Earthquake Recovery Minister Gerry Brownlee has been questioned in Parliament over allegations of fraud and corruption involving Canterbury earthquake rebuild contracts.
The Serious Fraud Office has started a formal investigation involving several transactions with an unnamed insurance company, Radio New Zealand reported.
The SFO also warned the scale of fraud could run to a billion dollars.
In Parliament yesterday, NZ First leader Winston Peters asked Mr Brownlee what he was doing to prevent such activity.
Mr Brownlee confirmed he had received allegations of fraud and "these have been directed to relevant agencies for investigation", he said under parliamentary privilege.
Mr Peters said he was aware of several examples of alleged fraud where work was approved and invoiced for but was never completed.
"How long has it taken to find out that this has been going on and what's the level of the fraud?" he asked in Parliament.
Mr Brownlee told the House nearly 35,000 damaged Canterbury houses have been completed, and "I don't have the detail of every one of them but if he's got information that someone's ripping off the tax payer, put it on the table so we can sort it".
Fletcher Construction was selected to work with the Earthquake Commission to manage and carry out repairs to damaged Canterbury homes.
In Parliament Mr Peters questioned the company's involvement in the alleged fraud.
"The member is putting his question on the basis that he has information that frankly, I don't have... If he likes to give it to me, we'll take it apart," said Mr Brownlee.
Fraud has not been uncommon after other international disasters, according to KPMG partner Stephen Bell who leads its forensics services.
He cited the rebuild of New Orleans after Hurricane Katrina.
"Natural disasters are a ripe ground for fraudulent activity...there was a tremendous amount of price gauging, contractor and vendor fraud, property insurance fraud, forgery and even life insurance fraud," he told Radio New Zealand.
Such activity could have an affect on Canterbury's recovery by slowing down rebuilding, Mr Bell.
"With $30 billion coming into the region over the next five years as is predicted, seeing numbers of $1.5b to $3b for fraud would not be inconsistent with the international experience.''