The contract, which is a significant boost in spending, has been signed with a new entity called Graffiti Removal Australia.

Jeff Egan's consulting firm Flagship Communications is listed as the sub-contractor, and financial beneficiary, of the $1.06 million three-year contract to run Graffiti Removal Day, according to the NSW government contracts website.

Mr Egan was a delegate to the Liberal's federal council last year and was an unsuccessful Liberal candidate in this month's Blue Mountains council election.

For the past three years Rotary has run the annual graffiti awareness event for about $140,000 a year, marshalling 2000 volunteers to clean graffiti hotspots, with paint donated by a major company.

Before that, Keep Australia Beautiful claimed to have invented graffiti action day, first held in 2010 under Labor for $127,000.

Former Keep Australia Beautiful executive director Peter McLean has questioned spending $1 million on the event, and claimed more graffiti was cleaned when it was run by his organisation for far less.

"The NSW government is not getting a very good return on investment for their dollars. The Auditor-General's office should be looking into it," he said.

Mr McLean had registered Graffiti Action Day as a trademark in 2010 and protested that it had been "stolen" when then Attorney-General Greg Smith put the event out to tender in 2012 after the Liberals took office.

When it emerged that Mr Egan had written the tender documents and strategy for Rotary's winning pitch, Mr McLean complained.

"When it was removed from Keep Australia Beautiful it was thoroughly disappointing," he said.

Mr Egan said Rotary was awarded the contract in an open tender process involving a panel of experts from the Department of Justice.

Rotary didn't bid for the latest $1 million contract, but Rotarians, including Mr Egan, are board members of Graffiti Removal Australia, which holds its meetings at his Flagship Communications offices.

Mr Egan is also employed as the project manager for Graffiti Removal Day.

"Flagship was engaged to help plan, promote and manage the event. It provides three staff and resources including office space," Mr Egan said.

He said Flagship will receive $57,000 a year in fees, which was "heavily discounted".

Graffiti Removal Australia chairman Bob Aitken, a former Rotary executive director, said Flagship "has been with us since the beginning in 2012 and has helped to grow the popularity of this great community event".

A Justice Department spokeswoman said the contract with Graffiti Removal Australia is worth $600,000 over three years with an option for a two-year extension, bringing spending to $1 million.

The increase was "in line with inflation and will accommodate future growth of Graffiti Removal Day".

The money will be spent on graffiti removal and prevention materials, recruiting volunteers, project and event management, advertising, marketing and promotion, she said.

Opposition Leader Luke Foley, who was a witness in the case against Mr Egan over the Lindsay matter, said: "It doesn't seem to matter that [Jeff Egan] was caught red-handed distributing racist leaflets. The Liberal Party is always prepared to overlook the past and reward him for his work."

The department spokeswoman said Graffiti Removal Australia had been chosen by an expert panel from the Department of Justice and NSW Police.

Mr Egan was found not guilty of distributing unauthorised election material in 2009.

Keep Australia Beautiful had 2000 volunteers remove graffiti from 320 sites in 2011.

In 2014, Graffiti Removal Day had 2000 volunteers remove graffiti from 275 sites, rising to 425 sites last year.

Graffiti Removal Day is October 30.