The Department for International Development (DfID) took the decision after the charity denied it had covered up the use of prostitutes by aid workers in Haiti.
Oxfam said it had publicly announced an investigation when the allegations surfaced in 2011 and kept the Charity Commission informed.
The move comes amid reports that Oxfam did not tell other agencies about the actions of staff who left to work elsewhere.
A DfID spokesman said: “We often work with organisations in chaotic and difficult circumstances.
“If wrongdoing, abuse, fraud, or criminal activity occur we need to know about it immediately, in full. The way this appalling abuse of vulnerable people was dealt with raises serious questions that Oxfam must answer. We acknowledge that hundreds of Oxfam staff have done no wrong and work tirelessly for the people they serve, but the handling of this investigation showed a lack of judgment.”
Oxfam said: “The behaviour of some members of Oxfam staff uncovered in Haiti in 2011 was totally unacceptable, contrary to our values and the high standards we expect.
“As soon as we became aware of the allegations, we immediately launched an internal investigation.
“Our primary aim was always to root out and take action against those involved, and we publicly announced, including to media, both the investigation and the action we took as a result.”
Four employees were fired and three, including the country director, resigned before the end of the investigation, Oxfam said.
The Charity Commission said it had written to Oxfam “to establish greater clarity”. It said: “In August 2011, Oxfam made a report to the Commission about an ongoing internal investigation into allegations of misconduct by staff members involved in their Haiti programme.
“It explained that the misconduct related to inappropriate sexual behaviour, bullying, harassment and the intimidation of staff.
“The report to us stated there had been no allegations, or evidence, of any abuse of beneficiaries.”