Tens of millions of dollars were given to businesses owned by profitable parent companies, when the money was supposed to support struggling businesses.
And official advice to halt the programme was ignored.
The Auditor-General concluded the limited documentation meant it was hard to determine value for money or to adequately explain the decisions
Questions began when former tourism minister Kelvin Davis unveiled millions in STAPP funding for Discover Waitomo and Whale Watch Kaikōura before applications had even closed in June 2020.
Not long after, more than $10m was earmarked for AJ Hackett Bungy in a grant and loan.
Other successful applicants had to wait until August that year, and less than a month later, there were calls for a review.
The Office of the Auditor-General decided to step in by February last year, announcing it would take a close look at STAPP given the amount of public money on the table.
The office declined to be interviewed but in video, released to media on Thursday afternoon, senior inquiries specialist Helen Colebrook said there were definite areas for improvement.
"We had some concerns about the transparency of the process in that decisions weren't always clearly documented.
"Ministers can make whatever decisions they want and they will take advice from a range of people. However, it needs to be very clear why they've made the decisions they have, particularly if that differs from advice that's been provided by officials."
And decision-makers - the tourism recovery ministers - did not accept official advice to stop STAPP or fund a few tourism businesses instead.
In the future, Colebrook said government departments should ensure criteria was clear so applicants knew whether it was worth applying and those who did apply were eligible, and that all decisions were well documented for transparency and public trust.
Heritage Expedition co-owner Aaron Russ said the process was far from fair.
"I think 100 percent the government sat back and picked favourites and chose who they wanted to see at the finish line."
The majority of their guests for their remote trips were from overseas.
He applied, and was rejected.
"There was certainly a significant lack of clarity around what was being looked for, what the criteria were, and as an operator in an incredibly challenging situation at the time, really difficult to engage and get any clarity as well."
The successful applicants got grants or loans from between $148,000 to $8.6m - some got both.
Finance Minister Grant Robertson said the government needed to act swiftly and decisively during a pandemic.
"We will always look at those decisions again and, in hindsight, we may make slightly different decisions.
"But overall, I stand by the fact that the tourism industry needed support. There were significant issues for particularly operators that were very significant for their town or their region, and we had to act."
Heliview Flights co owner Yolanda Foale's Cromwell-based business was also unsuccessful.
She said they were severely disadvantaged by a flawed system.
"Us as a small business is having to compete against big business that has been favoured by government, and ... on top of the Covid problems, it's made life double difficult by having to compete against businesses that have been given a hand out - taxpayer money.
"And it is because criteria hasn't been consistently applied. Government's gone on a whim of picking winners and losers."
The time for words was over, she said.
"The Auditor-General is asking for another review. Us on the front-line, we don't need another review, we need action now.
"We need to know how they're going to correct these injustices. What's going to be done about it."
Hiking New Zealand co-director Daniel Murphy did not apply for STAPP funding, saying it did not look like they were eligible.
"In hindsight, looking at who did get funding, we wish we had applied because it appears that those companies didn't meet the criteria either.
"But they got funding out of the STAPP process."
It has been a source of frustration.
"We were just puzzled at why these companies that had big parent companies and a lot of money behind them got funding when it was sort of clear they hadn't exhausted other means of funding, which was very clear in the criteria."
The Auditor-General's office was calling for a formal review in the next few years to see whether STAPP made a difference.
RNZ approached the former tourism minister Kelvin Davis to speak on the fund he announced and had previously defended.
He passed the buck on to the current Tourism Minister Stuart Nash.
Nash told Checkpoint: "We're always wise in hindsight."
"Ministers were operating under great urgency at a time of massive uncertainty as we know, and they had to make decisions quickly."
He said the Auditor-General had the ability to look at it "in the cold hard light of day".
Nash said he did not accept that money was given to large companies that did not need it.
- RNZ
