Friday, 11 October 2024

Auditor-General's Report No. 1 1999-2000

30 September 1999
2. Executive Summary

2.1 Background

On 18 March 1998 the Queensland Parliament enacted the Interactive Gambling (Player Protection) Act 1998 without dissent. The Act was assented to on 26 March 1998 and the operational provisions commenced on 1 October 1998, concurrently with the Interactive Gambling (Player Protection) Regulation 1998.

On 16 October 1998 Australian Internet Entertainment Limited (AIEL) (the name of which was subsequently changed to GOCORP Limited (GOCORP) on 7 May 1999) made formal application to the Queensland Office of Gaming Regulation (QOGR) as part of the Treasury Department for an interactive gambling licence in terms of the Act.

On 3 June 1999, the Honourable the Treasurer D J Hamill MLA issued an interactive gambling licence to GOCORP pursuant to the Interactive Gambling (Player Protection) Act. This was the first and to date the only licence that has been issued under this Act. Other applications are currently under consideration by QOGR.

2.2 Audit Scope and Process

On 27 July 1999, the Honourable the Premier P D Beattie MLA and the Honourable the Treasurer DJ Hamill jointly wrote to me seeking my advice in relation to certain matters concerning the issue of an interactive gambling licence to GOCORP. These matters which were incorporated into my audit objectives were --

  • an evaluation of whether the processes for the consideration of applications for and the issue of interactive gambling licences complied with legislative requirements;

  • an evaluation of whether the existing processes for assessment of applications for interactive gambling licences were sufficiently rigorous in terms of probity and other matters; and

  • identification of any improvements to existing procedures to ensure the process is rigorous, fair and transparent.

In my initial reply of 27 July 1999, I informed the Premier and the Treasurer that I would perform a preliminary review and advise of any intended action. Accordingly on 29 July 1999, I advised the Premier that I would, in the public interest, undertake an audit of certain matters associated with the issue of an interactive gambling licence. I also advised that I would not necessarily be limiting the scope of my audit to these matters. For this purpose I also sought and obtained independent legal advice confirming my legislative powers to undertake this audit.

On the same day (29 July 1999) I issued a press release to inform the community of my decision to undertake an audit of the matters associated with the issue of the licence and that the audit would also encompass a review to ensure that the financial, legal and other requirements for Members of the Legislative Assembly (MLAs) were complied with. As no other licences have been issued I have confined my audit examination to matters pertaining specifically to the issue of the GOCORP licence.

I designated senior officers of the Queensland Audit Office (QAO) to perform an on-site examination of the relevant documentation and to obtain all other relevant information and explanations from QOGR and other Treasury Department officers and GOCORP representatives in relation to the issue of the licence. In addition, to ensure that I had access to all information and documents relevant to the audit, I utilised my powers pursuant to sections 86 and 87 of the Financial Administration and Audit Act 1977 to require certain persons I considered relevant to provide me with information and documents within their power or possession and/or attend before me to provide evidence under oath or affirmation.

In terms of s.86, I required the following persons to provide me with any documents or information within their power or possession, that were related to the issuing of the licence.

These persons are listed below in alphabetical order.

Person Capacity
Honourable P Beattie, MLA Premier and Acting Treasurer of Queensland
Mr G Bradley Under Treasurer
Mr W D'Arcy, MLA Parliamentary Secretary to Treasurer
Mr D Briskey, MLA Former beneficial shareholder in Navari
Mr D Ford Executive Director, QOGR
Honourable D Hamill, MLA Treasurer of Queensland
Mr R Harper Former MLA and Parliamentary Secretary to former Treasurer
Mr D Livingstone Former MLA and former beneficial shareholder of Navari
Cr P Pisasale Former beneficial shareholder of Navari
Mrs J Sheldon, MLA Former Treasurer of Queensland
Dr D Watson, MLA Parliamentary Secretary to former Treasurer (current Leader of the Parliamentary Liberal Party)

Information was also obtained from other sources including the Australian Securities and Inves'ents Commission (ASIC).

2.3 Overall Conclusions

Detailed audit findings together with my recommendations and the responses provided by the Under Treasurer are reported in Seciton 6 of this Report. In arriving at my conclusions and recommendations, I had regard to comments provided to me.

Based upon the information and evidence obtained during the course of the audit, I have reached the following overall conclusions in terms of my audit objectives --

2.3.1 Legislative Requirements

  • Processes for consideration of the GOCORP Interactive Gambling Licence Application
The decision to issue the licence was made in accordance with the legislative requirements.

2.3.2 Processes

  • Adequacy of the process for assessment of application
At the time the licence was issued, the Probity Report prepared by QOGR and submitted to the Under Treasurer was adequate to support the recommendation to issue the licence and there was nothing to indicate to the Treasurer that anything other than a detailed process had been carried out.

  • Recommendations -- Improvements to existing procedures
Although I have concluded that the Treasurer's decision to issue the licence was in accordance with the legislation, I have identified a need for improvements to the processes used by QOGR which, if adopted, should improve the process and maintain public confidence in the assessment of future licence applications under the legislation.

These together with responses provided by the Under Treasurer, are specified in detail in the body of the Report (Section 6) and in summary in Section 3 of this Report. They primarily deal with management and administrative issues associated with the preparation for the assessment of the licence application, and the planning, management, conduct and reporting of the results of probity investigations.

  • Undue Influence
While MLAs and other persons were involved in making representations prior to and during the licence application stage, there is no evidence to suggest that the Treasurer or QOGR gave any unfair advantage to any persons associated with the application. Further, I did not identify any actions by public sector officials which could be considered to have been other than at arms length.

  • Members' Ethics and Parliamentary Privileges Committee
There are a number of issues associated with MLAs which arise from this audit, which are outside the scope of my audit mandate. I believe that these issues are ultimately matters for MLAs themselves to determine and consequently, my view is that the Members' Ethics and Parliamentary Privileges Committee (MEPPC) is the appropriate body to consider such issues.

2.4 Actions by Office Holders

  • Honourable D J Hamill, MLA
The Treasurer's decision to issue the licence to GOCORP was at arms-length and relied primarily on the Treasury Department's (incorporating QOGR) advice which was underpinned by what appeared to be a robust probity process which had taken approximately eight months to complete and concluded that there was no impediment to the issue of a licence.

There is no evidence of any impropriety by the Treasurer in relation to the issue of this licence.

As stated above, certain MLAs and other persons were involved in making representations in the period prior to and during the licence application stage. However, there is no evidence to indicate or suggest that the Treasurer or QOGR gave any unfair advantage to any persons associated with the application.

  • Mr W D'Arcy, MLA, Mr D Livingstone (former MLA) and Councillor P Pisasale
These persons did not and do not control the company that applied for and was issued the licence.

They do not have any executive position with GOCORP and hold no position on the Board.

Their family shareholdings in GOCORP were via another company, Navari Pty Ltd, and comprised less than half of Navari's total shareholding of twelve per cent in GOCORP. I note that these persons and their families have since divested themselves of their shareholding interests in Navari.

The audit also encompassed a review of the actions of these persons to ensure that the financial, legal and other requirements for MLAs and Councillor Pisasale were complied with. This involved sighting the Registers of Members' and Related Persons' Interests for Mr W D'Arcy, MLA and Mr D Livingstone (former MLA prior to the 1998 General Election) at Parliament House and the appropriate Registers at Ipswich City Council for Councillor P Pisasale.

I note that these persons had disclosed information in relation to their financial and commercial interests and those of their related persons associated with the licence application in terms of prevailing pecuniary interest disclosure requirements.

  • Mr W D'Arcy, MLA, and Mr D Livingstone (former MLA)
Mr D'Arcy's role in making representations for the issue of the licence extended beyond mere representations for other persons but included representations for an entity in which he or his immediate family had a direct financial interest.

Following the change of Government in July 1998, Mr D'Arcy MLA was appointed as Deputy Speaker of Parliament. After his appoin'ent, Mr D'Arcy MLA reduced his active role in relation to the licence bid.

This role was assumed to some extent by Mr Livingstone who at that time was no longer an MLA but an employee in the Office of the Honourable the Minister for Public Works and the Minister for Housing. It is noted that Mr Livingstone in his capacity as a Ministerial staff employee had declared his and his related persons' pecuniary interests in Navari to his Minister in accordance with the requirements of the Ministerial Handbook.

The Treasurer was clearly aware of the financial interests in GOCORP of both Mr D'Arcy MLA and Mr Livingstone in connection with the licence application.

Both persons had adequately disclosed their interests and the interests of related persons in the Members' and Related Persons' Registers at Parliament House in terms of the prevailing requirements and to QOGR in terms of their probity review.

As a Member of the Legislative Assembly Mr Livingstone had correctly disclosed his interests in Delrex (his family company) in the Register of Members' Interests. Based on private professional advice, made no specific reference to his interest in Navari via Delrex. I note further that his family interest in Navari was disclosed in the Related Persons' Register.

In addition to the information disclosed in the Registers of Members' and Related Persons' Interests it is important that Members of the Legislative Assembly should clearly disclose their financial and commercial interests to persons with whom they are dealing when making representations. This should ensure that any potential conflicts of interest are more readily transparent.

  • Councillor P Pisasale
Councillor Pisasale appropriately declared his personal and his related persons' financial interests in the Pecuniary Interest Register at Ipswich City Council.

There is no evidence which has come to my notice which indicates that Cr Pisasale had made any representations to Government in relation to the licence bid. The Treasurer, Mr D Hamill MLA advised me that on one occasion he had been contacted by Cr Pisasale to enquire about the length of time taken to finalise the probity process.

Evidence available to me suggests that the Treasurer only became aware of Councillor Pisasale's financial interest in the licence bid through the probity investigation by QOGR.

Councillor Pisasale's interest in GOCORP was through his inves'ent in Navari.

2.5 Actions by the Teasurer - Issue of the Licence

In the execution of his decision, the Treasurer acted in accordance with the Interactive Gambling (Player Protection) Act which vests the decision making power solely with the Treasurer as the responsible Minister.

In relation to the decision by the Honourable the Treasurer Mr D Hamill MLA to issue an interactive gambling licence to GOCORP --

  • No evidence has come to my notice which indicates any unlawful act or impropriety or wrong doing by the Honourable D Hamill MLA in his capacity as Treasurer in respect of the issue of an Interactive Gambling Licence to GOCORP.

  • At the time the licence was issued, the Probity Report prepared by QOGR and submitted to the Under Treasurer was adequate and there was nothing to indicate to the Treasurer that anything other than a detailed process had been carried out.

  • Based on my extensive enquiries, the benefit of hindsight and the opportunity to investigate the matter widely, I am of the view that Mr Hamill's decision to issue the licence was appropriate at the time of his decision on 3 June 1999.

  • There is also no evidence to indicate that the Treasurer gave any unfair advantage to any persons associated with the licence application. It is apparent that the Treasurer relied heavily on departmental advice and appropriately exercised his Ministerial discretion in a number of ways, including --

    • approving QOGR's recommendation to investigate individuals (including Mr D'Arcy, MLA and Cr P Pisasale) whose shareholdings were much lower than the five per cent threshold for probity investigations which had been set for business and executive associates; and

    • querying Departmental advice in relation to options for the period of the licence term. I note that the term of the licence was subsequently amended from the minimum twenty years sought by GOCORP to fifteen years.

I note that the licence is not exclusive and that the issue of any licence is subject to meeting ongoing conditions in accordance with the provisions of the Act. I also note that a 50 per cent taxation rate has been prescribed in accordance with the Regulation.

2.6 Representation and Undue Influence

2.6.1 Making Representations Making

Making representations to Members of Parliament is a generally accepted part of government business in the policy and decision-making process. This practice is readily adopted by interest groups and other parties seeking to influence government to pursue a particular course of action on behalf of their respective membership interests.

In order to ensure the transparency of any decision-making process, it is essential that Members disclose their own personal or financial interests in a matter when making representations to other MLAs. For MLAs, this should go beyond the formal declaration in the Register of Members' and Related Persons' Interests.

In relation to the interactive gambling licence, it is clear that both Mr Hamill MLA and QOGR were aware of the financial interests of Mr D'Arcy MLA and Mr Livingstone in terms of the licence bid. Councillor Pisasale's interests did not become apparent to Mr Hamill?MLA or QOGR until after the commencement of the probity process.

It would appear that Mr D'Arcy's interest in the gambling industry and the fact that he had a business relationship with Mr Livingstone were reasonably well known in the Parliament but his financial interest in GOCORP was not as widely known. This was not disclosed to the Parliament at the time the legislation was passed by the House on 18 March 1998 and in accordance with prevailing standing orders there was no requirement to do so as there was no division required for the passing of the legislation. Mr D'Arcy's interests were transferred to family members via his family company on 3 September 1998.

2.6.2 Undue Influence

GOCORP itself and through the activities of its predecessor entities was persistent and determined in its efforts to secure an internet gambling licence and demonstrated its willingness to exert pressure on its political connections through Navari and principally on Mr D'Arcy, MLA and Mr Livingstone (former MLA) to make representations to Government to hasten the process for developing the legislative framework and processing the licence application.

I note that these companies were originally seeking an exclusive licence. There is no limit to the number of licences that can be issued under the legislation.

GOCORP representatives were originally advised on 9 October 1998 that the probity process was expected to take about six weeks, however it continued for approximately eight months. On this basis, I consider that it was commercially reasonable for GOCORP to follow up on the progress of the application process with the Minister's Office. I do not consider this activity by GOCORP to constitute making representations but regard it as reasonable from a commercial perspective.

There were a number of issues associated with the actions of MLAs which were identified during this audit. However, I believe these matters fall outside the scope of my audit mandate and are ultimately issues for MLAs themselves to determine. My view is that the Parliamentary Committee, MEPPC is the appropriate body for the examination of any such matters arising from this audit. I note that the MEPPC has been giving consideration to a draft Code of Conduct for MLAs. In light of these matters I believe it would be desirable for the Code to be issued as soon as practicable and for the Code to incorporate some reference to the obligations of Members of Parliament with regard to public duty versus private benefit consistent with the proposed ethical principles. The Code should not unduly dwell on the financial interests but should also cover other interests which could effectively impinge on the execution of the duties of Members. Some of the issues arising from this audit which the MEPPC may wish to consider are --

  • whether the level of disclosure in the Registers of Members' and Related Persons' Interests should be extended to enhance the associated accountability and transparency e.g the extent of shareholding interests whether direct or indirect;

  • public duty versus private interest and the inherent responsibilities of public office holders;

  • perceived and potential conflicts of interests for MLAs and guidance for MLAs to assist them to make consistent judgments; and

  • whether MLAs involved in representation activities should formally declare any financial interests in the matter to all parties with whom they are dealing and whether minutes of formal meetings should record the declaration of such interests.

2.7 Probity Process

An integral part of the licence application process is the determination of the suitability of applicants and their business and executive associates. This suitability assessment is dependent upon extensive probity and integrity checks covering issues such as character, business reputation, financial background and business capability and is generally referred to as a probity investigation.

I believe that it is reasonable for the public to expect, as reflected in the legislation, that only suitable persons will be involved in interactive gambling licences in Queensland.

The processes and procedures adopted by QOGR were reasonable having regard to the circumstances at the time of the issue of the licence and were adequate for the purpose of supporting the issue of this licence.

My audit evidenced a number of management and administrative areas requiring improvement. While a detailed process was used it did not provide a well co-ordinated, systematic and documented approach to the probity process. My concern is the outcome of the assessment process whereby QOGR's processes were not sufficiently co-ordinated and documented to ensure all the information was available to fully consider all significant business and/or executive associates of GOCORP or to establish the linkages between GOCORP and its antecedent corporate structures. My concerns in relation to the process include the following --

    (a) In my view, the corporate structures and linkages between the entities associated with the origins of the licence applicant ought to have prompted a greater level of probity review by QOGR officers in order to substantiate the entity structures and the relationships between the entities, the persons holding shares in GOCORP and consequently to enquire further in relation to certain persons associated with the licence application.

    Whilst QOGR properly identified and investigated various business and executive associates of GOCORP, two additional people, namely Mr R Austin and Mr J T Ell, whom I consider should have been subject to further investigation were identified but not regarded by QOGR as persons with significant influence.

    In this regard it is therefore imperative that QOGR has all of the necessary investigative expertise required to analyse complex company structures and the ability to effectively identify and interrogate associated persons.

    (b) Inaccuracies, omissions and inconsistencies were identified in the information provided by a number of persons, in terms of meeting the suitable person's criteria, which should have prompted further investigation.

    (c) The absence of proper documentation of a management trail or systematic approach to the probity process, which in part contributed to the non-detection of significant information which has required further probity checks of certain persons since the issue of the licence.

Essentially I believe that a more structured and co-ordinated probity investigation methodology which incorporates appropriate scrutiny and comparison of information obtained by the various divisions of QOGR on a timely basis would have facilitated the early identification of all relevant persons and ensured a more thorough and effective probity process.

I recognise that this was the first licence issued under the Interactive Gambling (Player Protction) Act and accordingly I have made a number of recommendations aimed at promoting improvemets in the conduct of probity investigations for future licence assessment processing within QOGR. These recommendations are contained in Sections 3 and 6 of this Report.

All MLAs interviewed by me with previous involvement with the Treasury portfolio and in particular QOGR, expressed universal confidence in the professionalism of QOGR officers. This was very pleasing and is encouraging in terms of anticipated concerted action to effect improvements advocated by audit.

2.8 Submissions to the Treasurer

On 2 June 1999, the Under Treasurer provided a submission to the Treasurer recommending that a licence be provided to GOCORP. The submission did not contain a recommendation for the term of the licence but included options for a twenty year term (which was the minimum term sought by GOCORP) or a fifteen year term. After discussion between the Treasurer, the Under Treasurer and QOGR a recommendation for fifteen years was submitted to the Treasurer. On 3 June the Treasurer approved the issue of a fifteen year licence to GOCORP. QOGR advised audit that this period would now become the term for future interactive licences of this type.

While audit has established that the Honourable D Hamill, MLA and QOGR were aware of the political interests of Mr W D'Arcy, MLA, Mr D Livingstone and Councillor P Pisasale, the covering memorandum from the Under Treasurer did not specifically identify these facts, which I believe were appropriate for disclosure to the Treasurer to evidence the transparency of the probity process. In my view, subsequent events have shown that the disclosure of such interests is important.

2.9 Events Since the Issue of the Licence

During my review, legislative changes to the Interactive Gambling (Player Protection) Act in August 1999 required GOCORP to ensure that certain parties do not have a beneficial interest in GOCORP. QOGR has been active in following up the implementation of the revised legislative framework.

Further, pursuant to s.56 of the Interactive Gambling (Player Protection) Act, the Acting Treasurer has since requested that QOGR conduct probity checks on all shareholders of Navari.

2.10 Future Reports to Parliament

As this audit has identified a number of concerns in relation to the systems in place at QOGR, I intend to monitor the progress of QOGR in response to my recommendations and provide comment in future Reports to Parliament.

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