The Department of Internal Affairs says it will look into accusations that the Perry Foundation gave more than $4 million in public funds to the racing industry.
Lobby group Gambling Watch has complained about what it calls the foundation's misuse of public money.
Charitable trusts are supposed to give the bulk of the money they receive from gaming machines to community organisations.
In March, the department said it was clamping down on charitable trusts which donate money to the racing industry.
The Perry Foundation's annual funding report shows more than $4 million was granted to racing clubs throughout New Zealand.
Gambling Watch coordinator Dave MacPherson says it is not illegal for trusts to grant pokie money to racing clubs.
However, he says clubs should not be receiving millions when community groups are denied funding. The group also claims many smaller amateur sporting bodies are missing out.
The Perry Foundation on Wednesday defended its actions, saying only 9% of all grants were made to racing.
It says it openly supports racing and has an excellent record with the Department of Internal Affairs.