Part 4: Oversight of licensing trusts

Challenges facing licensing trusts.

We consider that licensing trusts are probably the least scrutinised part of the public sector.

No central government agency or select committee has overall oversight or monitoring responsibility for licensing trusts. This is largely because those agencies' areas of responsibility are quite narrow and specific, which does not support broader engagement.

Local authorities have responsibility to operate District Licensing Committees under the 2012 Act,17 but there is no requirement that they monitor or support licensing trusts.

The lack of coherent oversight, in combination with the significant number of challenges that licensing trusts face, is a cause for concern, particularly given the assets that licensing trusts manage on behalf of their communities.

Department of Internal Affairs

The Department of Internal Affairs (the Department) administers and enforces the Gambling Act 2003 (the Gambling Act) and all regulations made under the Gambling Act (gambling regulations). Licensing trusts are involved in providing class 4 gambling facilities (more commonly known as gaming or "pokie” machines). However, a licensing trust is unable to hold a class 4 operator's or venue licence under the Gambling Act. Entities set up by, or associated with, licensing trusts can hold operator and venue licences that allow them to operate gaming machines at licensing trust venues. These entities are usually constituted as charitable trusts.

The Department's role for licensing trusts is limited to regulating, auditing, and investigating class 4 gambling carried out by these charitable trusts at licensing trust properties.

Guidelines formed to outline the Department's view on assessing the financial viability of class 4 gambling operators has been under review for more than two years. Ongoing court action about the correct method of accounting for the costs of acquiring gambling equipment in calculating net proceeds under the Gambling Act has delayed the review's completion.

The guidelines currently include some accounting requirements that do not align with current accounting standards.18 When the review of the guidelines is finalised, we expect this matter to be corrected.

Ministry of Justice

The Ministry of Justice (the Ministry) administered the 1989 Act when it was in force and now administers the 2012 Act. The Ministry also advises on policy about alcohol-related offending, and crime and prevention.

The Ministry's only explicit responsibility for licensing trusts is the advisory role of the Minister of Justice in arranging Orders in Council by the Governor-General for constituting, varying, and amalgamating licensing trusts, and for vesting licensing trust assets in a newly constituted community trust. For example, the Ministry helped Parakai Licensing Trust to reconstitute as a community trust and to wind up that trust in 2013. However, it had no responsibility to ensure that the Trust had completed its accountability obligations before winding up.

State Services Commission

The 1989 Act, and subsequently the 2012 Act, provide for payment to the president of a licensing trust in keeping with the Fees Framework. The Fees Framework was established to enable Ministers and other individuals responsible for setting fees to set fees for members of bodies in which the Crown has an interest, within guidelines approved by Cabinet. The State Services Commission (the Commission) and the New Zealand Licensing Trusts Association Incorporated (the Association) prepared a step-by-step guide to determining the president's remuneration under the Fees Framework in 2002.19 The guide has not been updated since that time. The Commission's role relating to licensing trusts is limited to providing guidance on the application of the Fees Framework.

Controller and Auditor-General

The sole function of the Auditor-General in relation to licensing trusts is to audit and report on their financial statements under the Public Audit Act 2001. That function is supplemented by the general reporting powers of the Auditor-General under the Act, which have enabled the preparation of this report.

New Zealand Licensing Trusts Association Incorporated

The Association was established to provide support to licensing trusts and to act as an industry advocate. Apart from meeting for an annual conference and an annual general meeting, it appears to have had limited other activity in recent years. It has no staff. However, resources are provided by the licensing trust where the President of the Association is based, and Invercargill Licensing Trust provides financial support.20 The Association has limited resources to provide support to individual licensing trusts that are facing challenges.

We acknowledge the work completed by senior management in licensing trusts during the 2012/13 year to establish a collective insurance scheme and self-insurance fund. This work has been completed in the name of the Association. However, it has been largely driven by those licensing trusts that will get the most value from the scheme. In general, smaller licensing trusts have not joined the scheme.

We also acknowledge the working party of chief executives formed by the Association at its 2014 annual conference and endorsed by trustees at the annual general meeting. The intention of the working party is to provide support to licensing trusts facing challenges. We will monitor the progress of the working party and assist where appropriate.

17: District Licensing Committees consider all matters associated with granting liquor licences, as required by sections 186-200 of the 2012 Act.

18: The guidelines currently require entities to account for any residual net proceeds not distributed at balance date as a liability because of the requirement to distribute during the financial year or within three months of the end of the year. Undistributed net proceeds do not technically meet the definition of a liability. As a result, this required treatment is incorrect and could affect the audit opinion. The Department of Internal Affairs has informally agreed that entities within the Auditor-General's mandate can disclose undistributed net proceeds in notes to the financial statements to avoid any effect on the audit opinion.

19: The current requirements are set out in Cabinet Office Circular CO (12) 6 dated 19 December 2012.

20: In 2013, the Association received revenue of $30,983, of which $27,520 came from membership fees. Expenses totalled $39,947. These were higher than normal because of additional costs incurred to obtain legal advice about proposed gambling legislation.

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