Introduction

1. The Infrastructure Employment Projects (IEP) stream of the Jobs Fund was one of the fiscal measures implemented by the Government in 2009 to support employment and economic recovery in response to the global financial crisis. Funding under the IEP stream was announced as being available over two years (to 30 June 2011) for the construction of local infrastructure that would create immediate jobs in communities most affected by the global recession.

2. In addition to the $150 million IEP stream, the integrated $650 million Jobs Fund also comprised a $300 million Local Jobs stream¹ and a $200 million Get Communities Working stream. Although the three principal streams of the Jobs Fund each had their own particular focus, in each case the primary objective was the support and creation, through the delivery of funded projects, of jobs and employment opportunities in communities affected by the global recession and for disadvantaged job seekers. This was reflected in one set of guidelines initially being developed encapsulating all three funding streams. These guidelines, which were published in April 2009, identified a common set of threshold criteria, comprising nominated target areas and gateway criteria, which had a focus on the delivery of timely economic stimulus. The guidelines stated that, to be considered for funding under any of the streams, a project needed to meet at least one of four target areas² as well as meeting each of the three gateway criteria, which were:

• projects must be in areas experiencing high unemployment, a significant rise in unemployment or vulnerability;
• projects must be viable and ready to start; and
• funding would not extend past 2010–11.³ Projects were expected to be self-sufficient and/or not require Australian Government funding beyond 30 June 2011.⁴

3. Infrastructure and construction-related projects were able to be considered for funding under all streams of the Jobs Fund. However, while the maximum grant available under both the Local Jobs and Get Communities Working streams was $2 million, there was no cap on individual project amounts that could be funded under the IEP stream. In this context, the IEP stream was to contribute to the Jobs Fund objective of supporting and creating jobs and skill development by building community infrastructure. The published guidelines outlined that this would involve targeting local community needs and creating jobs in construction, related industries and the general community.

4. Another key difference between the IEP stream and the Local Jobs and Get Communities Working streams related to the way in which projects seeking funding were to be identified. The latter two streams were to operate through an open call for applications from eligible entities, with funding recipients to be determined on a competitive basis.⁵ The same types of entities were eligible to receive funding under the IEP stream, but the Jobs Fund guidelines stated that candidates for funding under this stream would be initiated by the Australian Government and each candidate project would be assessed against the guidelines in its own right.

Priority Employment Areas and Local Employment Coordinators

5. The Jobs Fund was one of two major initiatives under the ‘local communities’ element of the Jobs and Training Compact announced by the Government in April 2009.⁶ The other major initiative was the engagement of Local Employment Coordinators in nominated Priority Employment Areas. The Local Employment Coordinators were to be a core part of the Commonwealth’s infrastructure-related stimulus measures, with a role of ensuring opportunities provided by government programs and the private sector were used to boost the local economy. In total, 20 Priority Employment Areas were identified.

6. In June 2009, the Government decided to develop a whole of government strategy to build on existing initiatives to support Australian jobs. The strategy was entitled ‘Keep Australia Working’. An interim Keep Australia Working report released in July 2009 recommended, amongst other things, that consideration be given to how to best focus the Jobs Fund on projects in Priority Employment Areas that would produce local jobs for local people, training and apprenticeships and pathways to long-term employment.⁷

Administering agencies

7. Administration of the Jobs Fund was shared between four agencies. The Department of Education, Employment and Workplace Relations (DEEWR) was the lead agency, and it was also responsible for administering the Get Communities Working stream and the non-quarantined component of the Local Jobs stream.

8. The program guidelines outlined that the IEP stream would principally be administered within the then Infrastructure, Transport, Regional Development and Local Government portfolio. In particular, the guidelines stated that the then Department of Infrastructure, Transport, Regional Development and Local Government (Infrastructure⁸) would assess projects that had been initiated by the Australian Government and make funding recommendations to the then Minister for Infrastructure, Transport, Regional Development and Local Government (the Infrastructure Minister).⁹ Assessment advice was provided at two stages: an initial appraisal of a project concept referred to the department by the Infrastructure Minister or his Office; and a full assessment, incorporating an analysis of risks and assessment of projects against the Jobs Fund gateway criteria and target areas.

Program status

9. Over the two years between July 2009 and June 2011 (being the original program timeframe), 19 projects were initiated for consideration of possible IEP stream funding. The aggregate funding considered for these projects was $175.2 million, compared with the $132.7 million that was available to fund projects under the IEP stream over that period.¹⁰

10. As at 30 June 2011, 12 of the 19 initiated projects had been recommended for funding approval by Infrastructure. Each was approved by the Infrastructure Minister, with total approved funding of some $82.7 million. As of 30 June 2011, a funding agreement or other oversight document was in place for each of these projects, the final of which was executed on 28 June 2011. Construction work had been completed for four projects, and was underway and at various stages of completion for seven of the remaining eight approved and contracted projects.

11. Each of the 12 projects approved for IEP stream funding involved the construction of infrastructure that is expected to benefit the relevant local communities. The projects are located in nine different cities, towns or regions, across five States. The nature of the individual grants ranges from the construction of a skate park at a cost of some $390 000 to $20 million for a State National Park project that involves the reconstruction and sealing of some 80 kilometres of access roads, upgrading of recreational day visit and camping site facilities, and construction of some 50 kilometres of walking trail.

12. As at 30 June 2011, the originally planned closing date for the program, three of the 19 initiated projects were not being further considered for IEP stream funding (in aggregate, those projects had been considered for potential funding of $44 million). In a further instance, the Minister agreed to a recommendation from Infrastructure, following completion of the assessment process, that funding not be approved for the Wilcannia Business Hub project that was seeking $2.4 million in funding. Infrastructure advised the Minister that the resulting ‘savings’ could be applied to other Government priorities or as off-sets in the Budget process to deliver other portfolio priorities. In this context, in May 2011, the Cloncurry Community Precinct project was initiated for funding consideration. The following month, after he was provided with the results of the department’s initial assessment of that project, the Minister agreed to departmental recommendations that he:

• close the IEP stream to new projects not already approved or given in-principle agreement;
• seek to establish a new administered item outside of the IEP stream with the $2.4 million in unallocated funds to support the Cloncurry Community Precinct project, due to concerns that the project may not be completed before the revised program end-date of 30 June 2012.¹¹ By removing funds from the IEP stream and establishing a new administered item, the project would no longer be assessed against the Jobs Fund guidelines in deciding whether to approve the spending of public money; and
• note that the remaining two potential IEP stream projects (the Cairns Cultural Precinct and the Essendon Sporting and Community Hub), which had been initiated for an aggregate value of $46 million in IEP stream funding consideration in April and May 2010 respectively, could in the future be similarly removed from consideration under the IEP stream (given IEP stream funding was to end on 30 June 2012) and progressed as separate administered items. This approach was being contemplated given continuing doubts about whether these two projects would commence and be completed by the revised program end-date of 30 June 2012. As is noted at footnote 49 of the audit report, funding commitments in relation to these two projects were announced in August and July 2010 respectively. In September 2011, Infrastructure advised the Australian National Audit Office (ANAO) that these matters were still under consideration by government in relation to both projects, with a decision yet to be made.

Audit objective

13. The focus of this audit is the IEP stream of the Jobs Fund. Separate performance audits are underway that are examining the establishment, implementation and administration of the separate components of the Local Jobs stream of the Jobs Fund.¹²

14. The objective of this audit was to assess the efficiency and effectiveness of the establishment, implementation and administration of the IEP stream of the Jobs Fund, with a particular focus on the establishment of program objectives and the extent to which approved grants have demonstrably contributed to the cost-effective achievement of those objectives.

Overall conclusion

15. The Government’s objective in establishing the Jobs Fund was to support and create jobs and employment opportunities in communities affected by the global recession. The Infrastructure Employment Projects (IEP) stream was to contribute to this objective by funding the construction of local infrastructure that would create immediate jobs in communities affected by the global economic downturn.¹³ The policy development for the Jobs Fund, and aspects of the program design for the IEP stream, were undertaken effectively with the necessary urgency required for a stimulus measure. However, shortcomings in designing and implementing an effective means for identifying and assessing candidate construction projects has meant that the IEP stream did not achieve the economic stimulus objectives set for it in the anticipated timeframe.

16. The 12 construction projects that have been approved for funding and contracted for delivery under the IEP stream of the Jobs Fund will provide employment¹⁴ and other longer-term benefits through the delivery of community infrastructure in a number of different localities across Australia. By 30 June 2011, construction work had been completed for four projects, and was underway and at various stages of completion for seven of the remaining eight approved and contracted projects.

17. While contributing to the construction of community facilities, the amount of stimulus delivered to 30 June 2011 has been considerably less than that budgeted, with approved and contracted funding of less than $83 million, 38 per cent lower than the $132.7 million that was made available to fund stimulus projects. In addition, expenditure will now occur over at least three financial years rather than the planned two year window, with the majority of the expenditure now budgeted to occur in the third year.

18. In respect to employment outcomes, it was not until August 2010 that a project proponent reported to Infrastructure that an IEP stream project had created or retained any jobs. In addition, the funds have not been targeted at those areas identified as having the greatest need for support, with none of the approved and contracted projects being located in a Priority Employment Area.

19. The design of the IEP stream provided for projects to be initiated by the Australian Government, which provided considerable discretion as to the projects selected for assessment and possible funding. Infrastructure interpreted the statement in the program guidelines that candidate projects would be government initiated to mean that the department did not have a role in assisting the Government to identify potential candidates for funding consideration, or to otherwise advise on that aspect of the program’s implementation.¹⁵ As a consequence, the department did not assist its Minister with the early identification and targeting of promising projects that could be expected to deliver timely and effective economic stimulus, as well as providing long-term community benefits. Instead, the department only responded to referrals from the Minister or his Office. The consequences of this approach were that other projects that were likely to have satisfied the eligibility criteria were not put forward for ministerial consideration; proponents were uncertain as to whether they could submit proposals to receive grants under the IEP stream and to whom; there were inconsistencies in whether projects were considered for funding notwithstanding similarities in the timing and manner in which proposals were put forward; and timely stimulus was impeded by the considerable delays that occurred in developing a pool of candidate projects for funding consideration.

20. In addition, when assessing candidate projects referred to it by the Infrastructure Minister’s Office, Infrastructure did not analyse each proposal’s overall quality in contributing to the stated program objectives so as to provide advice to the decision-maker on the merits of candidate projects. Under the two stage assessment approach that was adopted, the initial assessments were not used to focus the full assessment process on only those proposals that appeared likely to meet the Jobs Fund gateway criteria and the program’s objectives to a high standard. At the full assessment stage, the department limited itself to being satisfied that each of the threshold criteria could be viewed as having been met to a minimum standard, and that any identified risks could be managed through a funding agreement. This reflected the department’s quite narrow view of its role in the administration of this program, and does not sit comfortably with the requirements of the enhanced grants administration framework.¹⁶ In this context, there were no occasions where the Minister acted other than in accordance with the departmental funding recommendation he received.¹⁷

21. The audit findings underline the importance of stimulus spending programs being implemented in a way that quickly and effectively targets funding at projects that are likely to provide the maximum stimulus effect in the desired timeframe for those communities identified as most in need of assistance. It also draws attention to the importance of departments clarifying expected arrangements for the administration of grant programs in the interests of providing sound advice to the Minister on strategies for identifying potential candidate projects, and then conducting project assessments in a way that supports achievement of the objectives of the program established by government. This is commonly achieved by departments seeking Ministerial agreement to an implementation strategy that outlines roles and responsibilities, identifies any risks to the achievement of program objectives and how they could be managed, and seeks to clarify any areas of uncertainty.

22. ANAO has made two recommendations which are both aimed at improving the administration within the Infrastructure portfolio and agencies more widely of grant programs that do not involve an open call for applications, having regard for the key principles for grants administration set out in the Commonwealth Grant Guidelines (CGGs).¹⁸

Key findings by Chapter

Program establishment (Chapter 2)

 23. Robust planning and design is one of the key principles for grants administration set out in the CGGs. The IEP stream of the Jobs Fund exhibited some of the features of a well designed grants program. In particular:

• analysis was undertaken by the lead policy agency (DEEWR) to identify the overall objectives and focus of the Jobs Fund, including identifying those communities most affected by the economic downturn and which would, accordingly, be the focus of assistance under the Jobs Fund; and
• program guidelines were developed by agencies, approved by the then Prime Minister and published.

24. The policy development and aspects of the program design for the Jobs Fund was effectively undertaken with the necessary urgency required in relation to a stimulus measure. However, a key shortcoming with the program design was that the program guidelines published in April 2009 were not sufficiently robust. For the IEP stream, the guidelines did not clearly outline the processes through which projects could be initiated for consideration of possible funding.

25. More broadly, whilst the guidelines included eligibility and threshold requirements that projects would be required to satisfy in order to be considered for funding, they did not clearly articulate the assessment criteria¹⁹ that would be applied in selecting which of the compliant and eligible proposals would receive funding under both the competitive elements of the Jobs Fund and the non-competitive IEP stream. In particular:

• whilst the lead department (DEEWR) advised ANAO that value for money considerations were expected to underpin the entire assessment process, the guidelines did not establish value for money as a key criterion to be applied in selecting funding recipients from among compliant proposals; and
• application of the published gateway criteria and target areas alone was insufficient to support a transparent and consistent assessment of the overall merit of proposals.²⁰

Project initiation (Chapter 3)

26. An early and important consideration in the design of a grant program is establishing how to structure the process by which potential funding recipients will be identified and are able to access the program. Since 1 July 2009, the CGGs have required that, unless specifically agreed otherwise by the Government, competitive, merit-based selection processes should be used based upon clearly defined selection criteria.²¹ Nevertheless, it remains quite common for grant programs to operate through non-competitive processes.

27. The program funding available under the Jobs Fund, including through the IEP stream, was contestable in that state and local government, the private sector and community organisations were all eligible to be funded. However, it was decided that the IEP stream would operate through a non-competitive and closed process of deciding which projects would be considered for possible funding.

28. The published program guidelines stated that projects would be ‘initiated’ by the Australian Government. However, neither the guidelines nor any other program documentation outlined the avenues that were available to project proponents to bring a promising project to the Government’s attention, or otherwise articulate the process by which it would be decided which projects would be considered for IEP funding.

29. In the normal course, it would be expected that the administering department would develop, for consideration by decision-makers, an implementation strategy that outlined roles and responsibilities, identified any risks to the achievement of program objectives and how they could be managed, and sought to clarify any areas of uncertainty (such as the operation of the initiation process).²² However, Infrastructure did not develop an implementation strategy for the IEP stream. In the absence of such a strategy, the department interpreted the statement in the program guidelines that candidate projects would be government initiated to mean that the department did not have a role in assisting the Government to identify potential candidates for funding consideration. Against this background:

• opportunities were not taken to target funding at promising projects that had unsuccessfully applied to other oversubscribed stimulus programs, despite such an approach being envisaged during the design of the program (see further at paragraphs 31 to 33);
• no attempts were made to actively involve the Local Employment Coordinators in the identification of projects located in Priority Employment Areas that may have been suitable for consideration for IEP stream funding. This was the case notwithstanding that:
  • the Local Employment Coordinators were announced as being a core part of the Commonwealth’s infrastructure and stimulus measures, in order to focus Commonwealth resources on the 20 Priority Employment Areas (identified by DEEWR analysis as those areas with the greatest need for direct assistance); and
  • the Jobs Fund guidelines had explicitly provided for Local Employment Coordinators to play a role in identifying candidate projects for IEP stream funding²³ ;
• the lack of clarity in the guidelines about the manner in which candidates for IEP stream funding were to be identified led to a considerable number of funding inquiries and representations being received from, or on behalf of, state government entities, various local government authorities, community groups and private sector entities. Records of the initiation process did not indicate the criteria applied in deciding which representations would result in a project being accepted for initiation under the IEP stream, and those representations that were not to be considered.²⁴

30. A relatively small pool of projects (19) has been formally considered for possible IEP stream funding since the program commenced on 1 July 2009. In the context of an economic stimulus program for which all funds were to be spent within two years, it was significant that there were also considerable delays in projects being initiated for funding consideration.²⁵ As illustrated by Figure S 1, the majority of projects considered for IEP stream funding were initiated during the first six months of 2010, with 11 projects being initiated for assessment over the course of 2010 and a further two projects being initiated for assessment in the first half of 2011. It was not until February 2011 that Infrastructure first advised its Minister that the need for economic stimulus through the IEP stream had diminished. In June 2011, the IEP stream was closed to new projects not already approved or given in-principle agreement.

Figure S.1: Timing and number of projects being initiated for assessment and, where relevant, approved for IEP stream funding: July 2009 to June 2011

Source: ANAO analysis of Infrastructure data.

Unsuccessful applications to other economic stimulus programs

31. Consistent with the original policy underpinnings for the IEP stream, an important source of projects considered for possible funding was unsuccessful applications to related economic stimulus programs.²⁶ Giving consideration to the possibility of funding some of these infrastructure-related applications under the IEP stream was reasonable given the closely aligned stimulus objectives of the related programs. This approach also offered a potentially efficient and cost-effective means of quickly identifying a population of candidate projects (particularly having regard for the resources already invested by applicants in preparing applications, and departments in assessing the applications against the same or similar criteria), while not limiting the Government’s prerogative to elect to consider other projects that may come to its attention through other channels. Nevertheless, to the extent that any of these projects were to be considered for IEP stream funding, it would be appropriate that there be a transparent process employed to identify which of the large number of candidate projects were potentially the most promising in terms of the published Jobs Fund guidelines and would, therefore, progress to being initiated for an IEP assessment.

32. However, the proponents of the ten previously unsuccessful applications that were invited to submit information that would be considered for IEP stream funding were afforded an opportunity that was:

• not made known to other unsuccessful applicants to these related stimulus programs; and
• denied to some other unsuccessful applicants that had similarly tried to have their project considered for IEP stream funding.

33. In this respect, the processes that were employed to select such projects for IEP consideration did not involve the department examining unsuccessful applications to related stimulus programs in terms of the Jobs Fund target areas and gateway criteria, in order to determine a population of known promising candidate projects for government consideration.²⁷

34. Against the above background, the audit has highlighted the need for enhanced guidance from the Department of Finance and Deregulation (Finance) to assist agencies in implementing the seven key principles for grants administration outlined in the CGGs²⁸ in circumstances where a grant program operates through a non-competitive and/or non-applications based process. In this context, although the CGGs apply to all types of grants, the current guidance is focused on grant programs that operate through an open, competitive call for applications.

Project assessments and approvals (Chapter 4)

35. As noted, assessment advice was provided at two stages: an initial appraisal of a project concept referred to the department by the Minister or his Office; and a full assessment, incorporating an analysis of risks and assessment of projects against the Jobs Fund gateway criteria and target areas. However, the initial assessment stage was not used to focus the full assessment process on only those proposals that appeared likely to meet the Jobs Fund gateway criteria and the program’s objectives to a high standard. This was reflected in the fact that in each of the first 15 instances where an initial appraisal was completed, the department recommended that the project proceed to a full assessment. This was despite the fact that in each case the department had either been unable to reach a preliminary view about whether the Jobs Fund gateway criteria had been satisfied and/or concluded that the project did not meet one or more of the gateway criteria.

36. In each of the 13 instances where a full assessment was completed, the assessment advice provided by Infrastructure to its Minister was not based on an analysis that scrutinised the overall quality of each proposal in contributing to the program objectives that involved supporting employment through the construction of community infrastructure that targeted local community needs. Rather, Infrastructure limited itself to being satisfied whether each of the threshold criteria had been met to a minimum standard, and that any identified risks to project delivery could be managed through a funding agreement. In this context:

• there were eight approved projects where the department’s initial appraisal concluded that the first gateway criterion²⁹ had not been demonstrably met. In each instance, the final advice to the Minister concluded that this criterion had been met. However, departmental records did not address how factors initially identified as being of concern either by it or the independent viability assessment commissioned in relation to the project had either been addressed, or why these factors were no longer seen as being of concern;
• there were considerable inconsistencies in terms of the approach taken by the department in coming to a view that the gateway criteria had been met by various projects³⁰;
• where a project being considered for IEP stream funding had been the subject of an unsuccessful application to the competitive streams of the Jobs Fund, Infrastructure did not make any attempt to reconcile any differences between assessments undertaken in relation to the same project, despite the gateway criteria set out in the program guidelines being common across all streams of the Jobs Fund; and
• value for money considerations were not addressed by Infrastructure in its assessment work so as to support its advice to the Infrastructure Minister that the approval of funding for projects represented an efficient, effective and ethical use of public money.³¹

37. Infrastructure has advised ANAO that the approach taken by DEEWR in the non-quarantined competitive streams (involving analysis that compared the envisaged employment outcomes with the amount of funding sought, as well as considering a project’s location, the level of targeted groups’ disadvantage and envisaged immediate and long term community benefits) was not appropriate to the IEP stream because of the greater capital intensity of larger or more complex infrastructure projects. However, Infrastructure did not document or apply any alternative approach to considering the value for money offered by those projects that were being assessed for possible IEP stream funding.

38. In the first 12 instances where Infrastructure had completed its assessment of a candidate project, the department recommended to its Minister that funding be approved. In each of these 12 instances, the Minister agreed to the department’s recommendation and approved IEP stream funding. In April 2011, the department recommended against the approval of funding for the remaining project where the full assessment had been completed, in part due to the project not being likely to be completed by the current program end-date of 30 June 2012. The Minister again agreed with the department’s recommendation.

39. Combined with the shortcomings in the processes by which projects were initiated for consideration of IEP stream funding, the assessment approach taken by Infrastructure meant that the focus was not on identifying and selecting funding recipients that best represented value for money in terms of the relevant project’s potential community benefits and expected economic stimulus effect for the amount of funding being sought. In this context, Finance advised ANAO in June 2011 that, whilst agencies should have regard to the seven key principles of grants administration for all forms of granting activity, the existing guidance provided through the CGGs focuses more strongly on competitive merit based processes. Finance agreed with ANAO that there would be merit in the guidance issued to agencies being expanded to clarify the application of these principles to all grant activity. ANAO has recommended accordingly.

Program outcomes (Chapter 5)

40. Infrastructure sought to expeditiously implement project oversight arrangements with approved funding recipients.³² However, no funding agreements were signed until March 2010 (over nine months into the planned 24-month program life) and there have been some considerable delays in the negotiation and signing of agreements to govern the provision of funding for a number of approved projects³³, with consequential delays in program expenditure. Given the program guidelines stipulated that a proponent must not begin project activities dependent on funding before a funding agreement had been signed, these delays also diminished the program’s ability to provide timely economic stimulus through the construction of community infrastructure.

41. Once the relevant arrangements were in place, the department implemented effective procedures to monitor project commencement and progress as reported to it by the funding recipient. In addition, the funding arrangements adopted by the department reflected the importance of balancing:

• the economic stimulus imperative of making timely payments to project proponents to allow construction work to commence and proceed as soon as possible; with
• protecting the Commonwealth’s interest. For example, initial payments ranged between two per cent and 50 per cent of the total grant; there were no instances where the initial payment was made solely because the funding agreement had been signed; and further payments were not made until such time as project milestones had been met and earlier payments had been spent or were about to be spent.

42. Whilst some projects have experienced delays, many of the contracted projects are proceeding in accordance with the contracted timeframe and within the approved funding envelope. Where costs have increased, project proponents have been expected to source additional funding rather than obtain additional Australian Government funding, or reduce the project scope.

Financial stimulus

43. The criterion adopted by the Government for the design of the stimulus packages established in response to the global financial crisis was that they be timely, targeted and temporary.³⁴ Under the Jobs Fund:

• projects were required to be ‘ready to start’ (sometimes referred to as ‘shovel ready’) in order to be eligible to be considered for funding;
• funded projects were required to be in an area experiencing high unemployment, a significant rise in unemployment or unemployment vulnerability. To this end, by July 2009, the Government had agreed to 20 Priority Employment Areas, being those regions with labour markets that had been identified as likely to experience disadvantage and deterioration as a result of the global recession; and
• a defined program window had been agreed by government, with funding available over a maximum of two years (from 1 July 2009 to 30 June 2011).

44. In the context of an earlier audit, Treasury informed ANAO that where infrastructure and public capital works projects can be implemented quickly, they are likely to boost aggregate demand in the short term and add to productive capacity over the longer term.³⁵ Further in this respect, in the context of another ANAO audit of a stimulus program³⁶, Treasury advised ANAO in April 2010 that:

The medium-term infrastructure spending profile (subsequently published in the 09–10 Budget papers) showed ‘medium-term’ infrastructure spending ramping up in late 2009 and through 2010. The overall stimulus had its largest impact in 2009, but the infrastructure elements were designed to provide ongoing support to the economy during what we forecast would be a period of protracted weakness lasting well into 2010 and 2011.

Treasury modelling assumed (ex ante) that the infrastructure construction activity funded through the Nation Building and Jobs Plan would line up closely with this profile of spending.

45. However, the IEP stream has not provided the planned level of stimulus in the timeframe that had been budgeted. In particular, only half of the approved projects were contracted to be completed by the original program end date of 30 June 2011 and, by this date, 38 per cent of program funds remained uncontracted. There have also been significant budgetary rephasings such that expenditure under what was originally intended to be a targeted, two year stimulus program will now occur over at least three financial years (see Figure S 2). This situation largely reflects the delays that occurred in projects being identified for possible IEP stream funding, and the fact that those projects that were chosen did not involve significant construction activity in 2009–10

Figure S.2: Budgeted expenditure on IEP stream projects

INSERT FIGURE S.2 HERE

Source: ANAO analysis of Infrastructure data.

Employment outcomes

46. Although the three principal streams of the Jobs Fund each had their own particular focus, in each case the primary objective was the support and creation, through the delivery of funded projects, of jobs and employment opportunities in communities affected by the global recession and for disadvantaged job seekers. The lead agency for the Jobs Fund (DEEWR) has advised ANAO that it was imperative that the program fund projects that could commence quickly in order to create and retain jobs as soon as possible. This was reflected in the published program guidelines requiring that only those projects that were viable and ready to start would be eligible for funding. In addition, reflecting the intention that the economic stimulus be provided across the 2009–10 and 2010–11 financial years, the guidelines included a further mandatory eligibility criterion that funding for projects was not to extend past 30 June 2011.

47. As illustrated by Figure S 3, as a consequence of the delays in projects being initiated and subsequently approved for IEP stream funding, it was not until some months into the planned two year program that significant expected employment outcomes were able to be identified. The capacity to generate timely economic stimulus was further affected by subsequent delays that were experienced in finalising funding agreements for a number of approved projects. Consequently, it was not until mid-2010 that arrangements were in place to enable some approved projects to commence in order that they could start generating the proposed employment outcomes. As a result, despite the April 2009³⁷ announcement of the IEP stream stating that the funding of construction of local infrastructure would create immediate jobs in communities affected by the global economic downturn, it was not until August 2010 that any project proponent reported to Infrastructure that an IEP stream project had created or retained any jobs.

Figure S.3: Cumulative expected jobs for approved IEP projects as at month of approval and month of funding agreement execution

INSERT FIGURE S.3 HERE

Source: ANAO analysis of Infrastructure data.

Summary of agency responses

48. The proposed audit report or relevant extracts were provided to the Infrastructure Minister, Infrastructure, DEEWR, Finance and Treasury for comment, with comments being received from Infrastructure, DEEWR, Finance and Treasury. Formal comments on the proposed audit received from Infrastructure and DEEWR have been incorporated in Appendix 1 to the audit report. Formal comments received from Finance and summary comments provided by Infrastructure are set out below. Additional comments received from Infrastructure, DEEWR and Finance and the comments received from Treasury were also considered in preparing the final audit report.

Department of Infrastructure and Transport

49. Infrastructure’s summary response is reproduced below. Infrastructure’s full response is at Appendix 1 to the audit report.

The Department of Infrastructure and Transport notes the findings in the report and emphasises the context in which the IEP was developed, which required a range of program and policy responses to the Global Financial Crises (GFC). The IEP was designed to deliver community infrastructure projects, with long term benefits beyond the GFC.

Consistent with the agreed program guidelines, the department took the approach that projects were to be initiated and selected by government. The department then worked to implement and manage those projects in an effective way, as recognised in the report.

The department accepts Recommendation No. 1 (which is directed at the department) and also notes that findings from earlier audits are contributing to continually improving program development and delivery across the organisation.

Department of Finance and Deregulation

50. Finance’s full response is reproduced below.

Finance supports Recommendation No. 2, which proposes that Finance improve existing guidance on grants administration to promote the effective application of the seven better practice principles outlined in the Commonwealth Grants Guidelines (CGGs) to all forms of granting, including where a grant program operates through a non-competitive and/or a non-applications-based process.

Whilst competitive, merit-based selection processes are not a mandatory requirement of the CGGs, they represent best practice and as such agencies are strongly encouraged to employ such processes. Finance supports that where competitive, merit-based selection processes are not used, the agencies should still have regard to the seven key principles of grants administration.

Department of Education, Employment and Workplace Relations

51. DEEWR’s response is at Appendix 1 to the audit report.

Footnotes

[1] The Local Jobs stream included two quarantined sub-streams: $60 million was specifically set aside for heritage-related projects (broken down into a number of sub-components); and $40 million was set aside for bike path projects.

[2]  The four target areas were: create jobs or retain people in jobs at risk due to the downturn; build skills for the future; build community infrastructure or improve community amenity which generates local jobs; and provide seed funding for social enterprises to start up, maintain or expand services, generating jobs and improving community services.

[3]  Elsewhere, the guidelines outlined that funding under the two quarantined components of the Local Jobs stream (see footnote 1) was not to extend past 30 June 2010.

[4]  On 5 July 2010, the published guidelines were amended by way of an explanatory note to extend the project completion date for eligibility for funding under the IEP stream to 30 June 2012. On 24 March 2011, the Jobs Fund program guidelines applying to the Local Jobs and Get Communities Working streams administered by DEEWR were similarly amended to extend the project completion date under those streams to 30 June 2012 to allow some delayed projects to be completed and deliver the anticipated community benefits.

[5]    For the heritage component of the Local Jobs stream, the guidelines also provided for targeted calls for applications to be made, with the outcome to be determined on a competitive basis.

[6]  The Jobs and Training Compact with Australians affected by the global recession, promising training, support and local initiatives to help them get back to work, was announced as representing the next step in the Government's response to the global recession and had three elements: a compact with retrenched workers; a compact with young people; and a compact with local communities. See: The Hon Kevin Rudd MP, Prime Minister of Australia, Media Release, Government establishes Jobs and Training Compact, 5 April 2009.

[7]  The final Keep Australia Working report released on 16 October 2009 identified five outcomes to be achieved through nominated initiatives, three of which were to be funded through a re-targeting of the funding remaining available under the Local Jobs and Get Communities Working streams of the Jobs Fund.

[8]  The Administrative Arrangements Order of 14 September 2010 created the Department of Regional Australia, Regional Development and Local Government (Regional Australia) within the Prime Minister and Cabinet portfolio, with the Department of Infrastructure, Transport, Regional Development and Local Government becoming the Department of Infrastructure and Transport (Infrastructure). Initially, responsibility for administering the IEP stream of the Jobs Fund was moved to Regional Australia from Infrastructure, with the Minister for Regional Australia, Regional Development and Local Government (Minister for Regional Australia) taking responsibility for funding decisions under the program. On 28 October 2010, the Minister for Regional Australia and the Infrastructure Minister agreed that the Infrastructure Minister would resume responsibility for the IEP stream, with administration of the program being returned to Infrastructure with effect from the week commencing 1 November 2010. For the purposes of this report, the former Department of Infrastructure, Transport, Regional Development and Local Government and the current Department of Infrastructure and Transport are both referred to as ‘Infrastructure’.

[9]  Following the 2010 federal election, the Minister’s portfolio responsibilities were revised, with the Minister becoming the Minister for Infrastructure and Transport. Throughout this report, the Minister is referred to as the Infrastructure Minister. The functions relating to regional development and local government (including the bike paths component of the Local Jobs stream of the Jobs Fund) became the responsibility of the Minister for Regional Australia, with those functions being administered by the newly created Regional Australia (see footnote 8).

[10]  Following announcement of the $650 million Jobs Fund, it was determined that departmental costs to administer the respective elements of the program would be met from the total funding allocation. Of the $150 million allocated to the IEP stream, $5.8 million was set aside for Infrastructure’s departmental administrative costs, leaving $144.2 million available for funding projects under that stream over two years to 30 June 2011. The program funding available for IEP stream projects was further reduced through the 2009–10 Additional Estimates process from $144.2 million to $132.7 million over two years to 30 June 2011 as a result of decisions taken to transfer a total of $11.5 million to other programs.

[11   The Infrastructure Minister wrote to the Prime Minister on 23 June 2011 seeking the Prime Minister’s approval to fund the Cloncurry Community Precinct project from funds within the Minister’s portfolio and to create a new administered item within the Minister’s portfolio to facilitate this, to be offset by savings from the IEP stream of the Jobs Fund.

[12]  The audits of the Local Jobs stream are expected to be tabled during 2011–12.

[13]  Joint Media Release, Fund to support jobs, build skills and community infrastructure, The Hon. Kevin Rudd MP Prime Minister, The Hon. Julia Gillard MP Minister for Education, Minister for Employment and Workplace Relations, Minister for Social Inclusion, Deputy Prime Minister and The Hon Brendan O’Connor MP Minister for Employment Participation, 5 April 2009.

[14]  In being asked to approve funding, the Minister had been advised by Infrastructure that, in aggregate, the 12 approved and contracted projects would create or retain more than 950 jobs as well as 37 work experience positions and 42 traineeships.

[15]  After the Jobs Fund guidelines were published and before funding became available on 1 July 2009, Infrastructure undertook some work to identify how the department could provide advice to its Minister on suitable candidate projects. However, these working documents had no particular status ascribed to them, and this work was not finalised into an implementation plan or strategy for the IEP stream.

[16]  Since December 2007, the grants administration framework has required departments to provide advice to Ministers on the merits of each proposed grant relative to the guidelines for the program.

[17]  Assessments were completed in respect to 13 projects. In 12 instances, Infrastructure recommended that IEP stream funding be approved, and the Minister approved funding. On one occasion, the Minister agreed with a recommendation from Infrastructure, following completion of the assessment process, that he agree to withdraw a project from funding consideration. Paragraph 12 outlines the situation in respect to the remaining six instances where a project was initiated for IEP stream funding consideration.

[18]  Department of Finance and Deregulation, Commonwealth Grant Guidelines—Policies and Principles for Grants Administration, Financial Management Guidance No. 23, July 2009.

[19]  As outlined in ANAO’s Better Practice Guide on the administration of grants, selection criteria form the key link between a program’s stated objectives and the outcomes that are subsequently achieved from the funding provided. In this context, selection criteria fall into two main groups, as follows:

• threshold assessment criteria are the criteria against which all eligible, compliant proposals will be assessed in order to determine their merits against the program objectives and, for competitive programs, other competing applications (see ANAO Better Practice Guide, Implementing Better Practice Grants Administration, June 2010, pp. 61–62).

[20]  These issues are discussed further in relation to assessments under the IEP stream in Chapter 4 of the report (see paragraphs 4.49 to 4.60), and will be examined in more detail in relation to assessing the relative merits of competing, eligible applications in the separate performance audits underway of the separate components of the competitive Local Jobs stream of the Jobs Fund.

[21]  Commonwealth Grant Guidelines, op. cit., p. 29.

[22]  For example, an implementation strategy was developed by Infrastructure and approved by the Minister in respect to the quarantined bike paths component of the Jobs Fund, as well as in respect to each round of the Strategic Projects component of the Regional and Local Community Infrastructure Program and in respect to the Better Regions Program.

[23]  On at least one occasion, a Local Employment Coordinator did seek to have a project considered for possible IEP stream funding. However, contrary to the terms of the published program guidelines, no consideration was given to the merits of this project in terms of the Jobs Fund guidelines.

[24]  Seventeen of the 19 projects initiated as a possible IEP stream project had been the subject of a representation to Infrastructure, the Infrastructure Minister, the Treasurer or the then Prime Minister concerning possible Commonwealth funding. There were also numerous representations that were unsuccessful in having a project considered for IEP stream funding notwithstanding that they had been made through similar channels and/or at a similar time to those made in relation to projects that were initiated for funding consideration. None of the projects that were the subject of representations were subjected to any formal assessment against the program guidelines in order to establish their indicative merits as a basis for determining whether they should be initiated for funding consideration.

[25]  Having regard for the timeframes typically involved in establishing and delivering infrastructure projects of the type eligible to be funded through the IEP stream, it was important that promising projects be selected as quickly as possible so as to provide economic stimulus when it was most needed and within the two year program window agreed by government.

[26]  These programs were the Strategic Projects component of the Regional and Local Communities Infrastructure Program (RLCIP) (also administered by Infrastructure) and proposals submitted in response to the general call for applications under the Jobs Fund.

[27]  For example, the unsuccessful applications to the Strategic Projects component of RLCIP and the applications-based streams of the Jobs Fund that were considered for possible IEP stream funding were not those that had been the most highly rated unsuccessful applications to those programs.

[28]  Commonwealth Grant Guidelines, op. cit. p. 14.

[29]  This criterion required that a project be located in an area experiencing high unemployment, a significant rise in unemployment or vulnerability.

[30]  For example, in respect to the unemployment gateway criterion (see footnote 29), focusing on whether the unemployment rate in the project location was higher than national or state averages was used as the basis for the department concluding that this criterion had been met for some projects. For other projects, such analysis would not have supported a conclusion that the gateway criterion had been met and so the department focused, instead, on whether the unemployment rate in the project location had increased in absolute terms (without addressing whether it nevertheless still remained well below the state or national average). For projects where neither of these two considerations would have supported a conclusion that the project was in an area particularly adversely affected by the economic downturn, the department advised its Minister that he could consider ‘vulnerability in the construction industry more generally’.

[31] From 1 March 2011, the relevant requirement was amended such that an approver is not to approve a spending proposal unless satisfied that the expenditure will make efficient, effective, economical and ethical use of the Commonwealth resources.

[32]  These arrangements involved non-binding Implementation Plans under a National Partnership Agreement for the three projects where payments are made to a state government entity, and legally enforceable bilateral funding agreements for all other approved projects.

[33]  For two projects involving payments to a state government entity, this delay was the consequence of Infrastructure being required to enter into a National Partnership Agreement which, therefore, needed to be negotiated with all states and territories—the need for this approach to be adopted in order to provide funding for these projects was not identified until late in 2009. Bilateral Implementation Plans then needed to be negotiated and agreed with the relevant state for each of these projects before the project could commence. For a number of the remaining projects governed by a bilateral funding agreement and the remaining project subject to the National Partnership Agreement, there was considerable delay with the preparation and signing of the agreement, largely due to the immature nature of the project at the time of funding approval or to other factors that prevented the details of the funded project from being settled for some time following funding approval. As discussed at paragraphs 5.8 to 5.24 of the audit report, the requirement for a National Partnership Agreement had been identified as a result of discussions between Infrastructure and Treasury in late 2009, but in August 2011 Finance advised ANAO that, after examining the IEP selection process, it had confirmed that the relevant payments should be classified in the same manner as other Jobs Fund payments. Consequently, a National Partnership Agreement had been not required for these payments.

[34] House of Representatives Standing Committee on Infrastructure, Transport, Regional Development and Local Government, The Global Financial Crisis and regional Australia¸ November 2009, p. 55.

[35] ANAO Audit Report No.33 2009–10, Building the Education Revolution—Primary Schools for the 21^st Century, Canberra, 5 May 2010, p. 14.

[36]  ANAO Audit Report No.3 2010–11, The Establishment, Implementation and Administration of the Strategic Projects Component of the Regional and Local Communities Infrastructure Program, Canberra, 27 July 2010, p. 156.

[37]  Joint Media Release, Fund to support jobs, build skills and community infrastructure, op. cit., 5 April 2009.