The Serious Fraud Office (SFO) has advised the Government's $3 billion Provincial Growth Fund on to how to prevent fraud in the scheme.
Through the fund, central government has committed to investing $1b a year over three years in regional economic development.
"We are looking to not just be the ambulance at the bottom of the cliff, which is our main job at the moment, but we are also looking at being the fence at the top in terms of prevention," SFO chief executive Julie Read told the Herald.
"We have provided some advice to the regional development fund about how they can look to prevent fraud in that fund," she said.
The extent of public sector fraud was hard to estimate because of the hidden nature of crime, she said.
"The UK in particular has been working really hard on this and they came up with a range of 0.5 per cent to 5.0 per cent of government spending," she said.
"And there is no reason to believe that we are any different," she said.
" I would say that New Zealand would be at the lower end of that scale, but that's still a substantial amount of money," she said.
At the lowest end of the scale 0.5 per cent of the Government's expenditure of just under $100 billion in 2017 would come to $500m.
"We have been doing a lot of work with the UK, The United States, Australia and Canada on public fraud in particular, which is a prime target for fraudsters unfortunately," she said.
"Preventing fraud in the public sector is really important because it diverts money away from critical public service and disproportionately disadvantages those who are the most vulnerable because they are people that rely public services the most," she said.
"We are really looking at opportunities for prevention because it means that money does not get lost," she said.
Citing the Auckland Transport case, where former employees were convicted for accepting more than $1 million worth of bribes in 2016, Read said some organisations overlooked checks and balances when receiving or allocating funds.
The case saw two men jailed in 2017 over roading contracts.
Stephen Borlase, former head of roading contracting business Projenz, was sentenced to five and a half years in prison while Murray Noone, a former senior manager at Auckland Transport, was given a term of five years.
The fraud involved a pattern of payments from Projenz to Noone, totalling more than $1m over seven years, which a judge found were related to the latter's role in awarding contracts worth tens of millions of dollars to Borlase's company.
The court heard evidence of a culture of largesse in the council's roading division, as Projenz laid on long lunches for staff - including an eight-hour affair at upmarket eatery Euro that cost $5500. Read said the case was a big wakeup call for the SFO, Auckland Council, and other local authorities.
Read, in the Serious Fraud Office's annual latest report, said the country had made good progress combating bribery and corruption recently but could not afford to be complacent.
"Large-scale offending can still take place if we do not remain vigilant. Increased spending on public infrastructure and government procurement as well as expanding social and business links to jurisdictions with high instances of corruption amplify the risks," Read said.
Fraud in public entities, particularly around procurement, is one of the subjects to be covered in a SFO's Fraud and Corruption Conference 2019 scheduled for March 7. The conference, to be held in Auckland, has attracted speakers from around the world.