2.1 To enable the grant to the foundation to be accounted for in 2017–18, it was paid in full on 28 June 2018 and some key process-related and governance controls were not able to be included in the funding agreement.⁵ The agreement requires that the investment of the grant by the foundation be conservative and not speculative. It also permits the foundation to use up to $21.825 million of the interest earned on grant funds on administration with any interest earned above this amount to be used on non-administration components of the RTP.

2.2 The ANAO examined whether the foundation has invested the grant funds to earn sufficient interest to assist paying for the administration of the RTP; and ensured adequate security for the Australian Government over the grant funding.

Where has the grant funding been invested?

2.3 The partnership agreement was signed on 28 June 2018 and $443.3 million was paid into the foundation’s RTP operating account⁶ on 29 June 2018.

2.4 Funds could not be invested elsewhere until the foundation had finalised a written investment policy. The grant agreement required that DAWE be consulted prior to the policy’s finalisation. The policy was approved by the foundation board on 4 July 2018 and endorsed by DAWE on 12 July 2018.

2.5 Under the policy, $434.3 million was placed into nine fixed-interest term deposits across six Australian banks on 25 July 2018. For scaling-up activities, $9 million was retained in the operating account.

2.6 The foundation’s investment approach has remained largely unchanged over time, with funds being invested in up to 17 concurrent term deposits with between four and six of the same banks at any one time. As of 31 December 2020, $358.7 million (81 per cent of the grant amount) remains invested in term deposits.

Have the investments and investment advisers been selected through appropriate processes?

2.7 The investment committee of the foundation’s board was responsible for overseeing the investment of the grant; the appointment of advisers; and developing the investment policy required by the grant agreement.

2.8 The committee agreed at a 19 June 2018 meeting that potential advisers would be contacted directly by committee members. Two separate advisers were engaged in July 2018 to:

• advise on the short-term investment policy and assist in developing its longer term strategy; and
• arrange the initial three month tranche of term deposits while the longer-term policy was refined.

2.9 Mercer Investments (Australia) Limited (Mercer) was engaged through a sole source arrangement for $25,000 after being selected by the investment committee and approved by the chair of the board. The committee identified Mercer at its 19 June 2018 meeting as the most appropriate adviser for investment instruments in the short and long term.

2.10 A proposal from Mercer was provided directly to two Investment Committee members (who were also foundation directors) on 13 July 2018, and while it was noted that it was ‘not cheap’, directors considered it would ‘help address board concerns and assure government’; and it was considered prudent to have a ‘best in class’ adviser due to the expected scrutiny of investment decisions.

2.11 Laminar Capital (Laminar) was engaged initially for four months to coordinate the short-term investments after being identified in mid-June 2018 by a committee member as one of two firms to quote through a limited tender process. While Laminar’s proposal represented the most competitive option between the two responses⁷, it has since been retained on an ongoing basis at a 40 per cent higher rate of $3,500 per month (for the same services under a new client services agreement).⁸ Payments to 31 December 2020 totalled $114,950. The increased rate was approved in March 2019 and retrospectively applied to monthly services provided since November 2018.

2.12 The partnership agreement requires the foundation to ‘generally award’ each subcontract in accordance with principles of open, transparent and effective competition, value for money and fair dealing. Where the foundation elects to engage subcontractors other than as a result of an open, competitive process, it is required to report to DAWE the reasons and justifications for the approach taken.

2.13 In its July to December 2018 six-monthly report to DAWE, the foundation reported that it had engaged Mercer through a non-competitive process so as to ‘comply with a direction of the board’. It did not report that Laminar was not engaged through an open and competitive process.

Investments selection

2.14 Recommendations for the investment portfolio composition were provided by Laminar, after seeking quotes from banks on a pre-approved list. The list was from the foundation’s short-term investment policy and included 10 banks⁹ (four of which were subsidiaries of other banks on the list). The foundation provided Laminar with the approved list on 12 July 2018 and had previously indicated having ‘existing banking relationships with CBA and BOQ’.

2.15 Rates were obtained from all six parent banks.¹⁰ An initial recommendation was provided to the investment committee on 23 July 2018 for a portfolio of eight terms deposits with an average duration of less than four months and weighted average yield of 2.70 per cent. The investment committee requested a modified portfolio, for reasons including:

• BOQ carrying 24.5%¹¹ of the portfolio may be a bad optic considering Board composition¹², despite offering the best rates
• Reticence to lock the funds away for 3-6 months, suggesting some funds are tied up for a lesser period ie more laddered portfolio
• ANZ inflexibility with regards to term deposit breaks, with CBA offering almost identical returns with more flexibility.

2.16 After some adjustments within the following 24 hours, approval was provided to Laminar on 24 July 2018 to execute its revised recommendation reflecting a ‘laddered portfolio’ with:

• a reduced concentration in both ANZ (from 11.5 to six per cent) and BOQ (from 34.5 to 17 per cent); and
• an average yield of 2.60 per cent (down from 2.70 per cent) and a reduced average duration from four down to three months.

2.17 The term deposits were executed on 25 July 2018.

Are the investments that have been made with the grant funding appropriately secure?

2.18 The grant agreement allows the foundation to invest the portion of funding not yet needed to deliver projects. While it allowed the foundation to decide these investments, they were to be in a manner ‘consistent with sound commercial practice’ and other requirements in the grant agreement. Those other requirements included:

• investment of the grant to be conservative and not speculative;
• investment of the grant in ‘investment grade financial products with a long-term rating of BBB or higher by Standard and Poor’s or Moody’s’;
• not investing in any ‘related body corporate’ or ‘related entity’¹³ of the foundation, unless the entity is listed on the Australian Securities Exchange; and
• no part of the grant being invested in derivative financial products except for hedging risk.

2.19 The foundation’s investments to date have been in term deposits with six Australian banks, which has been consistent with these requirements.

Bank deeds

2.20 The drafting of the grant agreement signed in June 2018 did not contemplate the placement of the grant into bank accounts other than the foundation’s RTP operating account, for which a bank deed was to be executed. Following the investment into term deposits, it was considered necessary to execute individual bank deeds with each bank. The deeds provide the department with control over the unspent funds in certain circumstances, including in the event the grant agreement is terminated.

2.21 The grant agreement was varied in March 2019 to ensure, among other things, that term deposits are explicitly considered to be a ‘bank account’ for the purposes of the partnership head agreement. This was to secure the Australian Government’s interests in the unspent funds and was in addition to the bank deeds executed between August and October 2018 for the term deposits.

2.22 Relevant accounts are specified in appendices to the deeds with each bank and should be amended each time a new account is opened. Deeds were revised in early 2019 to accommodate term deposits rolling over into new accounts and executed by three banks. Action was taken with respect to the other three banks within the course of the audit. Specifically:

• although a variation to the deed with Westpac was signed in July 2020, the 2018 Westpac deed already accommodated the rolling over of term deposits by referencing a suspense account for the foundation’s current term deposits;¹⁴
• a new deed was signed with CBA on 18 December 2020. Apart from a period between January to April 2019, term deposits have been held with CBA; and
• a new deed was signed with ANZ on 24 February 2021. While the foundation confirmed with DAWE in July 2020 that it did not currently hold any funds with ANZ, a new term deposit was placed with ANZ on 7 August 2020.

Is the investment approach and performance on track to generate sufficient income to help fund the administration costs of the foundation?

2.25 Since the initial July 2018 investment, term deposits have been rolled over into new investments based on the interest rates being offered by the portfolio banks at the time of maturity. The foundation’s November 2020 forecasting indicated that it is on track to generate $5.3 million in excess of the $21.8 million capped interest amount that can be used to help pay for its administration of the RTP.

Term deposit durations

2.26 The July 2018 investment policy was envisaged to be short-term, with a longer-term policy to be developed later to cover longer duration investments. The short-term policy required that funds be invested in term deposits with a maximum four-month average duration and concentration of no more than 51 per cent in any one bank.

2.27 In September 2020 the foundation advised the ANAO that finalisation of the longer-term policy was placed on hold in October 2018 until after the 18 May 2019 Federal Election. This decision was taken following a September 2018 announcement by the opposition that should it win the May 2019 Federal Election it would require the foundation to return the unspent portion of the grant. The need to revise the policy was recognised throughout 2019, for reasons including the:

• likelihood that future interest rates would decline, rather than increase; and
• inability ‘to take advantage of current interest rates and invest funds for a longer period of time’ due to the policy’s four-month average duration constraint.

2.28 Although this work was progressed in 2019, the policy was not updated in time to remove the four month average duration restriction before this was exceeded in September 2019. The updated policy was approved in May 2020 and no longer includes this restriction. The first term deposit to be rolled over following the election matured on 21 May 2019 (one term deposit with a value of $51 million) with the remainder between 13 and 28 June 2019.¹⁵ By mid-March 2020, the average weighted duration had increased to over 17 months. This situation is illustrated by Figure 2.1. In April 2021, the foundation advised the ANAO that:

The Foundation’s Investment Committee was able to confidently consider longer duration term deposits once management had completed a drawdown schedule for forward program funding requirements. This work was completed in February 2020 and facilitated the finalisation of the updated policy in March 2020.

Figure 2.1: Term deposit interest rates and duration over time

Note a: Until the July 2018 investment policy was amended in May 2020, the maximum average duration of the portfolio of term deposits could not exceed four months.

Source: ANAO analysis of foundation records.

4.1 The head agreement with the Australian Government requires that the Great Barrier Reef Foundation (the foundation) undertake a range of administrative activities to ensure good governance is in place. This includes the establishment of systems and processes, effective project management and scaling up activities. The agreement permits the foundation to spend up to $44.33 million on administration activities.

4.2 The foundation advised the ANAO in April 2021 that its ‘business model includes both subcontracting to third parties and direct management and delivery of our signature projects, such as the Resilient Reefs Initiative, to achieve the organisation’s purpose.’ The grant agreement with the Australian Government refers to the foundation engaging partners through grants and procurements as ‘subcontracting’. The grant agreement provides the framework under which the foundation is able to undertake procurements and make grants to its subcontractors. The ANAO examined the foundations approach to engaging subcontractors to deliver the partnership.

Have appropriate delivery methods been selected for the achievement of partnership components?

4.3 The foundation, along with contracted research and delivery partners, is to spend at least $822 million (see Table 4.1) to achieve significant, measurable improvement in the health of the Great Barrier Reef World Heritage Area. Five components of the RTP (see Table 1.1 on page 15) directly relate to activities to improve the health of the Great Barrier Reef. Those components are to comprise the majority (93 per cent³⁵) of spending of the Australian Government grant funding. The component activities largely relate to work that was previously administered or under development by Australian Government entities. By way of example:

• from 2012 and until the commencement of the RTP, the Great Barrier Reef Marine Park Authority (GBRMPA) had received a total of $44.9 million³⁶ from the Australian Government for its administration of the Crown-of-Thorns-Starfish (COTS) Control Program.³⁷ The 2019–20 Annual Work Plan foreshadowed RTP funding and a direct negotiation with GBRMPA for its continued delivery of the program. In May 2020 the foundation entered into two separate contracts³⁸ totalling $28.6 million for in-water COTS control, representing just under half of the $57.8 million available for the COTS Component; and
• the Reef Restoration and Adaptation Program was in early development prior to the commencement of the RTP. In 2018, the Australian Government provided $6 million for its concept feasibility phase, led by the Australian Institute of Marine Science, for a ‘10-year program to develop new technologies to assist reef recovery and adaptation’.

4.4 As discussed at paragraph 3.11, the foundation advised the ANAO in February 2021 that it is not contractually required to raise or spend the cash identified in its fundraising targets by 30 June 2024 (the end of the Reef Trust Partnership).

Table 4.1: Summary of partnership funding and contracted costs: as reported by the foundation to 31 December 2020

Note a: Comprises direct grant of $22.505 million plus $21.825 million in interest earned on the Australian Government grant funding. The grant agreement requires that any interest on the Australian Government grant funding in excess of $21.825 million be expended on the non-administration components.

Note b: See paragraph 4.6.

Source: ANAO analysis of foundation records.

4.5 As at 31 December 2020, the foundation has reported $154.8 million as spent or committed (25 per cent of the six year total); and contracting with research and delivery partners to contribute a further $52.9 million (26 per cent of the six year total). The majority of the expenditure made or contracted to 31 December 2020 relates to the water quality and Crown-of-Thorns-Starfish (COTS) control components of the RTP (see paragraph 4.3).

4.6 The head agreement with the Australian Government requires the foundation to use the cash it raises through its co-investment strategy (discussed in Chapter 3) to undertake projects under the non-administration components of the partnership. This allocation is required to be identified in the six-monthly progress reports the foundation is required to provide to the Department of Agriculture, Water and the Environment (DAWE or the department). In February 2021, the foundation advised the ANAO that:

There is no express provision in the Grant Agreement requiring Other Contributions to be committed and spent within the same timeframe as the Grant or to be included in the budget unless Other Contributions fall within the definitions of Component or Activity, which they do not.³⁹

Subcontracting

4.7 The head agreement between the Australian Government and the foundation regulates the manner in which the foundation is to engage subcontractors through grants or procurements, as follows:

The foundation agrees to generally award each Subcontract for the Activity in accordance with principles of open, transparent and effective competition, value for money and fair dealing. The Foundation agrees to select Subcontractors using rigorous and robust assessment criteria and after having conducted all reasonable due diligence on the entity selected for a Subcontract. Where the Foundation elects to engage Subcontractors other than as a result of an open, competitive process, it will provide the Department with notice of the reasons and justifications for the approach taken by the Foundation.

4.8 While the foundation has undertaken at least 171 procurements, the majority of the amount spent and contracted as at 31 December 2020 has occurred through grants. By 31 December 2020, the foundation had entered into 126 grant agreements with 73 entities (some entities have received more than one grant) with an aggregate value of $134.3 million.

4.9 The average value of grant agreements entered into has been just over $1 million. The smallest grant was $11,694 awarded to Reef Catchments (Mackay Whitsunday Isaac) Limited for a project to educate smokers about cigarette butt litter and use community-based social marketing to change behaviours. The two largest grants relate to the COTS control program with $15.1 million awarded to the Great Barrier Reef Marine Park Authority (GBRMPA) and $13.5 million to Reef and Rainforest Research Centre Ltd (RRRC).⁴⁰

4.10 The contracted grants related to five of the six component areas of the RTP (no contracted grants related to the administration component). The majority of contracted grant funding (70 per cent or $93.4 million) relates to the second component (Water Quality) followed by the COTS component (22 per cent or $30.0 million). Although the second largest component of the total Australian Government grant amount with $100 million in allocated funding, only a small amount of grant funding had been contracted to December 2020 under the Reef Restoration and Adaptation Science component (three grants totalling $2.3 million).

4.11 The foundation’s controls over the approval of grant funding has not consistently ensured that grant funding was approved prior to project proponents being advised. The ANAO’s analysis of the approvals process for 37 grants⁴¹ with a total value of $41.7 million (from processes conducted under the Water Quality; and Indigenous and Community Reef Protection components) identified:

• 19 instances (worth $2.97 million) where there was a clear record of approval having been given prior notifications being sent; and
• 18 instances (worth $38.7 million) where applicants were advised that they were successful before the assessment panel’s recommendations had been approved within the foundation. The average delay between applicant notification and Board/delegate approval was 24 days.

4.12 The foundation advised the ANAO in April 2021 that it ‘has improved workflow design including fail-safes within our grant management system to ensure that approvals are in place prior to notification of successful applications to grantees.’

Have open and competitive processes been used?

Award of grant funding

4.13 The majority of the foundation’s expenditure of the Australian Government grant to date has occurred through the award of grant funding. In terms of the approach taken:

• the majority (91 per cent) of grants contracted were the result of a competitive process with the value of grants awarded through such processes representing 71 per cent of total grant funding contracted by 31 December 2020; and
• nine per cent of grants contracted, involving 29 per cent of funding, resulted from closed non-competitive processes.

Figure 4.1: Processes used to award grant funding

Source: ANAO analysis of foundation data.

Procurements

4.14 The first version of the foundation’s procurement policy was approved by its board on 28 September 2018, three months after the grant agreement with the Australian Government was signed. The policy has been updated twice, on 15 August 2019 and most recently on 7 May 2020.

4.15 Each version of the policy required the foundation to apply four procurement principles ‘to deliver benefits for the foundation, stakeholders and community’:

• value for money;
• advancement of economic, environmental and social benefits for local reef communities;
• open and effective competition; and
• efficient and ethical procurement.

4.16 These principles are consistent with the head agreement between the Australian Government and the foundation (see paragraph 4.7).

4.17 There is a strong link between the principles of value for money and competitive procurement processes. As discussed in Auditor-General Report No.27 2019–20⁴², the more competitive the procurement process, the better placed an entity is to demonstrate that it has achieved value for money. This is because competition:

• encourages respondents to submit more efficient, effective and economical proposals; and
• ensures that the purchasing entity has access to comparative services and rates, placing it in an informed position when evaluating the responses.

4.18 With the objective of streamlining foundation administration processes whilst ensuring value for money is maintained when undertaking procurement activities, each version of the foundation’s procurement policy included procurement thresholds to identify the type of procurement process to be employed (see Table 4.2). Less competition is required by the policy for procurements of between $80,000 and $250,000 than the thresholds adopted by most Commonwealth entities.⁴³ In April 2021, the foundation advised the ANAO that ‘the foundation’s Procurement Policy and thresholds were modelled on the Queensland Government’s Procurement Policy and procurement thresholds’.

Table 4.2: Procurement process thresholds

Source: ANAO analysis of foundation records.

4.19 Each version of the policy also provided the capacity for exemptions to the application of the procurement thresholds⁴⁴ and any other aspect of the policy, as follows:

Where full compliance with this policy is not feasible, a written request for a Procurement Process Exemption must be made to the Managing Director. Any request for exemption must adequately demonstrate the business need for the exemption and be based on appropriate reasons included but not limited to genuine urgency, criticality, sole supplier and security/confidentiality, or funder compliance requirements.

4.20 The most common procurement approach employed by the foundation has been to sole source providers, with 71 per cent of the 171 procurements analysed by the ANAO having no competition. In February 2021, the foundation advised the ANAO that:

The approved procurement policy does not require a competitive process for contracts valued at less than $25,001. Of those instances where exemptions where granted the largest category of sole source suppliers by volume and value (89 per cent of value) related to contracts where the service provider is the sole organisation capable of providing the services required.⁴⁵ The second largest category of sole sourced service provision relates to scaling up activities early in the RTP contract.⁴⁶

4.21 In total, 49 per cent of the sole sourced procurements had previously been contracted by the foundation, with 24 per cent having a personal or professional acquaintance of a foundation staff member and 9 per cent being awarded to corporate partners of the foundation. In February 2021, the foundation advised the ANAO that:

Effective delivery of the RTP is based on maintaining a broad and diverse set of professional industry and stakeholder relationships to ensure that the Foundation industry knowledge remains current and to help identify capabilities and opportunities to improve the way things are done for the benefit of the Great Barrier Reef.

4.22 The scope of this ANAO performance audit did not include the management of probity by the foundation, including in relation to how any conflicts of interest were identified and managed in undertaking procurement activities.

4.23 The high proportion of sole sourced procurements reflects that it has been common for the foundation to employ less competitive processes than those indicated by its procurement process thresholds. Of the 171 procurements analysed by the ANAO:

• 57 (33 per cent) were consistent with the approach set out in Table 4.2;
• 10 (six per cent) employed more competition than was required under the procurement policy applicable at the time. The value of those procurements ranged from $5,104 to $174,000 (with an average of $42,805). In each case, the foundation obtained at least one more quotation than was specified in the procurement policy; and
• 104 (61 per cent) employed less competition than was required under the applicable procurement policy.

4.24 As of December 2020, seven open procurement processes have been conducted for the establishment of expert and technical advisory panels and the selection of consultants for the Regional Water Quality Program. Contracts executed to date are:

• three contracts totalling $4.9 million from three of the seven processes conducted for the Regional Water Quality Program (for program manager and/or partnership coordinator roles to oversee and coordinate the delivery of projects in three Great Barrier Reef catchment regions.⁴⁷ See Appendix 2, paragraphs 2 to 4); and
• three with values of less than $20,000 for expert and technical advisory panel members.

4.25 Each version of the procurement policy has required a fully open and competitive approach for procurements with a value over $250,001. To date, there have been 14 procurements with a value above that threshold with an aggregate value of $9.9 million (with averages of $705,529). Of those 14 procurements, three were the result of open processes and four have a recorded exemption to the procurement policy requirement that an open request for tender or offer be conducted. While exemptions to the requirement for an open tender were not recorded in the foundation’s register for the other seven procurements with a value above $250,001, five were reported to DAWE as not being engaged via competitive processes for reasons including:

• that ‘the procurement leverages arrangements the foundation already has in place with the supplier’ for services from a pro bono partner totalling $579,304; and
• a ‘critical business need for the foundation to meet a deadline not reasonably foreseen’ in respect of four procurements with a total value of $1.7 million for three key senior foundation staff positions and the development of a strategic communications plan by a firm recommended by DAWE in May 2018 (see paragraph 4.27).

4.26 Four of those 14 high value procurements involved competitive processes (of which three were open processes and one involved limited competition). Three were consultancies for the program manager and/or partnership coordinator roles under the Regional Water Quality Program (see paragraph 4.24). The other was conducted via a limited tender after it was initially proposed to sole source Alluvium Consulting Australia Pty Ltd for an investment pathways consultancy within the Water Quality component.⁴⁸ Following a Partnership Management Committee⁴⁹ meeting, the foundation undertook a select tender process with four parties invited to quote, and three offers received. The offer from Alluvium was assessed as the best value for money, noting that it offered a fee four per cent less than at the time of the initially proposed sole sourcing and that, compared to the other respondents, it had the advantage of early interaction and engagement with key foundation staff and had also received feedback on draft proposals during the sole sourcing negotiations.⁵⁰

4.27 The remaining 10 procurements with a value above the $250,001 threshold were undertaken through sole source procurement processes. This included the engagement of:

• 89 Degrees East Pty Ltd at an estimated cost of $269,471⁵¹ to develop a strategic communications plan. This firm was identified to the foundation by the department in May 2018.⁵² There was no documented consideration of the market for providers of these types of services, or any recorded analysis that demonstrated that the rates being charged (which range from $1,200 per day to $3,000 per day) represent value for money. Foundation records state that a procurement process exemption was approved on 16 January 2019;
• HeadStart Development Pty Ltd under two consecutive contracts totalling $800,800 to fill the role of RTP Program Director⁵³:
  • the first contract was signed on 26 September 2018 to run from 1 July 2018 to 30 June 2019 with a rate of $1,400 for three to four days per week on average, with no benchmarking or other analysis of value for money of this rate. A procurement process exemption was not recorded for this contract; and
  • in January 2020 the foundation identified that the contract had expired. A procurement process exemption was not recorded for the new contract that was signed on 9 March 2020 to run from 1 January 2020 to 31 December 2020 (which had a scope of work adjusted to reflect items already completed and had the same daily rate but with an increased expectation of four to five days on average each week); and
• Clear Horizon Consulting Pty Ltd for which a contract was signed on 13 March 2020 with a capped fee⁵⁴ of $345,000 for the period 1 January 2020 to 30 June 2021⁵⁵ to provide monitoring and evaluation services to support the delivery of the RTP⁵⁶ and ‘other internal organisational priorities’. This was the fourth contract the foundation has entered into with this consultant (with one variation extending the scope and spend under a contract). The total value of these contracts is $575,311. Only the first contract awarded (for $28,050) involved any competition, with the foundation seeking two quotations as was required under the procurement policy that applied at the time. Exemptions were recorded for the later three contracts, with the competitiveness of the consultant for the first contract identified as part of the reason for granting an exemption. The foundation worked with the consultant after the initial contract to develop the work program for later contracts and procurement policy exemptions were sought when proposals had been developed and, in the case of the most recent contract, billable work had been performed.

Have appropriate criteria been adopted and applied to the evaluation of candidates?

4.30 The head agreement between the Australian Government and the foundation requires that the foundation select subcontractors using ‘rigorous and robust assessment criteria’. This obligation applies equally to competitive and non-competitive selection processes.

Award of grant funding through competitive processes

4.31 The ANAO examined the criteria adopted for eight open grant selection processes. The relevant guidelines set out that, through the eight funding rounds, total grant funding of $88.1 million was available. Those eight rounds covered 90 grant agreements valued at $67.0 million (71 per cent of the number of grants and 50 per cent of the value of grants) the foundation had entered into by 31 December 2020 (see paragraph 4.13 and Figure 4.1).

4.32 Each of the eight guidelines examined included appropriate selection criteria that addressed:

• eligibility considerations including the types of entities eligible to apply and what the grant funding can and cannot be used for; and
• comparative assessment of the merits of competing applicants through the application of weighted assessment criteria.

4.33 The guidelines also identified the relevant component of the RTP and the related Australian Government funding, and outlined the relationship between the objective of the relevant component and the grant funding opportunity. The linkages between the objective and the selection criteria were also set out in the guidelines. A common shortcoming was that the guidelines did not give sufficient emphasis to the foundation using the Australian Government funding to leverage contributions from research and delivery partners:

• none of the guidelines set out that, in addition to the funding provided by the Australian Government, the foundation had a target of raising $200 million from research and delivery partners across the five non-administration components; and
• the more recent guidelines did not include a co-funding assessment criterion (discussed at paragraph 3.17).

Grant funding awarded through non-competitive processes

4.34 A range of practices were evident in relation to the 29 per cent of contracted grant funding that has been awarded through non-competitive processes (see paragraph 4.13).

4.35 In October 2018, a process for making decisions on ‘early projects’ was approved. The foundation recorded that ‘In terms of reputation, the risk of being perceived as making a ‘captain’s call’ can be mitigated by putting in place robust and transparent processes for the selection of projects and delivery providers, supported by clear and defendable criteria.’ Eight ‘overarching’ criteria⁵⁷ were developed that could be tailored as appropriate for projects under specific components of the RTP. These criteria were applied in the award of a $574,000 grant in December 2018 for a project to undertake surveys in the Northern Reef ahead of a potential 2019 bleaching event.

4.36 A variety of approaches were employed in grants subsequently awarded through non-competitive processes. For example:

• the December 2019 assessment of a proposal under the Water Quality component to extend an additional grant focussed on agricultural practice change in the cane and grazing sectors through the award of a further $2.43 million set out the reasons for extending in five dot points but there were no actual assessment criteria identified and applied;
• the April 2020 assessment that led to the award of two grants under the Integrated Monitoring and Reporting component totalling $3.0 million summarised the rationale and benefits for awarding the funding but there were no actual assessment criteria identified and applied; and
• the July 2020 assessment of a $650,000 proposal under the Integrated Monitoring and Reporting component to collect Reef condition data used eight non-weighted criteria that were similar to the early investment criteria adopted in October 2018.

Procurement processes

4.37 Of the 171 procurement selection processes analysed by the ANAO, there were 38 (22 per cent) where selection criteria were identified. Criteria were not identified for the majority (78 per cent) of procurements.

4.38 For 20 of the 38 procurements with criteria identified, the candidates were informed of the criteria that were being used (all but one were competitive procurements with eight selected through public calls for submissions and between three and 11 candidates invited to quote for the remainder). This was not done for the other 18 procurements where criteria had been identified.

4.39 While the foundation’s procurement policy (see paragraph 4.15 and Table 4.2) promotes open and competitive selection processes consistent with the head agreement with the Australian Government (see paragraph 4.7), the most common procurement approach employed by the foundation has been to sole source providers (see paragraph 4.20). There was only one sole source procurement where the foundation identified criteria that would be used to evaluate whether the proposal would represent value for money. This approach is not consistent with the principles outlined by the foundation in its procurement policy, or with the head agreement with the Australian Government.

4.40 An evaluation report was prepared for 35 (20 per cent) of the 171 procurement selection processes analysed to date by the ANAO. While the foundation has an evaluation report template to employ for procurements valued above $25,001, it was used for only 15 of 95 procurements (16 per cent) analysed with a contract value above that threshold.

Are appropriate contractual arrangements in place?

4.42 The head agreement requires the foundation to enter into a subcontract with each subcontractor. Subcontractors are any entities or persons engaged to undertake any part of the partnership on the foundation’s behalf. They include both grant recipients and suppliers of goods or services.

4.43 The terms of each subcontract must be consistent with and give effect to the foundation’s obligations and contain all of the applicable provisions required by the head agreement. These provisions include, amongst other things:

• rights to terminate the subcontract for convenience and/or default;
• providing the information the foundation needs to comply with its own reporting and other requirements; and
• requiring the subcontractor to have specified insurances in place.

4.44 Additional provisions are specified for subcontracts with grant recipients, including: capping the amount that can be spent on administration (to 10 per cent of the grant amount); and ensuring that the foundation has a contractual right to recover any grant funding that is overpaid, incorrectly spent, or not required by a delivery partner.

4.45 Standard templates were developed during the first eight months of the partnership to ensure the inclusion of these provisions in all applicable contracts. The procurement policy has required the use of these standard templates for all contracting and procurement activities since September 2018.⁵⁸

4.46 The foundation has consistently used its standard grant template for the 126 grant agreements (with an aggregate value of $134.3 million) executed to December 2020. Of the 171 contractual procurements examined by the ANAO, there were 95 engagements where the foundation’s standard contracts were used (for a total of $13.6 million) and 76 (with a total value of $3.6 million) where suppliers were engaged using letters of engagement or other alternative contractual arrangements. These included:

• 10 engagements for services under the non-administration components for a total of $142,192, including:
  • $10,500 on 12 May 2020 (with actual expenditure totalling $14,872) to provide online training to community reef protection grant recipients for digital storytelling;
• 24 for marketing and fundraising related services for a total of $980,076, including:
  • $284,463 of actual expenditure associated with one engagement for the development of a strategic communications plan by 89 Degrees East (see paragraph 4.27);
  • two engagements with Interbrand Australia for brand strategy development services ($164,525 in November 2018) and the development of a brand video ($6,900 in May 2019). Although the foundation’s contract manager expressed concern in November 2018 that terms were ‘skewed to favour the consultant’, the services were engaged via the supplier’s standard terms. These terms were also inconsistent with the 20 business day timeframe for the repayment of grant funds within the head agreement⁵⁹; and
  • $163,278 for four engagements with Pareto Fundraising for consultancy services associated with individual giving campaigns; and
• 42 for corporate services-related engagements for $2.5 million, including:
  • $579,304 for engaging Allens Linklaters (a pro bono partner) for services involving scaling-up activities including the development of standard subcontracting templates and legal advice on the unincorporated joint venture structure for the RRAP ($35,000 for this was met by the Component 4 budget);
  • $418,987 for four KPMG engagements for internal audit and other management consultancy services; and
  • $142,450 for investment advisers engaged in July 2018 (see paragraphs 2.8 to 2.11).

4.47 As part of its scaling up activities, the foundation purchased a contract management system (Integrum) with an annual licence and support fee of $19,800. Contracts are loaded into the system manually by the foundation’s contracting and legal services staff. Comparison of the contracted entities within Integrum against supplier names in the foundation’s accounting system indicated that there were at least 40 suppliers that had been engaged and not recorded in Integrum.

4.48 The foundation’s procurement policy requires contracts be in place before work is commenced for professional services totalling $5,001 or more. While the policy allows for purchases of less than $5,001 without entering into a contract, the head agreement between the Australian Government and the foundation does not permit such an approach. The ANAO identified at least 41 occasions (with a total value of $3.2 million) where services were either provided without any form of contract (in 10 instances) or where contracts were formalised after work had commenced.⁶⁰ The delays ranged from one to 116 days, with an average of 31 days.

4.49 The foundation does not have a consistent or documented approach for when suppliers should be entered into its contract management system. ANAO analysis was that there were:

• 14 occasions where purchases were entered into or a record created in the foundation’s contract management system involving individual amounts of less than $5,001; and
• 31 occasions where purchases or consultancies with values of more than $5,000 have not been recorded in the system. Although the foundation advised the ANAO in November 2020 that the purchasing procedure applied to 10 of these, all were associated with goods or services of more than $5,000 in a single transaction or invoice.

4.50 In April 2021, the foundation advised the ANAO that:

The foundation is implementing system and procedural improvements to ensure consistency in documentation in relation to purchasing and contracting. These improvements include the implementation of a purchase order module in the accounting software and embedding business rules in our workflow for supplier requisition thresholds.

Appendix 1 Entity responses

Appendix 2 Examples of engagements reported against non-administration components

1. The foundation has re-allocated on a number of occasions expenses or engagements that were previously charged against the administration component. These costs were re-allocated or apportioned against non-administration components such as the Reef Restoration and Adaptation Science; Water Quality; and Indigenous and Community Reef Protection components.

Contractors performing a staff or employee function within the foundation

2. It has been common practice for the foundation to engage contractors to perform staff tasks since before the commencement of the partnership in July 2018. The foundation adopted this approach for the delivery of the partnership. Examples include:

• HeadStart Development Pty Ltd — awarded two consecutive contracts totalling $800,800 for the role of Reef Trust Program (RTP) Program Director, commencing in July 2018;
• C2O Consulting — engaged as a member of the Water Quality Working Group with three consecutive contracts totalling $114,393, commencing in July 2018;
• SeeSide Dialogue — originally engaged by the foundation under a secondment agreement with the Commonwealth Scientific and Industrial Research Organisation (CSIRO) for technical advisory services in July 2018. The original agreement was varied five times, with payments totalling $197,097. On 15 July 2020, the foundation engaged the individual’s services directly through a $169,000 contract with their newly registered company; and
• the program manager and partnership coordinator roles for the regional water quality grants program, where costs were recorded against the second component (Water Quality). Where similar roles have been undertaken by foundation staff, the costs have been recorded against the administration component.⁷⁷

3. In this latter respect, the application forms (issued first for the Mackay-Whitsunday and Fitzroy regions in late 2019) outlined that successful consultants were to be:

responsible, in close collaboration with GBRF, with managing the design, coordination and on-ground implementation of the regional programs through what is expected to be a suite of projects to be delivered by different delivery providers as part of an integrated program of activities. GBRF will retain responsibility for contracting and making payments to delivery providers.⁷⁸

4. Where contracts have been executed⁷⁹, the regional natural resource management (NRM) bodies have largely been contracted into these roles, with some responsibilities and tasks performed being the same as those performed by foundation staff. In response to the findings of the audit, the foundation advised the ANAO in February 2021 that in one case (for the Mackay-Whitsunday region) some roles performed by the contracted program manager should be charged to the administration component (for example, assessing and ranking grant applications; and notifying applicants of the funding outcomes). The contract value was $2.25 million and was recorded in total against the Water Quality component.

5. Prior to the end of the second C2O Consulting contract period in May 2020, costs stopped being recorded against the administration component, with $23,925 instead being recorded against the second component (Water Quality). Expenses have largely been associated with the consultant’s work as a Water Quality Working Group member. In response to the audit findings, the foundation advised the ANAO in February 2021 that the shift in costs was due to the focus of the working group, which was originally on component level and program level activities, but as individual projects began to be implemented, the focus shifted to project level activities.⁸⁰

6. Similarly, costs were charged against the administration component for services provided under the CSIRO secondment agreement until mid-June 2020, after which, $29,730 was charged to the second component (Water Quality) and $15,224 was charged to the fourth component (Reef Restoration & Adaption Science). From 15 July 2020, the foundation continued to engage this individual’s services directly through a newly registered company (SeeSide Dialogue). The contract was valued at $169,000 and payments to date totalling $70,779 have been charged to the second, fifth and sixth components (Water Quality, Indigenous & Community Reef Protection and Integrated Monitoring & Reporting respectively). The foundation advised the ANAO in February 2021 that while it considers some of the contractor’s work would fit under the ‘delivery category’ of its internal business rules, it would take a conservative approach and reallocate the contractor’s expenses to the administration component.

7. HeadStart Development Pty Ltd had both the consecutive RTP contracts charged fully against the administration component with payments to 31 December 2020 totalling $606,388. The individual providing the contracted services had been in the Program Director role since the partnership commenced working across all components.

8. Since this supplier was appointed as the Executive Director specifically responsible for the fourth component (the Reef Restoration and Adaptation Program or RRAP), the cost of four days of work each week has been paid through the foundation salary system rather than via the contract with the cost of the salary allocated to the Reef Restoration and Adaptation Program (RRAP) component rather than the administration component. The foundation advised the ANAO in February 2021 that ‘the Headstart contractor has undertaken two different roles since July 2018, the first totally administrative component facing, the second and current role is fully project facing under Component 4.’ In relation to the contractor’s current role, the foundation further advised that:

In this role he reports directly to the Board and Chair of RRAP and undertakes direct project delivery activities relating to Component 4. The 2019/20 and 20/21 approved AWPs describe and provide a budget allocation under Component 4 for the program management function of the RRAP. This role is a part of this program management function.

Employee salaries charged to non-administration components

9. In the September 2018 Resourcing Plan (a document contractually required under the head agreement) the foundation outlined its intention to increase its staffing levels from 15 (in July 2018) to 39 FTE (by July 2019). Costs outlined in the plan, including staff salaries were to ‘be treated as Administrative Activities (as stated in clause 5.1.2 of the Agreement)’.

10. More recently, non-administration components have also been meeting the costs of foundation employees (as opposed to contractors). This has been observed in the case of the Program Director for the COTS Control Innovation Program, Secretariat for the Traditional Owner Partnership, and the Executive Assistant to the Managing Director and Executive Directors. The foundation advised the ANAO in February 2021 that budgeting for each of these roles had been approved as the direct delivery of a specific project or activity from a non-administration component and was set out as such in the respective Annual Work Plan.⁸¹

11. ANAO analysis was that while the practice of meeting the cost of staff salaries from non-administration components commenced in the second half of 2019, it become more pronounced from June 2020. Between June and December 2020, $460,076 of salary-related expenses were met from components two to five, including the transfer of $121,884 previously recorded and reported against the administration component to the fourth and fifth components (RRAP and Indigenous and Community Reef Protection).

12. The foundation advised the ANAO in February 2021 that the transfer of expenses:

• related to the legitimate expensing of non-administration component roles that had been identified and budgeted for in the approved RTP Annual Work Plan; and
• are reflective of the practice at that time to apply allocation in arrears, whereas the practice is now to confirm the allocation staff costs to the correct program and activity codes at the time payroll is processed.

Consultancy work in relation to specific services

13. Kiorion Pty Ltd has had three contracts with a total value of $220,800 to, on an ‘as required basis’, advise and coordinate ad hoc activities, projects and reporting relating to the partnership, or any other initiatives, as directed. Costs under the first two contracts were charged to the administration component. From December 2019 (two months into the third contract period), expenses under this contract began to be allocated to non-administration components. Up to December 2019, $24,436 has been charged to the fifth component for Indigenous and Community Reef Protection. This was relating to an audit of Great Barrier Reef Traditional Owner governance arrangements⁸² and research into community stewardship programs relevant to the Great Barrier Reef.⁸³ The foundation advised the ANAO in February 2021 that:

• work in the third contract related to a governance and a stewardship project, both budgeted projects contained within the 2019–20 approved Annual Work Plan for Traditional Owner Reef Protection and Community Reef Protection respectively; and
• the first two contracts related specifically to providing support to the foundation in the preparation of Component 1 activities (that is, its progress reports to the department and the development of plans and strategies required by the partnership head agreement).

14. In this latter respect, the work conducted by the consultant also included an October 2018 ‘Great Barrier Reef Landscape Audit’ which was a desktop research activity similar in nature (that is, of specific relevance to the Indigenous and Community Reef Protection component of the RTP) to the one expensed to the non-administration component in December 2019.

15. Until recently, advice relevant to the partnership obtained from the foundation’s legal adviser (Allens) had been consistently recorded against the administration component. As of 31 December 2020, $579,304 has been paid to Allens from partnership funds. Costs totalling $35,099 relating to advice on an unincorporated joint venture were charged over November and December 2020 to the fourth component (Reef Restoration & Adaptation Science). The foundation’s advice to the ANAO in respect of these latter costs was that they are:

project specific administrative costs on behalf of the RRAP consortium for the RRAP project. All of Allens services to the Foundation have been in relation to the administrative component activities until the 2020/21 FY when Allens was contracted to develop the IP clauses in the RRAP unincorporated joint venture agreement on behalf of the RRAP consortium. Legal work for the development of this very project specific unincorporated joint venture agreement is a budgeted expense within the program management activity of RRAP, included in the 2019/20 and 2020/21 Component 4 AWP. This is classified as an administrative cost within this component and is included within the 10% administrative cap for this program.