The Speaker of the House is standing by Martin Matthews' appointment as Auditor-General amid calls for an inquiry into extensive fraud at the ministry he used to lead.
Mr Matthews was Ministry of Transport chief executive while convicted fraudster Joanne Harrison stole nearly three quarters of a million dollars.
Newly released emails have shown when concerns were raised directly with him as chief executive in 2014, he decided "not to pursue the matter further".
The Labour Party, United Future and New Zealand First have called for an independent inquiry into the extent of the fraud and his conduct while it happened.
New Zealand First said Mr Matthews should step down while that investigation took place.
An inquiry is under way into whether some staff unjustifiably lost their jobs after raising red flags about her.
The Officers of Parliament Committee, headed by David Carter as Speaker, appoints the Auditor-General.
Mr Carter said MPs were "very aware" of the charges that had been laid against Harrison when they were considering Mr Matthews for the position.
He said the committee invited the Serious Fraud Office (SFO) for a briefing about how Mr Matthews had handled the situation.
"[The SFO] told the committee Mr Matthews had acted in an exemplary fashion from the moment he became suspicious of fraud and that his actions would assist the Serious Fraud Office obtain a conviction, and that played out correctly."
The SFO raised no concerns at all about how long it taken ministry management to become aware of the fraud, said Mr Carter.
Ministry of Transport emails showed its chief legal adviser was demanding answers from Harrison in 2014 about the nature of contracts she was signing with a company called Sharp Design and proof that it had delivered any work.
Harrison had created fake companies and used invoices to defraud the ministry. Between November 2012 and July 2014, she authorised payments of invoices totalling $227,126.76 to Sharp Design.
The emails showed Harrison then contacted Mr Matthews, asking him to close down the inquiry.
A newly released email, sent by Mr Matthews to the chief legal adviser, said that he would not pursue the matter because he had sought and received assurances from Harrison there would be no further problems with procurement compliance.
In the email he also said he did not enough information to prove Sharp Design had not provided the services it had been contracted to do.
"To act without good cause however would have equally serious implications for the perceived trust and confidence I have in one of my senior managers."
Mr Carter said the committee did not have that information at the time of its decision on Mr Matthews' appointment, but it did not alter his view.
"But we asked Mr Matthews what it took for him to consider the action - he said as soon as he had enough concrete evidence he acted immediately, and that action was confirmed by the Serious Fraud Office."
As the Speaker of the House and chairperson of the committee, Mr Carter said he had no reservations about Mr Matthew's appointment.
New Zealand First 'brassed off' at newly released details
In addition to stealing money, Harrison also secured jobs in the public sector for those close to her.
A friend of hers was on the ministry's payroll for 10 months but never turned up or did any work.
She also tricked another government agency into hiring her husband, on a six-figure salary.
New Zealand First leader Winston Peters said earlier he was furious Mr Matthews' lack of action was not made clear to politicians when they appointed him as Auditor-General.
"The Auditor-General himself, I believe, must stand down until a full-scale inquiry gets to the end of this matter."
Mr Peters said he found it hard to believe Mr Matthews did not know what was going on.
"The appointment process went to Parliament, and parliamentarians and parties are required to say whether they support or don't support.
"If we'd have known what had gone on, there's no way we would have said that. We feel seriously brassed off, and so should the public."
Labour leader Andrew Little said the failures at the Ministry of Transport were disturbing and, given the ongoing revelations, it would be more appropriate for the State Services Commission to investigate exactly what went on.
Mr Little also questioned whether the panel of politicians who interviewed Mr Matthews for the role in 2016 knew the full story.
"I've spoken to Trevor Mallard, our representative on the panel. He said there was information out there now that he wasn't aware of at the time the appointment was made."
Case was dealt with satisfactorily - PM
But Prime Minister Bill English said it would be a drastic step for Mr Matthews to step down.
While he was not familiar with all the details of the case, it had been dealt with satisfactorily, which showed the system was able to pick up problems, he said.
Any further investigation would be done by the State Services Commission, he said.
State Services Commissioner Peter Hughes refused to be interviewed but said Harrison's fraud had been "the subject of a number of independent reviews which have considered all the available information".
The Office of the Auditor-General said Mr Matthews was overseas and has been unavailable to comment.