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Mr Dunne has confirmed to the Otago Daily Times he contacted the department in late 2010, following concerns about a non-payment of a pokie grant to the Northern Wellington Festivals Committee, which he chairs.
The committee runs the Johnsonville and Tawa Christmas parades, and received more than $63,000 in grants from The Trusts Charitable Foundation (TTCF) between 2004 and 2011.
In 2010 an application from the committee for $8114 was later declined, with the trust unable to pay grants due to an Internal Affairs investigation.
Mr Dunne said the festival was always on the first week of December, but in late October "TTCF for reasons which were unknown to us simply froze paying out all grants".
Mr Dunne maintained he was approached about the grant hold-up by the committee's treasurer and "we were in somewhat of an embarrassed position, as you could appreciate".
"My recollection is I approached Internal Affairs at that stage, because I heard a rumour that [TTCF] were in some strife," the Ohariu-Belmont MP said.
"I approached Internal Affairs and said, 'What is going on? We want to know when we are going to get the grant that has been approved to us, because we have bills to pay.
"They said it would be paid out in due course, I just don't recall when that was."
Former TTCF contractor Martin Legge told the Otago Daily Times he was visited at his Levin home by a senior Internal Affairs investigator in late 2010, who told him and his wife, Liz, that "all hell has broken loose" following Mr Dunne's intervention.
Those comments for the senior investigator indicated political interference and allowed TTCF to eventually restructure, he said.
"It appeared no coincidence that the investigation team was replaced, with the investigation put on the backburner".
In September 2010, Internal Affairs told TTCF it could no longer distribute grants, and was investigating Mr Legge's allegations about the trust, including its involvement with the Otago Rugby Football Union.
However, he says that despite being told his evidence was a "slam dunk" by the investigator, Mr Legge says he was later informed that the department was under political pressure to get the trust back up and running.
He said he has items of correspondence with the department that state Mr Dunne's involvement, and "not once have I been corrected or have DIA [Department of Internal Affairs] attempted to refute this claim".
Mr Dunne last week maintained to the ODT he had never met any of the funding agencies for the annual festival.
He could not recall the way he approached Internal Affairs, but believed it was "in some form of writing though the Minister's office".
"I understood there was a problem with them paying grants, and this was causing a downstream problem for people who are relying on getting the grants to fund their activities. In our case it was a Christmas parade."
Last week the ODT filed an Official Information Act requesting all documents, minutes and confirmation of meetings between the Mr Dunne and representatives of TTCF.
Following that request, a spokesman on behalf of Mr Dunne advised he was "unable to provide you with the information you have asked for as he has never met with this trust".
However, the ODT has obtained emails confirming Mr Dunne met TTCF representatives, including deputy chairman Ron Turner on Wednesday, April 18, 2007.
At that lunch - believed paid for by the trust - the associate Minister of Health and Minister of Revenue is alleged to have discussed issues of concern for the trust.
Last week Mr Dunne confirmed he did have lunch with Mr Turner on the date in question, but had no recollection of what was discussed or where they dined.
"I have got nothing here to hide," Mr Dunne said.