Ministry of Justice officials say some defence lawyers are delaying guilty pleas to make more money from the justice system - an allegation strongly denied by the Criminal Bar Association.
The Government has appointed experienced public servant Dame Margaret Bazley, who headed the three-year commission of inquiry into police conduct, to review the legal aid system.
She is due to deliver her interim report to Justice Minister Simon Power this month, and full findings are to be debated by the Cabinet in December.
The total legal aid bill has ballooned from $84 million five years ago, to an estimated record $144 million next year.
Nearly $20 million more was spent last year in administration costs.
The sharp rise in costs has been blamed on more criminal prosecutions, a "bulge" in Treaty of Waitangi claims, and more civil claims against the Government.
But briefing papers obtained by The New Zealand Herald under the Official Information Act show Justice Ministry officials believe some defence counsel delay court appearances to claim more legal aid.
The Criminal Bar Association disputes the claim and instead blames court delays on police officers who lay too many charges and are slow to disclose evidence.
Experienced barristers have also taken exception to ministry claims the recently expanded Public Defence Service - an office of salaried legal aid lawyers - is cheaper than the independent bar.
Officials told Mr Power an evaluation of the Public Defence Service supported anecdotal evidence that the present legal aid scheme does "not sufficiently incentivise" lawyers to progress court cases efficiently.
"If the system pays per court-event, then it is reasonable to assume that (unless mechanisms are put in place to manage this incentive) the number of court events in each case will be maximised to increase revenue," the briefing papers say.
Mr Power said "reform is coming to the criminal justice system".
"There is significant room for improvement. Tinkering around the edges with these problems isn't going to cut it any more.
"The legal aid system needs to be properly structured and incentivised so that the number of appearances is appropriate," said Mr Power.
"At the moment, legal aid has been driven by a number of appearances. The question is: is that the right way to fund it?"Mr Power recently expanded the Public Defence Service in Auckland at a cost of $5.3 million and said he was "very impressed" with its work.
"This is not just about defence lawyers. This is about the entire system. That includes the role of police and Crown."
John Anderson, of the Criminal Bar Association, said defence lawyers were an "easy target" and the Justice Ministry seemed "obsessed" with the claim that independent lawyers were manipulating the system.
In his experience as a criminal barrister, extra court appearances occurred because of.-
> Domestic violence initiatives to ensure defendants attended anger management classes.
> Misplaced files.
> Delays in police disclosure.
> Defendants failing to appear.
Conviction rates for both private lawyers and the Public Defence Service are about 70%.
But Mr Anderson queried the Justice Ministry claim defendants were more likely to plead earlier, saving time and money, if the lawyer was from the Public Defence Service.
"That may be the case if they are dealing more with simpler, high volume work where early guilty pleas are more likely."
The Criminal Bar Association hired a forensic accountant to analyse the Justice Ministry assertion that the Public Defence Service was less of a burden on the taxpayer.
The inquiry found the claim failed to take into account that the bulk-funded lawyers undertook "relatively few" of the major or complex trials, often involving multiple accused, and very expensive
