A simple mathematical error meant the board which oversees lottery grants allocated $12 million more than that it should have - and has had to deplete its reserves as a result.
The mistake will mean cuts in how much can be distributed in future years.
Each year the Lottery Grants Board allocates profits from the running of lotteries to regional boards, specialist committees and statutory bodies such as the New Zealand Film Commission and Sport NZ.
In the year to June 30, 2014, the board is distributing more than $220m.
However, since the funding was approved, officials at the Department of Internal Affairs (DIA) discovered that it had overestimated how much should be available to the Lottery Grants Board by $12.44m.
Robyn Nicholas, secretary to the New Zealand Lottery Grants Board, said no money had gone missing. Instead, the problem was down to a basic error.
''Basically, two figures were counted twice, and some manual adjustments weren't made to figures,'' Nicholas said.
Also, DIA had ''outdated'' technology systems which made calculations more difficult.
The board was using reserve funds it held to make sure that the error had no impact on the amount available for distribution to community organisations.
However, the level of reserves at the start of the next financial year, which were expected to be about $14.5m, would now be just over $2m.
Reserves were used to cover distributions when lotteries profits were below expectations, although the board had taken a decision to deplete its reserves over time, Nicholas said.
She could not say whether it would have allocated less had it had a clearer picture of how much it should distribute, but it ''may very well have made different decisions''.
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