SkyCity got special treatment on talks around the international convention centre after the Prime Minister personally intervened.
John Key wrote on a briefing page "we should close off the SkyCity angle" before spending $170,000 on ways to fund the centre.
He later told the Office of the Auditor General his August 2009 instruction to officials referred to "his broad awareness that SkyCity had development plans at that time".
The Auditor General's office investigated the deal after concerns were raised by the Green Party over the fairness of the process which led to the casino being selected to build the convention centre.
The Auditor General's report on the deal, released today, gave the green light for the convention centre deal but found SkyCity was treated "very differently" to others tendering for the contract.
It was critical of problems around process - issues which began to arise from the point Mr Key personally penned his note on the briefing paper calling a halt to a wider business being prepared.
The Auditor General's report stated Mr Key's understanding of the casino's desire for development followed a personal meeting between himself and SkyCity executives. It also followed a later meeting between the casino and his chief-of-staff Wayne Eagleson.
The Auditor General said neither Mr Key or the casino "can recall the discussion" on May 14, 2009. However, the casino said it did canvas development plans with Mr Eagleson when they met on June 17, 2009, who invited them to put options in writing. Nothing was ever spelled out in detail until Mr Eagleson, his deputy chief of staff and the chief executive of the Department of Prime Minister and Cabinet met with the casino's executives in September 2009 to "go over" the plans.
At that meeting, the casino told the PM's staff they wanted the Gambling Act 2003 changed and an early renewal of the company's exclusive casino licence.
Mr Key was personally briefed on options for the convention centre at a dinner with SkyCity board members and executives on November 4, 2009. At the dinner, Mr Key told them he wanted a bigger and better facility than they were mooting - to "think outside the box".
Concerns were being raised at that stage about the process being followed. On the same day as Mr Key's dinner with SkyCity, a Treasury official warned officials about "process and probity".
The same warning was conveyed to Mr Key in a briefing note on November 12, 2009. The Auditor General's office said it was the only documented advice around process after the initial concerns from Treasury.
'RANGE OF DEFICIENCIES'
Deputy Auditor General Phillipa Smith said she had seen "seen no evidence to suggest that the final decision to negotiate with SkyCity was influenced by any inappropriate considerations."
"However, we found a range of deficiencies in the advice that the Ministry provided and the steps that officials and Ministers took leading up to that decision," Ms Smith said.
"The quality of support that was provided fell short of what we would have expected from the lead government agency on commercial and procurement matters."
Ms Smith said those "procedural problems reflect some of the challenges of applying general procurement expectations to complex matters requiring political and policy decisions".
"In our view, better planning at the outset would have helped to indentify and manage the risks."
Ms Smith said the "inappropriate considerations" the inquiry looked for included "connections between political and business leaders".
SkyCity submitted a proposal to the Government some time after Mr Key had dinner with the casino company's board where the convention centre and possible changes to the Gambling Act were discussed.
Ms Smith said she and her colleagues concluded that feasibility and exploratory work in the first stage of the process of seeking expressions of interest were carried out "reasonably".
"However by the time it was expected that SkyCity would put a firm proposal to the Government for support , officials should have been working to understand and advise on the procedural obligations and prinicples that would need to govern the next steps. We found no evidence that officials were doing so at this stage."
KEY REFUTES ALLEGATIONS
Prime Minister John Key said the Auditor-General's report "utterly refuted" allegations by the Greens and Labour that his Government struck a "cosy deal" with SkyCity over the convention centre.
"What they've said is that there were a few procedural matters that could have been handled a bit better by officials, nothing of substance that would have changed any of the outcomes."
Economic Development Minister Steven Joyce said today's report cleared the Government of claims SkyCity was given an unfair advantage in the bidding process.
"The OAG makes it clear it has seen nothing to suggest the final decision to negotiate with SkyCity was influenced by any inappropriate considerations.
"Labour's accusation the Government misled the public on the costs of the negotiations is also without substance as the report states it is inevitable that there will be costs involved in properly negotiating a complex commercial arrangement of this kind."
Joyce said the report accepted that a great deal of careful work was carried out by officials to understand the market, and that officials were acting in good faith.
The report stressed that the issues were procedural rather than about the substance of what was being considered.
"An international convention centre in Auckland would be a major asset for New Zealand and will generate significant spin-off benefits including a $90 million annual injection into the economy; an estimated 1000 jobs during construction; and 800 jobs once it is up and running," he said.
He said officials are working hard to conclude negotiations with SkyCity and would ensure any deal was in the best interests of New Zealanders.
SkyCity welcomed the report and said it was look forwarding to re-engaging with the government to conclude the negotiations.
"We remain willing to invest up to $350 million to develop, own and operate the New Zealand International Convention Centre, provided acceptable returns can be delivered on the total project," said chief executive Nigel Morrison.
"There is no doubt New Zealand needs to invest more in tourism infrastructure, such as the NZICC.
"In addition to creating a major construction project for Auckland, it will allow New Zealand to compete globally for a fair share of large scale conferences exhibitions and events, which will increase international visitation, deliver much needed jobs and stimulate economic growth in Auckland and across New Zealand."