An investigation into pokie operators has been expanded nationwide amid heightened concerns many have spent cash that was meant to be used for community grants
The Department of Internal Affairs is pursuing multiple pokie operators as it discovers a “disappointing level of compliance” with regulations intended to help them survive the pandemic.
Emails released to Newsroom show the department's calculations suggest gaming machine proceeds – meant to be set aside for eventual distribution to the community – was instead spent on gaming equipment and paying down debt.
Analysis by Newsroom suggests the amount in question across several operators could top $10 million. READ MORE: * The pokies conundrum * Investigation underway over concerns pokie trusts cooking the books
The department's gambling director Dave Robson would not confirm the figure, saying the matter was still under investigation.
New regulations brought in in 2020 allowed pokie trusts to hold onto a proportion of funds, previously required to be paid out promptly as grants, in order to avoid insolvency.
In the latest update to the sector, Robson said things were not looking good.
“Our analysis so far of [class 4] operators' financial statements for 2020, 2021 and 2022 financial years has shown a disappointing level of compliance, and the majority of operators have been asked to provide further financial information and an explanation of expenses."
“Anybody that believed it was a free for all, who retained too much or diverted it into fixed assets, will no doubt have some explaining to do.” – Martin Cheer, Pub Charity
A dedicated financial compliance team to ensure the regulations were being followed for the current financial year was set up earlier this year.
Nine societies were initially probed by external consultancy firm KPMG after the department's own analysis threw up "anomalies", but this had since widened to all 32 entities.
“Nearly all societies that mainly distribute net proceeds in the form of grants have been asked for explanations. These responses are currently being analysed against our initial findings,” Robson said.
NZ Community Trust chief executive Mike Knell said they had answered the department's questions but had yet to hear back.
“We did not exceed our depreciation limit... and I’m comfortable with the way we followed [the new regulations].”
Air Rescue Services Trust managing director Barry Steans said questions from the Department of Internal Affairs were not uncommon.
“It’s just some questions... there's no story here,” he said.
"This is an offence under the Act that upon conviction carries a fine, the possibility of a court order to recover misused net proceeds, and most notably, the society’s operators and venue licences are cancelled without right of appeal." – Dave Robson
Pub Charity managing director Martin Cheer said the changes – which came through with a wider relief package during Covid-19 – were “absolutely necessary”.
“That relief was explicit though, the reserve must be in working capital, that is cash not fixed assets, and only the specified amount could be retained from money that was set aside for grants.
“Anybody that believed it was a free for all, who retained too much or diverted it into fixed assets, will no doubt have some explaining to do.”
One Foundation chief executive Kerry Bird said the department was right to investigate but hoped it would lead to more flexibility around using working capital for expenditure.
The sector has strict expenditure rules and can only borrow or use depreciation to fund investment or financing activities.
Bird said that needed to be revisited.
“It’s not fit for purpose ... working capital should be used for assets.
“It’s a multi-faceted problem but we need to make money ... you can’t get behind in capital expenditure and have tech breaking down, plus investing in the new harm-minimisation tech.”
However, possible regulatory changes down the line will be unlikely to excuse any breaches that have already occurred.
The rules around using the reserve cash is clear.
“The money retained must only be used for the purpose of maintaining financial viability and must be held in a designated bank account. It is not to be used for any other purpose, including purchasing fixed assets,” a memo from Dave Robson read.
The consequences are just as clear.
“One of the Act’s strongest sanctions is for a society that fails to distribute net proceeds to authorised purposes. This is an offence under the Act that upon conviction carries a fine, the possibility of a court order to recover misused net proceeds, and most notably, the society’s operators' and venue licences are cancelled without right of appeal.
“The above highlights Parliament’s intent for maintaining the integrity of the class 4 system to ensure that proceeds from gambling are distributed to authorised purposes only, therefore maximising the financial benefit to the community.”
Robson said it was too early to say what regulatory response may be appropriate.
Officials could not say how long it would be before the investigation was wrapped up.
