The Department of Internal Affairs was "unable" to recover more than $400,000 paid to a Queenstown-based pokies' trustee.
In his role as "executive trustee with special responsibilities" Murray Acklin was paid $425,254 by The Trusts Charitable Foundation (TTCF), between April 2006 and March 2009.
He later resigned from the position, on the advice of the department, but remains a trustee.
Following an investigation the department suspended the trust's licence for two days as its expenditure, including that paid to Mr Acklin, was "considered to be excessive and not reasonable or necessary to the gambling operation".
That suspension was increased to five days after the trust took an appeal to the Gambling Commission.
In a statement to the Otago Daily Times, a department spokesman confirmed the department "was unable to recover those funds" paid to Mr Acklin.
Instead, the suspension of trust for incurring excessive costs was at the "high end of sanction action", and targeted behaviour evident in other parts of the gambling sector, he said.
The department would now not expect to see the type of marketing approach referred to in the Gambling Commission decision, "but it will bring its full regulatory force to bear where non-compliance occurs".
Mr Acklin told the ODT the money paid was the result of a "legitimate contract between TTCF and me, and it was highly successful and even the Gambling Commission highlighted that in a report".
He was paid $366,000 in fees, but the net return to the community was more than $6.9 million, so "it was money well spent and the department sees no reason to seek recovery", he said.
TTCF trustees still maintained that the trust did nothing wrong, he said.
Gambling Commission executive Blair Cairncross said its role finished in May 2010, following the release of the appeal decision.
That decision concerned suspension for breach, not recovery of proceeds.
The department confirmed it was conducting a "comprehensive audit of the society, the results of which will be known in due course".
That audit was likely to include the trust's relationship with the Otago Rugby Football Union, which received more than $6 million in pokie grants destined for amateur rugby.
Problem Gambling Foundation chief executive Graeme Ramsey said when the Gambling Commission ruled it was inappropriate payment of expenses, then the repayment of that public money should have been sought.
"There are a lot of community groups that $400,000 would make a massive difference [to]," he said.
