Introduction

1. The Australian Government (the Government) provides funds to the higher education sector¹ to support research and research training through a dual funding arrangement. This arrangement uses a combination of peer-reviewed competitive grants²—administered primarily through the Australian Research Council and the National Health and Medical Research Council—and a performance-based system for annual block funding³—administered by the Department of Industry, Innovation, Science, Research and Tertiary Education (DIISRTE) (since March 2013, the Department of Industry, Innovation, Climate Change, Science, Research and Tertiary Education (DIICCSRTE)).⁴ The rationale for this approach is that regular block grants underpin competitive grants by providing stable funding for infrastructure, the indirect costs of research and research education.

2. The dual funding model has been maintained by successive governments since 1995, on the basis that access to regular block and competitive research grant funding enables institutions to support and maintain long-term strategic research capability; while also providing flexibility to focus on emerging research. The Government further supports this flexibility by providing RBG recipients with a high degree of freedom in relation to how the funds are spent—within the context of the objectives of each of the six schemes that comprise the RBG program—to achieve a balance between existing and emerging priorities.

3. In 2012–13, the Government will provide over $1.7 billion to the higher education sector through Research Block Grants (RBGs).⁵ This funding is distributed via six schemes:

• two schemes supporting research scholarships for students undertaking higher degree by research degrees⁶—Australian Post-graduate Awards and the International Post-graduate Research Scholarships; and,
• four schemes supporting research and research training activities—the Research Training Scheme, the Joint Research Engagement scheme, the Sustainable Research Excellence scheme and the Research Infrastructure Block Grant scheme.

4. Table S 1 describes the six current schemes and their funding for 2012‑13.

Table S 1 Research Block Grant schemes and 2012–13 funding

Higher education sector reform

5. When the RBGs commenced in 1995, they were designed to provide funding to support the indirect costs of competitive grant research. However, as the program has evolved, new schemes have broadened this focus to more directly target other government priorities, including research excellence, collaboration, research education and the implementation by universities of best practice financial management, performance and reporting frameworks.

6. More recently, this change in focus has been driven by reforms of the higher education and innovation sectors announced in May 2009 as part of the Australian Government’s policy paper Powering Ideas.⁷ Supporting these reforms, the Government announced a $5.7 billion investment over four years as part of the 2009–10 Budget.

7. For the higher education sector, the reforms included initiatives to improve research skills, expand research capacity and increase both domestic and international collaboration. Changes for the RBG program included
$512 million between 2009–10 and 2012–13⁸ for the new Sustainable Research Excellence scheme to compensate universities for the indirect costs of their Australian competitive grant research, and to support universities to build and maintain research excellence. To further emphasise research excellence and the need to increase the number of research groups performing at world-class levels, the Government also provided additional funding to progress the Excellence in Research Australia (ERA) initiative being administered by the Australian Research Council.⁹ Outcomes from the ERA process are key inputs to the Sustainable Research Excellence scheme’s funding methodology.

8. The Joint Research Engagement scheme was introduced to reward universities that diversify their sources of research income.¹⁰ In announcing the Joint Research Engagement scheme the Government noted as a priority its aim to double the level of collaboration between Australian business, universities and publicly funded research agencies over the next decade.¹¹ The Joint Research Engagement scheme advances this aim through a funding methodology that emphasises each university’s success in obtaining research income from sources other than Australian competitive grants.

9. In response to an identified need to grow the number of people completing higher degree by research qualifications, Powering Ideas announced a doubling of the number of Australian post-graduate awards by 2012 and a corresponding increase in the award stipend rate, with continued indexation in following years.

10. Through Powering Ideas, the Government also sought to implement governance arrangements to provide for improved coordination, alignment to its priorities and the measurement of performance. Addressing this aim, the Government announced the introduction of mission-based compacts with universities to provide a framework for jointly achieving the reform objectives. Mission-based compacts covering the period 2011–13 have been negotiated with each university.

11. These reforms have increased the level of funding distributed through the RBG program and placed greater emphasis on the RBGs as a mechanism for allocating funds. The reforms have also resulted in a more integrated suite of block grant schemes and the establishment of linkages between the RBG program and complementary initiatives such as the ERA process and the mission-based compact framework.

Calculating Research Block Grants

12. Each year, through the RBG program, the Government provides universities with guaranteed annual block grant funding based on each university’s relative performance against the Government’s research and research training priorities.

13. Funding allocations are determined using scheme specific formulas to calculate a performance index for each university. The performance index is then multiplied by the scheme’s funding pool, or in the case of the Australian Post-graduate Awards and International Post-graduate Research Scholarships, by the total number of awards available, to determine the funding allocations for each university.¹²

14. It is through the scheme formulas that the Government emphasises and rewards specific behaviours and outcomes in line with its policy objectives. This is achieved by adding or removing data inputs from the scheme formulas, or changing the proportion the data inputs contribute to each scheme. The data inputs to the formulas are reported by universities at the end of each financial year. Data reported by universities at the end of June reflects activity for the previous calendar year in which they are reported and this data is used as the basis for calculating funding for the following calendar year. For example, data reported for the 2011 calendar year in June 2012 will be used to calculate funding allocations for 2013. Funds are distributed across 23 fortnightly payments commencing in January each year.¹³

Relevant legislation

15. The Higher Education Support Act 2003 (HESA Act) provides the legislative basis for the RBG program. The HESA Act provides for the Commonwealth to give financial support for higher education and certain vocational education and training. The Commonwealth does this through grants and other payments to higher education providers; and through financial assistance to students.¹⁴

16. Under the HESA Act, an institution must be approved by the relevant Minister—currently the Minister for Tertiary Education, Skills, Science and Research (the Minister)—as a higher education provider before it can receive grants, or its students can receive assistance. The HESA Act currently lists 41 institutions as higher education providers.

17. Funding for the RBG program is provided through a Special Appropriation ‘limited by amount’. Maximum amounts are determined by the Minister through a legislative instrument.¹⁵ The funding pools for each scheme are fixed and cannot exceed these amounts.

Audit objective, criteria and scope

18. The audit objective was to assess the effectiveness of DIISRTE’s administration of the Research Block Grant schemes. The department’s performance was assessed against the following criteria:

• the schemes are effectively planned and administered;
• the processes and systems used for calculating and distributing funds reflect the allocation criteria specified for each scheme; and
• compliance with scheme guidelines is monitored and scheme performance and contribution to the broader goals of the RBG program is assessed.

19. The audit scope focused on the implementation of the Sustainable Research Excellence and Joint Research Engagement schemes, which were introduced as part of the reforms of the higher education sector announced in the 2009–10 Budget. The audit also considered the broader administrative processes supporting the RBG schemes, such as funding calculations, evaluations and reviews.

Overall conclusion

20. The Australian Government provides funds to the higher education sector to support research and research training through a dual funding arrangement. This arrangement combines a performance-based system for annual block funding, known as Research Block Grants (RBGs), and peer‑reviewed competitive grants. In 2012–13, the Government will provide over $1.7 billion to universities through the RBGs. This money is distributed through six schemes using scheme specific formulas that allocate funds based on each university’s relative performance against the Government’s research and research training priorities.

21. The RBG schemes make up a mature program that has been in operation since 1995. Reflecting this maturity, DIISRTE has in place many well established practices which support the effective administration of the program. The processes for calculating and allocating funds are generally effective and are underpinned by internal procedures and systems that are designed to provide for the correct and timely distribution of funds. DIISRTE’s practices also contributed to the department’s effective management of initiatives announced by the Government in the 2009–10 Budget as part of its reform of the higher education sector. In particular, DIISRTE’s implementation of the new Sustainable Research Excellence and Joint Research Engagement schemes leveraged established elements of the RBG program, reducing risk associated with their implementation and contributing to the achievement of the Government’s commitments within the timeframes it had announced.

22. Coinciding with the increased focus on the RBG program as a result of these recent initiatives, DIISRTE has undertaken a number of reviews aimed at examining identified issues and improving components of the funding methodology. These reviews have been important in addressing technical issues and providing confidence that funding is being allocated on a sound basis. However, there remain opportunities for DIISRTE to further improve key elements of the program. In particular, to improve the quality assurance of data inputs to the scheme formulas and the monitoring and reporting of scheme outcomes against their objectives.

23. As a key determinant of the funding allocations, DIISRTE places importance on the quality of data reported by universities through analysis of data issues, refinement of the data specifications, and quality assurance checks. Notwithstanding this focus, DIISRTE lacks a strategy that describes how the various data quality activities deliver against the department’s quality assurance objectives. As a result, some gaps exist in the department’s approach to data quality assurance, particularly in relation to the timely identification and resolution of misreporting and reporting errors. In addition, there are currently no defined quantitative thresholds to guide staff in determining the materiality of identified data quality issues and the appropriate course of action to address these.

24. DIISRTE’s quality assurance activities have improved the quality of data being reported by universities; however, there is scope for DIISRTE to develop an overarching data quality strategy. This is particularly important in view of the level of funding distributed through the RBGs and the focus on the RBGs as a fair mechanism for allocating funds in line with the Government’s policy objectives. A quality assurance strategy would facilitate a more systematic approach to data integrity and the consistent treatment of data quality issues. A data quality strategy could also bring within its scope reviews that focus on technical issues and allow these to be managed as part of a broader quality assurance program.

25. Since 2009, reviews undertaken by DIISRTE have focused on the analysis of technical issues, with only limited analysis of scheme achievements against their objectives. Managing reviews of technical issues distinct from reviews that focus on the outcomes of the schemes would enable DIISRTE to achieve a better balance in the reviews it undertakes each year. It would also assist the department to ensure that the design and management of these reviews reflect their purpose.

26. The limited analysis of scheme achievements is also reflected in the RBG program’s key performance indicators, which currently focus on measuring the achievement of operational outcomes, rather than policy objectives. There is scope for DIISRTE to improve its monitoring and reporting framework to ensure greater balance between operational and policy objectives and in doing so, provide an information base on which the success of the schemes in achieving the Government’s policy objectives can be monitored and reported. Insights from this analysis would also provide an evidence base upon which to recommend changes to the RBG schemes in order to maintain alignment between the scheme objectives and the scheme outcomes. Fundamental to this work will be examination of the existing objectives statements for the schemes to ensure they reflect the Government’s goals.

27. Importantly, an enhanced performance monitoring and reporting framework would contribute to the Government’s reform aspirations for the higher education sector relating to improved governance arrangements, better coordination and collaboration, alignment to priorities and the measurement of performance. In support of these objectives, the Government announced a number of initiatives in its policy paper, Powering Ideas, including: the Sustainable Research Excellence scheme, negotiation of mission-based compacts and further development of the ERA process. With these initiatives now in place, there has been a significant broadening of the information base from which DIISRTE could frame its analysis and measure outcomes for the RBG schemes.

28. The ANAO has made two recommendations aimed at assisting the department to: consolidate data quality activities under a quality assurance strategy; and monitor and report on the performance of the RBG schemes.

Key Findings

Program design (Chapter 2)

29. DIISRTE effectively implemented the Sustainable Research Excellence and Joint Research Engagement schemes. Key deliverables and deadlines were achieved in accordance with both the Government’s commitments and the established timeframes.

30. In particular, DIISRTE’s implementation of the schemes was well planned, allowing for the iterative development of key components of the funding methodologies. This work was supported by consultation and communications activities aimed at both providing information and obtaining feedback at key points. Nevertheless, there was no formal risk management framework or process associated with the implementation of these schemes. While high-level risks were incorporated in the department’s broader corporate risk management reporting, this did not directly support the
day-to-day implementation task and associated risks. That said, the practical actions taken by DIISRTE indicated an awareness of key risks and steps were taken to manage and mitigate these.

31. For any future significant changes to the program there would be benefit in DIISRTE adopting a documented risk management approach. Such an approach would provide the department with greater visibility of the risks and improve its ability to monitor their management.

Funds allocation and distribution (Chapter 3)

32. DIISRTE’s process for allocating and distributing funds is generally effective and is underpinned by internal procedures for authorising and approving the allocations. The distribution of funds is well supported by internal processes for ensuring the timeliness and accuracy of fortnightly payments. The information and computer technology that underpins the allocation and distribution of funds is fit-for-purpose, well documented and is supported within the department’s information and communications technology (ICT) environment.

33. DIISRTE’s approach to data quality assurance could be improved. While the department has in place quality assurance activities it does not have an overarching data quality strategy which outlines the objectives and how the various activities contribute collectively towards these. As a result there are gaps in the activities associated with identifying and addressing misreporting and reporting errors. There are also no defined quantitative thresholds, or tolerance levels to assist in determining the materiality of identified data quality issues and the appropriate course of action to address these.

Review and evaluation (Chapter 4)

34. Since 2009, DIISRTE has undertaken a number of reviews which have been important in addressing technical issues and providing confidence that funding is being allocated accurately. However, these reviews have generally involved only limited analysis of scheme achievements against their objectives. This limited focus is also reflected in the program’s key performance indicators, which focus on measuring operational outcomes, such as the accurate and timely provision of funds to universities, without complementary measures related to the policy objectives.

35. RBGs are a key mechanism for providing funding to the higher education sector, and measuring the direct impact of this funding can be challenging. However, with $1.7 billion in funding to be provided
during 2012–13, there is scope for DIISRTE to improve its monitoring and reporting framework to incorporate a more outcomes focused approach. Fundamental to developing a framework will be the establishment of an information base from which to monitor and report on the success of the schemes in achieving the Government’s policy objectives. Progress has been made in this area, in particular, through development of the mission-based compacts to define performance measures and universities’ individual missions, the development of ERA outcomes to provide a measure of the excellence of research activity, and the implementation of the Sustainable Research Excellence scheme to facilitate visibility of the indirect costs of research. Collectively, these and other information sources provide a basis from which to develop indicators and to measure performance.

36. A performance monitoring and reporting framework which has a balance of operational and policy measures will both increase transparency for stakeholders and assist the department to advise government on the impact of the RBGs. A balanced framework would focus on how RBGs are contributing to the Government’s reform aspirations for the higher education sector relating to improved governance arrangements, better coordination and collaboration, achieving an alignment between scheme objectives, scheme outcomes and government priorities, and measuring performance.

Summary of agency response

37. DIISRTE’s summary response is provided below, while the full response is provided at Appendix 1.

The Department welcomes the ANAO’s assessment that the Research Block Grants Program (RBG) is generally being administered effectively and that it has effectively managed the implementation of new component schemes of the RBG within the expected timeframes.

The Department agrees with the ANAO recommendations to develop an overarching data quality strategy for the program and to develop more outcome-focused performance indicators.

The Department has commenced work on developing and documenting new and enhanced data handling and control measures for the strategy and expects to have the complete strategy fully implemented later in 2013.

The Department notes that there are inherent difficulties in identifying outcomes that are directly attributable to support programs such as the RBG, so will examine possible systemic performance indicators, especially in relation to research quality and research impact. However, it is not yet clear whether widely accepted, robust measures on quality and impact will be available for use in the near term.

Recommendations

Footnotes

[1] The Australian higher education sector comprises universities and other higher education institutions. Higher education institutions include self-accrediting or non self-accrediting providers. The Australian education system comprises: 39 universities of which 37 are public institutions and two are private; one Australian branch of an overseas university; three other self-accrediting higher education institutions; and non self-accrediting higher education providers accredited by State and Territory authorities, numbering more than 150.

[2] Australian competitive research grants are defined as funding provided on a nationally competitive basis (nationally advertised) and available to all Australian universities for research purposes only.

[3] Block funding refers to fixed sum funding provided by the Government for a specific purpose with limited provisions regarding how the funds are spent.

[4] On 25 March 2013, DIISRTE’s responsibilities were expanded to incorporate the former Department of Climate Change and Energy Efficiency and the department was renamed the Department of Industry, Innovation, Climate Change, Science, Research and Tertiary Education (DIICCSRTE). Throughout this report the department is referred to as DIISRTE; the department’s name at the time the audit was being undertaken.

[5] Department of Industry, Innovation, Science, Research and Tertiary Education, Portfolio Budget Statement 2012–13, DIISRTE, 2012, pp. 61-63.

[6] Higher degree by research refers to research-based study at the doctorate or masters level.

[7] Powering Ideas responded to recommendations stemming from a review commissioned by the Government in January 2008 to identify and recommend solutions to gaps in the national innovation system. This review was known as the Cutler Review.

[8] This funding was revised as part of the Government’s 2012–13 Mid-year Economic and Fiscal Outlook, with the timeframe for reaching the maximum level of funding extended to 2016–17.

[9] ERA provides a direct measure of research excellence in Australian universities, allowing for comparison of Australia’s research nationally and internationally, and for identification of areas of research strength and opportunities for development. ERA enables the Government to link funding to performance based upon research excellence. ERA outcomes are currently being used as a key measure to inform the allocation of funding to support the indirect costs of research through the RBG program’s Sustainable Research Excellence scheme.

[10] The Infrastructure Grants Scheme ceased in December 2009 with funding re-directed to the Joint Research Engagement scheme commencing in January 2010.

[11] Australian Government, Powering Ideas: An Innovation Agenda for the 21^st Century, Commonwealth of Australia, Canberra, 2009, p. 8.

[12] Calculation of the Australian Post-graduate Awards and International Post-graduate Research Scholarships allocations also considers the number of continuing students already receiving these scholarships.

[13] For 2012, Sustainable Research Excellence Threshold 2 payments were made separately in two lump-sum payments during the year.

[14] While referred to as ‘grants’, the RBG schemes are not classified as grants under the Australian Government’s financial management framework and are specifically excluded from the application of the Commonwealth Grant Guidelines. Regulation 3A(2)(k) of the Financial Management and Accountability Regulations 1997 (FMA Regulations) stipulates that payments made for the purposes of the HESA Act are not grants for the purposes of the FMA Regulations.

[15] As a result of the Higher Education Support Amendment (Maximum Payment Amounts and Other Measures) Act 2012, maximum amounts are now determined by the Minister through a legislative instrument, rather than being set out in the legislation.