The Department of Internal Affairs is investigating a charitable trust for granting more than $900,000 to horse racing.
The Trillian Trust, which distributes money from gaming machines, is required to give the bulk of its earnings to community organisations.
In the last financial year, the trust granted just over $900,000 of its $5.3 million earnings to racing clubs. Other beneficiaries included Surf Life Saving New Zealand, St John Ambulance and a number of schools.
Department of Internal Affairs spokesperson Keith Manch says the funding of racing is not covered by the trust's gambling license nor by charity rules.
Mr Manch says staff have been in touch with the Trillian Trust and will be formally speaking with key members.
The announcement of the investigation coincides with the $600,000 Trillian Trust Auckland Cup harness race to be held at Alexandra Park on Friday.
The Charities Commission says the trust may have made a simple mistake, but if it is found to have committed a serious breach it could be deregistered as a charitable organisation.
The Trillian Trust has not been available for comment.