An emotional Mr Heatley this morning resigned his housing and fisheries portfolios over misspending the taxpayers' money and making a wrongful declaration.
Mr Heatley's accounts have gone to Auditor-General Lyn Provost for analysis and she has also been tasked with working with Ministerial Services to improve the systems and processes around ministerial expenses.
The resignation was over Mr Heatley signing an expense claim for a dinner when in fact the $70 charge was for bottles of wine at a National Party function. It followed other revelations of misspending this week.
Mr Key said that after discussing the issue with Mr Heatley yesterday he recommended Mr Heatley stand down. But Mr Heatley insisted on resigning.
"When the Auditor-General's report comes back at that point, I will reflect on it but I am not closing the door to him going back. That's possible," Mr Key told reporters this afternoon.
Maurice Williamson (housing) and David Carter (fisheries) would take over Mr Heatley's portfolios for now.
Labour leader Annette King thought it was strange that Mr Heatley resigned when the prime minister would have been comfortable with a stand-down.
"It is a holy mystery to most of us... There needs to be an explanation. None of us know what is behind it," she told reporters.
"Is there more to it? It just seems strange and a mystery as to why a minister would stand down when his prime minister said he didn't need to."
Mr Heatley's latest incorrect claim came after he had already been caught out using his ministerial credit card to pay for a family trip and other personal transactions.
"I've had to pay back things that have been charged and I need to do that and I will do that," he told a media conference this morning.
"The difference here is I have represented, signed a document, that is not accurate and that's a step too far. It's just a step too far. It tipped it over the edge for me."
Mr Heatley said he was "embarrassed and immensely sorry" for breaching standards.
"I wanted him to accept it because I meant it. I want to resign, I haven't lived up to my own standards." He would remain in Parliament as MP for Whangarei which he has represented since 1999.
Mr Key said Mr Heatley's actions were untidy and careless but he did not think there was any intentional wrongdoing.
"His interpretation of the rules were that as a minister outside of Wellington or his electorate he was able to use his credit card for food or beverage. That's actually incorrect... but that's what he understood, and in that regard his motivations were I think genuine and honest."
Mr Heatley this week paid back over $1000 worth of illegitimate spending, the bulk of which involved a taxpayer-funded family trip to the South Island where he visited Kaikoura's Whale Watch and attended a conference in Christchurch.
Mr Heatley has also been under fire in the past for his accommodation allowances.
Energy Minister Gerry Brownlee also apologised this week and repaid $151.90 spent outside the rules in September for a lunch with his electorate staff.
Mr Heatley is the second government minister to resign after Richard Worth resigned following the election over inappropriate behaviour.
Mr Key said no other ministers were in trouble.
"I've got no reason to believe there are any other documents that have been signed are inaccurate but I can only check a certain number and a certain timeframe. But I do not believe my ministers have acted in a way that contravenes the rules or at least done so intentionally."
He said Ministerial Services systems, which did not pull Mr Heatley up when he wrongly used his ministerial credit card, needed to be looked at.
"Why didn't alarm bells go off when there were repeated examples of people using credit cards and having to repay it, not unique to Mr Heatley and certainly not unique to the National Government?"
However, Mr Key said Ministerial Services were dealing with far more transparency than ever before.
"I'd say the standards my ministers are being held to are dramatically higher than what they were just a few years ago and that's a function of the transparency environment.'
