The objective of the audit was to examine the effectiveness of the Department of Agriculture, Fisheries and Forestry’s administration of the Tasmanian Forests Intergovernmental Agreement Contractors Voluntary Exit Grants Program.

Summary

Introduction

1. Forests cover approximately 50 per cent of Tasmania’s total land mass, with the forested area of 3 425 000 hectares comprising around 91 per cent (3 117 000 hectares) native forest and nine per cent (308 000 hectares) plantation forest. The management of Tasmania’s forests has been an area of ongoing, and at times bitter, conflict. The industry and regional communities with a high reliance on forest industry jobs seek to maintain access to native forest areas, while environmental groups seek to conserve these areas.

2. Since 2008, there has been a downturn in Tasmania’s forest and wood products industries driven by a range of factors, including the global financial crisis and the appreciation of the Australian dollar. Employment has fallen by 50 per cent as market demand has changed and processing facilities closed. This downturn was compounded by the November 2010 business decision of Gunns Limited, at that time Tasmania’s largest forestry company, to undertake a major operational restructure of its forest products division to focus on plantation sourced forestry products.1

3. In 2010, representatives of Tasmania’s forest industry, unions and non-government environmental organisations presented the Australian and Tasmanian governments with their agreed approach to: resolve conflict over Tasmania’s forests; protect native forests; and develop a strong, sustainable timber industry. The approach was documented in the Tasmanian Forests Statement of Principles to lead to an Agreement (Statement of Principles).2

4. In response to the Statement of Principles, the Australian and Tasmanian governments:

  • jointly appointed an independent facilitator, Mr Bill Kelty AC, to assist the signatories and other stakeholder groups to reach a common understanding and interpretation of the Statement of Principles; and
  • conducted a due diligence assessment to verify signatories’ claims.

5. To progress the approach outlined in the Statement of Principles, a Tasmanian Forests Agreement—Heads of Agreement was signed by the Prime Minister and the Tasmanian Premier on 24 July 2011. The commitments outlined under the Heads of Agreement were formalised on 7 August 2011, when the Prime Minister and the Tasmanian Premier signed the Tasmanian Forests Intergovernmental Agreement between the Commonwealth of Australia and the State of Tasmania (the IGA).

6. Under the IGA, the Australian and Tasmanian governments agreed to provide $277 million3 in funding over 15 years across three streams of activity:

  • Stream 1: Support for Workers, Contractors and Communities—$86 million to support contractors and their families affected by the downturn in the industry, in particular Gunns Limited's decision to exit native forest processing;
  • Stream 2: Protecting High Conservation Forests and Ensuring Sustainable Wood Supply—$43 million to facilitate the implementation of protection of new areas of high conservation value forests and $28 million to support the management of the additional reserves; and
  • Stream 3: Economic Diversification—$120 million over 15 years to identify and fund appropriate regional development projects.

7. One of the measures outlined in the IGA under Stream 1, was a $45 million exit assistance program that aimed to reduce the oversupply of harvest, haulage and silviculture contractor capacity.

Tasmanian Forests Intergovernmental Agreement Contractors Voluntary Exit Grants Program

8. The Australian Government Department of Agriculture, Fisheries and Forestry (DAFF) was responsible for administering the exit assistance program—the Tasmanian Forests Intergovernmental Agreement Contractors Voluntary Exit Grants Program (IGACEP). During the design of the IGACEP, the Minister for Agriculture, Fisheries and Forestry (the Minister), the Minister’s office and DAFF consulted with the Tasmanian Government, the Tasmanian Forest Contractors Association (TFCA) and key industry stakeholders on the parameters of the program and the program guidelines.4

9. The IGACEP’s objective was:

to assist the Tasmanian public native forest industry to adjust to industry downturn and to the reduced scale of native forest harvesting, through voluntary exit assistance to eligible harvest, haulage and silvicultural contracting businesses. It is expected that the reduced scale of harvesting will result in the order of 1.5 million fewer tonnes of wood being harvested and hauled and a decrease in public native forest silvicultural activities. The integrated nature of harvest and haulage means that it is desirable to exit an approximately equal amount of harvest and haulage capacity from the industry so as to minimise supply disruption and business failure caused through disproportional exiting of sector capacity.5

10. Under the IGACEP, eligible businesses (contractors and subcontractors) from the native forest harvest, haulage and silvicultural contracting sectors could nominate an amount (up to $3 million) to exit the industry. A successful grant recipient (a business and the directors/owners) was required to exit from public native forest operations in Tasmania and not re-enter the forest industry nationally for 10 years (except to the extent of existing contractual arrangements in the mainland sector, the Tasmanian private native forest sector or the Tasmanian plantation sector).

Assessing and funding applications

11. An Advisory Panel of three senior officers, one each from DAFF (Chair), the Australian Government Department of Sustainability, Environment, Water, Population and Communities (SEWPaC) and the Tasmanian State Government, was established to assess grant applications and to provide advice to the Minister’s delegated decision maker.6 DAFF provided secretariat support for the assessment process.

12. The IGACEP application period opened on 26 October 2011 and closed at 5:00pm on 24 November 2011. DAFF received 102 applications for grant funding, with four applications not assessed as they were considered to have been lodged after the deadline. The remaining 98 applications were to be initially checked for eligibility by the secretariat and marked as eligible or ineligible, which would be taken into account by the panel when making a final assessment against the eligibility criteria. All eligible applications were to be assessed by the panel against:

  • merit criteria—to score and rank applications against program objectives7; and
  • assessment criteria—to determine whether the panel would recommend a funding offer for the applicant that was lower than the amount nominated to exit the industry.8

13. The Advisory Panel assessed 62 applications (61 applicants) as eligible, with all eligible applications recommended for grant funding.9 The departmental decision maker approved all recommendations on 16 February 2012 and on 17 February 2012, the Minister announced funding of $44 019 623.10 Table S.1 outlines the grant funding offered to successful grant applicants by contractor type.

Table S.1 Grant funding offered by contractor type

Source: ANAO analysis of DAFF information.

14. Of the 61 successful applicants, 58 accepted the department’s offer of funding to exit the Tasmanian public native forest industry.

Grant payment milestones

15. All grants were to be paid by 30 June 2012, with payments against applicants' achievement of the following two milestones:

  • Milestone 1—75 per cent of the total grant amount approved was to be paid on execution of a funding deed and a Deed of Undertaking by all directors/owners of the business11; and
  • Milestone 2—payment of 25 per cent of the total grant approved on provision of:
    • an exit strategy for ongoing contracts or ongoing arrangements;
    • proof of payment of all employees’ entitlements;
    • evidence that hire or lease arrangements for the businesses’ forestry machinery had been terminated; and
    • evidence that the business had ceased using its forestry machinery.

Audit objectives, criteria and scope

16. The objective of the audit was to examine the effectiveness of the Department of Agriculture, Fisheries and Forestry’s administration of the Tasmanian Forests Intergovernmental Agreement Contractors Voluntary Exit Grants Program. The audit assessed whether the department had:

  • effectively designed the program;
  • appropriate processes for assessing and approving grant applications received for program funding;
  • effectively negotiated and managed compliance with the program funding deeds; and
  • monitored and reported performance against the program’s objectives.

17. The audit focused on the design and delivery of the IGACEP. Other programs, activities or arrangements delivered as part of the IGA were not within the scope of this audit.

Overall conclusion

18. The Tasmanian Forests Intergovernmental Agreement Contractors Voluntary Exit Grants Program (the IGACEP) was established to provide up to $45 million in grant funding to assist harvest, haulage and silviculture contractors to adjust to the industry downturn and the reduced scale of harvesting. The program commenced on 26 October 2011 with funding to be determined through a competitive, merit-based assessment process. On 17 February 2012, the Minister for Agriculture, Fisheries and Forestry announced funding of $44 019 623 for 62 successful applications (61 applicants) with individual grants ranging from $20 000 to $3 million.

19. Of the 61 successful applicants, 58 accepted the department’s offer of funding to exit the Tasmanian public native forest industry. The department has estimated that the exit of these businesses will reduce wood being harvested by 819 888 tonnes and wood being hauled by 972 831 tonnes. Despite committing the total program budget, the expectation (outlined in the program objectives) that the harvested and hauled wood exited from the industry would be in the order of 1.5 million tonnes each, was not achieved. This was primarily a result of the number of eligible applicants, the scale of their forestry activities and the amounts offered to exit the industry.

20. While the IGACEP is a relatively small grants program, the short timeframe for program design and implementation, coupled with the diverse nature, complex business structures and the financial difficulties of potential applicants under the program, presented a challenging delivery environment for the department. DAFF worked quickly to establish the IGACEP and to distribute the majority of program funding within the timeframes established for the program. Potential applicants were appropriately informed of the opportunity to apply and were provided with timely access to the program guidelines and additional guidance material. To support program delivery, the department established detailed administrative arrangements to process applications and grant payments.

21. There was, however, a large number of incomplete IGACEP applications lodged (77 per cent), primarily due to applicants being unable to provide the documentation to demonstrate that the eligibility criteria had been met.12 In response, the department provided applicants with additional opportunities to meet eligibility requirements. Although this approach assisted many applicants to receive funding under the program, which contributed positively to the program objective, it adversely impacted on the assessment process and the timeliness of payments to successful applicants.

22. While 58 forest contracting businesses have received funding to exit from the Tasmanian public native forest sector under the IGACEP, there were weaknesses in key aspects of DAFF’s administration that adversely impacted on the effectiveness of program delivery. In particular the basis for the assessment of eligibility where applicants had not provided the required documentation, but received funding, was not clearly recorded by the department.13 Further, the process used to assess applications was not in keeping with the approach outlined in the guidelines, such as the use of a funding cap as the basis for assessing whether the panel would recommend a funding offer that was lower than the amount nominated by the applicant to exit the industry. DAFF’s adoption of assessment practices that were outside the published program guidelines, in the absence of advice to applicants, ultimately reduced the transparency and accountability of the assessment process.

23. The ANAO has previously examined DAFF’s administration of grants programs, including those assisting the Tasmanian forest industry, and has made recommendations designed to strengthen the department’s administration practices. In response to the ANAO’s previous audits and better practice guidance14 and the 2009 release of the Commonwealth Grant Guidelines: Policies and Principles for Grants Administration (the CGGs), DAFF developed a Grants Management Manual to support departmental program managers. However, in the case of the IGACEP, the department did not follow some key requirements established in the Grants Management Manual (and the CGGs), particularly in relation to the:

  • establishment of sound governance arrangements before releasing the program guidelines and draft funding deed15;
  • documentation of important aspects of the assessment process16; and
  • development of measures to assess and report on program performance.17

24. The ANAO has made three recommendations that are directed towards improving DAFF’s grants administration practices by reinforcing the importance of: documenting all elements of the assessment process; informing applicants of significant changes to assessment processes and the methods used to determine grant funding offers outlined in the program guidelines; and preparing compliance strategies early in the design phase of grants programs.

Key findings by chapter

Program design and governance

Designing the program

25. The design of the IGACEP and the development of the program guidelines were informed by DAFF’s extensive consultation with a broad range of stakeholders, expert advice and the experience gained by the department through delivering previous forestry grant programs. The design process did, however, present challenges for the department, as stakeholders held strong views on their preferred program design and key elements of the program were negotiated at ministerial level.

26. Potential applicants were aware of the opportunity to apply for funding, with DAFF providing access to the program guidelines, the application form and further guidance material on the department’s website. While the guidelines were generally clear and comprehensive, there was scope for the department to have provided additional information regarding ongoing compliance arrangements, the performance data that would be required to evaluate the effectiveness of the program, and milestone reporting requirements. This would have helped to ensure that potential applicants were fully aware of the obligations that would arise from participation in the program. Further, there would have been merit in the department more clearly explaining the process for assessing applications and determining offers of funding, particularly given contractors could influence subcontractors’ potential eligibility and merit score in the competitive merit based assessment process by not acknowledging their relationship.18 In addition, the treatment of applications from contractors and subcontractors under the IGACEP differed from that adopted for earlier programs.19 In an environment where there has been a number of grant programs with different terms and conditions, there is an obligation on administering agencies to clearly explain the elements of new programs to potential applicants.

Governance arrangements supporting the IGACEP

27. When the program application period opened on 26 October 2011, DAFF had identified the timing of key program activities and endorsed its communication plan. However, contrary to departmental grants administration guidance materials, the department had not agreed: its approach to assessing grant applications; evaluating the program’s effectiveness; or managing compliance. While DAFF officers advised that they had an appreciation of the risks to program delivery, the absence of a structured approach to assessing and managing the risks to the IGACEP adversely impacted on the department’s preparedness to effectively deliver the program. A number of risks that might have been expected in managing the implementation of a grants program in the Tasmanian forest sector under time constraints, such as poor quality applications due to complex business structures and incomplete information on contracting arrangements, eventually materialised.

28. Program administrators routinely provided reports to DAFF’s Executive, the Minister for Agriculture, Fisheries and Forestry and the IGA Taskforce on progress with program delivery. Although the department has reported to external stakeholders on program activity, it has not reported on the extent to which the program’s objectives have been achieved. As the department did not develop key performance indicators for the IGACEP, there was not an agreed basis on which to report program performance.

Application eligibility assessment

29. A key consideration in the assessment of grant applications is the equitable and transparent selection of applications in accordance with the process outlined in the program guidelines. DAFF prepared an assessment plan that was endorsed the day the application period closed and outlined the process for assessing IGACEP applications.

30. DAFF received 102 applications20, with four of these applications not assessed because they were submitted late. Each applicant was advised in writing whether their application had been accepted. The secretariat initially checked all 98 applications for eligibility, with the Advisory Panel ultimately determining applicant eligibility, taking into account the secretariat’s advice.

Assessing the eligibility of applications

31. Compared to other applications-based competitive grants programs examined by the ANAO, there was a high rate of ineligible and incomplete applications for the IGACEP. The department advised that the high rate was, in part, due to businesses that were undertaking ineligible activities for funding applying because they were also experiencing the impact of changes in forestry activity. The secretariat’s initial eligibility check deemed: seven applications eligible; 16 applications ineligible; and 75 applications incomplete.21 In response, DAFF sought additional information from applicants and engaged a financial assessor to examine 64 applications. The Advisory Panel ultimately determined that there were 62 eligible applications (61 applicants22) and 36 ineligible applications.

32. The ANAO’s analysis indicated that, of the 61 applicants assessed as eligible by the panel, 10 applicants (16 per cent) had been offered grant funding totalling $3 595 863 despite not providing the required documentation to demonstrate eligibility, including financial information, evidence of ongoing arrangements and/or evidence of activity in public native forestry.23 The analysis also identified that the department did not document key aspects of the panel’s rationale for determining seven of the ten applicants as eligible. In particular, the evidence taken into consideration when applicants were deemed eligible without having submitted the required documentation, where a lower eligibility threshold was applied, or the basis on which the panel did not agree with the secretariat’s advice regarding eligibility. The lack of documentation raised questions about whether equitable access was provided to the program.

Merit assessment and selection

33. The selection of eligible applicants to receive IGACEP funding was to be determined through a two-stage process, with eligible applicants initially assessed against merit criteria to score and rank applications against program objectives.24 The assessment criteria were then to be used to determine whether the panel would recommend a funding offer that was lower than the amount nominated by the applicant to exit the industry.25

Assessment against the merit criteria

34. The Advisory Panel, with extensive support from the secretariat, assessed each application against the merit criteria, determined scores and subsequently ranked each application. The information relevant to each merit assessment was appropriately recorded and retained by the department.

35. To facilitate the merit assessment process, the panel determined that ‘actual tonnage’ would be used to calculate all eligible applicants’ scores for Merit Criterion 1 (reduction in tonnage) and Merit Criterion 2 (nominated amount of funding sought). While DAFF considered that this approach ensured consistent treatment of all applications, it was not consistent with the program guidelines and the assessment plan, which indicated that actual tonnage would only be used if the applicant did not have an agreed ‘annual tonnage’.26 Applicants were not advised of this determination, unless this aspect of the process was specifically questioned by an applicant as part of a review request.

36. The highest ranked application received a score of 92.56, while three applications scored zero. Scores for each merit criterion and the total merit score out of 100 were recorded on a score sheet for each eligible application. All applications, including three with a merit score of zero, progressed to the second stage of the assessment process. DAFF advised that despite the applicant’s merit score, it was desirable to maximise the reduction in industry capacity in line with the program’s objectives by seeking to exit as many businesses as possible within the funding envelope.

Assessment of nominated funding amounts

37. In contrast to its assessment against the merit criteria, the Advisory Panel did not document its assessment of applications against each assessment criterion. In its Assessment Report, the panel advised the departmental decision maker of the factors taken into consideration when assessing whether to recommend a funding amount that was lower than the amount nominated to exit the industry. The panel advised that these factors included an assessment of the amount nominated by each applicant to exit the industry in conjunction with business financial statements, industry financial information and the results of the independent financial assessment.

38. In practice, the panel used a funding cap of $35 per tonne of wood harvested or hauled to assess value for money, which then formed the basis of funding offers recommended to the decision maker. The panel set the funding cap per tonne harvested or hauled between the median dollar per tonne sought by applicants ($48.04 per tonne) and the mean dollar per tonne sought by applicants ($24.62 per tonne). DAFF informed the ANAO that the use of a cap enabled the department to remove contractors and subcontractors from the industry at the lowest cost. However, the basis on which the value of the cap was determined as representing value for money for the Australian Government was not documented by the panel. Further, the arrangements established by DAFF to determine whether a funding offer that was lower than the amount nominated to exit the industry would be offered were not consistent with the process established in the program guidelines or the assessment plan.

39. All eligible applicants, irrespective of merit scores, were recommended by the Advisory Panel for grant funding. The total approved grant funding of $44 019 623 was within the funding envelope of $44.2 million, with 25 eligible applicants offered a lower funding amount than requested. Of these 25, 24 harvest and/or haulage applicants were offered lower amounts on the basis of the $35 per tonne cap and one silviculture applicant was offered a lower amount on the basis of the panel’s assessment of the applicant’s business. While this approach maximised the number of businesses offered grant funding to exit the Tasmanian public native forest industry, the objective of 1.5 million tonnes of wood harvested and hauled that was expected to be removed from the Tasmanian forestry industry, was not achieved. The department advised the decision maker that the 61 grants offered under the IGACEP would remove 865 628 tonnes of harvesting capacity (58 per cent of the target) and 973 718 tonnes of haulage capacity (65 per cent of the target).

Advising the departmental decision maker

40. DAFF provided the delegated IGACEP decision maker with timely and appropriate advice regarding the selection of applicants for funding. The IGACEP Grant Application Assessment Report, which was provided to the decision maker within 10 days of the panel’s final meeting, clearly outlined the panel’s recommendations, adequately explained the assessment process, including the determinations made by the panel during the assessment process, and the decision maker’s Regulation 9 obligations. In addition to the material included in the report, the decision maker received further information from the panel Chair on two occasions and reviewed a sample of applications. The department did not retain a record of the information provided to the decision maker by the panel Chair.

41. DAFF’s provision of advice to successful and unsuccessful applicants was timely, with applicants advised of the outcome of the process within one week of the decision. The advice to unsuccessful applicants provided general information, including which eligibility criteria had not been met. Advice to applicants who were offered a lower amount of funding than the amount they nominated to exit the industry did not indicate that a funding cap had been used or that actual tonnage harvested or hauled for 2009–10 was used to determine funding offers. Despite receiving direct requests from those applicants seeking information on the reasons for the lower amount of funding offered, the department did not disclose the use of a funding cap as the reason for the lower offer. As a consequence, the basis on which the offer was made was not transparent to applicants.

42. Offers were made to 61 applicants—29 harvest and haulage businesses, 13 harvesting businesses, 17 haulage businesses and two silviculture businesses.

Decision review process

43. DAFF received 16 requests for review from four successful applicants that had been offered a lower amount of funding than requested and 12 unsuccessful applicants. Reviews were undertaken and oversighted by officers who had not been involved in the assessment process and were generally completed within the established 30 working day timeframe. Of the 16 cases reviewed, the review officer recommended that 14 decisions be upheld and two decisions be changed to increase the funding amount offered by $33 773 in total, due to identification of errors in the panel’s calculations of verified tonnage. The department did not, however, conduct a broader review of the remaining funding offers to provide assurance regarding the integrity of all funding calculations.

Deed management and monitoring compliance

Establishing funding deeds

44. DAFF modified the funding deed and Deed of Undertaking from the earlier Tasmanian Forest Contractors Exit Assistance Program (TFCEAP) to reflect the IGACEP requirements, which was a practical and efficient approach given the condensed timeframe for program delivery. The use of a Deed of Undertaking also positioned the department to achieve the program’s longer term industry adjustment objective by making owners and directors jointly responsible for complying with the IGACEP terms and conditions. The IGACEP funding deeds appropriately outlined the terms and conditions associated with receiving program funding and were amended to incorporate additional conditions and to address identified risks, where necessary. The department also met its obligations under the CGGs, by publishing the details of funding deeds for the 58 successful applicants that accepted offers of grant funding, within the required timeframe.

Making grant payments

45. The IGACEP guidelines established that all grants were to be paid by 30 June 2012. To claim their payments, applicants were required to submit, for Milestone 1, a funding deed and a Deed of Undertaking and, for Milestone 2, a Deed Poll with reports confirming that exit requirements had been met. DAFF provided each successful grant applicant with required documentation to be completed and used a suite of checklists to review the documentation submitted to claim payments against the two milestones. In general, payments were made in accordance with funding agreements.27

46. Payments were approved by an appropriate delegate and processed through the department’s Grants Management System (Clarity) and the financial management system.28 The payments under the IGACEP were finalised for 40 grant recipients by 30 June 2012 and for all grant recipients by 19 September 2012. The department did not meet the established 30 June 2012 deadline, primarily because extensive follow up work was required to ensure that all requirements had been met, particularly Milestone 2 requirements, before payments could be made.

Managing ongoing compliance

47. Managing grant recipients’ compliance with IGACEP terms and conditions will be challenging, particularly given: the sensitivities surrounding the exit of businesses from the public native forest sector; the nature of recipients’ businesses and the complexity of business arrangements; and the 10 year exclusion from re-entering the forest industry nationally.

48. The establishment of a risk based compliance strategy early in a program’s design phase enables compliance obligations to be incorporated into the program’s guidelines and funding deeds and for them to be clearly communicated to applicants. While DAFF did not establish a compliance strategy early in the design phase of the IGACEP (the compliance strategy was approved on 11 December 2012), the department: incorporated clauses into the funding deed that outline recipients’ compliance obligations; and commenced preparing a compliance plan.29 At the date of preparation of this report, the department is yet to determine the number of compliance visits, the basis on which grant recipients will be selected for visits and how compliance data will be captured and used to inform ongoing monitoring.

Summary of agency response

49. DAFF’s summary response to the proposed report is provided below, while the full response is provided at Appendix 1 of the main report.

The department welcomes the ANAO’s acknowledgement that: the department undertook extensive consultation in the design and the development of the program including with the Tasmanian Government and a number of industry bodies; applicants were aware of the opportunity to apply and that the guidelines were generally clear and comprehensive; and there was a practical and efficient approach to development of the contractual arrangements.

The report also recognises that the program was delivered in a challenging and condensed timeframe and notes the comments of the Joint Committee of Public Accounts and Audit in its Report 435 that the Government gives consideration to the capacity of agencies to comply with administrative requirements when delivering programs in compressed timeframes. The department considers that the timeframe along with the limited applicant group and the program’s relationship to the broader range of initiatives designed to diversify the Tasmanian economy define the context in which the program was delivered.

The department acknowledges the overall findings of the audit report including that assessment processes for grants can be improved so that the rationale for decisions is clearer and all details are conveyed to applicants; and that more detailed advice of compliance activities are set out in program guidelines. As the report notes, there was a requirement for the program to be put in place quickly and as such the department considered that it was prudent to prioritise its activities.

The department considers that the program achieved its objective by assisting the Tasmanian forest industry to adjust to the downturn in the sector and to the reduced scale of native forest harvesting through the exit of 58 harvest, haulage and silviculture contracting businesses.

The department agrees with each of the recommendations made in the audit report and in addition to existing grants management training and guidance, has planned the roll-out of training, from late February 2013, to all staff and external assessors involved in grants management processes which will reinforce the key principles outlined in the updated Commonwealth Grant Guidelines.

Recommendations

Recommendation No. 1

Paragraph 4.26

To improve the quality and transparency of grant assessment processes for future grants programs, the ANAO recommends that the Department of Agriculture, Fisheries and Forestry reinforce the:
  • obligations to manage programs in accordance with approved program guidelines and the Commonwealth Grants Guidelines; and
  • importance of retaining documentation to appropriately evidence the assessment of grant applications and decisions made.

DAFF's response: Agreed

Recommendation No. 2

Paragraph 4.38

To enhance the transparency of future grants programs, the ANAO recommends that the Department of Agriculture, Fisheries and Forestry advise applicants of any significant changes to the:
  • method used to determine grant funding offers; and
  • assessment process outlined in the program guidelines.

 DAFF's response: Agreed.

Recommendation No. 3

Paragraph 5.39

To enable the Department of Agriculture, Fisheries and Forestry to monitor compliance with the terms and conditions of funding, the ANAO recommends that the department reinforce the importance of:
  • preparing compliance strategies and determining the basis for funding ongoing compliance activities early in the design phase of grants programs; and
  • incorporating compliance obligations into program guidelines and funding agreements.

DAFF's response: Agreed.

Footnotes

[1]     Gunns Limited, Media Release—Restructure of Gunns Forest Products Business, 24 November 2010. Available from <http://www.asx.com.au/asxpdf/20101124/pdf/31v3s56lfng63m.pdf> [accessed 22 January 2013].

[2]     The Statement of Principles was presented to the Tasmanian State Government on 18 October 2010 and to the Australian Government on 22 November 2010.

[3]     It was agreed within the IGA that total funding contributions will include $261.5 million from the Australian Government and $15.5 million from the Tasmanian Government.

[4]     Clause 16 of the IGA required the Commonwealth to ‘consult with the State and, where appropriate, the forest contractors’ associations during the design and delivery of this exit assistance mechanism’.

[5]     Australian Government Department of Agriculture, Fisheries and Forestry, Tasmanian Forests Intergovernmental Agreement Contractors Voluntary Exit Grants Program—Grant Program Guidelines, October 2011, Canberra, p.2.

[6]     DAFF’s Deputy Secretary responsible for Forestry Policy and Programs was the decision maker.

[7]     Merit criteria for harvest and haulage contractors were weighted and addressed: reduction in tonnage (40 per cent); nominated amount of funding sought (40 per cent) and supply chain exit (20 per cent). The criteria for silviculture contractors (equally weighted) addressed reduction in hectares and nominated amount of funding sought. Refer to: Australian Government Department of Agriculture, Fisheries and Forestry, op.cit., pp.6-7. The merit criteria are provided at Appendix 2.

[8]     There were three assessment criteria for harvest and haulage contractors and two assessment criteria for silviculture contractors. Refer to: Australian Government Department of Agriculture, Fisheries and Forestry, op.cit., p.7. The assessment criteria are provided in Table 4.1 of this report.

[9]     In one case, DAFF determined that two applications had been submitted by one business. These applications were further assessed as one application.

[10]     Of the $45 million allocated for the IGACEP, $0.8 million was allocated for administration costs and the remaining $44.2 million was available for grant payments.

[11]     A Deed of Undertaking, a form of Statutory Declaration, provides a means for the Commonwealth to pursue the directors or owners to repay grant funding if they breach the funding deed, even in the cases where the original business has been deregistered.

[12]     Most applicants were missing: evidence of an ongoing contract or arrangement in Tasmanian public native forests as at 24 July 2011; evidence that 50 per cent of native forest operations conducted in at least one of the four previous financial years had been in public native forest operations; and/or information requested in the application form.

[13]     The ANAO’s analysis indicated that 10 applicants had been offered grant funding despite not providing the required documentation to demonstrate that the IGACEP eligibility requirements had been met.

[14]     In particular, ANAO, Better Practice Guide—Implementing Better Practice Grants Administration, June 2010, Canberra and ANAO, Better Practice Guide—Implementation of Programme and Policy Initiatives, October 2006, Canberra.

[15]     The CGGs indicate that agency planning processes should have proper regard to all relevant issues including the need to undertake risk management. Refer to: Australian Government Department of Finance and Deregulation, Australian Government Department of Finance and Deregulation, Commonwealth Grant Guidelines: Policies and Principles for Grants Administration, July 2009, Canberra, p.15.

[16]     DAFF’s Grants Guidance Manual advises program managers that, for the assessment process to be fully documented, the decisions and rationale leading to each decision and the basis of approval for each recommended grant are to be clearly recorded.

[17]     The CGGs indicate that a granting activity should have a performance framework that links an agency’s strategic directions and the grant’s operational objectives to government outcomes. Refer to: Australian Government Department of Finance and Deregulation, op.cit., p.17.

[18]     In those instances where an informal arrangement existed, it was more difficult for the subcontractor to demonstrate the relationship without a written acknowledgement from the contractor.

[19]     For example, under the earlier Tasmanian Forest Contractors Financial Support Program a contractor was required to pass on part of their grant to their subcontractor. Consequently, knowledge of the previous program may have influenced the willingness of some contractors applying for the IGACEP to disclose their relationships with their subcontractors or support their subcontractors’ applications for IGACEP grant funding. This ultimately made the assessment process more difficult.

[20]     The IGACEP secretariat opened applications as they were lodged, registered applicants’ details in a spreadsheet and assigned a unique identification number to each application.

[21]     Most applicants were missing: evidence of an ongoing contract or arrangement in Tasmanian public native forests as at 24 July 2011; evidence that 50 per cent of native forest operations conducted in at least one of the four previous financial years had been in public native forest operations; and/or information requested in the application form.

[22]     In one case, the department determined that two applications had been submitted by one business. These applications were further assessed as one application.

[23]     These 10 included: seven applicants where the secretariat had advised the Advisory Panel that applicants were ineligible because information was missing; and three applicants where the ANAO identified that required information had not been provided, but both the secretariat and the panel had determined the application to be complete and the applicant to be eligible.

[24]     Merit criteria for harvest and haulage contractors were weighted and addressed: reduction in tonnage (40 per cent); nominated amount of funding sought (40 per cent) and supply chain exit (20 per cent). The criteria for silviculture contractors (equally weighted) addressed reduction in hectares and nominated amount of funding sought. Refer to: Australian Government Department of Agriculture, Fisheries and Forestry, op.cit., pp.6-7.

[25]     There were three assessment criteria for harvest and haulage contractors and two assessment criteria for silviculture contractors. Refer to: Australian Government Department of Agriculture, Fisheries and Forestry, op.cit., p.7.

[26]     In some cases, the use of actual tonnages where agreed tonnages were available disadvantaged applicants, as this approach reflected the work undertaken during a period of industry downturn rather than the business’ capacity.

[27]     In one case, an underpayment was made because the Good and Services Tax had not been included. The ANAO’s analysis did not identify any further payment errors.

[28]     In two cases, payments were made through direct deposits.

[29]     Although site visits are included in the conditions outlined in the funding deed, the deterrent effect offered by the site visits under IGACEP has been reduced with the inclusion of the requirement for the Commonwealth to provide advance notice to recipients of a pending compliance visit.