Auditor-General's overview
Licensing trusts have a responsibility to enhance the well-being of their communities. They raise funds to distribute to their communities, primarily through operating commercial businesses that sell alcohol and provide other hospitality-related services. Licensing trusts are public entities and come under my mandate.
Licensing trusts are one of the least known parts of the public sector. However, in my view, they have some of the highest risks. A high proportion of their transactions are in cash, and they trade in small but attractive items. These factors increase the risk of fraud and theft by customers and staff.
I have long been concerned that licensing trusts are one of the least scrutinised parts of the public sector. They have little or no visibility in Parliament. They hold assets on behalf of their communities, and it is important that they are accountable to those communities. Trustees elected from within the community govern licensing trusts. In most instances, these trustees perform their duties with integrity and to the best of their abilities. However, there is no comprehensive oversight of licensing trusts generally, other than by their elected trustees on behalf of their communities. Formal external oversight exists only from my audits and for the particular activity of operating gaming machines, where there are requirements monitored by the Department of Internal Affairs.
From our audit work, I have become aware that increasing numbers of licensing trusts are struggling with profitability and financial viability. Some have wound up during 2012/13, and others are considering winding up. I recognise that the challenges of the recent economic down-turn and the competitive nature of the hospitability industry are not unique to licensing trusts and have affected the whole hospitality industry.
Some licensing trusts are well managed and quite successful, despite current economic challenges. However, many licensing trusts are small, not well resourced, and struggling to comply with their accountability obligations. As a sector, licensing trusts are fragmented, and historically they have not provided much support to their smaller members.
I have also observed a lack of management and administrative capability in some licensing trusts that significantly affects the quality and timeliness of financial reporting and, consequently, the costs that my auditors incur, which are not fully recovered through audit fees charged to licensing trusts. Some licensing trusts also resist the costs of public sector external accountability.
I believe it is essential that licensing trusts are able to meet their accountability requirements to their communities. Given this context and the increasing level of challenge for all in the hospitality industry, I have decided that it is time to draw my broader observations and concerns to the attention of all those with an interest in this part of the public sector.
My staff shared these concerns and observations with the New Zealand Licensing Trusts Association while we were drafting this report. I commend the Association for accepting that, with the help of the stronger-performing licensing trusts, it has a role to play to lift the performance of all licensing trusts. By taking a group approach, they can help with one-off issues and might also be able to find ways for all trusts to operate more efficiently. I encourage the new working party of chief executives to support the licensing trusts that are facing challenges. We will monitor the progress of the working party and assist where appropriate.
Lyn Provost
Controller and Auditor-General
22 October 2014