The country's biggest chain of childcare centres has been overclaiming more than $1.6 million after charging for teachers who listed in two places at once.
Kidicorp was also found to have claimed money from the Ministry of Education for daycare teachers who were away from their centres.
The inquiry which identified the payments came after a whistleblower claimed managers at the company were "manipulating computer records" to get higher funding, according to documents released under the Official Information Act.
The ministry found there were incorrect funding claims in about 50 of its 176 services.
It was "sufficient confirmation" of the whistleblower's claim to ask the Serious Fraud Office to investigate. No charges were laid but an audit by the ministry from 2007-2010 found $1.6 million wrongly claimed over that time.
The extra claims boosted the amount of funding through a formula which financially rewards centres which have higher percentages of qualified teachers.
The ministry's report into the issue showed auditors found corporate staff were being listed as teachers at childcare centres when they should not have been claimed for at all. It found "records where staff were shown to be working in different centres at the same time".
The auditors told Kidicorp it was not allowed to charge taxpayers for corporate staff who were not actually working with children.
Kidicorp's funding was also boosted using a system which allowed hours to be claimed if staff were away sick.
The company was told it was not allowed to use the system to claim for teachers' lunch breaks or low staffing.
Auditors said there were cases where it appeared the system was used to make it look like the centre had a "sufficient minimum" of registered teachers.
One letter to the company from the ministry stated: "Kidicorp needs to ensure that sufficient qualified and registered staff are available at all times to cover breaks and planned absences."
Audit staff also found information for 20 registered teachers at five of the audited services had been deleted. Other information was corrupted.
The ministry's group manager for early childhood education Karl Le Quesne said the money had been reclaimed from Kidicorp by docking its usual payment.
"What we have found is they were claiming for teacher hours they were not entitled to."
He said there had been no change to the claim system but audits were being done in a more systematic way.
The ministry had the power to suspend or cancel early childhood education licences. "If we had ongoing concerns we would consider further steps in taking action around the licence."
Kidicorp chief executive Wayne Wright last night said the company had a different view to that of the ministry around what could be claimed.
He said he believed Kidicorp was being held to a higher standard than other centres because of the automated system it had introduced.
Mr Wright also said the business had 3500 employees at centres across the country.
"I think it was a result of human endeavour and human error in a very complicated system," he said.
"We've tightened up our system. The ministry had a legitimate concern. We addressed it in conjunction with them.
"They deducted money and life went on. I'd rather have $1.6 million than not. In the overall scheme of things it wasn't a lot."