Labour leader Andrew Little said Labour's Auckland regional chair Paul Chalmers had decided to step down from the NZ Council for his role in the intern scheme which was set up in May by former Labour staffer Matt McCarten and run by two Labour Party staffers.
Little also confirmed it was likely the party would be left to cover some debts from the scheme - and an investigation would be done into the situation and why senior Labour members weren't told of the full scale of it and the problems earlier.
"We are taking responsibility, we take moral responsibility and that means any creditors or suppliers have to be looked after too."
McCarten told the Herald last week that the scheme was funded by a "private funder" who believed it was a valuable idea and that payments to the marae hosting the students were up to date.
It is understood McCarten has refused to tell the party who the funder was - but Little said the party would have to consider what was required to meet donations disclosure and election spending rules.
"He would have been reminded the party has disclosure obligations."
The Herald understands there were some outstanding costs the party is now having to pay, as well as a contribution to any extra costs incurred by the interns as a result of the changes to the scheme - such as the cost to change flights home.
Little said he did not know how much it had cost the party so far.
McCarten stepped away from the scheme last week after Labour's General Secretary Andrew Kirton stepped in.
The party is laying the blame for the failed scheme directly at McCarten's door - Little described it "fantasy land" and continued to maintain neither he nor the party's head organisation had known how large it had become or that it had funding and organisational problems.
Little said the two party workers who ran the scheme on the ground still worked for the party.
He said McCarten left his job as Little's Auckland director when his contract ended in May because McCarten wanted to get involved in campaigning. Little had told him he could not do that while he was being paid from Little's Parliamentary Budget.
Little said it was not unusual for political parties to use overseas interns, but Labour had not previously had them in such numbers before.
