Background

1. The Department of Families, Community Services and Indigenous Affairs (FaCSIA) provides funding under many programmes to facilitate social outcomes and benefits to the Australian community. These programmes typically fund non-government organisations to deliver services that contribute to such outcomes and benefits.

2. Service providers funded by FaCSIA deliver services for the Australian Government's family and community support programmes through grants,¹ subsidies and various related funding arrangements.² In 2005–06, FaCSIA administered approximately 20 000 funding agreements, and administered $1.029 billion in direct funding to a range of non-government service delivery outlets.³

3. This audit builds on the work of Audit Report No.47 2005–2006, Funding for Communities and Community Organisations which was tabled in June 2006. Audit Report No.47 2005–2006 covered those aspects of FaCSIA's administration of grants to communities and community organisations occurring once the decision to fund a particular applicant has been made and notified to the applicant.⁴ To determine organisations to fund via community grant programmes, FaCSIA is typically responsible for: promoting funding rounds; developing, distributing and receiving application forms; appraising applications; providing advice to Ministers regarding which applicants to fund⁵; and notifying organisations of the outcomes of their applications. This audit examines FaCSIA's administration of these processes.

4. The ANAO noted in Audit Report No.47 2005–2006 that grants provided to eight organisations as a result of government commitments made during the 2004 Federal Election⁶ were not included in the scope of that audit but would be considered in this second audit.⁷ This was because those grants were not part of the FaCSIA programmes examined in Audit Report No.47 2005–2006. By the time the current audit was underway, these grants were being administered by the branch responsible for administering the Local Answers and Volunteer Small Equipment Grant (VSEG) programmes. The ANAO's focus in the current audit was on whether FaCSIA administered these one-off grants according to their objectives, and in line with relevant legislation and guidelines.

Audit Approach

5. The scope of this audit included grant programmes administered by the department between March 2003 and March 2006, relating to four of the five funding groups of programmes providing funding for communities and community organisations.⁸ In total, these funding groups involved expenditure of some $517 million in 2005–06. The audit focused on four separate grant sub-programmes within these four major funding groups, as well as the eight community projects funded as a result of government commitments during the 2004 Federal Election (see Figure 1).

Figure 1 Grants examined in audit

Note:

(A) Expenditure for the VSEG 2005 round covered in this audit was 2004–05 expenditure.

(B) Total funding provided under the VSEG programme was $3.3 million in 2003 and 2005, and $12.1 million in 2004. The Government announced in the 2007–08 Budget that it will provide $66 million over five years for an expansion of the VSEG programme, including $10 million in 2006–07.

(C) This was the total funding for the eight projects.

Sources: Local Answers Programme Guidelines (Draft) 2004–2008, Volunteer Small Equipment Grants 2004 (Round Two) Guidelines, <www.facsia.gov.au&gt;, Budget Measures 2007–08, Budget Paper No.2, p. 194, and FaCSIA advice to ANAO.

6. In October 2005, Mr Chris Bowen MP, the Federal Member for Prospect, wrote to the Auditor-General about concerns he had regarding the administration of two rounds of funding for the VSEG programme (the second funding round conducted in 2004 and the 2005 funding round). The ANAO had already commenced work on an audit of FaCSIA's administration of grants to communities and community organisations (including the VSEG programme) when Mr Bowen's letter was received. Having considered Mr Bowen's request, the Auditor-General decided that the ANAO would examine the issues raised by Mr Bowen but that, in order to ensure that the bulk of this audit work could still be published in a timely manner, the audit would be undertaken in two parts.

7. Audit Report No.47 2005–2006, tabled in June 2006, constituted the first part. This audit constitutes the second part, examining FaCSIA's administration of grants to communities and community organisations up to the point that recipients are selected, notified and the grants announced.

8. This audit also encompasses examination of grant selection and distribution for the Local Answers and VSEG programmes.⁹ In this context, the ANAO examined the pattern of approvals of grants to States/Territories¹⁰ and to electorates held by the Government and Opposition parties in recent funding rounds. The ANAO reviewed the allocation of grants under the VSEG programme for the 2003 round, both 2004 rounds and the 2005 funding round and, during the same period, under the larger Local Answers programme¹¹, which is also part of the Local Answers stream of the Stronger Families and Communities Strategy. This approach is similar to that undertaken by the ANAO in previous audits of grants programmes.¹²

Audit objectives and methodology

9. The objectives of the audit were to assess:

• whether FaCSIA has effectively administered the distribution of funding for the Local Answers, VSEG, Reconnect and Minor Capital Upgrade programmes, including promoting the relevant schemes to potential applicants, developing application forms, handling and appraising applications, selecting recipients and making grant announcements;
• the pattern of approvals of grants to States/Territories and to electorates held by the Government and Opposition parties under the Local Answers and VSEG programmes; and
• whether FaCSIA administered eight one-off grants to community organisations provided as a result of Government commitments during the 2004 Federal Election campaign in line with relevant legislation and guidelines.

10. The methodology for the audit involved an analysis of the funding distribution processes and practices for the grants set out in Figure 1. The methodology and criteria for the audit were developed using the ANAO Administration of Grants Better Practice Guide. The ANAO also surveyed organisations that applied for the VSEG 2005 funding round and the third Local Answers funding round, completed in 2006.¹³ The survey sought information about the promotion of the two programmes, and client satisfaction with: the application process and feedback provided by FaCSIA on application outcomes; and the funding agreement process (for successful applicants only).

11. During and subsequent to the ANAO's audit fieldwork, FaCSIA was undertaking a number of initiatives to improve its administration of grant programmes. These reforms include re-engineering its business process to support greater efficiency, effectiveness, consistency and improved accountability for its decisions through all stages of the funding agreement lifecycle.¹⁴

12. The department also advised the ANAO that it intends to enhance over time its recently implemented FaCSIA Online Funding Management System (FOFMS), which supports the department's community services programmes and provides improved reporting mechanisms. The VSEG Round 2006 was the first community grants programme to use the FOFMS online application system.¹⁵

13. The ANAO considers that these initiatives have the potential to improve FaCSIA's administration of grant programmes. However, given that many of these initiatives were either commenced or largely implemented after audit fieldwork, the audit could not assess their impact.

Overall audit conclusion

14. The ANAO found that FaCSIA had established generally sound procedures to administer the Local Answers, VSEG, Reconnect and Minor Capital Upgrade programmes. Across these four grant programmes, FaCSIA has generally been able to attract a sufficient number and distribution of grant applications, receive sufficient information from applicants via a hard copy or online application, appraise these applications according to merit and based on programme guidelines, document the basis for recommendations to Ministers as to which organisations to fund, and notify organisations of the outcomes of their applications in a timely manner.

15. FaCSIA's administration of the approval processes for the one-off grants to community organisations and VESG Round One 2004 was below the standard expected of Australian Government agencies. Given the fundamental importance of the approval process in relation to the expenditure of public funds, and for accountability purposes, it is critical that agencies have a clear understanding, and record, of ministerial decisions.

16. In the case of the one-off community grants, once a funding source had been agreed with the Minister for Finance and Administration for these Government election commitments, the department proceeded to enter into funding agreements with the grant recipients without obtaining the then Minister for Family and Community Services' approval of these spending proposals under the Financial Management and Accountability Regulations 1997 (FMA Regulations).

17. In the case of VSEG Round One 2004, FaCSIA advised the ANAO that it proceeded to fund organisations on the basis of its understanding of the Ministers' decisions based on advice from the then Minister for Children and Youth Affairs' office that the Minister had decided to make a different decision on 120 applications compared to the department's funding recommendations for this round. However, the Ministerial Submission approving grants in VSEG Round One 2004, subsequently signed by both the then Minister for Family and Community Services and the then Minister for Children and Youth Affairs did not include any reference to the then Minister for Children and Youth Affairs' 120 changes to the department's funding recommendations. There was generally very little documentation included in FaCSIA's records of the reasons why the then Minister reached a different decision on these applications to that recommended by the department.

18. The audit identified five key areas of departmental administration that warranted further attention. These concerned:

• reviewing the cost-effectiveness of its promotion strategies for all four programmes;
• improving the readability and logical structure of the application forms for the Local Answers and Reconnect programmes;
• clarifying appraisal guidelines to staff, and providing more comprehensive training to staff appraising applications for funding under the Reconnect and Minor Capital Upgrade programmes;
• applying greater discipline to departmental practices supporting Ministerial approval of the spending proposals relating to grant programmes so as to ensure that where such approvals are required they are obtained, and that accurate records of such approvals are maintained; and
• improving the explanation to applicants of reasons why they were not successful in their applications for funding under the Local Answers and VSEG programmes.

19. The audit has also reinforced aspects of the report of the House of Representatives Standing Committee on Environment, Recreation and the Arts (HORERA) into the Community, Cultural, Recreational and Sporting Facilities Program more than a decade ago. The Committee emphasised the importance of the Minister involved in the selection of grants under that programme documenting the processes that lead to decisions and recording reasons for decisions so that the Minister could be accountable to the Parliament. In addition, the Committee recommended that, ‘where additional information is obtained and departmental officials' ratings¹⁶ are amended by the Minister, or if for any other reasons the ratings are amended, that additional information and its impact should be documented'.¹⁷ In the absence of Ministers recording such reasons, confidence in the administration of the programme and the equitable allocation of grants can be eroded.

Pattern of approvals

20. The Local Answers and VSEG programmes have distributed funding across States and Territories evenly on a per capita basis. ANAO statistical analysis found that, overall for these programmes, the political party holding an electorate did not have a statistically significant independent impact on either the average grant size or the success rate of applications in electorates.

21. While average funding to Labor Party electorates was around 10 per cent higher than to Coalition electorates for the three Local Answers rounds examined in this audit, average funding to Coalition electorates was around double that to Labor Party electorates for the four VSEG rounds.

22. The ANAO's analysis¹⁸ identified that the slightly higher average amount of funding provided in the three Local Answers rounds to electorates held by the Labor Party compared to those held by the Government was mainly due to a higher success rate, with average grant values also slightly higher for organisations successfully applying for Local Answers funding in Labor Party electorates compared to those held by the Government.

23. The ANAO's analysis also identified that the higher value of VSEG funding to Coalition electorates across the four VSEG funding rounds examined in the audit was predominantly due to the higher number of applications by organisations in these electorates (see Figure 2).

Figure 2 Proportion of VSEG applications and funding (2004 round twoA) relating to electorates held by the major political parties

Note: (A) This round was typical in terms of the proportion of VSEG applications received from community organisations in   the electorates held by each of the major political parties across all four VSEG rounds examined by the ANAO.

Source: ANAO analysis of data provided by FaCSIA.

Selection of grant recipients

24. The relevant portfolio Minister selects the applicants to be funded under these programmes on the basis of recommendations provided by the department formulated as a result of the application appraisal process. Responsible Ministers accepted FaCSIA's advice for funding, and not funding, organisations in around 99 per cent of cases over the three Local Answers and four VSEG rounds examined.

25. In VSEG Round One 2004 and Local Answers Round Two, the two funding rounds containing the greatest proportion of instances where Ministers' final funding decisions varied from the department's recommendations, Ministers still accepted the large majority of the department's funding recommendations (98.2 per cent and 96.1 per cent respectively). The relevant Minister reached a different decision in respect of 120 (or 1.8 per cent) of the department's 6818 funding recommendations in VSEG Round One 2004.¹⁹ In Local Answers Round Two, the Minister made a different decision in respect of 32 (or 3.9 per cent) of the department's 812 funding recommendations.²⁰ However, the effect of the then Ministers' changes in these funding rounds was to increase funding to Coalition electorates (see paragraphs 65 to 68 for further information).

26. There can be many reasons for Ministers funding, or not funding, projects contrary to departmental advice. For example, these decisions may be made taking into account the Minister's perspective on factors such as ‘national interest, affordability, strategic considerations and other whole of government situations'.²¹ They may also be made on the basis of a Minister giving a higher priority to one or more assessment criteria than the department. Or they may be made for reasons not encompassed by the programme objectives and guidelines.

27. There is no requirement under the FMA Regulations for approvers, including Ministers, to record the reasons for their decisions or the nature and extent of the inquiries they undertake to satisfy themselves that a proposal to spend public money will make efficient and effective use of public money, as required under Regulation 9 of the Financial Management and Accountability Regulations 1997 (FMA Regulation 9). Notwithstanding this, it is sound practice to do so, and is consistent with Parliamentary Committee views.

28. On those occasions where the relevant Minister made a different decision on a grant application to that recommended by the department, there was generally little record of the reasons why. The pattern of distribution of instances where the relevant Minister funded projects at variance to FaCSIA's advice for VSEG Round One 2004 and Local Answers Round Two favoured Coalition electorates. It would have been prudent for Ministers to annotate reasons for these decisions. Such documentation may have allowed Ministers to demonstrate that: the programme parameters, as established by the Government and advised to the public, were being met; and that all applicants were treated fairly. In the absence of such documentation, the then Ministers were not able to explain to the ANAO the reasons why they reached different decisions to the department's funding recommendations in respect of 120 applications in VSEG Round One 2004 and 32 applications in Local Answers Round Two, the distribution of which favoured Coalition electorates.

Administration of VSEG Round One 2004 approval process

29. Both the then Minister for Family and Community Services and the then Minister for Children and Youth Affairs were involved in the approval process for VSEG Round One 2004. The then Ministers were provided with a submission setting out the department's funding recommendations for the funding round on 5 April 2004. Subsequently, the then Minister for Children and Youth Affairs' office advised FaCSIA of the 120 changes that the Minister wished to make. FaCSIA then amended the entries regarding the 120 affected applications in its database such that the department's funding recommendations in the database agreed with the then Minister for Children and Youth Affairs' changes.

30. However, both Ministers subsequently signed the department's original 5 April 2004 Ministerial Submission²³ and the 120 changes which had been made by the then Minister for Children and Youth Affairs were not annotated on, or attached, to this document. Accordingly, the document signed by the Ministers did not specify that 38 organisations originally recommended for funding by the department were not to be funded in this round or that 82 organisations not originally recommended for funding by the department were to be funded.

31. The department did not subsequently provide a further submission to the Ministers requesting approval of the revised list of organisations to be funded in line with the variations advised by the then Minister for Children and Youth Affairs. Rather, the department advised the ANAO that it proceeded on the basis of the advice received from the then Minister for Children and Youth Affairs' office of the then Minister's decisions on the 120 applications affected.²⁴ This advice was received prior to the Ministers signing the 5 April 2004 Ministerial Submission.

32. The ANAO concluded that FaCSIA's administration of the approval process for VSEG Round One 2004 fell below the standard expected of Australian Government agencies in administering grant programmes.

One-off grants to community organisations

33. FaCSIA's administration of the approval process for the eight one-off grants to community organisations provided as a result of Government commitments during the 2004 Federal Election campaign also fell below the required standard.

34. FaCSIA did not seek the Minister's approval of the details of funding for these projects, once these details were established. If FaCSIA had gone back to the Minister at this point seeking approval of the details of all eight one-off grants, the requirements of FMA Regulation 9 would have been satisfied and the then Minister could have confirmed that the final funding details were consistent with the Government's intentions.

35. The ANAO concluded that, with the exception of the approval process, FaCSIA had generally administered these grants in line with relevant legislation and guidelines.

Key Findings by Chapter

Promotion of grant funding (Chapter 2)

36. The ANAO considers that FaCSIA's promotion of the most recent VSEG, Local Answers, Reconnect and Minor Capital Upgrade funding rounds was effective in attracting a sufficient number of eligible applicants from each State and Territory and from metropolitan and non-metropolitan areas.

37. Nevertheless, to help ensure that effective and consistent promotional strategies are adopted across all States and Territories, the ANAO considers that there would be merit in FaCSIA developing guidelines to assist staff tasked with promoting community grants programmes.

38. The ANAO also considers that there would be benefit in FaCSIA undertaking periodic reviews of its promotional activities in relation to community grants programmes. This should assist FaCSIA to identify the most cost-effective promotional strategies that are well suited to its target audience(s).

39. Given the significant (and growing) reliance of community organisations on electronic communication methods, the ANAO considers it desirable that FaCSIA list all future public funding rounds for community grant programmes on the GrantsLINK website.

Application forms (Chapter 3)

40. The ANAO found that the VSEG, Local Answers, Reconnect and Minor Capital Upgrade application forms were generally user-friendly, with adequate accompanying guidance. An ANAO survey of VSEG applicants found that over 85 per cent of applicants were satisfied with the overall application process, with less than three per cent reporting concerns about the VSEG application form.

41. However, only 70 per cent of Local Answers applicants surveyed by the ANAO were satisfied with the overall application process, with around seven per cent citing concerns with the Local Answers application form as the reason for their dissatisfaction with the process.²⁵

42. Apart from peak load problems with online applications for VSEG funding in the 2005 round, the ANAO considers that FaCSIA has generally provided organisations with ready access to forms and appropriate alternative means to complete and submit these forms. FaCSIA has continuously improved VSEG, Local Answers and Minor Capital Upgrade application and assessment processes.²⁶

Appraisal of grant applications (Chapter 4)

43. The ANAO found that that FaCSIA's overall application appraisal arrangements were adequate for the Local Answers and VSEG programmes, but not for the Minor Capital Upgrade Funding²⁷ and Reconnect²⁸ programmes. FaCSIA advised the ANAO in February 2007 that it would review the guidance to be provided for staff appraising Reconnect and Minor Capital Upgrade Funding applications to ensure that applications are assessed consistently.

44. Interviews with FaCSIA staff conducted during this audit, and the previous ANAO audit of FaCSIA's funding agreement management of programmes for communities and community organisations²⁹, revealed that a significant proportion of officers responsible for the assessment, selection and management of funding agreements were not sufficiently skilled or accredited to understand or assess financial reports or to perform viability assessments. The ANAO is aware that some of FaCSIA's State and Territory offices have recently been running financial training courses to improve officers' ability to read and analyse financial statements. FaCSIA further advised the ANAO in February 2007 that it would provide relevant financial management training, that reflects the complexity of the application and assessment process, for all staff assessing applications in future grants funding.

45. Each of the programmes examined by the ANAO in this audit had implemented a quality control process that involved other, senior members of the appraisal team reviewing appraisal decisions made by the original appraising officer. The ANAO considers that these processes improved the appraisal process.

46. However, the ANAO notes that FaCSIA's quality control activities for the VSEG and Minor Capital Upgrade Funding programmes did not adequately consider whether appraisal processes were consistent across States and Territories. FaCSIA advised the ANAO in February 2007 that it is continuing to further improve the consistency of assessment processes.³⁰

47. The ANAO found that, with the exception of the Reconnect programme, the programmes examined had implemented an assessment process that generally recorded sufficient information to demonstrate that applications had been assessed according to merit. However, FaCSIA officers shredded all application assessments for the last funding round of the Reconnect programme (conducted in 2000). This decision was made on the basis of incorrect advice provided by the Reconnect probity advisor—that FaCSIA was not required to keep the application assessment records prepared by individual assessment officers.

Distribution of VSEG and Local Answers funding (Chapter 5)

48. The ANAO examined the pattern of approvals of Local Answers and VSEG grants to States/Territories and to electorates held by the Government and Opposition parties.

VSEG

49. The ANAO found that across the four VSEG funding rounds examined in the audit, the share of funding by State and Territory was closely correlated to each jurisdiction's share of the total Australian population. Thus, the programme was successful in achieving its objective of distributing funding evenly across all States and Territories.³¹

50. ANAO statistical analysis found that the political party holding an electorate did not have a statistically significant independent impact on either the average grant size or the success rate of applications in the electorate. The analysis indicates that around 95 per cent of the variation in VSEG funding across electorates held by the major parties is attributable to differences in the number of applications from organisations in those electorates, with the other five per cent being mostly attributable to differences in the success rate. The ANAO identified virtually no variation attributable to differences in average grant size.

51. More applications for VSEG funding were received from Government electorates partly because the Government held more non-metropolitan seats (from which more VSEG applications are typically received than metropolitan seats), and partly because Government MPs were much more active than Opposition MPs in encouraging organisations to apply for the grant.

52. The ANAO notes that ahead of the 2005 VSEG funding round, the then Minister for Family and Community Services wrote to Government MPs alerting them to the fact that the funding round was about to commence and inviting them to promote the programme. While it is always open to Ministers to write to other Government members to advise them of grant programmes, it would be consistent with their wider Ministerial responsibilities to provide equal opportunity to all MPs to become aware, or be reminded, of the programme funding available to community organisations in their electorate.³²

Local Answers

53. While the Local Answers programme did not have an explicit objective to distribute funding evenly, it distributed funding reasonably consistently with each State and Territory's share of the total Australian population, across the three funding rounds examined in the audit.

54. Over the three Local Answers funding rounds, average Local Answers funding to Labor electorates was around 10 per cent higher than average Local Answers funding to Coalition electorates. ANAO analysis indicated that the political party holding the electorate did not have a statistically significant independent impact on the total Local Answers funding received by organisations in an electorate, the application success rate, the average grant size or the number of Local Answers applications.

Selection of grant recipients–VSEG and Local Answers (Chapter 6)

55. The administration of grant funding by Ministers has traditionally been a sensitive area of public administration, requiring care on the part of Ministers to ensure that programmes are administered in accordance with any legislative provisions and the programme parameters determined and announced by the government of the day. Ministers are expected to discharge their responsibilities in accordance with wide considerations of public interest and without regard to considerations of a party political nature.³³

56. Like many community grant programmes administered by FaCSIA, the VSEG and Local Answers grants are discretionary, in that the responsible Minister has discretion, within programme guidelines, to determine whether or not a particular applicant receives funding and the conditions that are imposed. There were a number of different responsible Ministers throughout the four VSEG and three Local Answers rounds examined in the audit (Figure 1.1 in Chapter 1 sets out the Ministers responsible for grant funding decisions for these funding rounds).

57. FaCSIA carries out appraisal processes for the Local Answers and VSEG programmes according to guidelines approved by the relevant Minister, and then makes recommendations to the Minister as to which organisations should be funded.

VSEG funding decisions

58. Relevant Ministers approved funding for over 99 per cent of those organisations that FaCSIA recommended for funding in its Ministerial Submissions for three of the four VSEG rounds examined.

Round One 2004

59. In VSEG Round One 2004, 1.8 per cent of funding decisions of the then Minister for Children and Youth Affairs',³⁴ involving 120 applications, varied from FaCSIA's recommendations. There was generally very little documentation included in FaCSIA's records of the reasons why the then Minister reached a different decision on these applications to that recommended by the department.³⁵ During the course of this audit, FaCSIA advised the ANAO that in future it will request the Minister and his/her office to provide reasons for any discretionary changes to the funding recommendations provided by the department. This information, when provided, will be retained on FaCSIA files.

60. The then Minister for Children and Youth Affairs' did not provide the ANAO with any further explanation of the reasons for his decisions in regard to these 120 applications. The ANAO notes that there is no requirement under the FMA Regulations for approvers, including Ministers, to record the reasons for their decisions or the nature and extent of the inquiries they undertake to satisfy themselves that a proposal to spend public money will make efficient and effective use of public money, as required under FMA Regulation 9. However, as noted in paragraph 19 it is sound practice to do so, and is consistent with Parliamentary Committee views.

Administration of VSEG Round One 2004 approval process

61. After Ministers were provided with a submission setting out the department's funding recommendations for the funding round on 5 April 2004, the then Minister for Children and Youth Affairs' office advised FaCSIA of the 120 changes that the Minister wished to make. FaCSIA then amended the entries regarding the 120 affected applications in its database such that the department's funding recommendations in the database agreed with the then Minister for Children and Youth Affairs' changes.

62. The then Ministers for Children and Youth Affairs and Family and Community Services each subsequently approved the applicants to receive funding in the VSEG Round One 2004, on 22 and 24 April 2004 respectively.³⁶ However, the Ministers signed the original 5 April 2004 Ministerial Submission provided by the department, and the 120 changes which had been made by the then Minister for Children and Youth Affairs were not annotated on, or attached, to this document. Accordingly, the document signed by the Ministers did not specify that 38 organisations originally recommended for funding by the department were not to be funded in this round or that 82 organisations not originally recommended for funding by the department were to be funded.

63. The department did not provide a further submission to the Ministers requesting confirmation of the revised list of organisations to be funded reflecting the variations requested by the Minister for Children and Youth Affairs. Rather, the department advised the ANAO that it proceeded on the basis of the advice received from the Minister for Children and Youth Affairs' office of the then Minister's decisions on the 120 applications affected.³⁷ This advice was received prior to the Ministers signing the 5 April 2004 Ministerial Submission.

64. In this circumstance, there is no evidence that the requirements of the FMA Regulations were complied with in terms of approving the spending proposals relating to the funding of the 82 organisations added by the then Minister Children and Youth Affairs. Further, the ANAO notes that the then Ministers, in approving the unannotated 5 April 2004 Ministerial Submission, approved the applications of 38 organisations which did not subsequently receive funding.

Distribution by electorate of Minister's variations to FaCSIA's funding recommendations

65. A consequence of the then Minister for Children and Youth Affairs' variations from FaCSIA's funding recommendations in the first round of VSEG funding in 2004 was an increase in the allocations to Coalition, particularly National Party, electorates. Although National Party electorates accounted for around 20 per cent of VSEG applications, around 70 per cent of the then Minister's variations from FaCSIA's funding recommendations (involving 85 applications) related to organisations in National Party electorates, with 15 per cent of variations (involving 17 applications) relating to organisations in the then Minister's own electorate. Most of these variations, including those relating to the then Minister for Children and Youth Affairs' electorate, involved funding organisations from National Party electorates that FaCSIA had not recommended to fund.³⁸ A small portion of the variations were to not fund projects that FaCSIA had recommended for funding.

66. Many of these variations involved replacing strongly ranked applications with those that were ranked significantly lower. There were also a number of organisations that were approved for funding by the then Ministers whose applications FaCSIA had appraised as not consistent with the VSEG guidelines and, in terms of the department's appraisal, should not be funded. There was no evidence to suggest that any senior FaCSIA executives advised the then Minister for Children and Youth Affairs that, in the absence of additional information, such applications either did not satisfy the VSEG programme guidelines, or were relatively weak compared to other projects, and requesting that the Minister review these selections in light of this situation.

2005 Round

67. In the VSEG 2005 round, the then Minister for Family and Community Services accepted 10 264 (or 99.8 per cent) of the 10 283 funding recommendations provided by the department. Thirteen of the 14 organisations the then Minister for Family and Community Services added to FaCSIA's recommendations had a letter of support from an MP. Twelve of these 13 organisations had the support of Coalition MPs. However, consistent with the VSEG guidelines the Minister had approved for selecting successful applicants, the VSEG application form had advised applicants that attachments would not be taken into account.³⁹ Letters of support from parliamentarians and other individuals could be considered an attachment as they are separate from the submitted application forms.

68. Accordingly, using the existence of a letter of support from parliamentarians as an apparently highly influential factor when deciding whether an application should be funded, potentially disadvantaged the large majority of applicants in the VSEG 2005 round who did not obtain and submit with their application such a letter. To support the Minister to administer the VSEG 2005 funding round, the department could have provided a reminder that the approved VSEG guidelines did not allow for attachments, and that letters of support from parliamentarians could be considered as an attachment to an application.

Local Answers funding decisions

69. While the relevant portfolio Minister accepted virtually all of FaCSIA's ‘most highly rated' recommendations for the three Local Answers funding rounds examined in the audit, the then Minister for Family and Community Services did not accept 3.9 per cent of these recommendations for the second round held in 2005.

70. In Local Answers Round Two, the then Minister for Family and Community Services accepted 780 (or 96.1 per cent) of the department's 812 funding recommendations. The Minister made a total of 32 changes to FaCSIA's recommendations (3.9 per cent of the total) deciding not to fund 10 organisations recommended by the department and to fund 22 alternative organisations selected from a list of applicants the department had assessed as ‘suitable' but not as among the 144 applicants assessed by the department as ‘most highly rated'.

71. The net impact of the Minister's variations from FaCSIA's recommendations for funding Local Answer's applicants in Round Two was to add nine grants to organisations in Liberal Party electorates, four grants to organisations in National Party electorates and one grant to an organisation in an electorate held by the Country Liberal Party, while organisations in Labor Party electorates received two fewer grants in total.⁴⁰ In the majority of instances where the Minister did not follow the department's advice in regard to whether a particular organisation should receive funding in this round, there was no documentation included in FaCSIA's records of the basis for these variations.

Administrative issues

72. Current VSEG programme guidelines do not describe the particular nature of the relationship between FaCSIA and the Minister's office during the appraisal and selection processes. For example, they do not specify how any communication with the Minister's office on the merits of particular applications should be managed prior to the department submitting its recommendations to the Minister.

73. The ANAO considers it important that FaCSIA avoid any communication with the Minister's office that may impinge on the application of objective, merit-based assessment of grant applications. This would generally preclude discussions with Ministers' offices on the merits of individual applications prior to the completion of the department's appraisal processes. Should, in exceptional circumstances, there be a reason for the department to discuss the merits of a proposal with the Minister's office prior to the completion of FaCSIA's appraisal processes, it would be prudent for this to only proceed with the agreement of a senior member of the department's executive in view of the potential risks to the integrity of the appraisal process. Any such discussion should be appropriately documented. On the other hand, it is clearly important that communication with the Minister's office be appropriately informed about other aspects of the programme's administration such as the total number of applications received, expected timing of the appraisal process, and other scheduling considerations.

74. In both the VSEG 2004 Round One and VSEG 2005 funding rounds, after the relevant Ministerial Submissions had been provided to the relevant Minister(s) setting out the department's funding recommendations for the round, FaCSIA changed the entry in its electronic database for each application where the relevant Minister's final decision was different to that recommended by the department in the relevant Ministerial Submission. This involved 120 applications in the VSEG 2004 Round One and 19 applications in the VSEG 2005 round. FaCSIA changed the entry in its database for each of these applications such that the department's funding recommendation recorded for each application aligned with the Ministers' final decision rather than the original recommendation put forward by the department in the relevant Ministerial Submission. To discharge its obligations to maintain records that adequately evidence business conducted and decisions made, FaCSIA should ensure the document history on its electronic VSEG records management system accurately and separately report FaCSIA's funding advice, and the Minister's funding decision.

Notifying organisations of the outcome of their application (Chapter 7)

75. FaCSIA completed the selection processes for the most recent Reconnect, Minor Capital Upgrade Funding and VSEG funding rounds in around two months.

76. Over six months elapsed between the application closing date and the announcement of outcomes for the 2005 Local Answers funding round. FaCSIA delivered the initial submission containing funding advice to the Minister on the 2005 Local Answers funding round in a timely manner. However slippage occurred due to the Christmas period and subsequent change of portfolio Minister. According to many respondents to a survey the ANAO conducted for the audit, these delays contributed to considerable dissatisfaction with the Local Answers selection process. FaCSIA advised the ANAO that it would consider strategies for communicating with applicants about delays in selection processes for its various grant programmes.

77. The ANAO surveys of Local Answers and VSEG applicants also found that, in many instances, successful applicants were notified before unsuccessful organisations. FaCSIA officers interviewed by the ANAO indicated that the formal announcement of successful organisations had occasionally been delayed, at the request of Ministers, to enable Ministers and MPs to be the first to inform successful applicants.

78. The announcement of grants can be a very sensitive issue at any time but especially in the lead up to an election. It is accepted that governments may choose the timing of announcements to suit their purposes having regard to other priorities.⁴¹ Nevertheless, from a programme administration perspective and, as a matter of good practice, it would generally be considered preferable for all decisions on approved or unsuccessful projects to be announced together, or within a relatively short period of time. This approach enables proponents to know the outcome of their proposals as soon as possible so they can begin implementing their projects or pursue any alternative sources of funding. It also has the added advantage of avoiding any perception that the timing of the announcements is being used for party-political purposes. The ANAO suggests that FaCSIA, to the extent possible, implement processes to ensure that all grant applicants, both successful and unsuccessful, are informed of the outcome of their application at same time or within a relatively short period of time.

79. Many unsuccessful applicants surveyed by the ANAO considered that FaCSIA had not provided them with clear and/or useful feedback about their grant application. Many of these applicants also advised that they were unaware that more detailed information and individual feedback was available from the department on request.

Community Organisations One-off Grants (Chapter 8)

80. During the 2004 Federal Election⁴² campaign the Government made commitments to fund, among other things, eight community projects to a value of some $565 000. The projects involved capital works for a range of organisations, especially community or sports clubs and scout groups. These projects were in marginal electorates.

81. On regaining office, the Government commenced actions to fund these projects, and FaCSIA became responsible for administering them. Six projects were transferred⁴⁴ from the Department of Transport and Regional Services (DOTARS), which was originally to fund them under the Regional Partnerships programme, one was transferred to FaCSIA via the Prime Minster's Office, and one was announced by the then Minister for Family and Community Services during the election campaign.⁴⁵

82. In executing funding agreements for these projects, the ANAO considers that FaCSIA used the appropriate format for all eight agreements. The objectives of six of the eight funding agreements were consistent with the objectives of the funding outlined in the available documentation relating to the election commitment announcements. However, for two of the eight projects, the ANAO noted some variations between the purposes for which the funding was to be made available as set out in the documentation relating to the election commitment announcements and the purposes stated in the funding agreements.

83. FaCSIA provided a Ministerial Minute to the then Minister for Family and Community Services on 9 April 2005 seeking permission to implement and fund seven of the eight election commitment projects. However, FaCSIA did not send a further Minute to the then Minister specifically seeking approval of these spending proposals under FMA Regulation 9⁴⁶ , once the project details were known. This was required given that two of the projects, as set out in the funding agreements signed with recipients, varied from the purposes for the funding as set out in the documentation relating to the Government's election commitment announcements and one of the projects was not included in the 9 April 2005 Ministerial Minute.⁴⁷ FaCSIA agreed that a Submission should have been sent to the then Minister seeking approval of the details of funding for the eight projects.

84. The ANAO found that FaCSIA had made payments according to the terms of the funding agreements for all eight agreements.

Recommendations

85. The ANAO made four recommendations to improve FaCSIA's administration of funding for communities and community organisations, and highlighted a range of other areas where some refinement in approach would be beneficial.

FaCSIA response

86. The Secretary of the Department of Families, Community Services and Indigenous Affairs provided the following summary response to the audit findings.

The Department of Families, Community Services and Indigenous Affairs (FaCSIA) considers that the findings of the report highlights the importance of the reforms of the administration of community grant programmes that FaCSIA has put in place since the audit was conducted.

Following an extensive period of development and testing which commenced in November 2005, consistent and detailed procedures, tools and templates now guide staff through all stages of program development and delivery and establish appropriate standards of accountability and monitoring of the administration of community grant programs. Some of these tools have been progressively released over the past year, with the March 2007 release of the Program Funding Manual—Procedures and Requirements providing a consolidated reference source for staff. All new community grant programs are designed to comply with the new process requirements and existing programs will be required to comply by 30 June 2008. FaCSIA is pleased that the ANAO acknowledged that the reforms to the administration of community grants programs put in place by the department over the past two years have substantially addressed the concerns with program administration that were identified in the audit processes in place between 2003 and early 2006.

The department accepts the recommendations of this ANAO report.

Footnotes

1 In May 2002, the Australian National Audit Office (ANAO) released the Administration of Grants Better Practice Guide. The ANAO guide (p. 1) defines grants as: ‘a sum of money given to organisations or individuals for a specified purpose directed at achieving goals and objectives consistent with government policy. In a strict legal sense, a grant is a ‘gift' from the Crown, which may, or may not, be subject to unilaterally imposed conditions. However, the term is more generally used to include any funding arrangement where the recipient is selected on merit against a set of criteria. The term ‘grant' does not include funding of activities relating primarily to the provision of goods and services directly to a government agency'.

2 Related funding arrangements include case-based funding and funding according to milestone events.

3 Department of Family and Community Services, Portfolio Budget Statements 2004-05, p. 37.

4 Those components of FaCSIA's administration of grants and funding agreements examined in Audit Report No.47 2005-2006 included: the execution of grants; risk management procedures; the financial framework; arrangements to monitor service providers; and performance reporting.

5 Many community grant programmes administered by FaCSIA are discretionary, in that the responsible Minister has discretion, within programme guidelines, to select organisations to receive funding and the conditions that are imposed. Ministers may also be involved in notifying successful applicants.

6 As part of the 2004 Federal Election, held on 9 October 2004, the Coalition Government made commitments to fund, among other things, eight community projects to a value of $565 000. The projects involved a range of organisations, especially community or sports clubs and scout groups. Following the 2004 Federal Election, FaCSIA became responsible for administering Australian Government funding for these projects.

7 See footnote 18 on p. 33 and footnote 19 on p. 34 of ANAO Audit Report No.47 2005–2006, Funding for Communities and Community Organisations.

8 Similar to the coverage in ANAO Audit Report No.47, 2005–2006, op. cit., the four funding groups are Youth and Student Support; Community Support; Family Assistance; and Childcare Support. That audit, and the current audit, excludes disability services. ANAO Audit Report No. 14 2005–2006, Administration of the Commonwealth State Territory Disability Agreement examined services relating to the accommodation, care and participation in the community of people with a disability. The ANAO is considering a possible future audit of disability employment services. These two audits will provide comprehensive coverage of disability services.

9 Figure 1.1 in Chapter 1 sets out the relevant Ministers responsible for the grant funding decisions for the VSEG and Local Answers funding rounds examined in the audit.

10 Geographic distribution was a factor in the overall assessment of VSEG applications.

11 Funding provided to organisations under the VSEG programme totalled $3.3 million in each of 2003 and 2005, and $12.1 million in 2004. Funding to organisations provided under the Local Answers Programme totalled $17.1 million in 2004, $21.3 million in 2005 and $20.5 million in 2006.

12 For example, ANAO Audit Report No.30 1999–2000 Examination of the Federation Cultural and Heritage Projects Program, applied a similar methodology to examining the pattern of approvals of grants to States/Territories and to electorates held by the Government and Opposition parties.

13 Organisations that applied for funding under these programmes were selected at a random and invited to participate. However, the sample was stratified to include applicants from all States and Territories in proportion to the jurisdiction's share of total applications. The sample covered 528 of the 10 238 VSEG applicants in 2005, and 311 of the 568 Local Answers Round Three applicants. The sample included both successful and unsuccessful applicants.

14 FaCSIA implemented new procedures, guidelines, tools and templates to improve its community services programme administration. A compliance strategy and set of risk management tools will also assist in ensuring the new procedures are used across programmes.

15 The Strengthening Drought Affected Communities – Local Answers round also used FOFMS to assess applications and manage payments and funding agreements.

16 That is, the department's funding recommendations based on the outcome of the grants application appraisal process.

17 House of Representatives Standing Committee on Environment, Recreation and the Arts (1994) The Community, Cultural, Recreational and Sporting Facilities Programme: a review of a report on an efficiency audit by the Auditor-General, pp. ix, 36.

18 The ANAO conducted statistical analysis to assess to what extent variations across electorates in Local Answers funding were due to variations in application numbers, success rates and average grant size.

19 In VSEG 2004 Round One, the then Minister for Children and Youth Affairs decided not to fund 38 organisations recommended for funding by the department and to fund 82 organisations not recommended for funding by the department. The then Minister for Children and Youth Affairs and the then Minister for Family and Community Services subsequently jointly approved funding in this round.

20 In Local Answers Round Two, the then Minister for Family and Community Services decided not to fund 10 organisations recommended by the department and to fund 22 alternative organisations selected from a list of applicants the department had assessed as ‘suitable' but not as among the 144 applicants assessed by the department as ‘most highly rated'.

21 These reasons are cited in a model clause for inclusion in Commonwealth Request for Tender documentation, in those instances where the final recommendations of a tender process will be submitted to Cabinet for a decision on the preferred tenderer.

22 See paragraph 19 and the discussion of the findings and recommendations of the House of Representatives Standing Committee on Environment, Recreation and the Arts (HORERA) report into the Community, Cultural, Recreational and Sporting Facilities Program.

23 On 22 and 24 April 2004 respectively by the Minister for Children and Youth Affairs and the Minister for Family and Community Services.

24 And as entered in FaCSIA's database on the basis of this advice.

25 The primary reasons cited for dissatisfaction with the Local Answers application form related to: the word limits on application responses; technical difficulties with the online application form; the time taken to complete application forms; and the design and flow of the application form. FaCSIA advised the ANAO that the application form for Local Answers funding has subsequently been redesigned and market tested by an independent consultant.

26 To improve application and assessment processes, the department has drawn upon feedback from operational staff for each funding round, as well as any feedback received from applicants. FaCSIA is considering formalising these review procedures to ensure that all FaCSIA grant programmes benefit from such continuous improvement processes. FaCSIA is also considering seeking more systematic feedback on application processes from grant applicants. FaCSIA also advised the ANAO that it plans to examine community grant application processes in relation to: the word limits on the application responses, online lodgement, length of application form in relation to time taken to complete, and the design and flow of the application form.

27 The Minor Capital Upgrade Funding guidelines required applicants to include specific supporting documentation, such as audited financial statements. Yet, the programme appraisal criteria allowed for the possibility that an application might succeed without including such documentation. Similarly, the rating scale used for assessing applications under the Minor Capital Upgrade Funding programme did not allow officers to adequately assess applicants' financial status. For future funding rounds of the Minor Capital Upgrade Funding programme, FaCSIA should align its selection criteria and rating scales to programme guidelines surrounding the need for evidence of financial viability.

28 Five separate guidelines were available to staff appraising Reconnect programme funding applications. However, even in total, these guidelines did not provide staff with sufficient information to ensure that applications were assessed consistently and correctly by officers. Similarly, there were three separate, and conflicting, guidelines available to staff appraising the Minor Capital Upgrade Funding programme applications.

29 ANAO Audit Report No. 47 2005–2006 Funding for Communities and Community Organisations.

30 For example, during the 2006 VSEG funding round, an assessment team from the department's National Office in Canberra was used for all applications except for those received from the Australian Capital Territory. A team from a FaCSIA State office assessed the Australian Capital Territory applications, so that staff were not assessing applications from their own State/Territory.

31 Of the $18.8 million allocated to the VSEG programme for the 2003 to 2005 funding rounds, Coalition electorates received $12.8 million and Labor electorates received $5.2 million. This allocation largely reflects the proportion of electorates held by the major parties at the time of funding decisions and the pattern of applications for funding.

32 FaCSIA advised the ANAO that, ahead of the commencement of 2006 VSEG funding round, the current Minister for Families, Communities and Indigenous Affairs notified MPs from all political parties about the forthcoming round of VSEG funding.

33 See King L.J (the Hon.), November 1999, ‘The Attorney-General, Politics and the Judiciary', delivered to the Fourth Annual Colloquium of the Judicial Conference of Australia.

34 Both the then Minister for Children and Youth Affairs and the then Minister for Family and Community Services signed the Ministerial Submission approving funding for VSEG Round One 2004. However, only the Minister for Children and Youth Affairs sought any changes to the department's funding recommendations in this round.

35 For example, a Minister may reach a different decision on a grant application to that recommended by the department (as a result of its appraisal process for the grant programme) because the Minister gave a higher priority to one or more of the assessment criteria than the department.

36 The Minister for Children and Youth Affairs and the Minister for Family and Community Services both signed the same submission, which contained the same lists of FaCSIA recommendations in attachments.

37 And as entered in FaCSIA's database on the basis of this advice.

38 The ANAO conducted regression analysis to assess the extent to which the net additional grants per electorate due to the Minister's changes could be explained by the political party holding the electorate, among other factors. This analysis found that the hypothesis that the decision by the Minister to add an organisation to the VSEG funding list was unrelated to the party holding the electorate in which the organisation is based was strongly rejected (at a statistical confidence level of over 99 per cent).

39 The cover page of the VSEG application form for the 2005 round stated ‘please do not attach additional documents to your application forms. Attachments will not be considered'.

40 The ANAO was unable to conduct regression analysis to assess the extent to which the net additional grants per electorate due to the Minister's changes could be explained by the political party holding the electorate for Local Answers Round Two because the sample size was too small to allow this analysis.

41 APSC, Supporting Ministers, Upholding the Values, p. 47.

42 The election was held on 9 October 2004.

43 FaCSIA advised the ANAO that it was the department's understanding that the announcements of these election commitments were generally made as part of visits to the relevant communities by local Government MPs during the election campaign. In one instance, however, the announcement was made by the then Minister for Family and Community Services.

44 In February 2005.

45 None of the eight organisations which received funding via the community organisations one-off grants applied for funding for these projects under relevant FaCSIA programmes, such as the Local Answers programme.

46 FMA Regulation 9 requires an approver of a proposal to spend public money to undertake such inquiries as are reasonable that the proposal is in accordance with the policies of the Commonwealth and will make effective and efficient use of public money. Accordingly, approval under FMA Regulation 9 for these election commitment projects would appropriately have been given at the time when the approver was provided information about the detailed terms of the individual spending proposals. These terms include: the quantum of funding to be provided to the recipient; the project that the funding contributed to; the purposes of the funding; the precise nature of the outputs from the funding; the identity and amount of cash and in-kind co-funding being contributed by other parties; and any conditions under which the funding was received. The Minister was not aware of the last four of these terms when she signed the Ministerial Minute of 9 April 2005 and the Minister could not, at this point, confirm that the final funding details for the individual projects were consistent with the Government's intentions, as for some projects this changed after this point.

47 The eighth project, involving the Swan Italian Sporting Club, was transferred to FaCSIA to administer after the 9 April 2005 Ministerial Minute was provided to the then Minister for Family and Community Services.