The objective of the audit was to assess the extent to which FaHCSIA, DEEWR and DoHA seek to reduce service delivery risks posed by capacity constraints in Indigenous organisations.



1. Improving government service provision is an important factor in achieving social and economic benefits.1 A common feature of government service delivery, both within Australia and internationally, is the use of third party providers, many of whom are not for profit organisations, to deliver services on behalf of government departments. This can be associated with the greater role and expectations of government in funding services (since the 1970s), combined with the greater reliance on competitive mechanisms for driving efficiency and productivity.2 With this being the case, attention is increasingly being paid to the role of this sector and how the government can better support the sector to work towards mutual outcomes.

2. The effective provision of accessible and appropriate services to Aboriginal and Torres Strait Islander people has been a long term policy focus of governments. Aboriginal and Torres Strait Islander people are more likely to experience social and economic disadvantage, and at levels that are greater than the rest of the population. Accordingly, Australian Government policy focuses on closing the gap between Indigenous and non Indigenous Australians across a range of key socio economic indicators. Activities are broadly organised within seven integrated ‘building blocks’: early childhood, schooling, health, economic participation, healthy homes, safe communities, and governance and leadership.3

3. Significant financial investments are made by government to address Indigenous disadvantage: the total estimated Australian Government Indigenous Expenditure (AGIE) for 2010–11 was $3.5 billion. Within this total, three departments were responsible for administering approximately $3.3 billion of program funding: the Department of Families, Housing, Community Services and Indigenous Affairs (FaHCSIA); the Department of Education, Employment, and Workplace Relations (DEEWR); and the Department of Health and Ageing (DoHA). To facilitate the delivery of programs and services to Indigenous people, the Government and departments make use of a varied range of mechanisms, including National Partnership Agreements with state and territory governments, funding agreements with local government bodies, contracts with private sector entities and agreements with other third party organisations.

4. Within the third party service delivery model, Indigenous organisations play an important role by delivering programs and services to Aboriginal and Torres Strait Islander people, especially in remote communities. These can include programs and services directed towards aged care, child care, youth and family services, employment preparation, primary health care, legal aid, community development, family violence prevention, municipal services, sport and recreation, community safety, arts and cultural heritage services, and native title representations. The funding for these services is predominantly provided through grants from the Australian Government, as well as other tiers of government. In 2010–11, an estimated $1.34 billion in grant funding4 was provided to Indigenous organisations through programs that are either Indigenous specific or have a large Indigenous component administered by FaHCSIA, DEEWR and DoHA. Australian Government policy has also recognised the role that Indigenous organisations play in supporting, strengthening and sustaining communities, and contributing to improved outcomes more generally.

5. In broad terms, an Indigenous organisation is Indigenous controlled, based in, or primarily serving Indigenous communities, initiated by an Indigenous community or group, and governed by an Indigenous body.5 This includes organisations registered under the Corporations (Aboriginal and Torres Strait Islander) Act 2006 (CATSI Act), as well as organisations registered under other legislation such as federal or state/territory corporations or co operatives legislation. Estimates on the number of Indigenous organisations in Australia vary, with up to 9000 organisations spread across Australia.6 Of these, about 2300 are currently registered as corporations under the CATSI Act.7 In many remote communities, these organisations may be the only service provider, while in urban and regional areas they may be preferred by Aboriginal and Torres Strait Islander people as they are considered to provide a more culturally appropriate service than non Indigenous providers. In addition to government service delivery, Indigenous organisations can also be established as landholding bodies, business enterprises and, in some cases, for advocacy and representation.8

6. In 2008, the Council of Australian Governments (COAG) made commitments to investing in the service delivery capacity of Indigenous organisations under the National Indigenous Reform Agreement (NIRA). Under the Service Delivery Principles for Indigenous Programs and Services, articulated in the NIRA, investment in the capacity of organisations, and promoting opportunities for Indigenous service delivery, is linked with the long term sustainability of programs and services.

7. In addition to providing services, Indigenous organisations are often a form of local level governance and can play important roles in developing social capital. To this end, the NIRA also identifies capacity development as contributing to outcomes under the building blocks of ‘governance and leadership’ and ‘economic participation’. Accordingly, developing the capacity of organisations to deliver programs and services is seen as important as both a means of achieving better outcomes, by facilitating effective service delivery, and as a policy outcome in itself.

8. International development experience suggests that the most successful capacity development approaches are systematic with a long term outlook, flexible and suited to the circumstances or context, and address capacity at multiple levels.9 For non government organisations, this includes strategies to address capacity within organisations as well as factors in the external environment that influence capacity. Accordingly, capacity development can be considered to be activities which promote growth in the service delivery capacity of organisations—either directly, within an organisation, or through influencing issues that arise from an organisation’s operating environment. A further consideration for government is the development of program administration and management arrangements that enable organisations to best utilise available capacity for the delivery of programs and services.

9. Many of the capacity related issues faced by Indigenous organisations have been identified previously in a range of reports, reviews and academic studies. Accordingly, policy commitments and specific initiatives relating to administrative streamlining and capacity development, particularly in the area of governance, have been a feature of the policy environment since the 1980s. However, it is apparent from more recent reports, such as the Strategic Review of Indigenous Expenditure (completed in February 2010), that the same general issues continue to occur.

10. The capacity of an individual organisation to deliver programs or services for which it is funded, and to the required standards, will have a strong influence on their subsequent effectiveness in meeting the outcomes sought by government. In turn, at a wider sectoral level, the capacity of organisations to deliver programs and services will also influence the effectiveness of the overall delivery model used by the Australian Government given the reliance on Indigenous organisations within that model. Where capacity constraints to service delivery exist, this presents risks to the achievement of outcomes and requires an appropriate response from government departments. In light of these potential risk factors, and the policy emphasis in the NIRA, this audit examines how FaHCSIA, DEEWR and DoHA seek to reduce the risks to service delivery outcomes posed by potential capacity constraints in Indigenous organisations.

Audit objective, criteria and scope

11. The objective of the audit was to assess the extent to which FaHCSIA, DEEWR and DoHA seek to reduce service delivery risks posed by capacity constraints in Indigenous organisations.

12. In order to reach a conclusion against the audit objective, the ANAO assessed:

  • approaches taken by the three departments to identify and mitigate risks to outcomes posed by the capacity of an organisation to deliver services; and
  • whether, in line with the COAG Service Delivery Principles for Programs and Services for Indigenous Australians, these three departments invested in the service delivery capacity of Indigenous organisations.

13. The scope of the audit encompassed the Indigenous specific programs administered by FaHCSIA, DEEWR, and DoHA (with a focus on the Office of Aboriginal and Torres Strait Islander Health), and relevant processes and initiatives implemented or undertaken since 1 July 2007 in relation to programs funded by these departments. The audit has placed a particular focus on programs and service providers operating in remote areas because of the high number of Indigenous service providers and the nature of the service delivery environment.

Overall conclusion

14. Indigenous organisations play a significant role in the delivery of programs and services to communities on behalf of the Australian Government, especially in remote areas. In 2010–11, the Department of Families, Housing, Community Services and Indigenous Affairs (FaHCSIA), the Department of Education, Employment and Workplace Relations (DEEWR) and Department of Health and Ageing (DoHA), administered grant funding with a combined estimated value of $1.34 billion to approximately 900 Indigenous organisations.10 The average length of these grants was 15 months across the departments. By department, the grants were generally small and relatively short with median grant amounts and lengths of: $55 000 and 12 months in FaHCSIA, $151 301 and 15 months in DEEWR, and $327 531 and 12 months in DoHA. Given the overall level of funding, the service delivery capacity of Indigenous organisations is an important element in delivering government programs effectively and a relevant area for attention by these departments.

15. The service delivery capacity of an organisation is influenced by a range of factors. Some constraints on capacity, and the utilisation of capacity for service delivery, are influenced by aspects of government administrative frameworks. Currently, the large numbers of Indigenous programs across the departments subject to audit, and the high number of short term and small value funding agreements can make it difficult for organisations to predict future funding, which has planning and resourcing implications. Further, the extent of administration that is associated with individual funding agreements—from the funding application process through to operational plans and reporting requirements—can create a high administration load for organisations, limiting the utilisation of existing capacity for the actual delivery of programs and services. Where organisations face capacity issues, and where the utilisation of existing capacity is constrained, these are likely to present risks to the achievement of service delivery and program outcomes—which need to be taken into account by the departments and addressed where possible.

16. The three Australian Government departments involved in this audit have developed approaches to assessing risk associated with the service delivery capacity of organisations, but these approaches have tended to focus on identifying and treating risks that are internal to organisations, such as financial management, governance and reporting performance. Less consideration has been given to assessing the risks to delivery that can originate from outside the organisations. Consequently, the common mitigation strategies developed by these departments are to increase the monitoring and reporting arrangements. Alone, these strategies indicate an approach focused on immediate risks, but which is unlikely to reduce risks to broader service delivery outcomes by developing organisational capacity. There are opportunities and benefits, within programs and also at a whole of government level, to develop strategies for the medium to longer term that seek to reduce, or mitigate, risk by addressing issues that affect the service delivery capacity of organisations.

17. There have been some efforts by the departments to support and enable capacity in organisations. In relation to facilitating the utilisation of capacity, these departments have undertaken some reforms to address administrative burdens or red tape, although these efforts are not uniform across the departments and overall progress has been uneven. Similarly, the departments are implementing a range of specific capacity development activities. However, none of the departments had an overarching policy which drew these efforts together or provided guidance for staff implementing the capacity development activities. This was also the case at a whole of government level where no overarching strategy for implementing a capacity development approach was in place. In the absence of an overall strategy, the impact of individual initiatives within programs is likely to be limited, and may lead to duplication in implementation or a piecemeal approach. While there are some examples of capacity development through reforms and program based initiatives within these departments, given the longstanding nature of many constraints, more attention is required to give fuller effect to the National Indigenous Reform Agreement and better support service delivery capacity in Indigenous organisations.

18. The ANAO has made three recommendations to better position the three departments to invest in Indigenous organisations and hence to meet the capacity development intention of the National Indigenous Reform Agreement. The first and second recommendations relate to taking a longer term view of service delivery outcomes and, where appropriate, factoring this into departmental program administration arrangements. The third recommendation relates to FaHCSIA leading the development of a specific capacity development strategy, and a supporting implementation approach, which could be applied across Australian Government departments to address common capacity issues.

Key findings by chapter

Influences on service delivery capacity

19. There is a level of awareness within the departments of the constraints experienced by service providers and how these constraints can impact on the achievement of outcomes, particularly for organisations operating in remote areas. Some of the capacity constraints that are variously recognised by the three departments include: access to and adequacy of funding, attracting and retaining suitable staff, establishing and maintaining strong governance, lack of management skills and structures, financial management issues, geographical factors, numerous program funding administration requirements, flexibility within funding arrangements, adverse community circumstances, and inadequate resources and infrastructure. In the remote service delivery environment, these constraints can be exacerbated by additional challenges such as the generally higher levels of disadvantage experienced, community expectations on local organisations, and the cost and resource implications of reaching remote locations.

20. The Australian Government funds a large number of Indigenous specific programs spread across multiple departments. In general, these are characterised by relatively small program values, annual administration arrangements and grant relationships with service provider organisations. For service providers, this often leads to funding under multiple programs and departments, many short term funding agreements and small amounts of funding.

21. The Australian Government’s Grant Management System (GMS), administered by FaHCSIA, indicates that over the period since July 2007, funding to Indigenous organisations was administered under 84 different programs, and that most funding agreements with Indigenous organisations were worth less than $60 000 and were for periods of less than 12 months. In addition, the 820 Indigenous organisations identified in the GMS were required to submit a significant number of reports in this period. The high number of short term and small value grant funding agreements can make it difficult for organisations to predict future funding, in turn, making it difficult for organisations to attract staff and plan, as well as creating a high administration load for organisations and departments.

22. These issues, and their implications both for service delivery capacity and the capacity of organisations more broadly, have been well documented in many previous reports to government as early as the 1980s and as recently as 2010 in the Strategic Review of Indigenous Expenditure. There is scope for the departments to consider the impact of their funding arrangements on service providers so that barriers to either strengthening, or utilising the service delivery capacity of organisations, are addressed.

Risk management for program and service delivery outcomes

23. The departments audited have established risk management processes that are focused on assessing risks within organisations. The most common risks identified by these departments related to performance reporting, financial management/reporting and governance. Common risk mitigation strategies adopted by the departments included regular reporting, monitoring and linking payments with milestones. While more comprehensive reporting was often a mitigation strategy, the ability of an organisation to comply with reporting requirements was also a common risk identified by these departments. Reporting related issues were the cause of non compliance in 98 per cent of funding agreement breaches, which indicates that the existing mitigation strategies are not generally reducing reporting risk, potentially because of the high volume of reporting required. While a level of reporting is appropriate, it should also be commensurate with the actual level of risk and needs to capture information necessary to inform program performance.

24. The departments’ risk management processes were less focused on the external influences on service delivery capacity. Given many constraints are influenced by factors outside an organisation’s control, for example, geography and funding, there is the potential that the existing approaches may not capture, and subsequently address, the associated risks. Further, the existing mitigation strategies, such as increased reporting requirements, can divert resources away from the actual delivery of services and programs. There is scope to broaden existing approaches to risk management by considering the wider sources of risk associated with capacity and employing strategies to change the likelihood of the identified risks occurring. A more strategic approach to risk management would give greater emphasis to managing risks emerging from outside the Indigenous service delivery organisations—including the influences of the remote service delivery environment and aspects of government funding administration.

Investment to support capacity for Indigenous service delivery

25. Policy commitments by the Australian Government indicate a renewed focus on effectively engaging with service provider organisations and investment in Indigenous organisations. Based on the capacity constraints experienced by Indigenous organisations, investment to support capacity and its utilisation needs to occur at multiple levels. For departments, there are two key approaches needed to implement these policies—ensuring their administrative arrangements do not unduly impact on the utilisation of capacity for service delivery, and working actively with individual organisations to develop internal capacity.

26. Efforts to reform administrative arrangements have been pursued in different ways within and across the departments, and have included some funding agreement reforms. However, these reforms are relatively recent in their implementation and have not always been sustained or achieved the desired intentions. Given the history of reviews that have pointed to the influence of government administration in driving some of the constraints, overall progress by the three departments to address issues of administrative burden has been slow.

27. The departments identified a number of approaches and individual activities that they were pursuing to build internal capacity of organisations for nearly 50 per cent of programs surveyed in the audit. While not all programs or providers need capacity development, service providers which sought support generally found it difficult to access appropriate support, resources or activities that were tailored to the needs of their organisations. This indicates that despite the activities that are occurring, more formal and coordinated efforts are required by the departments.

28. Within the three departments, there are mixed views about whether government has a responsibility to assist in developing capacity in organisations. This is reflected in the limited guidance, and subsequent formal activities, within these departments to implement capacity development efforts. In addition, there is no framework across Australian Government departments to guide the implementation at a whole of government level of the relevant National Indigenous Reform Agreement service delivery principles covering investment in the capacity of Indigenous organisations. Many funding agreements with organisations are of relatively small value, and pose lower risk to government. This also means there is more limited scope for investing in capacity development at an individual organisation level. However, when considered from a whole of government perspective, the aggregate levels of funding, and the large number of agreements involved, highlights the benefits of developing a stronger sectoral approach across government to the development of capacity within the organisations that comprise the Indigenous service delivery model.

Summary of the departments’ responses

Department of Families, Housing, Community Services and Indigenous Affairs

29. A summary of FaHCSIA’s response to the report is below:

FaHCSIA welcomes the ANAO audit report on the Capacity Development for Indigenous Service Delivery. As the report makes clear, the issues associated with developing the capacity of Indigenous organisations are complex and further complicated in many instances by the multitude of issues that confront Indigenous organisations operating in remote and very remote areas of Australia.

The Department notes the significant work being undertaken by the Office of the Registrar of Indigenous Corporations in assisting Indigenous organisations under the Corporations(Aboriginal and Torres Strait Islander) Act 2006 (the CATSI Act) to assist 2,300 Indigenous organisations with their business planning and corporate governance requirements. The incorporation of Indigenous organisations under the CATSI Act remains key government policy and one that seeks to ensure strong and effective governance of Indigenous organisations with goes directly to the capacity of the organisations themselves.

Indigenous organisations are, as with non-Indigenous organisations, at various levels in terms of their size, scope of interests, expertise and access to experienced staff, and sources and levels of funding. Many organisations that receive funding from the Commonwealth (sometimes from multiple sources) also receive funding from other State Government Departments and the private sector. In this context it is important to recognise that the organisation itself has a significant role to play in understanding the context within which it operates, the compliance requirements for funding it has received and the need to ensure sufficient regard has been given to organisational capacity.

Clearly, there is more that can be done to streamline funding arrangements and manage the risks associated with this funding in considering how the capacity of Indigenous organisation can be increased over time.

Department of Education, Employment and Workplace Relations

30. A summary of DEEWR’s response to the report is below:

The Department of Education, Employment and Workplace Relations (DEEWR) is committed to improving outcomes for Indigenous Australians and to working with other agencies and organisations to achieve this goal.

The recommendations in this report are supportive of a whole of government approach aimed at continuous improvement strategies to assist Indigenous organisation’s capacity development.

The Department will continue to work collaboratively with Australian Government agencies to further support service delivery arrangements by Indigenous organisations who deliver services on behalf of Government.

Department of Health and Ageing

31. A summary of DoHA’s response to the report is below:

The Department is generally supportive of the audit report and its recommendations. The Department notes that most of the coverage of the audit in the Department related to the Department’s Office of Aboriginal and Torres Strait Islander Health (OATSIH).

The Department advises that since the audit commenced in July 2010, OATSIH has introduced a number of strategies to improve the capacity of Aboriginal and Torres Strait Islander Community Controlled Organisations (ACCHOs) including an agreement with the National Aboriginal Community Controlled Health Organisation (NACCHO), the industry peak body, to develop a program of governance and capacity building which will be undertaken by the sector for the sector.

This initiative has been developed in response to the Aboriginal and Torres Strait Islander community controlled health sector’s claim that, for the sector to improve its performance, governance and management, it has to own the process and should undertake the reforms itself. While the ANAO report advocates that the Commonwealth should do more to assist, the sector also argues that the responsibility for improvement lies within the sector. The Department considers capacity building to be a shared responsibility of the sector and the Commonwealth.


[1]   Productivity Commission, Report on Government Services, Productivity Commission Research Report, Canberra, 2011, p. 1.4.

[2]   Productivity Commission, Contribution of the Not-for-Profit Sector, Productivity Commission Research Report, Canberra, 2010, pp. 24–25.

[3]   Council of Australian Governments, National Indigenous Reform Agreement, [Internet], COAG, Canberra, 2008, p. 4, available from <> [accessed 24 January 2011].

[4]   The total amount of funding delivered through Indigenous organisations is likely to be higher when funding mechanisms other than grants and other Australian Government departments are taken into consideration.

[5]  Based on definitions from the Office of the Registrar of Indigenous Corporations and the National Aboriginal Community Controlled Health Organisation.

[6]   Department of Finance and Deregulation, Strategic Review of Indigenous Expenditure, [Internet], DoFD, Canberra, February 2010, p. 261, available from <> [accessed 30 August 2011].

[7]   Office of the Registrar of Indigenous Corporations, About the Public Register, [Internet], ORIC, Canberra, available from <> [accessed 27 September 2011].

[8]   Department of Finance and Deregulation, op. cit., p. 261.

[9]   Organisation for Economic Cooperation and Development, The Challenge of Capacity Development, Working Towards Good Practice [Internet], OECD, Paris, 2006, available from <> [accessed 13 May 2011].

[10]   In 2010–11, an estimated $1.34 billion in grant funding was provided to Indigenous organisations through programs that are either Indigenous‑specific or have a large Indigenous component.