Almost half the hate crimes reported to the police are being wrongly downgraded from a criminal offence, to either "incidents" in which no crime was committed, or to lower level crimes.
Police have published their annual data quality report, which highlights the problems with how the offences are being dealt with.
Hate crimes include racially motivated abuse, violence, threats or intimidation, and the latest figures from police show the majority of staff do not know how to code them.
According to the report published this week, 43 percent of hate crime complaints have been downgraded from what should be classed as a criminal offence.
Often they are called an incident, and not a crime, while a small number are also reduced to a lesser offence.
About 15 percent of complaints are upgraded to a higher level than they should be.
Just four out of 10 complaints are being dealt with properly.
Anjum Rahman, from the Islamic Women's Council, said the figures are alarming.
"What this shows is that there is a lot of training needed, particularly of frontline staff, in some areas," Rahman said.
"There appear to be some areas, such as the 105 team, who are well trained and able to assess a lot better than other types of staff who would be getting the complaints first hand."
A police spokesperson said further training is coming.
Police only recently started recognising hate crimes - the move coming after the Christchurch terror attack in March last year.
"There'd been requests for quite a number of years for police to do this," Rahman said.
"It was of course disappointing that they waited until after a tragedy to put that effort and resourcing in, but absolutely they are moving in the right direction and we are very happy that they are doing so."
Police are now starting to log hate crimes in both the National Intelligence Application, or NIA database, which covers nearly half the population, and in the police's dispatch system database.
But the report said almost half of hate crime reports were not being put into the national intelligence database, which keeps a permanent record, and more than half were not being linked across different databases.
In a statement, police admitted they have a long way to go in their work on hate crime.
"Police has been consistently improving how hate or prejudice is captured as a contributing factor to crime or incidents in our recording systems," the statement reads.
"However, as identified by the Annual Report on Police Data Quality, we have work to do to ensure the data reflects an accurate picture of hate crime-related offences.
"Police continue to focus on tracking and checking flagged hate crime/hate incidents in our systems, to ensure they are accurately recorded and that we're able to provide a response that victims and communities expect.
"Subsequent checks since the completion of the Annual Report indicate that accuracy rates have been improving."
The numbers for improved reporting were not immediately available from police.
Police are also working with other agencies and community groups, to improve their reporting systems and processes.
Juliet Moses, spokesperson for the New Zealand Jewish Council said the new system of recording hate crimes was a step in the right direction, though more training was needed.
"It is very important that if something does constitute a criminal offence it is recorded as such and acted on appropriately so that people aren't walking around without being held to account.
"The point of this is that these crimes are monitored, so that we have better evidence and we understand what is going on in the community, and obviously can act on that accordingly."
There had been an increase in white supremacist activity, which was just one source of anti-Semitism facing the Jewish community, Moses said.
"We have noticed there is a spike. There appears to be more willingness to share white supremacist ideology in whatever form that takes, whether it's through speech, whether it's through swastikas."
Push for accuracy
Justice advocate Julia Whaipooti, former co-chair of JustSpeak, told Nine to Noon the fact that so many hate crimes were being wrongly downgraded was not good enough.
"There have been many calls for police to record this accurately, so that we can target and disrupt the normalisation of racist acts that happen every day in New Zealand, that minority groups experience and that you would want the state, and in this case the police, to do something about."
Whaipooti said it was good police were starting to record hate crimes, and showing where they were going wrong.
But she said it shouldn't be so difficult to accurately record offences.
"They need to be able to tick a box so they have a record of what's happening in certain communities where that behaviour is coming from."
Not accurately recording racist or homophobic attacks could disrupt the trust those communities were trying to build with police, she said.
But Police Association president Chris Cahill told Nine to Noon recording the data was complicated and police had to be careful.
"The vast majority of offences that are re-coded are actually public disorder offending. What's reported over a phone can often be incredibly different when police turn up."
Often there was not enough evidence to support a hate crime, he said.
If every incident of racial abuse, for example, was recorded, it could flood the system and blur the focus of where real dangers existed, Cahill said.
"It's really important that what's recorded actually identifies significant problems that need to be addressed, and I'd hate that to be lost in the idea of ticking a box every time there is something."
He gave an example of someone robbing a store and then racially abusing the owner.
"From the perception of the dairy owner, they have been targeted because of their race. The intention of the offender was to rob a dairy. Police have recorded as a robbery because that is the specific offence."
Cahill agreed there needed to be better recording of offences over all, but that officers had to be accurate.