Prime Minister John Key says he will have officials will look into allegations former cabinet minister Nick Smith signed off on payments to a friend and consultant to resolve an environmental dispute while environment minister.
Dr Smith approved $180,000 last year to pay for the Sustainable Futures Trust - set up to resolve a dispute between farmers and environmentalists over water allocation issues in the Mackenzie Basin and Waitaki Valley.
Documents released under the Official Information Act showed $88,010 was paid directly to policy think-tank the Ecologic Foundation - headed by Dr Smith's friend Guy Salmon, a former National Party candidate.
The trust reportedly ran out of money at the end of last year and asked for a top-up after initially receiving $100,000.
Its request was turned down but Dr Smith granted a further $80,000. It was found in documents over half of the funding went to environmental consultants.
Speaking on RadioLive this morning, Mr Key said he did not see it as a "terribly big issue".
"I'm sure someone will have a cursory look at it. Maybe the minister's office or my office."
Mr Key said it was common knowledge Dr Smith knew Mr Salmon.
"They have done a lot of work together for years.
"If you ruled out a contract because you knew someone, you wouldn't be doing much because in New Zealand pretty much everyone knows everyone else - I don't think there were many people that could have done that work," said Mr Key.
Labour Party's environment spokesman Grant Robertson said the money was directly funded from the Ministry for the Environment, even though the trust was turned down for funding in the ministry's open tender Community Environment Fund.
"This process raises serious questions. A pet project of the then Minister Nick Smith has been included in the baseline funding of the ministry, with large parts of the money going to consultants."