DIA says a pokie IT project cost $6.6m. Its own documents say otherwise
Sunday, 12 July 2026
A government IT project once pitched as “free” became a $19 million paper trail of funding approvals, delays, scope changes and ultimate failure. The Department of Internal Affairs says savings and cuts reduced the final bill to $6.6 million, but government papers indicate otherwise and questions remain over what was delivered, who paid and who, if anyone, is accountable. Amelia Wade investigates.
A supposedly “free” Department of Internal Affairs gambling IT project started in 2008 grew into a project with approved funding of $19 million, but never achieved what it was supposed to and is being replaced just four years after a nearly decade-long build out.
The IT project, which was supposed to digitise the paper-based system that regulated the licensing of pokies and to help pub charities track the amount of profits to be distributed, as well as minimising harm from gambling, instead steadily grew in size, according to official documents obtained by the Sunday Star-Times.
One of the departmental executives, Paul James, was the project’s business sponsor in 2014. The following year he was promoted to become chief executive of the Department of Culture and Heritage before returning to DIA in 2018 as its chief executive, a $607,000-a-year job he still holds. James is also the Government’s Chief Digital Officer.
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Meanwhile, when the Star-Times put questions to the department about the cost blowout, it came back and said the project cost less than $7m, but failed to answer key questions. In relation to the now CEO’s performance, it said that questions about his employment should be put to the Public Service Commissioner, Sir Brian Roche.
Do you know more or have a news tip? Email amelia.wade@thepost.co.nz
Key figures from the gambling sector, whose fees were meant to pay for this upgrade, deride the project as akin to the recent case of a non-delivered IT system - and alleged prevarication - by Immigration NZ.
It is a story about low-level incompetence and non-delivery of a project that was paid for by those it was supposed to benefit.
'There's about $20m that would have gone into the community had this project been done properly,” said Gaming Machine Association chair Peter Dengate Thrush.
“Instead they've overcharged the class four sector [pokies in pubs and clubs] members, and then sat on the money, and not done the right thing with it.”
How it all began
In 2008, the DIA had a problem. The documents show the licensing system the department used to manage New Zealand's roughly 15,000 gaming machines was paper-based, on its last legs and didn’t monitor the pokies closely enough to comply with the prescriptive law.
It quickly found there was no suitable off-the-shelf solution, but one was proposed during an information session with Greece-based company Intralot, which was already being paid $35m to provide another monitoring system the department used.
And it sounded like a good deal - in return for a maintenance contract rollover, Intralot would provide the solution for free.
At the time, this raised eyebrows with industry sources reportedly questioning the length of the contract and how the new project was given for zero cost.
But after poring over documents more than 10 years old, the Star-Times can reveal the project wasn’t free for long.
By 2009, the department had already budgeted $2.75m for it, including $900,000 in capital expenditure and $1.85m in operating costs.
That was only the start.
Over the next five years, the budget was repeatedly revised upward: after the $400,000 in December 2009, officials signed off a further $3.966m in May 2012, then $4.256m across two approvals in 2013 and then $7.636m for a second phase approved in March 2014.
By mid-2014 the department was seeking another $3.2m and a 12-month extension to complete the first phase.
The problem was that what was initially expected to be a software-as-a-service solution had become bespoke software development.
Officials later accepted that the original business case had “greatly underestimated the amount of input required from department resources to make the system fit for purpose”.
The documents suggest the DIA also struggled with the accounting. A March 2014 business case - at least five years after the contract was first signed - revealed concerns from the department’s strategic finance team about whether the spending could legally be treated as capital expenditure at all.
“The contract with Intralot is as a service,” the business case said. “Finance have not reviewed the contracts to support this.”
Despite those concerns, the additional funding was approved.
All this went on without officials needing to tell a minister. Treasury has a rule that budget increases for a project which has a whole-of-life cost of less than $15m do not need approval.
The project at some point had been split into two phases. It is unclear from the documents when this happened - but phase one got close to needing sign off.
In July 2014, in change request six, officials said it was possible the total capital spend would be $13.292m and the operating spend would be $3.077m.
Officials started to discuss whether they needed to tell their minister.
The department’s enterprise portfolio management office investigated how Treasury’s definition of whole-of-life-cost would apply to the project.
The internal affairs minister at the time, Peter Dunne, doesn’t recall ever being told that the project costs were blowing out.
“I was assured that things were tracking within the delegated spending levels,” he said.
The Star-Times added together all approved change requests and phase funding and found the total reached $19m.
In a 2015 response under the Official Information Act, the DIA said the project had already cost $9,248,268 and was expected to be completed for between $12.4m and $15.8m. The same response said capital costs alone were $6.32m.
Now, the DIA says this was not how much taxpayers ended up paying. Instead, it said the final cost to the department was $6.6m.
When pressed by the Star-Times to reconcile the figures, director of gambling, Vicki Scott, replied that it came down to money that was budgeted but never spent.
Phase 2 of the project - which accounted for $7.636m of the $19m in approved funding - was de-scoped entirely and a 'mutually agreed amendment' to the Intralot service agreement delivered savings of $5m over the term of the contract, which was applied to the IGP project and lowered its total cost, she said.
What is not explained is the department's own 2015 statement that $9.2m had already been spent by that point - at least a year before the project closed in 2016.
The licensing and compliance parts of the project - which replaced the old paper-based systems for managing licenses and compliance activity - eventually went live in 2013 and 2015 and the project to develop a new platform was closed in 2016.
But it didn’t last long. In 2020 the DIA launched a replacement programme called Kotare, saying IGP - which was the project it had just worked on - was reaching the “end of its contract” and that a more flexible platform was needed.
“The replacement system will provide a new, flexible technology that can be configured for future needs and will provide a platform from which we can continuously improve our licensing and compliance processes.”
That has prompted industry questions about whether the project ever delivered the long-term solution it was meant to provide.
Gaming Machine Association chair Peter Dengate Thrush said the industry wanted answers.
“The IT project is just simply what looks like a failed IT project that's never been properly specified.”
He said someone should be held accountable - though the industry didn’t want to “be vindictive”.
Among those overseeing the project was Paul James who in 2014 was the DIA deputy chief executive and was its business sponsor.
In 2018, he became chief executive of DIA and now also holds the role of the Government Chief Digital Officer.
The DIA did not respond to a question about whether the project was raised during James’ appointment, instead it said: “CEO appointments are the responsibility of the Public Service Commission.”
Who paid for the blowout?
The internal memos also show how DIA planned to cover the escalating costs of the IGP project - by raising the fees it charges the industry.
The department funds much of its regulation of gaming machines through a gambling memorandum account, which collects fees from pokie operators. Those fees are supposed to reflect the cost of regulating the sector and, over time, the account is expected to trend back toward zero.
By 2013, the account was already in a $7.71m deficit, which officials linked to the project’s depreciation costs. Internal papers warned that fees would need to be increased to recover the shortfall, and later documents said the project was being funded from “existing third party gambling fees”.
But the gambling industry argues the deficit was largely driven by the project blowout and says the department did not adequately publicly explain the extent to which the project caused the need to increase fees.
In February 2015, the DIA proposed increasing Class 4 gambling fees by 53.6%, warning that the fee revenue was declining because the number of licensed gaming machines had dropped well below the levels forecast when fees were last set in 2007.
It said because the majority of the department's fee revenue was directly linked to machine numbers, the memorandum account deficit could reach $27.9m by 2017 without action.
The cabinet paper, which ministers made their decision upon to increase fees, cited several pressures, including compliance failures, fraud investigations and industry litigation. IGP was mentioned as one contributing cost.
The consultation paper said the additional costs of the platform added between $200,000 to $1.34m per year over the forecast period.
After the fee increase and the project was closed down, the memorandum account swung sharply back into surplus. The department began over-recovering.
Rather than returning to zero, it reached a peak surplus of $19.5m in 2023 and was still about $15m in the last financial year.
The Star-Times can also reveal the watchdog is now watching. The Office of the Auditor General said it was aware of the swing memorandum account surplus and will be a focus of this year’s audit.
It “will include an assessment of the Department’s progress in reducing the surplus balance”, a spokesperson said.
The office had not looked into, nor was aware of, the department’s IT project.
The gambling sector has attempted to warn ministers, the Government and officials about the project, but say their concerns have been dismissed.
Pub Charity managing director Martin Cheer said: “This is complicated but a carbon copy of the immigration story except nobody got upset when we complained.
“We were basically told nothing to see here.”
In briefings and letters, seen by the Star-Times, the Gaming Association raised concerns about the project and how it was paid for with the DIA and both the current coalition government and previous governments.
“We consider DIA to be in breach of OAG guidelines in the current setting in relation to its review of monitoring and licence fees paid by the sector,” said one briefing.
“The 2015 fees increases were excessive and, despite repeated requests, have not been reviewed downwards since.”
DIA Minister Brooke van Velden replied to the industry’s concerns, thanking the association for the information and said that she had been advised by DIA that there was an ongoing project looking at the future of the system.
The DIA said the memorandum account was going to be used for phase 2 of the project to replace the electronic monitoring system for pokies, which is currently having a business case written, and that accordingly the department considers this approach to be consistent with the Auditor General’s guidance.
Dengate Thrush said the functionality of the system was there - but the technology behind it is outdated.
“What we think tends to happen is people come along, get grand ideas about how they can add all sorts of features to the system and make it boil eggs and make toast in the morning.
“When all we need is a basically what's there at the moment, only done with modern technology.”
Dengate Thrush called the whole project “a terrible shame” because it had denied organisations funding - which they receive in the form of grants from gaming machine profits.
“What we want is reduced fees for our members, so that the more money can go back to the community.”