The Auditor-General says the arrangements used to ensure rest homes meet safety and quality standards are inadequate.
In a report issued on Wednesday, Lyn Provost also says the Health Ministry has known about weaknesses in certifying and auditing of rest homes since 2004 but has failed to act quickly to address them.
Ms Provost says she believes that the arrangements used to certify and audit rest homes throughout the country have been inadequate since their introduction in 2002.
She says auditing by private audit agencies is inconsistent and sometimes of poor quality.
Ms Provost says audit agencies mostly rely on rest homes to report their own progress, rarely make follow-up visits to check that problems have been fixed, and fail to keep the ministry updated.
The Government says it backs the findings and changes are under way.
Health Minister Tony Ryall says the Government accepts all of the recommendations.
Mr Ryall says National has tried to bolster the process, by introducing spot audits and publishing the results.
He says legislation is also being drafted which would require audit agencies to be audited themselves and accredited by an international organisation.
