Source: https://oag.parliament.nz/2007/non-casino-gaming/part3.htm
Timestamp: 2020-07-05 16:54:10
Document Index: 426909126

Matched Legal Cases: ['art 3', 'art 3', 'art 1', 'art 2', 'art 4', 'art 5', 'art 3', 'art3']

Part 3: Licensing non-casino gaming machine operators and venues — Office of the Auditor-General New Zealand
Department of Internal Affairs: Effectiveness of controls on non-casino gaming machines
Part 3: Licensing non-casino gaming machine operators and venues
Part 1: Non-casino gaming machines and our audit
Part 2: Controls on non-casino gaming machines
Part 4: Monitoring and enforcing compliance
Part 5: Compliance of grant processes and payments
Part 3: Licensing non-casino gaming machine operators and venues Department of Internal Affairs: Effectiveness of controls on non-casino gaming machines. https://oag.parliament.nz/2007/non-casino-gaming/part3.htm https://oag.parliament.nz/@@site-logo/logo.png
Department of Internal Affairs: Effectiveness of controls on non-casino gaming machines.
The Department controls operators' and venues' entry to, and continued operation in, the industry through licensing.
In this Part, we discuss how effectively the Department licenses non-casino gaming machine operators and venues.
We expected the Department's licensing policies and procedures to:
be consistent with the relevant requirements of the Act;
be followed by the Department; and
be periodically reviewed and updated.
We also expected the Department to have:
a robust information system that recorded licensing information and made it available to all who needed it, and that contained current information;
a transparent, justifiable fees regime that was periodically reviewed; and
training and documentation that ensure that staff could competently discharge their functions and have access to adequate resources to carry out those functions.
As at 30 June 2006, there were 496 licensed operators. Of these, 73 were societies (who generally distribute funds to the community) and 423 were clubs (who generally apply funds to their own authorised purposes). The number of licensed operators has fallen by about half since our report in 1998. The trend in the number of licensed operators is shown in Figure 4.
The Act requires the Secretary for Internal Affairs (the Secretary) to be satisfied that a number of requirements are met before granting a licence. The Department uses information provided by applicants and other information it gathers to make licensing decisions.
As part of licensing and re-licensing of operators, the Department's accountants assess applicants' financial viability using financial information provided by the applicants. Some of this information may be prepared by the applicants' accountants. We observed some inconsistency in the way expenses were categorised in the financial information provided by operators to the Department. This may limit the Department's ability to compare expenses between operators, other than total expenditure.
Number of licensed class 4 gambling operators 1998-2006
For new applications or when key persons change, the Department's licensing manual requires key person assessments1 using information from the Police, the Companies Office, and credit checks. We saw examples of these checks. The Department has identified some changes to the Act that would, if enacted, enhance the Department's ability to control the participation of key persons in the industry.
We saw evidence that the staff involved in issuing licences do check with compliance staff (those involved in auditing operators and in relationship management with operators) for relevant information that could influence whether a licence was issued.
We were told, by several of the Department's staff, that licensing information and the results of previous audits were not always available within the Department's information system (Licence Track). We confirmed this to be the case for an operator where compliance information should have been available in the information system given that the Department had taken legal proceedings and had major compliance concerns with the operator.
We recommend that the Department of Internal Affairs ensure that complete licensing and audit information is available in its information system (Licence Track), and that staff check this information during licensing and relicensing of non-casino gaming machine operators and venues.
Partially compliant policies, procedures, and practices
The Department's staff who fulfil the licensing function were formerly known as Gaming Licensing Officers, but are now known as Gambling Inspectors - Licensing. Gambling inspector, however, is a role defined in the Act, with certain specified functions. We believe it is confusing, and potentially misleading, to give licensing staff the title of Gambling Inspector when they are not carrying out the functions of a gambling inspector as defined in the Act.
At the time of the fieldwork for our audit, licensing staff did not have the delegated authority to grant venue licences or renew venue licences, and there was some doubt whether they could renew operator's licences. However, licenses issued by the Department had been issued by licensing staff. We raised this issue with the Department. At the time of writing this report, the Department was reviewing and revising its delegations schedule to ensure that gambling inspectors have delegated authority to grant and renew venue and operator's licences. The Department also took steps to retrospectively validate licences previously issued by gambling inspectors without delegated authority. It obtained a Crown Law opinion that supported its approach to retrospective validation of licences. We consider the Department treated the delegations issue as serious, sought appropriate legal advice, and is acting on that advice.
The Department has a comprehensive licensing manual that outlines its policies and procedures. The licensing manual was completed in November 2004, and was last updated in February 2005. The manual also contains a licensing coversheet for financial viability assessments of operators, a Renewal Job Aid Sheet, and a Renewal Process Coversheet.
When renewing licences or issuing new licences where the prospective key person has been approved for an existing licence, the Department relies on historical information received when the initial licence application was made for aspects of key person checks.
The Department also relies on self-disclosure for some requirements where there is a statutory obligation on licence holders to notify any change in circumstances (for example, a change in the key persons). However, the Act does not require applicants to notify the Department of changes in all of the requirements the Secretary must be satisfied of before renewing a licence.
In our view, relying on historical information and self-disclosure (particularly without any assessment of the rate of non-notification) does not discharge the Department's obligations under the Act.
The risks associated with the Department's approach include:
not having all the information necessary for the Secretary to discharge their statutory obligation not to issue or renew a licence unless satisfied all the requirements are met;
the potential for a key person to remain a key person when they are no longer suitable; and
the potential for a key person who is no longer suitable becoming a key person for a new operator or venue.
The specific requirements the Secretary must be satisfied about under section 52 of the Act before renewing an operator's licence are —
(1) The Secretary must refuse to grant a class 4 operator's licence unless the Secretary is satisfied that,—
(a) the gambling to which the application relates is class 4 gambling; and
(b) the applicant's purpose in conducting class 4 gambling is to raise money for authorised purposes; and
(c) the applicant's proposed gambling operation is financially viable; and
(d) the applicant will maximise the net proceeds from the class 4 gambling and minimise the operating costs of that gambling; and
(e) the net proceeds from the class 4 gambling will be applied to or distributed for authorised purposes; and
(f) the applicant is able to comply with applicable regulatory requirements; and
(g) the applicant will minimise the risks of problem gambling; and
(h) any investigations carried out by the Secretary do not cause the Secretary not to be satisfied about the suitability of the applicant or any key person, in terms of subsection (4); and
(i) there are no factors that are likely to detract from achieving the purpose of this Act; and
(j) a key person is not a key person in relation to a class 4 venue licence held, or applied for, by the applicant (except in the case of a club that intends to operate gambling equipment on its own non-commercial premises, the New Zealand Racing Board, or a racing club).
(2) In assessing financial viability under subsection (1)(c), the Secretary must consider, among other things, the ability of the applicant to reward winners and pay levies, taxes, and other costs, as well as apply or distribute the net proceeds from the class 4 gambling to or for authorised purposes.
(3) The Secretary may refuse to grant a class 4 operator's licence if an applicant fails to provide the information requested by the Secretary in accordance with section 51.
(4) In determining whether an applicant is suitable for a class 4 operator's licence, the Secretary may investigate and take into account the following things:
(a) whether the applicant or a key person has, within the last 10 years,—
(i) been convicted of a relevant offence [required to be notified to the Department under section 54 of the Act]:
(ii) held, or been a key person in relation to a class 3 or class 4 operator's licence, a class 4 venue licence, a casino licence, or a licensed promoter's licence under this Act or any licence under previous gaming Acts that has been cancelled, suspended, or for which an application for renewal has been refused:
(iii) been placed in receivership, gone into liquidation, or been adjudged bankrupt [required to be notified to the Department under section 54 of the Act]; and
(b) the financial position of the applicant and the credit history of the applicant and each key person; and
(c) the profile of past compliance by the applicant and each key person with—
(i) this Act, minimum standards, game rules, Gazette notices, and licence conditions; and
(ii) the Racing Act 2003 or the Racing Act 1971 (and any rules of racing made under either of those Acts); and
(iii) previous gaming Acts, and regulations made under previous gaming Acts; and
(iv) a licence or a site approval issued under a previous gaming Act.
Before renewing a venue licence, the specific requirements the Secretary must be satisfied of under section 67 of the Act are —
(1) The Secretary must refuse to grant a class 4 venue licence unless the Secretary is satisfied that ,—
(a) the applicant holds a class 4 operator's licence; and
(b) the possibility of persons under 18 years old gaining access to class 4 gambling at the class 4 venue is minimal; and
(c) the venue manager is an individual and any investigations carried out by the Secretary do not cause the Secretary not to be satisfied about his or her suitability, in terms of section 68, to supervise—
(i) the conduct of class 4 gambling at the venue; and
(ii) venue personnel; and
(d) any investigations earned out by the Secretary do not cause the Secretary not to be satisfied about the suitability of any other key person, in terms of section 68; and
(e) if the application relates to a class 4 venue that is licensed to another corporate society, the other corporate society has surrendered its class 4 venue licence for the venue; and
(f) the territorial authority has provided a consent (if required under section 98); and
(g) on issue of the licence, the applicant will own any gambling equipment (except for electronic monitoring systems) that it proposes to operate; and
(h) on issue of the licence, the applicant will not operate any gambling equipment that is financed by the manufacturer, distributor, or vendor of the equipment; and
(i) all gambling equipment to be operated at the venue meets relevant minimum standards; and
(j) the class 4 venue agreement (if required)—
(i) enables the class 4 gambling conducted at the class 4 venue to comply with this Act and the proposed class 4 venue licence; and
(ii) includes the information specified in section 69; and
(k) the class 4 venue is not used mainly for operating gaming machines; and
(l) for a class 4 venue that is not established before the commencement of this section, the class 4 venue is not to be part of a place at which another class 4 venue or a casino is located; and
(m) for an application to which section 65(3) applies, no person will be both a key person in relation to the relevant class 4 operator's licence and a key person in relation to the class 4 venue licence; and
(n) if the New Zealand Racing Board is the applicant, the class 4 venue is either—
(i) owned or leased by the New Zealand Racing Board and used mainly for racing betting or sports betting; or
(ii) a racecourse; and
(o) if the applicant is a racing club, the class 4 venue is a racecourse; and
(p) the risk of problem gambling at the class 4 venue is minimised; and
(q) the proposed venue is suitable in all other respects to be a class 4 venue; and
(r) there are no other factors that are likely to detract from achieving the purpose of this Act; and
(s) any other requirement set out in regulations or licence conditions is, or will be, met.
Under its current process, the Department cannot be satisfied all these statutory requirements are met before it renews a licence.
We recommend that the Department of Internal Affairs review and change its policy and practice for considering non-casino gaming machine licence applications, so the checks are enough for the Secretary for Internal Affairs to discharge their obligations under the Gambling Act 2003 when issuing a new operator's or venue licence or renewing an operator's or venue licence.
We recommend that the Department of Internal Affairs review and amend the key person checks it undertakes when considering non-casino gaming machine licence applications, so the checks are enough for the Secretary for Internal Affairs to discharge their obligations under the Gambling Act 2003 when issuing a new licence or renewing a licence.
We recommend that the Department of Internal Affairs periodically (for example, annually) review self-disclosure rates against the requirements of sections 54 and 71 of the Gambling Act 2003, and use this information to improve future self-disclosure rates.
We note the licensing manual refers to a process for renewing non-casino gaming machine licences after the first renewal. Although referenced, this subsequent renewal process has not been documented in the manual. Such a process would need to be clearly justified and comply with the Act.
When issuing some licences, the Department has noted that it has not approved or ratified the accuracy or acceptability of any venue-related costs in the operator's venue agreement, but has checked only that total costs do not exceed those in the Venue Payments Gazette Notice. The Department has also noted that the operator's venue agreement may be audited or investigated in future to assess whether the costs are actual, reasonable and necessary. Section 69 of the Act requires the form and content of a venue agreement to be approved by the Secretary before a licence is issued. Checking that venue cost totals do not exceed those in the Gazette Notice may not be enough to satisfy section 69 of the Act, particularly the requirement to check the content of a venue agreement.
We recognise that the actual operation of the venue agreement cannot be assessed at licensing, but the Department should invest time in making sure that at least the form and content of the venue agreement is satisfactory before issuing a licence, as the Act requires. This could involve assessing whether proposed venue payments are necessary and reasonable. In our view, the Department should not rely solely on a possible future audit or investigation to scrutinise whether the costs in the venue agreement are acceptable.
The Department asks applicants to state how they will maximise net proceeds to discharge the Secretary's statutory obligation under the Act to issue a licence only when satisfied that the applicant will maximise net proceeds. Examples of statements that satisfied the Secretary include —
All proceeds for the improvement and benefit of Club members.
By maintaining a close economic approach to assist in decreasing expenses and therefore increasing the amount of money available that can be allocated to authorised purposes.
The Department checks that expenses meet the requirements in the Gazette Notice relating to venue payments, which assists it to assess whether applicants' costs are below a maximum level. However, the statements about how proceeds will be maximised are important, and should be required to be robust and meaningful.
We recommend that the Department of Internal Affairs strengthen its processes for ensuring that the Secretary for Internal Affairs is satisfied that non-casino gaming machine licence applicants will maximise net proceeds.
The Department's licensing fees form was confusing. We saw examples of applicants having over-paid or under-paid their licensing fees as a result. We suggest the Department re-design its licensing fees form to make it clearer.
There were some minor administrative inconsistencies between the Department's practice and its policies and procedures in the sample of licence applications and licence renewal appplications that we reviewed. These included:
a failure to limit mortgage payments for clubs to only non-bar facilities in the statement of authorised purpose within a licence (at least ten examples); and
the lack of a termination date for a loan in the statement of authorised purposes within a licence (at least four examples).
While not large in funding terms, all of these examples have the potential to enable licence holders to use funds for purposes that were not intended under the Department's authorised purpose policy.
We also noted frequent spelling and grammatical errors in statements of authorised purposes in licences issued. In at least one case, these errors had the potential to make the statement ambiguous. Again, while not large issues, ambiguities have the potential to enable licence holders to use funds for purposes that may not have been intended. The existence of spelling and grammatical errors also indicates a potential lack of care and attention to detail by the Department when issuing licences. We are aware of the pressures faced by the licensing section that are documented elsewhere in this report. However, given these results, in our view the Department needs to improve its process for reviewing licences before finalising and issuing them.
The Department has a process for peer reviewing recommendations to refuse an application or to cancel a licence. However, there is also a risk of wrongly approving applications, which means approved applications need to be checked to ensure that they are consistent and comply with the Act.
We recommend that the Department of Internal Affairs introduce a quality review of non-casino gaming machine operator's and venue licences before the licences are finalised and issued.
The Department has made changes to its licensing process to stagger licence renewals over the year to allow a more even workflow. Previously, all licences were due for renewal at about the same time.
The Department's licensing staff are required to adhere to the Department's code of conduct. Our later comments (see paragraphs 4.78-4.79) about conflicts of interest and independence also apply to the Department's licensing staff.
Operators can continue to operate with an existing licence, while not meeting the requirements to have their licences renewed, provided they have at least submitted an application for renewal by the required date. We were told of two examples where operators continued to operate indefinitely despite returning less than the minimum returns to authorised purposes for two years or more.
In some instances, the Department has not allowed operators or venues to continue operating and has cancelled or suspended licences. We saw an example of the Department cancelling a licence because an operator failed to return enough money to the community. We also saw examples of the Department cancelling a licence and suspending venue licences because of a lack of territorial authority consents for the venue sites.
There have been significant delays in finalising annual licences for some societies and clubs. As at 8 August 2006, out of about 500 licence applications received each year, there were:
22 applications for operator's licences from 2004/05 that had not been finally dealt with;
3 applications for operator's licences from 2005/06 that had not been finally dealt with; and
19 other licence applications from 2005/06 from clubs that had not been finally dealt with.
We were told reasons for the delays include two of the licensing section's staff being diverted to the EMS project, limited availability of specialist financial resource to the licensing team, and the team operating below its nominated number of full-time equivalents.
We recommend that the Department of Internal Affairs give priority to resolving non-casino gaming machine operator's licence applications that have been outstanding for more than one calendar year.
We note that the Department's 2006-09 Statement of Intent includes performance measures on the timeliness of processing licence applications. Eighty percent of licence renewal applications are to be processed within two months. Ninety percent of all other licence applications are to be processed within one month. These are new measures.
From 1 September 2006, the Department planned to use a new process for assessing the financial viability of operators during the licensing process. This involved using accountants based in its regional offices. To speed up the processing of completed applications, the Department has also begun to return incomplete licence renewal applications to applicants without processing any of the application. It is also moving towards not delaying the issuing of licences because of audits in progress.
While not identified by the Department as a delaying factor, all licence applications received by the Department are paper-based. This means the applications have to be manually entered by the Department into its systems. Many of the industry representatives we spoke with indicated a desire for an electronic application process. This could also reduce the amount of data entry the Department is required to undertake.
The Department has a systematic change control process for amending licensing policies and procedures as a result of the interpretation and application of legislation in the Gambling Commission's decisions.
The Department has surveyed internal and external stakeholder views of its licensing section. Stakeholders perceived that the section had been through a lot of change, was hard working, and was generally helpful and professional. However, some stakeholders had had negative experiences with variability of the section's practices and timing of the issuing of licences.
In 1998 we identified issues with the Department using gambling licence fees for activities not related to gambling. Since that time the Department has reviewed its fees regime. Fees (reviewed every few years) and the model used to allocate corporate overheads within the Department across different business units are now subject to Cabinet approval.
The allocation of corporate overheads is important because it affects the fees charged for licensing non-casino gaming machine operators and venues.
Fees to cover regulatory activities and overheads are set by Order in Council and are therefore subject to Cabinet approval. There is also an annual review of actual overhead costs. The Department told us that it aims to have fees equal its costs, averaged over a period of time (currently five years).
The Department uses a "memorandum account" to track the balance between the income it receives from non-casino gaming machine licence fees and the costs of gaming machine compliance and administration activities undertaken by the Department over the nominated period of time. The Administration of Non-casino Gambling Memorandum Account was established on 30 June 2002, since our previous audit. The balance of this account is reported in the Department's annual report. As at 30 June 2006, the account was nearly $5 million in deficit. This indicates that expenditure on non-casino gaming machine compliance and administration activities has been greater than the licence fees received since 30 June 2002. The Department has noted that it expects the balance to become zero over time.
1: We note that elected members of Licensing Trusts are not key persons for the purposes of the Act. This allows members of licensing trusts to be involved in operating venues but still distribute funds. The Act generally imposes a strict separation between those who run premises at which gaming machines are operated and those who control the proceeds from gaming machineat those venues. However, Parliament considered the potential for conflicts of interest is considerably lower in the case of licensing trust members who are elected under the Sale of Liquor Act 1989, because they are publicly accountable to their local community and are not permitted to benefit personally from the licensing trust.
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