The Department of Internal Affairs

The Department of Internal Affairs

Te Tari Taiwhenua

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Resource material › Regulatory Impact Statements › Gambling Act - Gaming Machine Accountability Regulations

August 2004

Regulatory Impact and Compliance Cost Statement

Statement of the nature and magnitude of the problem and the need for government action

1. Gambling generates a considerable amount of money each year for community organisations, and there is general support in the community for this form of fund-raising. However, submissions to the Gaming Review and to the Responsible Gambling Bill indicate there is a widespread belief that the distribution of gambling funds is not transparent and that the appropriate recipients often miss out. The potential exists for the operator to inflate expenses, promote grants that benefit only certain groups, and to misuse the system for personal benefit.

2. The Gambling Act 2003 came into force on 1 July 2004. The Act itself goes some way towards addressing the issues highlighted above, but also makes provision for regulations to assist in achieving its objectives.

Statement of the Public Policy Objectives

3. The objectives are to ensure the integrity and fairness of games, limit opportunities for crime and dishonesty associated with gambling and ensure that money from gambling benefits the community. These objectives are drawn from the purpose of the Gambling Act.

Statement of the feasible options (regulatory and/or non-regulatory) for achieving the desired objectives

Option 1 – Status Quo

4. The Act introduces a new regulatory regime for, amongst other things, the licensing of societies to operate gaming machines to raise funds for community purposes and makes provision for making regulations to assist in achieving the Act’s objectives.

5. Licences to operate gaming machines and the conditions attached to those licences issued under the Gaming and Lotteries 1977 continue in force until they expire or are renewed under the Gambling Act. The new Act contains measures to ensure the integrity and fairness of games, limit opportunities for crime and dishonesty associated with gambling and to ensure that money from gambling benefits the community, including: Secretary must refuse to grant licence unless satisfied on a range of grounds; contact details of operator and details of how to apply for a grant must be displayed at venue; corporate society must supply an annual audited report; societies that distribute funds must publish the availability of funds and details of all applications accepted or declined; key venue persons must not be involved in certain activities or decisions about the distribution of funds.

6. It is not appropriate to maintain the status quo as it goes only some way to meet the policy objectives.

Option 2 (preferred option) – make regulations under the Gambling Act 2003

7. It is now proposed to include the following measures in regulations:
    i that all societies licensed to operate gaming machines be required to:
      a) set up one or more committees comprised of at least three key people (for example, trustees, office holders or the chief executive of the society) to make decisions on how to apply or distribute net proceeds to authorised purposes;
        b) advise, on a sign in the immediate area where the gaming machines are located, that information about how net proceeds have been applied or distributed to authorised purposes can be obtained either from the society’s website or by contacting the society (depending on which applies, the relevant contact address must also be supplied);

        c) ensure that all records relating to the conduct of gambling are accurate and up to date, and that they enable every transaction to be verified by reference to source documents (for example, annotated bank statements);

        d) retain all records for seven years;

        e) retain, at the venue, copies of records required by relevant game rules that are completed or compiled at the venue, for a period of one month after completion;

        f) ensure that only people authorised by the society to work on the machines have internal access to gambling equipment, or have access to sensitive components, and in both cases only in the limited circumstances where it is necessary;

        g) keep detailed records of any work done on the machines.

      ii that societies that mainly distribute funds (as opposed to societies like clubs and the Auckland Division of the Cancer Society that apply funds to their own purposes) to authorised purposes also be required to:
        a) distribute for authorised purposes at least 37.12% of GST exclusive “gross proceeds” in every financial year, beginning with the financial year that commences after the commencement of the regulation;
          b) distribute a substantial portion of net proceeds at least quarterly, and all net proceeds in every financial year within three months after the end of that financial year;

          c) consider specified minimum information during decision-making on applications for grants and meet other procedural requirements;

          d) include specified minimum information on application forms;

          e) within six months of the commencement of the regulations, maintain websites (updated at least six monthly) publishing the availability of net proceeds, application forms, contact details and other information required by the Act.

        iii infringement offences for breaches of some of gaming machine accountability regulations (listed above), breaches of harm minimisation regulations (proposed in a separate paper) and for breaches of game rules made by the Secretary for Internal Affairs.
      Option 3 Alternative Option (variation to preferred option)


      8. An alternative to the preferred option was considered, which included the proposals set out above, with the following differences:


        i Establishing formal grant cycles depending on the operator’s average revenue with very large operators having to distribute funds at least monthly and distribute all net proceeds from that period before the end of the following period.

      9. The variation was not included in the preferred option because the objective of regular and timely distributions of funds can be achieved more simply and without the inflexibility of formal grant cycles.

      Statement of the net benefits of the proposal, including the total regulatory costs (administrative, compliance and economic costs) and benefits (including non-quantifiable benefits) of the proposal, and other feasible options

      Government

      10. The costs and benefits of the proposed regulations have not been calculated separately from those of the entire regulatory regime under the Act. The only cost additional to those already discussed in the earlier RISs on this regime is that the Department will have to prioritise its monitoring and compliance activity to accommodate the additional work within its budget.

      11. The regulations will provide benefits to the Government in ensuring that key gambling policy objectives are met (ie ensure the integrity and fairness of games, limit opportunities for crime or dishonesty and ensure that money from gambling benefits the community). A number of the proposed regulations are designed to make monitoring compliance with the requirements in the Act more effective and efficient eg the requirement that bank statements must be annotated to enable every transaction to be readily identified and able to be verified by reference to source documents.

      Gambling Operators

      12. The proposals will affect the 641 licensed operators of gaming machines operating on 1970 venues and the New Zealand Racing Board if it chooses to apply for a licence to operate gaming machines. Gaming machine operators are non-commercial societies. Their costs are funded by money raised by gaming machines and all profits must go the community. Any impact would therefore be in terms of less money for community purposes than would otherwise be available, rather than a loss to the operators.

      13. Under the Act, gaming machine operators must minimise their costs and maximise the return to the community (and as proposed in these regulations return a minimum percentage of revenue to the community). The Secretary must refuse to license operators unless convinced that they will comply with all regulatory requirements. This is likely to lead to fewer operators (particularly small ones) being licensed, or choosing, to operate gaming machines.

      14. A number of the proposed regulations that will apply to all societies relate to the records that must be kept. As gaming machine operators are already required by licence condition to meet many of these requirements, it is expected that the additional costs arising from these extra requirements will be minimal.

      15. The proposed regulations require that information must be displayed in the immediate area of the gaming machines providing contact details for obtaining information about how net proceeds have been applied or distributed to authorised purposes. The Gambling Act already requires societies to display certain information in the immediate area where the gaming machines are located. It is expected, therefore that the cost of including this additional information on the sign will be minimal.

      16. Requiring societies that mainly distribute funds to authorised purposes to distribute at lest 37.12% of GST exclusive gross proceeds to authorised purposes may result in operators choosing not to continue operating gaming machines at some venues. Those operators could either relocate the machines to another venue, or sell them. The venue owner would no longer be able to receive site payments from any operator, or use gaming machines to attract customers. Operators whose licences are cancelled for breaching this regulation will be required by the Act to distribute the net proceeds, including proceeds from the sale of fittings, chattels and gambling equipment within 20 working days of ceasing to operate gaming machines.

      17. Requiring societies to maintain a website publishing information, updated six monthly, will impose additional costs for some societies. However, a number of societies already maintain websites and consider it best practice for a community funding body. Websites can be designed and built for as little as $200 or as much as $50,000. A simple design template with one scrolling page and links to the required documents can be hosted for $12 per month. Societies must consider the objective of minimising costs when determining how much to spend designing and building a website.

      18. It is possible that gambling operators will benefit from an improved reputation by making information about themselves and the grants they make to authorised purposes more accessible.

      Community

      19. Benefits will flow to the community from transparent and accountable funding of community purposes from gaming machines. Enhancing the community grants process may also lead to a wider range of community groups benefiting from this funding source. Gamblers will also be better informed about the community purposes that their losses will contribute to. The benefits have not been quantified.

      20. The impact of the proposals on community funding is likely to be insignificant because operators must still return a minimum percentage of gaming machine funds to the community and there has been strong, steady growth in gaming machine expenditure in recent years. It is expected that the new regulatory regime will curb this growth to an extent, but not reduce expenditure (and therefore community funding) below current levels.

      Statement of consultation undertaken

      21. There was wide consultation on the proposed regulations through a targeted mail-out to groups likely to be affected (ie gaming machine operators, community groups that receive grants from gaming machines, and groups and individuals that have commented on/shown an interest in gambling issues). The consultation document was also posted on the Department’s website.

      22. A total of 89 submissions were received. In general, there was wide support from submitters for a number of proposals. A number of submitters suggested that some proposed regulations were too complex and that the objective could be achieved more simply. For example, fixed grant cycles were proposed where the frequency of the cycle (either monthly, quarterly or six monthly) was determined by the amount of money available for distribution. Many submitters expressed concerns about the inflexibility of the proposals. In response it is now proposed that societies distribute a substance portion or net proceeds at least quarterly and all net proceeds within three months of the end of the financial year.

      23. The following Government agencies were consulted and, in general, indicated their support: CCMAU; Consumer Affairs; Culture and Heritage; DPMC; Health; IRD; Justice; MED (in respect of Regulatory Impact and Compliance Cost Statements): MFAT; MSD; Pacific Island Affairs; Police; PCO; SPARC; SSC; Te Puni Kokiri; Treasury; Women’s Affairs; Youth Development.