Auditor-General Martin Matthews will stand down while an independent review is held into his appointment, the Speaker of the House says.
Martin Matthews Photo: RNZ
Mr Matthews led the Ministry of Transport while a large-scale fraud was carried out by one of its senior managers, Joanne Harrison.
Harrison was sentenced in February to three years and seven months in prison for stealing $723,000 from the ministry.
She also tricked another government agency into hiring her husband, and got a job for a friend who was on the ministry's payroll for 10 months but never turned up or did any work.
Mr Matthews has said he regretted that Harrison's fraud occurred under his watch and wished he had detected it earlier.
Speaker David Carter called the multi-party committee that appointed Mr Matthews to the position of Auditor-General to a meeting this afternoon to discuss whether they needed to review that move.
Mr Carter, the chair of the committee, said the decision to conduct the review was unanimous.
He said Sir Maarten Wevers has agreed to undertake the review and hoped to start the work next Wednesday and have it competed in a fortnight.
"We want him to report on the suitability of Martin Matthews to continue as the Auditor-General.
"We want him to also comment on the process that the select committee undertook in the first place in appointing or recommending the appointment."
Separately, the State Services Commission is taking over the investigation into the treatment of whistleblowers at the ministry who raised red flags about Harrison.
Former employees went public this week with concerns they were forced out of their jobs after speaking up about Harrison.
The ministry launched its own investigation into those claims last week.
'I stand by the actions I took' - Auditor-General
In a statement, Mr Matthews said he wrote to Mr Carter yesterday and requested an independent person review his suitability for the role.
"I stand by the actions I took when Secretary for Transport, and know that I acted appropriately based on the information available to me at the time.
"However, the current media coverage about these matters has the potential to undermine the important constitutional role of the Controller and Auditor-General."
As far back as 2013, staff at the Ministry of Transport were alerting Mr Matthews to what they regarded as Harrison's astounding behaviour.
She created fake companies and paid them for work that was never done and refused to cooperate with an internal investigation.
Mr Matthews removed Harrison from her position after an external audit in 2016.