1. Introduction

1.1 Background

Conditional grants have been used increasingly in recent years as a mechanism for transferring funding to external parties for the purpose of achieving particular Australian Government policy objectives. The July 2008 report of the Strategic Review of the Administration of Australian Government Grant Programs (Strategic Review) estimated that Commonwealth expenditure on all forms of conditional grants (including specific purpose payments made under legislation to State, Territory and local governments and discretionary grants made to a variety of funding recipients) was likely to be between $40 billion and $50 billion per annum, or about one-sixth of total Commonwealth outlays.[1]

Efficient, effective and ethical grants administration aims to:

• equitably and transparently select funding recipients that best represent value for money in the context of the stated objectives of the grant-giving activity; and
• efficiently and effectively deliver Australian Government funding to approved recipients to achieve desired government
  policy outcomes.

Prior to 2007, there was no official guidance issued to Australian Government agencies relating specifically to the administration of grant programs. In that context, since 1994, the Australian National Audit Office (ANAO) has published a Better Practice Guide on the administration of grants. The previous version, published in 2002, had the purpose of assisting organisations and others involved in the grant selection and administration process to:

• plan and manage grant programs and like funding arrangements;
• establish and manage individual funding agreements; and
• effectively review or evaluate grant programs.

1.1.1 Developments in grants administration since the 2002 version of the Better Practice Guide

In December 2007, Finance Minister's Instructions were issued providing detailed information about Budget and other related processes. The key instructions issued by the Finance Minister in respect to grants required that:

• guidelines for any new grant programs be considered by the Expenditure Review Committee of Cabinet (ERC);
• Ministers not make any decisions on grants without first receiving departmental advice on the merits of the grant application relative to the guidelines for the program;
• where a Minister decided not to follow departmental advice, a ministerial group would decide whether to award or reject a grant following a submission from the requesting Minister outlining why a decision should be taken to award the grant against departmental advice;
• Ministers who were members of the House of Representatives not make any decisions in relation to grants in their own electorate, even on the basis of departmental advice. Rather, these decisions would be taken by the ministerial group;
• agencies have adequate arrangements in place to manage grant programs in accordance with relevant legislation, regulations and guidance; and
• details of individual grants be published on agency websites within two days of the announcement of the grant.

In February 2008, the Australian Government announced that, in light of the results of significant Parliamentary and ANAO scrutiny of various grant programs, it would be undertaking a comprehensive review to examine the value of grants, and the transparency and effectiveness of existing programs. In July 2008, the Strategic Review reported that it had identified four key 'framework' requirements which needed to be in place in order to support the effective administration of grants across the Commonwealth, being:

• a standard framework of concepts, definitions and classification principles, providing a common understanding of the meaning of terms and a clear basis for the interpretation and application of policy guidance;
• a clear framework of policy principles governing the administration of grant programs across the Commonwealth;
• a strong financial management framework, with clear links drawn between the requirements of that framework and the responsibilities of decision-makers and others involved in the administration of grant programs; and
• a robust framework for the collection and reporting of statistical and other information on Commonwealth grants, designed to meet both administrative requirements and public accountability objectives.[2]

The Strategic Review concluded that there were important gaps and weaknesses in each of these respects and made a number of recommendations to government. This included a recommendation that a whole-of-government, principles-based policy framework for the administration of grant programs be established under the Financial Management and Accountability Regulations 1997 (FMA Regulations), which are made under the Financial Management and Accountability Act 1997 (FMA Act).[3]

In December 2008, the Government agreed to a range of measures to reform the administration of grants, including the development of an improved framework for grants administration. To give immediate effect to these measures, on 16 January 2009 the Finance Minister issued revised Finance Minister's Instructions with new requirements for grant approvals and reporting (the latter taking effect from 1 January 2009).[4] The revised Instructions continued to require that guidelines for any new grant programs be considered by the ERC and that Ministers should not approve grants without first receiving agency advice on the merits of the proposed grant.[5] Key changes from the earlier Instructions were that:

• decisions involving the awarding of grants which the relevant agency had recommended be rejected would now remain within the remit of the responsible Minister (rather than being referred to a ministerial group), but that Ministers must:
  • record the basis of the approval, in addition to the terms of the approval, in the form of a written statement of the reasons for the decision; and
  • report annually to the Finance Minister on all instances where they had decided to approve a particular grant which the relevant agency had recommended be rejected, with this report (due by 31 March each year for the preceding calendar year) being required to include the statement of reasons prepared as part of the decision-making process;
• decisions involving the awarding of grants within a Minister's own electorate (where the Minister is a member of the House of Representatives) would now remain within the remit of the responsible Minister or other approver in the portfolio or agency concerned, but decision-makers must record the basis of the approval, in addition to the terms of the approval, in the form of a written statement of the reasons for the decision;
• the Finance Minister was to be advised of the details each time a Minister who was a member of the House of Representatives approved a grant in respect to his or her own electorate; and
• in recording the basis of approvals, Ministers and agencies were required to comply with the requirements of Regulation 9 of the FMA Regulations.

As of 1 July 2009, a new framework was introduced for the administration of grant programs by agencies subject to the FMA Act. This new framework incorporated the policy requirements established in January 2009, together with a range of new requirements and guidance as part of the Government's full response to the Strategic Review. The new framework involves:

• the continued application of the general requirements set out in the financial management framework regulating the expenditure of public money, which reflect sound principles that have evolved over time;
• new specific requirements under the financial management framework in relation to grants administration; and
• Commonwealth Grant Guidelines issued under the FMA Regulations.

1.2 Commonwealth Grant Guidelines

The Commonwealth Grant Guidelines: Policies and Principles for Grants Administration (CGGs) were issued in July 2009 by the Minister for Finance and Deregulation under FMA Regulation 7A. The CGGs establish the grants policy framework and articulate the Government's expectations within which agencies subject to the FMA Act are to determine their own specific
grants administration practices. Officials performing duties in relation to the administration of grants must act in accordance with the CGGs.[6]

The CGGs are in two parts:

• Part I outlines the legislative and policy framework for grants administration, including certain mandatory requirements of both officials and Ministers involved in grants administration; and
• Part II provides guidance on sound practice in grants administration that agencies should have regard to in implementing grant programs.

The CGGs stipulate that the grants administration function encompasses the whole process of granting activity and includes:

1. planning and design;
2. selection and decision-making;
3. the making of a grant;
4. the management of funding agreements;
5. reporting; and
6. review and evaluation.

Part II of the CGGs sets out guidance on sound practice in respect to the grants administration process. That guidance is discussed in the context of seven key principles established by the Australian Government for grants administration, as set out in Figure 1.

Figure 1

Seven key principles for grants administration

1.	Robust planning and design which underpins efficient, effective and ethical grants administration, including through the establishment of effective risk management processes.
2.	An outcomes orientation in which grants administration focuses on maximising the achievement of intended government outcomes from the available funding.
3.	Proportionality in which key program design features and related administrative processes are commensurate with the scale, nature, complexity and risks involved in the granting activity.
4.	Collaboration and partnership in which effective consultation and a constructive and cooperative relationship between the administering agency, grant recipients and other relevant stakeholders contribute to achieving more efficient, effective and equitable grants administration.
5.	Governance and accountability in which a robust governance framework is established that clearly defines the roles and responsibilities of all relevant parties; establishes the policies, procedures and guidelines necessary for defensible funding recipient selection and administration processes that comply with all relevant legal and policy requirements; and supports public accountability for decision-making, grant administration and performance monitoring.
6.	Probity and transparency in which program administration reflects ethical behaviour, in line with public sector values and duties; incorporates appropriate internal and fraud control measures; ensures that decisions relating to granting activity are impartial, appropriately documented and publicly defensible; and complies with public reporting requirements.
7.	Achieving value with public money which should be a prime consideration in all aspects of grant administration and involves the careful consideration of costs, benefits, options and risks.

Source: Commonwealth Grant Guidelines—Policies and Principles for Grants Administration, Financial Management Guidance No. 23, July 2009.

The key principles set out in Figure 1 are interrelated and remain relevant throughout the life cycle of the grants administration process. Reflecting that, the guidance provided in the CGGs in relation to implementing each key principle canvasses matters relevant to a number of the stages in the administration of a grant program and of individual grants.

The sound practice guidance set out in the CGGs is, in large part, drawn from the 2002 version of the ANAO Administration of Grants Better Practice Guide, with the material being re-presented within the context of the new policy framework for grants administration. The guidance set out in the CGGs is supplemented by associated Finance Circulars issued by the Department of Finance and Deregulation (Finance) in relation to grants administration.[7] There is also a range of other Finance Circulars that provide more general advice on the application of the financial framework to the expenditure of public money, including for the purpose of making a grant.[8]

Further guidance in relation to particular aspects of grants administration is also available from:

• the Australian Government Solicitor, which has issued advice in relation to aspects of grants administration, with a particular focus on the establishment and management of funding agreements[9]; and
• the Commonwealth Ombudsman, who issued a report in August 2009 which examined the benefits and drawbacks of executive schemes and common issues of concern arising in complaints made to the Ombudsman in relation to grant programs. That report also presented eight best practice principles for agencies to consider when developing and administering executive schemes. Some executive schemes will be subject to the CGGs.[10]

In addition, the Australian Taxation Office (ATO) encourages agencies to seek its advice on the tax implications associated with grant programs, particularly where the program is complex, affects a large number of people or has particular sensitivities. In this respect, the 2008 Strategic Review had found that the taxation treatment of grants had been another area of significant confusion and uncertainty. The ATO advises agencies to seek early advice on tax implications, particular during the development phase of a grant program, in order to fully inform decision-making and the budgetary process. ATO's advice should also be sought where changes to existing grant programs are being proposed.

1.3 Purpose of this Better Practice Guide

The transparency, accountability and probity with which grant funding decisions are made have been matters of longstanding Parliamentary and public interest.

This is reflective of the fact that, while a widely used means of contributing to the achievement of particular public policy objectives, the making of grants also involves the use of public money to provide a financial benefit that the recipient would not otherwise have received. In the context of many grant programs, this will involve some potential recipients being successful in obtaining funding, while others are not. This may involve choosing between entities with competing interests such as:

• non-profit research, service, charitable or community organisations that compete for a limited pool of public funding to supplement other funding sources; or
• for-profit or commercial entities for which the receipt of a non-repayable grant has a positive financial effect that may not be available to a possible competitor, including increasing after-tax cash flows to the funding recipient, but without the recipient being required to pay a return on those funds. Such grants also involve the transfer of wealth from the public to the private sector, for the purpose of achieving a public policy objective.

It is also recognised that there is the potential for electoral advantage to arise, or be sought, from the making of grants.

Accordingly, a key element of effective grants administration is the establishment and consistent implementation of a process for the selection of funding recipients that:

• demonstrates compliance with all legislative and policy requirements for the expenditure of the public money involved;
• maximises value for money in achieving the stated policy objectives for the program; and
• promotes public confidence that the program has been administered in an ethical and equitable fashion, with due regard for probity, transparency and accountability.

Recent ANAO audits of grant programs have highlighted that, in addition to promoting public confidence in the conduct of grant activities, selecting grant applications that demonstrably satisfy soundly-based selection criteria is considerably more likely to lead to a positive result in terms of achieving program objectives, as well as being more efficient for agencies to administer. In other words, selecting the best applications promotes optimal outcomes for least administrative effort and cost.

In that context, a key focus of the new grants administration framework has been the establishment of specific legislative and policy requirements in relation to the grant assessment and approval process, and the public reporting of approved grants. In issuing the CGGs, the Minister for Finance and Deregulation stated:

The Guidelines are intended to improve the transparency and accountability of grants administration. The Government
has mandated transparent and accountable decision-making processes for grants and timely public reporting through
agency websites.

The CGGs and associated Finance Circulars now represent the core policy guidance that agencies should have regard to throughout the grants administration process.

This revised Better Practice Guide has been designed to complement the CGGs by providing a companion reference point that will assist decision-makers and administering agencies to understand and comply with key obligations. As Part II of the CGGs draws extensively on the 2002 version of the ANAO's Better Practice Guide[11], this updated Guide is directed at assisting agencies to implement the new policy requirements and related guidance which, as noted, have a particular focus on decision-making processes for the awarding of grants.

 

 

 

 

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