Social Development Minister Paula Bennett says more work is under way to detect beneficiary households, where multiple members are being paid the accommodation supplement.
She said it was not unlawful or considered to be fraud by Work and Income but she believed most New Zealanders would see it as "a rort".
In response to questions at a workshop session at the National Party conference in Auckland during the weekend, she said it was possible for six people to be sharing a house and all getting the accommodation supplement, and that the total could be well in excess of the total rent.
She said it was also possible that state house tenants could be paying an income-related rent of $80 a week but benefits are done on an individualised basis, not on a household basis, so you could also have two adult children living in the house who were receiving the accommodation supplement.
She said she and Housing Minister Phil Heatley were working with Inland Revenue to stop the practice.
The accommodation supplement of up to $172 a week is paid as a subsidy for rent, board or mortgage and depends on age, income, dependents and region.
She acknowledged that Labour's Annette King had raised concerns about the accommodation supplement recently. She claimed that landlords increased the rents when they knew their tenants were receiving an accommodation supplement and that the supplement, likely to cost $1.2 billion this year, had not improved housing or access to housing.
Ms Bennett said that she was also considering a system whereby people who were given grants for food could be given a food parcel instead.
Food parcels could be delivered to people in need instead of grants, which cost about $63 million a year, and possibly with recipes in them because many people did not know cooking basics.
To questions about women sometimes deciding to qualify for the domestic purposes benefit, rather than work on minimum wages, Mrs Bennett said she found herself pregnant at 17 "and I didn't plan it".
She spoke passionately about how more needed to be done for young women, especially Maori women, to restore their self-respect.
"Maori women in particular - we are strong women that run those marae and had self-respect and chose who we slept with, we had dignity, we had mana.
"Men got to stand in front but everyone knew that Maori women were the ones that did everything."By Audrey Young Email Audrey