The Ministry of Health's handling of contracts awarded to two former employees has been criticised on a number of fronts by the Auditor-General, who says it raises wider questions about a failure of good practice.
National MP Murray McCully, responsible for initiating the inquiry, described it as "a saga of monumental incompetence".
Director-General of Health Karen Poutasi says changes have already been introduced, or are being introduced, and the issue is "in hand".
Auditor-General Kevin Brady's report, however, found that while "the ministry has been taking further steps to improve its procurement and contracting policies and practices ... further work is required".
The ministry had a big contract procurement function and any "significant shortcomings" would represent a serious risk for the Government.
Mr Brady initiated an investigation in April after Mr McCully raised concerns about former employees Matthew Allen and David Clarke.
The pair were awarded 60 ministry contracts between June 2001 and February this year worth a total value of $1.36 million - 28 of them were worth $10,000 or more.
Only four of the contracts involved a contestable process; the rest were awarded on a "sole provider" basis.By Ruth Berry