© APGovernor Chris Christie is under fire from two fronts.
Federal officials are looking into whether Mr Christie misused some of those funds to produce tourism adverts.
Advertising agency Sigma Group lost out to MWW for a campaign proclaiming the state was "stronger than the storm".
Mr Christie is also being sued over claims his office created gridlock on a bridge as part of a political vendetta.
Mr Christie, who is seen as a potential Republican presidential candidate, is being audited by the US Department of Housing and Urban Development (HUD) to determine if Sandy funds were misappropriated to finance an advertising campaign during an election year.
'Double the price'
Sigma Group's $2.5m bid lost out to a $4.7m bid by MWW for a campaign that featured Mr Christie and his family proclaiming the state is "stronger than the storm".
"We were left scratching our heads as to why they would give this bid to an agency at double the price," Shannon Morris, president of Sigma Group, told the Reuters news agency on Monday.
Christie spokesman Colin Reed said the ad campaign had been a success that helped the state begin to recover from the devastation caused by the October 2012 storm.
"We're confident that any review will show that the ads were a key part in helping New Jersey get back on its feet after being struck by the worst storm in state history," Mr Reed said.
Lanes to the George Washington Bridge, which connects New Jersey to Manhattan, were closed last summer.
The traffic mayhem was allegedly instigated in revenge against a mayor who declined to endorse Mr Christie's re-election as governor.
Mr Christie fired a top aide after communications that apparently showed her engineering the lane closures were made public a day earlier.
Comment: The trouble with Chris Christie by Chris Hedges