Social Development Minister Paula Bennett says more work is under way to detect beneficiary households, where multiple members are being paid the accommodation supplement.
She said it was not unlawful or considered to be fraud by Work and Income but she believed most New Zealanders would see it as "a rort".
In response to questions at a workshop session at the National Party conference in Auckland during the weekend, she said it was possible for six people to be sharing a house and all getting the accommodation supplement, and that the total could be well in excess of the total rent.
She said it was also possible that state house tenants could be paying an income-related rent of $80 a week but benefits are done on an individualised basis, not on a household basis, so you could also have two adult children living in the house who were receiving the accommodation supplement.
She said she and Housing Minister Phil Heatley were working with Inland Revenue to stop the practice.