Its been revealed in a financial report to the Niue Government that donor funds have been used to provide much need cash flow for the island's recurrent budget.
Treasury officials have traced almost 650,000 US dollars and have prevented further use of donor funds by setting up separate bank accounts.
The incorrect use of donor funds means that many special projects have not been completed.
The report says a crackdown on income tax defaulters and the collection of import duties has seen a rise in revenue for the government.
Treasury officials say two New Zealand Inland Revenue inspectors are making a significant impact on the collection of income taxes and import duties.
Imported goods are not being released until full payment of the realistic valuation of items are made.
But the officials say revenue from port charges is down due to previous concessions made for Reef Fishing and a construction company building a new aid funded administration facility.