Three-quarters of pokie trusts misspent grants that belonged to surf clubs and charities

A governance failure, not a paperwork slip

The class 4 gambling model runs on a simple bargain. Pubs and clubs host the pokies, trusts collect the proceeds, and at least 40% of profits are legally required to flow back to the community through grants to sports clubs, rescue services and local charities. That social licence is the only reason poker machines are tolerated in New Zealand pubs at all.

The Department of Internal Affairs has now confirmed the bargain was broken on a systemic scale. DIA has found that $28 million was misspent by pokie trusts, with just $11.5 million recovered so far. That leaves $16.5 million still outstanding, money earmarked for community groups that never arrived.

DIA Director of Gambling Vicki Scott told RNZ’s Nine to Noon that about a third of trusts engaged in deliberate ‘creative accounting’, and that three-quarters of the 32 trusts were non-compliant to some degree. The money went into assets such as new gaming machines and debt reduction rather than out the door as grants. That is not a rogue operator. Twenty-four of 32 trusts falling short is a sector-wide governance problem.

The pandemic gave them the loophole

The roots trace to a well-intentioned Covid fix. In July 2020, the government amended the Net Proceeds Regulations to let societies hold reserves up to 1.5 times their liabilities, a working capital ratio not previously permitted. The idea was to keep trusts solvent through lockdowns. DIA also introduced monthly reporting requirements in November 2020 to monitor the flexibility.

It was being exploited almost immediately. By early 2021, RNZ reported that Pub Charity, one of the largest distributors, paid out only 30% of revenue while lifting cash reserves to $13.3 million, up from $5 million a year earlier. New Zealand Community Trust grew reserves eight-fold, from $1.5 million in 2019 to $13.8 million in 2020, as its payout ratio dropped to 29%. At the same time, the Problem Gambling Foundation noted pokie spending jumped 116% in the quarter after the first lockdown against the five-year average. Revenue was surging and trusts were sitting on more of it.

The investigation kept growing

By February 2023, independent legal analysis concluded that ‘very significant amounts of net proceeds’ across the 2020, 2021 and 2022 years had been applied to capex and debt reduction in breach of the Act. By May 2023, DIA had widened its probe from nine societies to all 32 class 4 entities, with the then-Director of Gambling citing ‘a disappointing level of compliance’. At that stage independent analysis put the likely figure above $10 million. The confirmed $28 million has nearly tripled that estimate.

The criminal edge

Running alongside the compliance failure was an outright fraud. In February 2026, more than 20 people were charged after six sham organisations allegedly obtained $3.2 million in gambling grants. Operation Indago produced more than 500 charges under the Crimes Act, including money laundering and forged documents. Scott described grants obtained ‘under the guise of salaries for what were essentially bogus employees’, with some funds laundered back through venue accounts to repay gaming machine profits. DIA has called it its largest ever prosecution.

The reporting itself has been unreliable. The government’s Class 4 Grants Dataset, updated 12 July 2026, records that One Foundation’s 2024 grants total was overstated by more than $20.6 million, corrected in September 2025. When the base data is out by that margin, confidence in the whole distribution pipeline erodes.

What it means for the sector

For pub and hospitality operators hosting machines, the compliance environment is tightening fast, and DIA has shown it will pursue both recovery and prosecution. Association with a non-compliant trust now carries a real reputational cost. For the community groups on the receiving end, from surf clubs to rescue services, $28 million represents funding that simply did not arrive, and a third of it may never be recovered.

The deeper problem is the bargain itself. Pokies exist in New Zealand pubs on the understanding that community money reaches communities. A sector where three-quarters of trusts fell short cannot credibly claim it is honouring that deal. The recoveries and prosecutions are welcome, but the harder question is whether the grants model can retain public tolerance once the stewards start spending the community’s money on themselves.

Sources

• $28 million misspent by pokie trusts – Department of Internal Affairs (2026-09-11)
• ‘Sham’ organisations allegedly obtain $3.2m in gambling grant funds (2026-02-12)
• Class 4 Grants Dataset (CSV machine readable) (2026-07-12)
• Internal Affairs expands pokie probe with dozens now asked for a ‘please explain’ (2023-05-11)
• Investigation underway over concerns pokie trusts cooking the books (2023-02-01)
• Organisations hold onto pokie proceeds (2021-02-24)