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Performance Audit of the Regional Partnerships Programme
The audit objective was to assess whether the Regional Partnerships Programme has been effectively managed by DOTARS, including the processes by which:
- applications are sought, received and assessed;
- Funding Agreements with grant recipients are developed and managed; and
- the achievement of project and programme outcomes is monitored and assessed.
Introduction and Audit Approach
In 1999, the Government held the Regional Australia Summit, where delegates representing communities, business and government met to develop a national appreciation of the challenges facing regional Australia.1 The Government's response to the Regional Australia Summit was the August 2001 Stronger Regions, A Stronger Australia Statement. This Statement outlined the Government's framework for regional development through the following decade. Key directions identified in the Statement included a partnership approach between the community and government.2
Following the release of the Stronger Regions, A Stronger Australia Statement, the then Minister for Transport and Regional Services commissioned an internal Regional Programmes Reform Taskforce to undertake a review of the regional programmes then administered by the Department of Transport and Regional Services (DOTARS). Based on the recommendations in the July 2002 report of the Taskforce, it was decided that existing programmes would be amalgamated into a single package that would address the Stronger Regions, A Stronger Australia Statement by targeting four broad priority areas of strengthening growth and opportunities, improving access to services, supporting planning and assisting structural adjustments for communities. There has been little subsequent change in the Programme objectives, which are currently expressed in the following form:
- stimulate growth in regions by providing more opportunities for economic and social participation;
- improve access to services in a cost effective and sustainable way, particularly for those communities in regional Australia with a population of less than 5 000;
- support planning that assists communities to identify and explore opportunities and to develop strategies that result in direct action; and
- help communities make structural adjustments in regions affected by major economic, social or environmental change.
The Regional Partnerships Programme commenced on 1 July 2003. It brought together a number of previously separate regional funding programmes, namely Regional Solutions, Regional Assistance, Rural Transaction Centres, Dairy Regional Assistance and the structural adjustment programmes for the Wide-Bay Burnett (QLD), Naomi Valley (NSW), Weipa (QLD) and the South West Forests (WA) regions.
In jointly announcing the new Programme, the then Minister for Transport and Regional Services and the then Minister for Regional Services, Territories and Local Government stated:
Regional Partnerships integrates all of the Government's key regional funding programmes, except Sustainable Regions, into one simple programme…
…Under Regional Partnerships there is one set of guidelines and one simple application process to make it as easy as possible to apply for Federal Government funding support.4
Between 2003–04 and 2006–07, total funding of $409.7 million was allocated through administered annual appropriations to the Regional Partnerships Programme for expenditure on grants and payments to the network of Area Consultative Committees (ACCs). In that period, total actual expenditure was $327.9 million. The 2007–08 Budget included an allocation of $89.8 million for 2007–08 comprising $72.4 million for grants and $17.4 million for payments to ACCs.5
Between 1 July 2003 and 30 June 2006, funding was considered by Ministers6 in relation to 1 413 projects.7 The largest component of these funding decisions related to 1 370 individual projects that were either approved for full or partial funding (981 or 72 per cent) or not approved for funding (389 or 28 per cent).8 In addition, there were two instances where a decision was made to contribute Programme funds to a project or projects administered through another department. There had also been funding decisions taken in respect to 34 projects relating to commitments made during the 2004 election campaign that the Government subsequently allocated for administration through the Regional Partnerships Programme.9
Programme administrative arrangements
The Regional Partnerships Programme is a non-statutory discretionary grants programme administered by DOTARS. Key features of the Programme administrative arrangements are that:
- a network of local ACCs10 is able to assist applicants in the development of funding applications. ACCs also usually provide comments and recommendations to the responsible Minister on whether projects submitted to DOTARS by applicants in their area should be supported for funding, based on the ACC's assessment of the project's consistency with its Strategic Regional Plan and the Programme assessment criteria;
- grant applications and approvals are made on a continuous basis, rather than through structured funding ‘rounds'11;
- applicants and their other project partners (if any) are expected to make a financial contribution to the cost of the project;
- DOTARS assesses applications against the assessment criteria set out in the published Programme Guidelines approved by the responsible Ministers (primarily relating to project outcomes, partnerships and support, applicant viability and project viability12) and makes funding recommendations to the Ministerial decision-maker(s); and
- Ministers decide which applications will receive funding.
In November 2005, the then Minister for Transport and Regional Services announced some changes to the delivery arrangements for Regional Partnerships funding. The announced changes involved:
- the formation of a Committee of three Ministers to make decisions about whether or not to approve funding for each application, rather than the previous approach of a single Ministerial decision-maker for each application.13 Ministers were also to retain their role in developing and approving Programme Guidelines and administrative arrangements;
- the introduction of a single assessment of applications conducted by DOTARS' National Office in Canberra, with a funding recommendation then provided to the Ministerial Committee. Previously, Regional Offices were primarily responsible for assessing applications, with National Office performing a quality assurance role and providing the project assessment and funding recommendation to the Ministerial decision-maker(s). Regional Offices remain responsible for administering Funding Agreements; and
- changes to strengthen and develop the role of the ACCs.14
In terms of application assessments, the move (commencing in mid-March 2006) to a single assessment of applications conducted within DOTARS' National Office was intended to streamline assessments so that problems with applications could be identified more quickly, there would be greater consistency in the funding recommendations provided to Ministers and funding decisions could be made sooner.
In respect to the approval of funding for projects, both at the time of establishing the Programme and subsequently, the responsible Ministers have explicitly declined to authorise DOTARS officials to approve or not approve any Regional Partnerships grant applications. Accordingly, the final decision on whether an application will receive funding, how much funding will be provided, the purpose for which it can be used and the basis on which this will occur, has been taken by Ministers. As noted, prior to 30 November 2005, this role was undertaken in respect of each application by an individual Minister or Parliamentary Secretary within the Transport and Regional Services portfolio. Since 30 November 2005, the Ministerial Committee has performed this role. At the time of audit, the members of the Ministerial Committee were the Minister for Transport and Regional Services, the Minister for Local Government, Territories and Roads, and the Hon Gary Nairn MP.15
On 28 May 2007, the Minister for Transport and Regional Services announced, in a speech to the 2007 Area Consultative Committees Conference, that:
In response to delays being experienced where variations to approved projects have been required, the Ministerial Committee has delegated the responsibility for approving minor variations for approved projects to the department, provided that the total funding does not exceed the amount approved, that all funding conditions are met, and that partnerships remain within programme guideline limits.
…However, the ultimate responsibility for the Regional Partnerships programme will always lie with the Ministerial Committee to ensure that Australian Government funds are directed to projects, large and small, that are genuinely needed and will make a difference.16
In July 2006, revised Regional Partnerships Programme Guidelines were finalised and issued. The revised Programme Guidelines included significantly expanded guidance to potential applicants in respect to a number of aspects of the Programme and its administration, including regarding the assessment process and criteria. However, the revised Programme Guidelines did not alter the essential criteria taken into account in the departmental assessment of an application.17 An updated version of the expanded Guidelines was issued in July 2007.
As of April 2007, DOTARS' administration of the Programme had operated under five versions of an Internal Procedures Manual. In May and June 2007, DOTARS provided ANAO with a revised Internal Procedures Manual that came into effect from July 2007. The revised Manual replaced the September 2005 version, which had remained the extant Manual, notwithstanding the Programme changes announced by the Government in November 2005.
ANAO's examination of the Regional Partnerships Programme encompassed all Ministerial funding decisions taken over the first three years of the Programme, ending 30 June 2006, including the first seven months of operation of the Ministerial Committee. The assessment, approval and management processes applied in respect of all applications examined in this audit were considered against the versions of the Programme Guidelines and Internal Procedures Manual that were applicable at the relevant time. The audit also analysed changes in administrative procedures and practices throughout the life of the Programme, including the period since the Committee was formed and the period up to the completion of the audit in the latter part of 2007 during which DOTARS had undertaken extensive staff training and developed the substantially revised Internal Procedures Manual. Table 1 sets out the range of improvement initiatives undertaken in the course of the audit in response to audit findings.
Source: ANAO analysis of DOTARS' documentation and advice
In October 2005, the then Senate Finance and Public Administration References Committee18 tabled the report of its inquiry into the Regional Partnerships and Sustainable Regions Programmes. One of the recommendations included in the Senate Committee's report was that the ANAO undertake a performance audit of the two programmes. To allow for a more focused approach, ANAO decided to first undertake a performance audit of the Regional Partnerships Programme. An audit of the Sustainable Regions Programme is to be considered following completion of the audit of the Regional Partnerships Programme.
The audit objective was to assess whether the Regional Partnerships Programme has been effectively managed by DOTARS, including the processes by which:
- applications are sought, received and assessed;
- Funding Agreements with grant recipients are developed and managed; and
- the achievement of project and programme outcomes is monitored and assessed.
The audit scope included examination of departmental records relating to all Ministerial funding decisions made between 1 July 2003 and 30 June 2006. It also included the assessment, approval and management processes applied to 278 successful and unsuccessful applications made by applicants located in a representative sample of 11 ACCs (representing 20 per cent of ACCs).19 The audit sample included approximately 20 per cent of projects approved for funding during the three years examined. The audit methodology involved examining records held by both DOTARS and the ACCs; inspecting a selection of projects funded under the Regional Partnerships Programme; and consulting with organisations and individuals that applied for grants. Recently developed training materials prepared for departmental staff and the revised Internal Procedures Manual that came into effect from July 2007 were also considered.
Between April 2006 and September 2007, 21 audit Issues Papers were provided to DOTARS. The purpose of the Issues Papers was to confirm the accuracy and completeness of the information and audit analysis included in them and to obtain departmental views on conclusions reached, as an input to the preparation of the proposed audit report to be issued under Section 19 of the Auditor-General Act. An advance version of the proposed audit report was provided to DOTARS in September 2007 in order to afford the department a further opportunity to comment prior to issuing the formal proposed report.
The formal proposed report was issued in October 2007 to DOTARS and to the Ministers who have, or have had, responsibilities under the Programme. Consistent with the requirements of the Auditor-General Act, DOTARS and Ministers were provided with a period of 28 days in which to provide any comments on the proposed report. In addition, for natural justice reasons, relevant funding recipients (including each of those that are the subject of a published ANAO case study) named in the main report or included in project case studies were provided with relevant extracts, as was the Department of Finance and Administration (Finance) in relation to aspects of the audit report that related to the Commonwealth's financial framework.
A response was received by the due date from DOTARS, Finance, one former Minister and various funding recipients. These comments were considered in preparing the final report of this audit, including through appropriate incorporation into the relevant areas of the report. The Auditor-General Act requires the final report to be tabled as soon as practicable after it has been prepared.
This audit report is in three volumes. Volume one contains the report summary and the audit recommendations. This volume includes the overall audit conclusions together with audit conclusions and key findings in relation to the Programme's application assessment and approval processes, and each of the three primary areas identified in the Programme Guidelines as being the basis for assessing the value for money provided by each application (partnerships and support, project and applicant viability, and outcomes).
The audit conclusions, key findings and recommendations contained in volume one are supported by:
- volume two, which contains five parts comprising:
- background information on the Programme, together with the audit approach (part one of the volume);
- an examination of the Programme's application assessment and approval processes (part two of the volume); and
- analysis of the three primary areas identified in the Programme Guidelines as being the basis for assessing the value for money provided by each application (partnerships and support, project and applicant viability, and outcomes—parts three, four and five of the volume); and
- volume three, which comprises 12 case studies of projects included in the audit sample, together with two examples of projects that were approved for funding prior to a departmental assessment having been undertaken.
Overall audit conclusions
The Regional Partnerships Programme is a very flexible discretionary grants programme. It has broadly based assessment criteria, and projects are subject to continuous assessment rather than being considered through structured funding rounds. Funding decisions are taken by Ministers.
In the first three years of the Programme to 30 June 2006, more than 1 800 applications for funding were submitted from applicants located across Australia. There were 1 372 funding decisions recorded, of which 983 (72 per cent) were approvals, at an average value of $183 652. Individual project grants ranged in size from $2 164 to $10.8 million , covering a diverse range of projects largely to benefit Regional Australia including:
- community services, activities and facilities supported by non-profit organisations;
- regional tourism, business and skills planning and development;
- civic and community infrastructure works;
- commercialisation of new and emerging technologies;
- the initiation of new businesses or growth of existing businesses; and
- industry assistance measures.
The Regional Partnerships Programme has been subject to Parliamentary and media comment that it has been open to misuse for political purposes. Questions about whether decisions are merit-based arise partly due to the design of the Programme, which is a matter for Government policy, and partly due to its administration, which is the responsibility of the Transport and Regional Services portfolio Ministers and DOTARS.
In this context, there are two dimensions relating to the administration of the Programme that have been highlighted by the audit:
- the flexibility in the application assessment and Ministerial approval processes creates challenges in ensuring transparent, accountable and cost-effective administration and in demonstrating the equitable treatment of applicants; and
- the manner in which the Programme had been administered over the three year period to 30 June 2006 examined by ANAO had fallen short of an acceptable standard of public administration, particularly in respect to the assessment of grant applications and the management of Funding Agreements.
In respect to the first issue, the concern that decisions on projects were open to the interpretation that they had been made for political reasons and not on the merits of the project was the primary reason for the then Minister for Transport and Regional Services establishing a Ministerial Committee in November 2005 to take decisions on applications, replacing decisions by individual Ministers.
During the course of the audit, a number of changes to the administration of the Programme were introduced by the department, or proposed to (and agreed by) the Ministerial Committee, in response to audit findings and the department's observations of the administration of the Programme. The administrative changes introduced have encompassed both the operations of the Ministerial Committee in taking decisions on Regional Partnerships applications and the department's processes for administering the Programme. In this respect, by late 2006 the department had become aware of the nature and extent of the administrative problems it needed to address and had commenced a programme of significant administrative re-engineering, including the assessment of applications, the management of Funding Agreements and the monitoring and reporting of project and Programme outcomes.
Ministers are expected to discharge their responsibilities in accordance with wide considerations of public interest and without regard to considerations of a party political nature. Where they are approving the making of a grant, Ministers are approving the expenditure of public money. This role brings with it particular accountability obligations, including statutory requirements which govern the circumstances in which Ministers may provide such approvals. In particular, the financial framework requires that a grant not be approved by Ministers unless reasonable inquiries have been undertaken that demonstrate that the proposed expenditure will make efficient and effective use of public money.
Ministers are also expected to form their views having regard to the relevant Government policies and programme guidelines. In this context, although broadly expressed, the assessment criteria set out in the Regional Partnerships Programme Guidelines are sound and appropriate to the Programme. Experience has shown that applications which demonstrably satisfy the criteria are considerably more likely to result in projects that deliver sustainable outcomes in accordance with the timeline and budget specified in the Funding Agreement and having secured the necessary partnership funding.
In announcing the Programme, the responsible Ministers stated that there would be one set of guidelines and one simple application process to make it as easy as possible to apply for funding. Consistent with this announcement, the various versions of the Internal Procedures Manual have outlined how the information provided by applicants is to be used to inform project assessments and be incorporated into the Funding Agreement.
The Regional Partnerships Programme Guidelines have been published as the basis on which applications will be assessed and funding decisions made. In that context, potential applicants and other stakeholders may reasonably expect that the Programme funding decisions will be made in a manner, and on a basis, that is consistent with the published guidance.
The Senate Committee inquiry had its origins in concerns raised about the approval of grants for certain projects. In this respect, in the first three years of the Programme examined by ANAO, departures from the published guidance were a feature of the Programme. For example, in that period:
- there were instances where no application for funding was received prior to funding being approved or the funding decision was not informed by a departmental assessment against the published Programme Guidelines and criteria;
- departmental assessments had been truncated, or ‘fast tracked', or assessment procedures were not rigorously applied, such that DOTARS did not adequately scrutinise applications before providing advice to Ministers;
- projects had been approved for funding notwithstanding that one or more criteria had not been satisfied, combined with inadequate documentation of the basis for those decisions; and
- Ministerial funding decisions had been taken or revised through processes other than those provided for in the Programme Guidelines and procedures advised to applicants.
Perceptions that funding decisions were not merit-based arise in such circumstances. These perceptions are elevated in circumstances where the basis for Ministerial decisions is not recorded (even though the financial framework does not require the basis to be recorded—see below). In the three year period examined by the audit, there was a higher risk of anticipated outcomes not being achieved where administrative and decision-making processes had departed from those set out in the published Programme Guidelines and the complementary departmental procedures. In particular, departures from the documented Programme assessment criteria and procedures in the period examined by ANAO resulted in funding being approved for projects that have either not proceeded as planned or which did not result in the anticipated community benefits.
The experience of the administration of the Regional Partnerships Programme has reinforced the importance of departments undertaking a full analysis of the requirements of the financial framework governing the expenditure of public money in establishing a grants programme of this nature. This is necessary in order to ensure both Ministers and the department are informed as to their obligations and that the administrative arrangements established for the programme are able to give effect to those obligations in an efficient and effective manner. Guidance in this respect is available to agencies, predominantly from the Department of Finance and Administration (Finance).
In June 2007, ANAO, Finance and DOTARS agreed that, to enable compliance with the requirements governing the commitment of public money set out in the Financial Management and Accountability Regulations 1997 (FMA Regulations), future administration of the Regional Partnerships Programme should recognise that Ministers at the Ministerial Committee are approving proposals to spend public money, with these decisions being governed by the requirements of the financial framework. Specific action has subsequently been taken by the department in this area. More broadly, in light of apparent uncertainties and level of understanding around the application of the framework to Ministers when approving the expenditure of public money, there would be benefits in Finance examining opportunities so that Ministers may be appropriately informed of their responsibilities when giving such approvals.
The audit has also identified the potential for the financial framework governing the expenditure of public money to be improved. In particular, it has highlighted that the provisions of the existing framework do not require approvers of proposals to spend public money, including Ministers, to record the basis on which they were satisfied that a proposal represents efficient and effective use of public money. In some circumstances this leaves uncertainty as to the basis of decisions to provide a grant. In the interests of transparency and accountability, ANAO has proposed that consideration be given to changes to the existing financial framework governing the expenditure of public money so as to require approvers of spending proposals to record the basis for their decision where this is not apparent from the existing documentation. A decision to seek any change to the framework would be a matter for the Finance Minister.
Distribution of funding
Over the first three years of the Programme examined by ANAO, Regional Partnerships applications were received at a considerably higher rate from applicants located in electorates held by the Coalition parties than in electorates held by other parties. This was, in large measure, a reflection of the fact that, consistent with the Programme's focus on regional and rural communities, the largest proportion (73 per cent) of Regional Partnerships applications submitted over the first three years related to projects located in electorates categorised as ‘rural'. Over the period examined, rural seats were predominantly held by the Coalition parties. However, applications from Labor-held rural electorates were underrepresented in the applications received compared to the proportion of rural electorates held.
Consistent with the pattern of applications, rural electorates received 77 per cent of funding approved to 30 June 2006. Further in this respect, the ten electorates (6.7 per cent of all electorates) that received the highest number of grants approved between July 2003 and June 2006 (excluding grants relating to election commitments) were all rural electorates. They accounted for 34 per cent of approved grants and 31.1 per cent of approved funding to 30 June 2006. All ten electorates were rural seats held by Coalition parties.
It is also noteworthy that there is little difference in the overall rate at which applications submitted by applicants in electorates held by the various parties were approved for funding over the full three years examined to 30 June 2006, with overall party success rates ranging from 69 per cent to 72 per cent. However, ANAO analysis revealed that Ministers were more likely to approve funding for ‘not recommended' projects that had been submitted by applicants in electorates held by the Liberal and National parties and more likely to not approve funding for ‘recommended' projects that had been submitted by applicants in electorates held by the Labor party.
Departmental assessment and administration of projects
The Regional Partnerships Programme is, by virtue of its design, challenging to administer. In these circumstances, it is particularly important that the department's administrative procedures are documented and that any departures from those procedures are well informed and appropriately authorised. Departments are responsible for ensuring published Programme Guidelines and documented internal procedures are consistently applied through training of staff, appropriate supervision and management oversight, particularly for larger or more complex assessments.
However, the audit has highlighted that a major shortcoming in the administration of this Programme by DOTARS in the first three years of its operation was the frequency with which departures occurred from the provisions of the published Programme Guidelines or documented internal procedures for the assessment of applications. As a result, the departmental assessments of applications against the published eligibility and assessment criteria were inconsistent and, in many cases, inadequate.
A particular area in which the department's administration of the Programme could have been improved was the extent to which departmental assessments were provided within abnormally constrained timeframes, but without the department appropriately qualifying its advice to Ministers to reflect the reduced due diligence that had been undertaken. This was particularly the case during the months leading up to the calling of the 2004 Federal election. A corollary to this was the significantly higher proportion of projects that the department recommended be approved for funding during that period than was the case during other periods of the Programme.
Due to documented assessment procedures not being applied, or being applied in a manner that was insufficiently rigorous, projects that did not demonstrably satisfy the published criteria were nevertheless assessed by the department as meeting the criteria and recommended for funding approval. This contributed to increased risks to the Commonwealth and presented substantial administrative challenges for the department in administering grants to projects that subsequently experienced difficulties in relation to issues such as establishing and completing a viable project or securing necessary co-funding.
In this context, the audit further highlighted that the department's administration of Funding Agreements with successful applicants had not ensured that the terms of Ministerial funding decisions were complied with. Revised procedures instituted from July 2007 now explicitly address the need for adherence to the terms of Ministerial funding decisions. The administration of Funding Agreements had also not been consistent with sound risk and financial management principles. In particular:
- notwithstanding that the Programme is founded on the principle that applicants and other project partners (if any) will make a financial contribution to the cost of the project, partnership funding arrangements had often been given insufficient attention in the assessment of applications and, for approved projects, the development and management of Funding Agreements;
- in the interests of maximising Programme expenditure against a history of significant under-spends, there had been a focus on paying half or more of the approved funding at or around the time the Funding Agreement was signed (irrespective of project cash flow requirements and notwithstanding that Funding Agreement pre-conditions applying to those payments may not have been satisfied) and subsequently making further instalment payments notwithstanding that funding recipients had not acquitted earlier payments or met other contractual obligations; and
- funding recipients had not been consistently required to provide the information necessary for the department to monitor project progress and, at the conclusion of the project, make an informed judgement as to whether they had satisfied their obligations and delivered the outcomes and value for money anticipated of the project at the time it received Ministerial approval.
Accordingly, the administration of the Programme will benefit from stronger governance arrangements that provide assurance to the department's Chief Executive and Ministers that key departmental procedures are being applied, and that any conditions on the approval of funding by Ministers are adhered to. The revised internal procedures released in July 2007, as part of the department's re-engineering of its administration of the Programme, are consistent with these principles. In addition, as noted:
- in November 2006 over 120 staff were trained on the process of negotiating and executing a Funding Agreement; and
- a revised Standardised Funding Agreement was released for use on 27 August 2007.
As a separate issue, the department has found it difficult to spend the funds allocated to the Programme from its annual administered appropriations. In recognition of the unique design of the Programme and the delays often experienced with projects, to assist with increased expenditure of available funding, the Finance Minister recently agreed to a request that the Ministers responsible for regional development be authorised to approve funding for projects without any limit being placed on the total amount of funding that may be committed. If the Government considers it important that the department take further steps to spend the annual budgeted allocation, rather than the department making payments in advance of project requirements as has previously occurred, DOTARS should seek to improve its information on Programme funding needs by obtaining better information on the forward funding expectations for each project from applicants during the project assessment stage and, where funding is approved, updating this information as part of its project monitoring activities. Such an approach would provide more scope to fund additional applications under the Programme consistent with budget allocations.
Project and programme outcomes
A three stage programme evaluation framework was established for the Regional Partnerships Programme. The Senate Committee in its report recognised that evaluation of individual project outcomes is fundamental to any measure of the success or otherwise of grants programmes. In this respect, the department's programme evaluations and associated performance reporting in relation to the Regional Partnerships Programme have not been informed by analysis of actual outcomes formally advised by funding recipients through the Funding Agreement reporting framework. Instead, in terms of categorising and analysing project outcomes, evaluations and departmental performance reporting have used project assessment and Funding Agreement data of proposed, rather than actual, outcomes together with surveys of Programme applicants.
In support of the requirement for programme evaluation and consistent with recognised principles of sound practice in grants administration, the Regional Partnerships Long Form Standardised Funding Agreement has required funding recipients to report details of their project's progress towards, and performance against, the specified outcomes. However, in respect to the outcomes reporting requirements, DOTARS' administration has been less than adequate. In particular, in only 21 per cent of the relevant completed projects examined by ANAO had DOTARS obtained from the funding recipient a report that supported an assessment that all outcomes had been achieved.
Since it commenced in July 2003, one of the key stated features of the Regional Partnerships Programme has been that applicants and their other project partners (if any) are expected to make a financial contribution to the cost of funded projects. It has been widely reported, including in DOTARS Annual Reports, that the Programme has attracted an average of $3 in contributions from other sources for every $1 contributed by the Programme to projects. However, the department's assessment of partnership contributions has often been such that project assessments and Funding Agreements have overstated the partner contributions to a project. In addition, inadequate attention has been given to the management and acquittal through the Funding Agreement of partner co-funding. As a result, the effectiveness of the Programme in attracting project funding from other partners has been overstated by the department through:
- using data from the project budget included in Funding Agreements to identify the contributions ‘made' by partners rather than data of actual partner contributions;
- aggregating cash and in-kind contributions included in Funding Agreements, notwithstanding that the department has recognised the different nature of the two types of contributions and that project acquittals have rarely demonstrated the in-kind contributions that were actually obtained; and
- not discriminating between genuine leveraging or attraction of funds from other sources and circumstances where most or all partner funding has been secured prior to Regional Partnerships funding being approved.
As noted, changes have been made to the operation of the Regional Partnerships Programme and the department has commenced a programme of significant administrative re-engineering. Nevertheless, challenges remain in respect to key aspects of the Programme. In this respect, during the course of the audit, ANAO observed that a measure that could be of considerable benefit in the administration of the Regional Partnerships Programme was the re-consideration of structured and competitive funding rounds, as opposed to the existing approach of continuous, non-competitive application and assessment processes. The introduction of competitive rounds would provide benefits including:
- allowing for a stronger and more consistent comparison of the relative merits of proposed projects;
- in the interests of equity of access, assisting to ensure that the communication of opportunities to access funding through the Programme is more evenly broadcast; and
- avoiding some of the perceptions that projects may be approved for funding for party political purposes, including through the ‘fast-tracking' of assessment and approval processes, particularly in the context of a pre-election period.
A review of the Programme requested by the Government was completed in February 2006 and presented as part of the departmental submission to the 2006–07 Budget. In the context of the Government's response to the October 2005 Senate Committee report, the Government agreed to assess the need for a further review of the Programme once the mid-term Programme evaluation was completed (which occurred in November 2006), and the report of this ANAO performance audit became available. In August 2007, the Finance Minister indicated that the terms of reference for the Programme review would have regard to the issues raised by this performance audit.
Against this background, on 12 September 2007, the Minister for Transport and Regional Services announced that:
- a new Growing Regions Programme would be established to invest in major projects that will help communities respond to the pressure of change, under which businesses, local governments, institutions and communities would be able to apply for funding of between $1 million and $3 million per project;
- the Regional Partnerships Programme would be restricted to projects that need funding of less than $1 million; and
- applications for Regional Partnerships funding would be considered in three streams of:
- Enterprise Partnerships, into which all applications from private businesses would be channelled and considered through two funding rounds a year;
- Community Partnerships, to which all other applicants would be able to apply at any time; and
- applicants, other then private businesses, seeking funding of less than $50 000 would be able to apply through a streamlined application process.
These changes provide both a clearer focus for applicants in applying for grants and for the department in tailoring its administration of each stream. However, based on the nature of applications made to the Regional Partnerships Programme during its first three years of operation:
- the introduction of a funding cap of less than $1 million will not result in a significant change in the number of applications being made to the Programme, with only 2.6 per cent of applications on which a decision had been made as at 30 June 2006 having been for amounts in excess of $1 million; and
- under the Community Partnerships stream, most applications will continue to be considered for funding on a continuous basis through similar decision-making and administrative procedures as have applied to date. In this respect, applications from for-profit applicants, which will now be subject to funding rounds, represented 12 per cent of Regional Partnerships applications on which a decision had been taken as at 30 June 2006.
Accordingly, opportunities remain to further improve the delivery of the Programme, including consideration of options for funding under the Community Partnerships stream to be provided through structured funding rounds. It would also be possible to stream rounds to allow applications for particular purposes to be considered on a competitive basis. For example, natural groupings have emerged in terms of the nature of projects for which funding has been sought, such as:
- community and public infrastructure (for example, community pools or sporting facilities, community halls, community transaction and services centres, cultural or tourism facilities or attractions);
- health and education related projects; and
- regional and local government planning-related projects (for example, tourism strategies, skills audits and attraction strategies, or business attraction programmes).
A further opportunity to improve the cost-effectiveness of Programme administration relates to the arrangements applying to low value grants. As noted, a streamlined application process is to apply to applications through the Community Partnerships stream seeking funding of less than $50 000. In a risk management context, this is a sensible approach to balancing the cost of administration with the value of the grant. There may also be merit in the department providing advice to Ministers on options for applying a different administrative approach for grants of low value under which community organisations could apply for funding for particular purposes. While such grants would necessarily still be subject to certain obligations on the part of the funding recipient, there may be options for reviewing both the manner in which the grants are administered and the reporting and other obligations imposed on funding recipients. Because any changes in this respect would affect the Programme design, they are appropriately matters for Government to decide.
ANAO has made 19 recommendations to further improve departmental procedures and practices, and to encourage further attention to aspects of the Programme's administration in the interests of improving transparency and accountability. A further recommendation is directed at enhancing the existing framework governing the expenditure of public money, including through discretionary grants programmes such as Regional Partnerships.
The findings and recommendations of this audit will also be of relevance to the establishment of effective and accountable governance arrangements for the new Growing Regions Programme.
Agency response to the audit
DOTARS provided the following summary comment on the report:
DoTARS welcomes recognition by the ANAO of the comprehensive administrative changes made to the Regional Partnerships Programme. DoTARS has been and is committed to continuously improving the programme's management.
It is now over a year since the end of the period reviewed by the ANAO (July 2003 to June 2006) and the operation of the Regional Partnerships programme has altered significantly in that time.
DOTARS commenced implementation of a comprehensive suite of reforms to the programme following the announcement by the Government on 15 November 2005 of major changes to the operation of the programme. These changes included establishing a Ministerial Committee to make funding decisions, centralisation of project assessment and the updating of programme guidelines to provide greater clarity and transparency.
These initiatives have been subsequently supported by the development of a more detailed and prescriptive internal procedures manual to assist over 130 staff involved in administering the programme in 12 different geographic locations. As well DOTARS has provided extensive training for staff and developed a series of practical measures to assist staff such as checklists, templates, a reporting pack, a more detailed funding agreement and introduced case management for more complex projects.
DOTARS accepts the ANAO Report's recommendations noting that two of the recommendations (5 and 7) relate to practices which the ANAO seeks to promote on a whole of government basis, one recommendation (2) is made to the Department of Finance and Administration and three recommendations 10, 12 and 14 will require the agreement of the Government and the Ministerial Committee. DoTARS is actively implementing the remaining recommendations.
Finance agreed with Recommendation No. 2 which concerned assessing the merits of a proposed change to the financial framework to require approvers of proposals to spend public money (including grants) to document the basis on which they have concluded that the proposed expenditure represented efficient and effective use of public money, and is in accordance with relevant Commonwealth policies.
1 Department of Transport and Regional Services, Inquiry into the Regional Partnerships Programme and Sustainable Regions Programme—Submission by the Department of Transport and Regional Services, 28 January 2005, p. 3.
3 Department of Transport and Regional Services, Regional Partnerships Guidelines, July 2007.
4 Joint Media Release, The Hon John Anderson MP, Deputy Prime Minister, Minister for Transport and Regional Services and The Hon Wilson Tuckey MP, Minister for Regional Services, Territories and Local Government, A New Regional Partnership, 26 June 2003.
5 Prior to 2006–07, administered expenses reported in Portfolio Budget Statements and Portfolio Additional Estimates Statements for the Regional Partnerships Programme included expenses relating to ACCs. In the 2006–07 Portfolio Budget Statements, administered expenses relating to ACCs were separately reported ($16.9 million for 2006–07). The same approach was taken in 2007–08.
6 Where more than one Minister is appointed to administer a Department of State, each Minister has the power to independently administer the department and its legislation. Arrangements for the allocation of responsibilities between the Ministers are made at the political level. Since the March 2000 amendment of the Ministers of State Act 1952 and the repeal of the Parliamentary Secretaries Act 1980, Parliamentary Secretaries have been appointed in the same way as Ministers and are required to be appointed as Federal Executive Councillors, under section 64 of the Constitution. This enables them to act for or on behalf of a Minister including in the exercise of statutory functions. In this report, the term Ministers encapsulates both Ministers of State and Parliamentary Secretaries.
7 This relates to the primary decision as to whether a particular project would be funded or not and excludes decisions subsequently taken in relation to variations to approved funding or other aspects of an approved project. In the period examined by ANAO, such variations also required Ministerial approval.
8 There were a further seven applications that were placed ‘on hold' by the Ministerial decision-maker. Although those projects were not funded, a formal Ministerial decision to not fund the project, or a formal withdrawal by the applicant, was not recorded.
9 There were a further two projects that related to commitments made during the 2004 election campaign in respect of which no Regional Partnerships funding decision had been made as at 30 June 2006.
10 At the time of ANAO fieldwork, there were 56 ACCs. Following a review of ACC boundaries, from 1 July 2007, this was to transition to 54 ACCs, with the five Melbourne-based ACCs being merged into three.
11 This report has been prepared on the basis of the administrative arrangements that existed in relation to the Regional Partnerships Programme until September 2007. On 12 September 2007, the Minister for Transport and Regional Services announced changes to the Programme including the introduction of structured funding rounds for the consideration of all applications from private enterprise applicants. This process had yet to commence when this audit report was in preparation but, based on application activity in the first three years of the Programme, is likely to affect some 12 per cent of applications with the remaining 88 per cent of applications continuing to be assessed individually, on a continuous basis.
12 The Programme Guidelines that applied for the first three years of the Programme, the period examined by ANAO, stipulated that priority would be given to those projects that demonstrated value for money, which would be determined taking into account the total request for Regional Partnerships funding and the extent to which the project met those assessment criteria.
13 At various times, such decisions had been made by the then Minister for Regional Services, Territories and Local Government, the then Minister for Local Government, Territories and Roads, the then Parliamentary Secretary to the Minister for Transport and Regional Services or the then Minister for Transport and Regional Services.
14 It was announced that: changes would be made to the ACC funding arrangements; the Government would appoint the chair and deputy chair of each ACC; each year the Minister for Transport and Regional Services would provide ACCs with written advice and guidelines on the Government's broad policy priorities for the Programme; and the relevant ACC chair would be required to provide a statement identifying any competitive neutrality issues for projects where assistance greater than $25 000 was sought for a business or commercial venture.
15 Mr Nairn was appointed to the Committee as a nominee of the Prime Minister. At the time of his appointment, Mr Nairn was the Parliamentary Secretary to the Prime Minister, responsible for the administration of relevant matters within the Prime Minister and Cabinet portfolio. On 27 January 2006, Mr Nairn became the Special Minister of State, responsible for the administration of relevant matters within the Finance and Administration portfolio, but continued as a member of the Regional Partnerships Ministerial Committee.
16 The Hon Mark Vaile MP, Minister for Transport and Regional Services, 2007 Area Consultative Committees Conference, Canberra, VS09/2007, 28 May 2007.
17 In this respect, the revised Programme Guidelines made it explicit that two aspects previously addressed through the eligibility criteria (competitive advantage and cost shifting) would now be considered as assessment criteria.
18 Hereafter referred to as the Senate Committee.
19 The 11 ACCs in the audit sample were selected at random. They are: Southern Inland Queensland; Central Murray; Central Highlands; Kimberley; Melbourne's West; Illawarra; Mid West Gascoyne; Limestone Coast; Central Queensland; Adelaide Metropolitan; and Peel.
20 The largest single amount of funding approved in this period was $12.734 million in Regional Partnerships funds provided to the Department of Agriculture, Fisheries and Forestry to distribute through its Sugar Industry Reform Programme.
21 See King L.J (the Hon), November 1999, The Attorney-General, Politics and the Judiciary, delivered to the Fourth Annual Colloquium of the Judicial Conference of Australia.
22 For example, funding has been obtained as a result of direct representations by project proponents or local Federal Members rather than by submission through the relevant ACC or DOTARS of a Regional Partnerships application.
23 See paragraphs 2:2.83 to 2:2.99 in Volume 2 of the audit report.
24 Excluding funding approved for projects that covered various electorates.
25 Excluding funding approved for projects that covered various electorates.
26 See paragraphs 5:3.30 to 5:3.31 of Volume 2 of the audit report.
27 See paragraphs 2:2.68 to 2:2.71 of Volume 2 of the audit report.
28 The Standardised Funding Agreements used by DOTARS in its management of the Regional Partnerships Programme have been versions of the Long Form and Short Form Standardised Funding Agreements developed by the Australian Government Solicitor (AGS) as part of the More Accessible Government Initiative. The Long Form version of the Standardised Funding Agreement was used for most Regional Partnerships projects during the first four years of the Programme.
29 Such authorisations are usually subject to specified monetary limits so as to manage the extent to which commitments to spend public money are entered into where funds have not yet been appropriated. In providing his authorisation, the Finance Minister required that the question of a monetary limit for the new authorisation applying to the Regional Partnerships Programme be revisited before August 2008 in the light of experience.
30 The Programme Guidelines define in-kind contributions as products or services provided to the project that have an intrinsic value, but are not provided as direct cash or financial support. Examples are said to include volunteer labour and the use of an office at no charge (the value of the rent not charged would be an in-kind contribution).
31 The Hon Mark Vaile, Minister for Transport and Regional Services, National Press Club Address Plan for Regional Australia, VS19/2007, 12 September 2007.
32 In announcing this change, the Minister said: ‘We are restricting the timing of these applications so we can consider them more thoroughly and undertake stronger financial viability assessments.'
33 This reflects the May 2007 decision of the Ministerial Committee to agree to a recommendation from the department to extend the existing simplified application and assessment process for applications seeking funding of $25 000 or less to applications for $50 000 or less.