An ex-Ministry of Transport worker has been accused of stealing up to $1 million, and a complaint has been laid with the Serious Fraud Office.
Ministry of Transport chief executive Peter Mersi confirmed Joanne Harrison has been stood down from her role "following investigations into allegations of significant breaches of the code of conduct".
"My focus is on ensuring this person is held fully to account for her actions, and that any money that may have been misappropriated is recovered.
"This was a senior staff member in a position of high trust, and my staff feel incredibly let down and betrayed by her actions."
It is unknown exactly how much money had been stolen, but it is reported to be a six-figure amount, between $750,000 and $1 million.
Mr Mersi says a number of reviews are now underway.
"In light of what has happened, it is prudent to confirm that our systems, processes and controls are robust. These focus on internal controls and recruitment processes."
State Services Commissioner Peter Hughes says Mr Mersi has his support.
"The department has been focused on taking appropriate action and I know Mr Mersi is determined to get to the bottom of this urgently, and he has my absolute backing on that."
However the Labour Party claims the Minister of Transport, Simon Bridges, knew about the allegations well before they were made public.
"Rumours of the serious fraud within the ministry have been swirling around the transport sector for weeks," says Labour's Transport Spokesperson Sue Moroney.
"The minister was surely briefed on the matter before it was referred to the Serious Fraud Office. Why didn't he come clean with the public?"
She says this latest allegation shines a light on an already troubled ministry.
"This latest scandal follows hard on the heels of the driver licence fraud uncovered earlier this year, which involved allegations that drivers' licences were being sold and people were getting around the requirement to sit the practical test.
"Just last week a damning report showed systemic failure in detecting or preventing fraud in the licensing system - today the ministry faces further allegations of serious fraud at the highest management levels."
Ms Moroney blames Mr Bridges for a drop in standards.
"The minister himself was under scrutiny last year for using taxpayer funding to try to win the Northland by-election for National with a botched ministerial announcement on double-laning local bridges."
Ms Moroney says questions need to be asked about how contracts are monitored, and that the case highlight the need for more thorough background checks when recruiting senior civil servants.