would not have been picked up by their systems.
"Because there is no fraud involved," she said under questioning.
Liberal senator Chris Back asked how she knew that if she had not yet investigated it.
Ms Clarke said it was not a total payment, but rather the $1.147 million was split up in a limited time frame.
The major has undertaken extra training since the incident.
The rations payment was one of several concerns raised in an Australian National Audit Office report last year on Defence's management of credit cards.
The review also found at least $75,138 was paid on purchasing cards for 119 staff traffic fines from July 2012 to November 2015.
Major General David Mulhall said all the incidents had been investigated.
"In some cases we have been unable to find who was liable for the bill and therefore the department has paid that liability," he said.
As of Thursday, there are 15 outstanding traffic notices, with the oldest from February 27.
Following the audit recommendations, Defence has increased its analytic testing of credit cards, with an internal audit of the use of fuel cards being conducted.
