The LSC spent the money suing Kids in Communication, which provides support to disadvantaged young people in the West Midlands, for breach of a £119,000 contract. The parties settled out of court when a former director of Kids in Communication paid the LSC £50,000 of his own money.
Last week, Stephen Bubb, director of chief executives body Acevo, wrote to Sir John Bourn, the auditor general, asking him to investigate why the LSC spent more on lawyers' fees than the value of the contract.
"It's an outrageous amount of public money to spend," said Bubb, who has also written to Acevo members asking them to share with him their experiences of the LSC.
A National Audit Office spokesman said: "Anyone has the right to contact us if they think there has been a misuse of public money. Our auditors will decide whether to launch an investigation."
John Stoker, the Compact commissioner, is holding a meeting next month to establish the lessons to be learned from the Learning and Skills Council case.
Representatives from the Office of the Third Sector, the Department for Educationand Skills, the LSC and umbrelaa body the NCVO will attend the meeting.
"I have made it clear that I want all concerned to learn lessons from the case to avoid similar probblems in the future," Stoker said.