The auditor-general says she doesn't have a mandate to investigate the issue that's led to Labour leader Andrew Little being sued for defamation.
Business couple Earl and Lani Hagaman started defamation proceedings against Mr Little in June, saying they would clear their names in court.
That followed the revelation in April that Earl Hagaman, chairman of Scenic Hotels, made a $100,000 donation to the National Party in 2014, a month before his company was awarded a contract to run Niue's Matavai luxury resort.
The resort is heavily funded by the New Zealand Government, and at the time Mr Little questioned the timing of the donation and the awarding of the contract.
The Hagamans demanded an apology, which they didn't get, and Mr Little asked Ms Provost to investigate the awarding of the contract.
In a report that's just been released by her office and by Mr Little, the auditor-general says that under the circumstances she doesn't have a mandate to investigate political donations.
She also says she doesn't have the authority, under New Zealand or Niuean law, to audit the trust that owns the resort, nor does she have all the information that may exist.
Mr Little has acknowledged the report.
"I have a duty as Leader of the Opposition to raise questions in the public interest and respond to media stories on the use of public funds," he said in a statement after the report was released.
"Taking the issue to the auditor-general was the right thing to do."
He won't be making any further comment because the matter is before the courts.