Internal Affairs is investigating possible conflicts of interest in grants from a pokie gaming trust to racing clubs in the South Island.
It is the latest probe into trusts and a so-called money-go-round of kickbacks from sports that receive pokie funding.
Internal Affairs would not comment in detail.
Gaming trusts collectively administer nearly $900 million per year and gave $20 million in grants to the racing industry in the year to last July.
Racing Minister John Carter has called on racing to wean itself off pokie money for prize money.
Maori Party MP Te Ururoa Flavell who has drafted a member's bill on pokies, says even lawful funding of prize-winning stake money through pokies is wrong as one form of gambling is subsidising another.
However, former racing minister Winston Peters says it is only fair that gamblers' money goes to causes they support.
He says rumour and innuendo circle about grants to horseracing, but seldom develop into anything more than that.
The New Zealand Racing Board says racing clubs provide facilities for community use and hold racing events.
Chief executive Andrew Brown says the industry is developing processes which will ensure distribution to the industry is beyond reproach.
Listen to more about the distribution of funds from pokie machines on Insight on Sunday morning.