Part 5: Compliance of grant processes and payments

Department of Internal Affairs: Effectiveness of controls on non-casino gaming machines.

Operators use grants to distribute funds to authorised purposes. The processes operators use for making grants vary in sophistication. The type of grants operators make also varies widely reflecting operators’ different authorised purposes. Some operators make grants for only a single purpose (for example, local rugby), while others will consider applications from community groups throughout New Zealand for a wide range of activities.

In this Part we discuss our findings on how effectively the Department ensures that operators’ grant processes and grant payments comply with the requirements of the Act. In particular we:

  • describe the approach taken by the Department; and
  • assess the Department’s approach against our expectations.

Audits and investigations are the main means by which the Department monitors grant processes and grant payments.

Our expectations

We expected the Department’s grant process and grant payment policies, procedures, and practices to:

  • be consistent with relevant requirements of the Act;
  • be followed by the Department; and
  • be periodically reviewed and updated.

We also expected the way the policies and procedures are applied to be informed by intelligence and a risk-based approach.

Our findings

We were told that the Department has limited ability to investigate grant recipients because of a District Court judge’s decision. In that case, the judge refused to issue a search warrant in respect of an investigation into a possible dishonesty offence by a grant recipient, where the matter did not form part of an investigation into a licensed operator. The decision has limited the power of the Department when attempting to investigate some acts of grant recipients. The Department has provided legal advice to its regional compliance managers to this effect, but not all gambling inspectors in these offices appeared familiar with this advice.

We believe that, for some people we spoke with, a lack of understanding of the case was influencing their wider understanding of the Department’s responsibilities for grants and non-casino gambling. Comments from some staff indicated that they believed the District Court decision substantially narrowed the Department’s responsibilities for grants and non-casino gambling.

Recommendation 17
We recommend that the Department of Internal Affairs provide its staff with clear guidance on the extent of its responsibilities for grants and non-casino gaming.

In 2006, the Department obtained a conviction of the manager of an operator who knowingly offered a grant with a condition attached. Also in 2006, in a different case, the Serious Fraud Office obtained a conviction of a person on charges relating to the handling of money from non-casino gaming machines on the condition of a “kickback”.

Policies and procedures partially compliant

At the time of the fieldwork for our audit, policies and procedures for investigations were being prepared.

Grants and grant processes are included in the checklist. However, the checklist does not cover all of the website publication requirements in the Act and the Gambling (Class 4 Net Proceeds) Regulations 2004. These require operators to publish certain information about grants, grant funds, and decision-making criteria within certain timeframes.

While not all of these requirements are included within the checklist, the Department has examined compliance with these requirements. It has published information indicating that it is aware of non-compliance with some of the requirements. We also found non-compliance with website publication requirements in the small sample of operators’ sites we checked, which the Department needs to address.


Grants and granting may be examined as part of a full or targeted audit. Our earlier comment about a lack of policies and procedures also applies here. The decision to look at grants and granting in an audit can depend on the judgement of an individual, which may be inconsistent between individuals for a given set of circumstances.

We were told that large societies typically have more developed and extensive grant monitoring and audit procedures than smaller societies. We were told this is one of the factors the Department’s staff take into account when considering risks and therefore the scale and coverage of issues included within an audit.

We observed examples of the Department having audited grants and grant processing as part of audits. One of these audits examined over 1000 grants.

Examples of issues found by the Department were:

  • grants not fitting an operator’s statement of authorised purpose;
  • use of funds by recipients for other than stated purposes;
  • difference between actual and published grant information; and
  • total grants less than the minimum of 37.12% of gross proceeds.

Limited grants monitoring

Every few years, the Department conducts surveys on the allocation of grants, but does not systematically monitor the level of compliance of grant recipients or operator granting processes, except as part of audits and through complaints and investigations.

The Department does not have access to the centralised databases of grant recipients and payments operated by some large societies and management companies (who provide contracted management and administrative services to operators). The databases are used by those organisations to identify potential “double-dipping” – that is, recipients attempting to obtain grants from multiple operators for the same product or service. Both the Department and a number of industry representatives told us that they perceived the level of double dipping to be high, but we were not able to verify this with the information we had available.

Intelligence-based audits of grants and granting

The Department does not regularly and systematically collect information on grant risks, but it does periodically receive intelligence, primarily through complaints, on grant issues. As an example, 20% (11) of the complaints received in one regional office between 1 July 2005 and 31 May 2006 related to grants. The Act requires the Department to investigate all complaints, and the Department told us it does this.

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