Background

1. In December 2015, the government announced the creation of a program of alternative delivery pilots for apprenticeship training. The intention of the pilots was to ‘improve apprenticeship outcomes for employers, apprentices and the economy by developing innovative trade training arrangements that will aim to reduce costs for employers, boost training quality and offer apprentices more choice in how they train for a trade’.¹

2. Three bodies were selected for Stream 1 of the program: Master Builders Australia (MBA), the National Electrical and Communications Association (NECA) and the North East Vocational College (NEVC). Two further Stream 2 grants were awarded to the Australian Industry Group (Ai Group) and PricewaterhouseCoopers (PwC). Each grant was for $1.84 million (GST exclusive) and the program was administered by the Department of Education and Training (DET).

3. On 4 November 2016, the Shadow Attorney-General, the Hon Mark Dreyfus QC MP, wrote to the Auditor-General. Mr Dreyfus expressed concern about the former Senator Bob Day’s involvement in the grant process, and noted that Senator Day was a Director of NEVC. He requested that the Auditor-General investigate the process by which the grant to NEVC was awarded and whether the grant represented value for money. The Deputy Auditor-General replied on 5 January 2017, advising Mr Dreyfus that the Auditor-General had decided to conduct an audit of DET’s establishment of the Apprenticeship Training alternative delivery pilots program (pilots program).

Audit objective and criteria

4. The objective of the audit was to assess whether the Department of Education and Training established the Apprenticeship Training – alternative delivery pilots program in accordance with the Commonwealth Grants and Rules Guidelines.

Conclusion

5. The Department of Education and Training established the Apprenticeship Training – alternative delivery pilots program in accordance with the Commonwealth Grants Rules and Guidelines.

6. In relation to Stream 2 of the pilots program, while the mandatory requirements of the Commonwealth Grant Rules and Guidelines were complied with, the processing of applications received was administered effectively by the department except that it admitted two late applications, and did not document that it gave consideration as to whether the late applications should be accepted.

Entity response

7. The Department of Education and Training provided the following response on the proposed audit report:

The Department of Education and Training (the department) acknowledges the work conducted by the Australian National Audit Office (ANAO).

The department welcomes the ANAO’s conclusion that the department established the Apprenticeships Training – alternative delivery pilots (the pilots) in accordance with the Commonwealth Grants Rules and Guidelines.

The department agrees that the decision to accept two late applications under Stream Two of the pilots was not adequately documented and will ensure clear guidelines regarding late applications are in place for future grants processes. Neither of the two late applications rated sufficiently highly to be considered competitive and were not funded.

1.1 On 3 September 2015, in a speech to the International Network on Innovative Apprenticeship conference, the Assistant Minister for Education and Training announced that he was establishing an apprenticeships reform advisory group (ARAG) to ‘look at how we can strengthen the Australian model of apprenticeships’, including alternative apprenticeship delivery models.

1.2 ARAG was asked by the Assistant Minister to provide advice on three priority policy areas for reform:

• restructuring of apprenticeship incentives;
• a new pre-apprenticeship program; and
• pilot models for alternative apprenticeship delivery.

1.3 ARAG held its first meeting on 3 September 2015 and delivered its report on 11 November 2015.

1.4 In December 2015, the government announced the creation of Apprenticeship Training – alternative delivery pilots. The intention of the pilots was to ‘improve apprenticeship outcomes for employers, apprentices and the economy by developing innovative trade training arrangements that will aim to reduce costs for employers, boost training quality and offer apprentices more choice in how they train for a trade’.²

1.5 Three bodies were selected for Stream 1 of the program: Master Builders Australia (MBA), the National Electrical and Communications Association (NECA) and the North East Vocational College (NEVC). Two further Stream 2 grants were awarded to the Australian Industry Group (Ai Group) and PricewaterhouseCoopers (PwC). Each grant was for $1.84 million (GST exclusive) and the program is administered by the Department of Education and Training (DET). The funded projects are summarised in Appendix 1.

1.6 On 4 November 2016, the Shadow Attorney-General, the Hon Mark Dreyfus QC MP, wrote to the Auditor-General. Mr Dreyfus expressed concern about former Senator Bob Day’s involvement in the grant process, and noted that Senator Day was a Director of NEVC. He requested that the Auditor-General investigate the process by which the grant to NEVC was awarded and whether the grant represented value for money. The Deputy Auditor-General replied on 5 January 2017, advising Mr Dreyfus that the Auditor-General had decided to conduct an audit of DET’s establishment of the apprenticeship training alternative delivery pilots program.³

1.7 Appendix 2 shows a timeline of key events.

Commonwealth Grants Rules and Guidelines

1.8 The Commonwealth Grants Rules and Guidelines4 (CGRGs) ‘establish the requirements and key principles that apply to all Commonwealth grants, whether one-off, low value grants or long-term, high-value activities’. While the CGRGs state that grants programs should generally use ‘competitive merit based processes’, they are also intended to provide flexibility to design and administer grant programs to meet a range of government outcomes and a ‘closed non-competitive process’ is permissible with the agreement of a Minister or accountable authority.The CGRGs contain a number of mandatory requirements, irrespective of the type of grant program to ensure the proper use and management of public resources. Against that background, it is open to a Minister to decide to make a grant to an entity without a competitive process, provided the CGRG mandatory requirements are observed.

1.9 Stream 1 of the pilots program was a closed non-competitive process in which the grant recipients were selected by the Government in November 2015. Stream 2 was a competitive merit-based process conducted by the department. The Stream 2 applicants recommended by the department were approved by the Assistant Minister for Vocational Education and Skills on 1 September 2016.

Audit objective and criterion

1.10 The objective of the audit was to assess whether the Department of Education and Training established the Apprenticeship Training – alternative delivery pilots program (the pilots program) in accordance with the Commonwealth Grants Rules and Guidelines.

1.11 The audit team examined departmental records and emails and consulted departmental staff and other stakeholders.

1.12 The audit was conducted in accordance with ANAO auditing standards at a cost to the ANAO of $102 000.

1.13 The team members for this audit were Julian Mallett and Deborah Jackson.

Did the department comply with the Commonwealth Grant Rules and Guidelines requirements for Stream 1?

Background to the government’s decision to award Stream 1 grants

2.1 Prior to the decision to establish the Apprenticeships Reform Advisory Group (ARAG), the Assistant Minister for Education and Training had been approached by, and met with, a number of individuals and bodies in relation to reform to apprenticeships. These included Master Builders Australia (MBA), the National Electrical and Communications Association (NECA) and Senator Bob Day on behalf of the North East Vocational College (NEVC). On 4 September 2015, while ARAG was engaged in its task, staff of the Assistant Minister’s office arranged for Senator Day and representatives of MBA and NECA to meet with ARAG on 14 September 2015. At that meeting, each person gave a short presentation.

2.2 ARAG provided its report to the portfolio Ministers on 11 November 2015. ARAG’s terms of reference did not include assessing proposals or making specific recommendations in relation to grants to any individual organisation. The group made the following comments in relation to Senator Day’s ‘Student Builder’ proposal⁵:

The Advisory Group agreed not to support the Student Builder proposal. [underlined in original]

2.3 Prior to the ARAG report being provided to the Minister, his office requested the department to develop an option for funding pilots. The department developed a funding proposal which recommended:

• direct funding of projects to be delivered by NEVC, MBA and NECA; and
• funding for an additional two projects to be selected through an open grants process.

2.4 The proposal was agreed by the government on 30 November 2015. The Minister for Vocational Education and Skills wrote to MBA, NECA and Senator Day (on behalf of NEVC), on 22 December 2015 advising them that the government had decided to provide them with funding of up to $1.84 million (exclusive of GST). The funding offers were contingent upon each body undertaking detailed design work, agreeing cost models with the department and entering into a grant agreement with the department. The executed grant agreements included a description of the project and the requirement to provide a project plan to the department for approval.

Compliance with mandatory requirements

2.5 Stream 1 was a closed non-competitive process which is permissible under the CGRGs. The decision to provide grants to MBA, NECA and NEVC was made by the government. Against that background, a departmental officer gave the necessary approval under the Financial Framework (Supplementary Powers) Act 1997 to ‘spend relevant money’⁶ to give effect to the government’s decision.

2.6 A number of the other mandatory CGRG requirements for Stream 1 (such as the development of program guidelines and legal authority for the pilot program) were met during the establishment of Stream 2. These are dealt with below.

Did the department comply with Commonwealth Grant Rules and Guidelines requirements for Stream 2?

2.7 Following the decision to award the Stream 1 grants, the department proceeded to establish the arrangements for the Stream 2 grants. In accordance with the requirements of the CGRGs, these arrangements included the following.

Legal authority

2.8 All Commonwealth expenditure requires specific legal authority. Where existing legislation does not provide such authority, it may be achieved by including it in the Financial Frameworks (Supplementary Powers) Regulations 1997. The necessary legislative change for the program was effected in February 2016.

Development of program guidelines

2.9 The program guidelines, which were approved by the Minister for Vocational Education and Skills on 6 May 2016, contained information about:

• eligibility for the program;
• the application process (including an address from which the application form could be downloaded);
• the assessment criteria and assessment process which would be followed;
• compliance reporting requirements, including the requirement to enter into a grant agreement (which would require periodic progress reports and a final financial report); and
• program evaluation arrangements.

2.10 Notwithstanding the fact that the three Stream 1 projects had already been approved by the government, the program guidelines explicitly stated that those bodies must comply with the guidelines, including submitting an application that addressed the assessment criteria. All three Stream 1 grant recipients submitted applications which addressed the assessment criteria.

2.11 The department undertook a program guidelines self-assessment risk analysis in consultation with the Department of Finance as required by the CGRGs.

Promoting access to the program

2.12 The department promoted the program on its own website and on www.australianapprenticeships.gov.au. Information provided on the websites included the program guidelines, a Fact Sheet and Frequently Asked Questions.

Processing and assessment of applications

2.13 Twenty-nine applications were received (not including the Stream 1 applications). The Stream 2 application form specified that applications must be received by email by 5.00pm Australian Eastern Standard Time on 29 July 2016 and that ‘applications received after this time will not be considered’. The ANAO found that two applications were received after the closing time. One was received at 6.53pm on 29 July 2016. The other was not received until 3.16pm on 12 August 2016, 14 days late. While the email trail showed that the department was aware that the second application would be late, the department did not document that it gave consideration as to whether the late applications should be accepted, despite the clear deadline imposed on the application form.

2.14 Both of the late applications were assessed together with the applications that had been received by the deadline. Neither of the late applications were rated sufficiently highly that their inclusion in the assessment process had any bearing on the outcome. While this program was small in financial terms, some grants programs (or tender processes) may involve many millions of dollars and accepting late applications can potentially disadvantage other applicants who have submitted applications on time. The department acknowledged this shortcoming in the process.

2.15 As noted, the program guidelines listed four criteria. Applications were assessed against the criteria. A score was awarded from one to four according to the degree to which the application met each criterion and comments were included against each criterion. The assessor’s assessment was then reviewed by another person.

2.16 Apart from the late applications, the department effectively processed and assessed the applications and adequately documented the process consistent with the CGRGs.

Approval

2.17 On 31 August 2016, the department submitted a brief to the Assistant Minister for Vocational Education and Skills seeking her approval for funding of the Stream 2 grants. Consistent with the CGRG requirements, the brief:

• stated that the spending approvals being recommended were grants;
• provided information on the applicable requirements of the PGPA Act and CGRGs;
• outlined the application and selection process, including the selection criteria; and
• stated that the department considered the proposed expenditure to be a proper use of relevant money.

2.18 The Assistant Minister gave her approval on 1 September 2016.

Grant agreements

2.19 As an entity involved in the administration of a large number of grants, the department has developed templates for long, short and ‘mini’ grant agreements. The long grant agreement was used for both Stream 1 and Stream 2 projects and is a comprehensive, legally binding contract which sets out the rights and obligations of both parties.

2.20 The grant agreements specified milestones which included:

• execution of the grant agreement⁷;
• dates by which progress reports (and a final report) are required; and
• a financial audit report after completion of the project.

Table 2.1: Pilots program: grant agreement and final report dates

Source: ANAO from Department of Education and Training records.

2.21 The department’s internal legal area was requested to review the grant agreements before they were signed. The legal area drew attention to the fact that for all five projects, the final payment was due to occur in July 2017 even though the projects were not due to be completed until 2018 (NECA, MBA and PwC) or 2019 (NEVC and Ai Group):

To maintain the incentive for [named grant recipient] to comply with all aspects of the agreement for its duration, we strongly urge you to split the payments across all milestones (including the Financial Audit report) and to set more payment dates. We frequently encounter difficulties that occur after all payments have been made, in respect of which it is often extremely difficult to seek refunds.

2.22 The ANAO raised this issue with the department, which advised that the difficulty was that the funding for the pilots program had been allocated for 2016/17 and 2017/18 and could not be expended later than that. As at April 2017, the department has not sought to reallocate the funds to later years through discussions with the Department of Finance.

Current status

2.23 Table 2.2 outlines the status of the grants as at 30 March 2017.

Table 2.2: Status of grants as at 30 March 2017

Source: ANAO from Department of Education and Training records.

Appendix 1 Apprenticeship Training – alternative delivery pilots summary of projects

Source: Department of Education and Training.

Appendix 2 Timeline of key events

Source: ANAO from Department of Education and Training records.