Prime Minister Jacinda Ardern has defended Kiwibuild as a Government watchdog probes whether the scheme skirted rules by backing housing developments that were already in progress.
The Auditor-General's office is looking into complaints by National's Judith Collins that the way the house-building programme underwrote some projects breached the mandate it was given by Cabinet.
The issue will form part of the Auditor-General's regular annual review of the Ministry of Housing and Urban Development, according to a letter sent to Collins.
She says tax money was misused and there was no benefit to the public when a number of homes already being built in the Auckland suburb of Otahuhu were added to the list being backed by the scheme.
"KiwiBuild's Cabinet paper made it clear the taxpayer underwrite - which guarantees developers a minimum price for houses that don't sell - was for homes sold 'off the plans' and offered for sale 'in the first instance' to KiwiBuild buyers," she said.
"Council documents show the apartments were built to plans approved before the last election, and construction started before [former Housing Minister] Phil Twyford became a Minister."
Collins said this is about hundreds of millions of taxpayer dollars.
"If millions of dollars is being appropriated or voted on by Parliament for a particular purpose, I would have thought it would need to be used for that purpose or given back."
She said that it seems that what is happening does not benefit New Zealanders.
The properties were also offered for sale at the same price Kiwibuild later underwrote them, she said.
Under the scheme, Kiwibuild guarantees developers a minimum amount for their properties, either by buying unsold stock or topping up shortfalls.
It's been invoked for 12 properties so far.
Ardern on Tuesday told reporters the Government was "completely open" to the Auditor General looking at the issue.
"We are confident that all of the activity has been in keeping with the Cabinet decisions," she said.
"In some cases, a developer's plans will mean that a development is phased. They may have started some construction, but underwrites have enabled them to hasten the speed of those developments.
"So there's a set of criteria for when the underwrite is being used and we're confident that we've stuck to those arrangements. "
Ardern would not say whether the underwrite system would survive a long-awaited "reset" of the troubled Kiwibuild programme, or when the changes would be announced.
The new Housing Minister Megan Woods says the Auditor-General could have launched a special investigation, if National's complaints about KiwiBuild were of sufficient concern.
She says they've acted appropriately and taken the necessary precautions, looking at this claim in the normal annual review of the Housing Ministry.
Comment has been requested from Kiwibuild.