It had managed to recover $127,520 of the grants and the DIA took this into account when it delivered its final penalty of a three-day suspension of its gaming machines, which the foundation had already served.
The audit reported the foundation breached the act 15 times including approving a $10,000 grant to the Hawke's Bay Wine Country Tourism Association in 2008 to go towards a $70,000 advertising campaign.
The audit said the grant could not to be used for the "promotion of tourism, except where what is being promoted is a public amenity such as a part of a museum" and it could not be used for "trade tournament or sporting events that were staged primarily for the benefit of a selected industry group".
The audit said a board member of the association contacted the general manager of the foundation, Gill Wells, who told the board member the purpose of the grant was acceptable.
"When questioned about this, Gill Wells stated that she could not recall any conversation ... in relation to the matter."
Four other grants fell into the same category as being deemed approved outside the operators licence.
This included two grants to the New Zealand Liquor Industry Golf Association for $12,601 in 2007 and $10,300 in 2008 which were applied to a trade tournament.
Two more grants of $7155 and $10,300 were paid to the North Island Liquor Industry Golf Association in 2008, for a trade tournament specifically designed for people working in the liquor industry.
The audit said the tournaments run and held by the association were in fact tournaments and "not events which are available to the public at large".
The audit also reported on key people looking at the relationships between venue operators and the foundation.
Names identifying people were deleted from the report but in the conclusion section the audit said: "The number of breaches, the amount of non-compliance and the influence of key persons and grant recipients over the grants process appears to have been a systemic problem within the foundation and not a small number of one-off occurrences".
Ms Wells told Hawke's Bay Today in a statement that the foundation had worked "constructively and proactively" with the Department of Internal Affairs since the audit was completed in 2010.
"We have successfully reclaimed all the money the department required us to, this is noted in the statement on our website," Ms Wells said.
She said the audit had clarified "grey areas" within the Gambling Act and the three-day suspension was "a cost to all community stakeholders".
The foundation's former chairman, Peter Dennehy, retired at its most recent annual meeting after six years' service.
The current chairman Blair Furlong is also the president of the Hawke's Bay Rugby Union,
