Background

1. The Australia Council is the Australian Government’s arts funding and advisory body.¹ The Australia Council’s overarching outcome is to support ‘Australian artists and arts organisations to create and present excellent art that is accessed by audiences across Australia and abroad’.²

2. The Australia Council delivers arts funding principally through a range of grants programs. In 2015–16, grants programs delivered by the Australia Council included: the Major Performing Arts Program and government initiatives ($123.2m); and the Australia Council Grants Program ($50.6 million).³ Total expenditure on grants programs ($173.8 million) represented 88 per cent of the Australia Council’s total expenses ($197.6 million) in 2015–16.

3. In administering its Grants Program, the Australia Council is required to use public funds efficiently. This responsibility is explicitly stated in the:

• Public Governance, Performance and Accountability Act 2013 (PGPA Act) which requires the accountable authority—in this case, the Board of the Australia Council—to manage and use public resources efficiently⁴; and
• Australia Council Act 2013 which requires the Australia Council’s Board to ensure the proper and efficient performance of the Australia Council’s functions, and the delivery of these through a range of policies and programs, including the provision of grant funding.⁵

Audit objective and criteria

4. The objective of this audit was to determine whether the Grants Program is being administered efficiently by the Australia Council in relation to suitable comparators. To form a conclusion against the audit objective, the following high level criteria were adopted:

• How do the costs and other input and output indicators of administering the Grants Program compare against suitable comparable organisations as well as to the Australia Council’s previous approach?
• Does the design, implementation and administration of the Grants Program promote the efficient use of resources?

Conclusion

5. Benchmarking against comparator entities indicates that the Australia Council could be more efficient in administering the Grants Program.

6. The Australia Council has not established grant administration metrics to support the measurement and benchmarking of its efficiency in administering grant funding—one of the key mechanisms for delivery of its statutory functions—against suitable organisations or its own performance over time. Benchmarking conducted by the ANAO indicates that the efficiency of the Australia Council’s administration of the Grants Program, and its component grants programs, varies across the measures calculated.

7. Consistent with its legislative obligations, the Australia Council has sought to be efficient in its grants administration although, in the absence of an efficiency baseline, measures and trend analysis, it is not clear if the steps taken have improved efficiency. While some elements of the Australia Council’s approach to grants administration reflected a risk-based approach to improving efficiency, the approach adopted was not supported by a more formal risk assessment. Conducting a risk assessment would assist the Australia Council to better align resources to risk and identify opportunities for greater efficiency.

Supporting findings

Measuring and comparing efficiency in grants administration

8. The Australia Council has not established metrics to inform itself, the Parliament and the public about how efficient the Australia Council is at distributing arts grants funding.

9. The Australia Council captures data about inputs and outputs but it does not currently use this data to calculate measures of efficiency. The ANAO calculated that—for the period from December 2015 to November 2016—the average cost for the Australia Council to: administer the Grants Program was $0.04 for each $1 of grant funding; and to administer each application received was $1 359.

10. It is unclear if the Australia Council has become more efficient over time. The Australia Council has not measured changes in its efficiency over time, or set a target(s) to work towards. Although it has sought to improve its grants administration efficiency through the redesign of the Grants Program, it is unclear if the Australia Council’s grant administration is more efficient as a result of the changes it has made.

11. The Australia Council does not benchmark the efficiency of its grants administration processes against other organisations. Benchmarking conducted by the ANAO indicates that the Australia Council’s average cost to administer the Grants Program is $0.01 (33 per cent) above the average cost of the group of comparator entities selected by the ANAO. Results for three of the five programs included in the Grants Program against the efficiency measure (cost to provide $1 grant funding) were lower than the average cost for the eight non-Australia Council grants programs analysed. For the same measure, the average cost across the five Australia Council programs was 46 per cent higher than the average cost for the eight non-Australia Council grants programs.

Promoting efficient grants administration

12. The Australia Council has taken steps to promote efficient grants administration. However, the impacts of these changes are unclear as the Australia Council does not assess and measure its efficiency.

13. The Australia Council has not undertaken a risk assessment of its Grants Program to inform its approach to grants administration. There would be benefit in the Australia Council assessing risks more formally and using that assessment to identify opportunities to better target resources.

Recommendations

Summary of entity responses

14. A summary of entity responses are below, with full responses provided at Appendix 1.

Australia Council

The Australia Council and its Board take their statutory obligations very seriously and are committed to the delivery of accessible, efficient and effective arts funding, including through the Australia Council grants program. The Australia Council welcomes the ANAO audit report on the efficiency of its grants program and agrees in principle to its recommendations.

The Australia Council is pleased that the ANAO audit report acknowledges the significant structural reforms that have been implemented across the Council and its grants program. Throughout the design and implementation of the grants program, the Australia Council and its Board have worked assiduously to achieve high standards of efficiency and effectiveness in the delivery of arts funding. Efficiencies have already been realised through a significant reduction in the number of grants categories, development of streamlined funding criteria and eligibility requirements, and a decrease in staffing levels for the grants program, despite increases in the quantum of grants funds under administration.

The Australia Council notes its view that the ANAO’s findings in respect of benchmarking Council’s grants administration efficiency against other organisations did not sufficiently acknowledge the lack of data available from relevant comparator organisations to benchmark against. Given that data from relevant comparator organisations was not available for the ANAO’s audit, the Australia Council does not consider that the benchmarking exercise undertaken by the ANAO was an appropriate measure of comparative performance.

The Australia Council is committed to the continuous improvement of its grants administration processes and will continue to consider the ANAO’s recommendations as part of Council’s ongoing work to improve the delivery of its grants program. The Australia Council notes the Government’s recent decision to transfer an additional $80.2 million over four years to the Australia Council from 2017-18 will enable it to increase the level of investment in the grants program and deliver significant efficiency gains, which are estimated to be approximately 20 per cent for those programs to which additional funds will be applied.

Department of Finance

The Department of Finance supports the finding of this report regarding Australia Council considering the option of sourcing grants administration support and services via the Community and/or Business Grants Hubs.

Department of Social Services

DSS welcomes the finding from the ANAO performance audit report relating to the Department and notes the potential cost savings for the Australia Council if the Community Grants Hub was used to deliver grant funding. DSS would welcome working with the Australia Council in considering accessing grants administration support and services via the Community Grants Hub as part of the Australia Council’s planned IT business needs analysis.

National Health and Medical Research Council

NHMRC strongly supports the peer review of grant applications and commends the Australia Council on its commitment to efficient and effective peer review. NHMRC extends its support for the Australia Council as it continues to strengthen and streamline its administration and is more than willing to share our experience with Australia Council.

Introduction

1.1 The Australia Council is the Australian Government’s arts funding and advisory body.⁶ The Australia Council’s overarching outcome is to support ‘Australian artists and arts organisations to create and present excellent art that is accessed by audiences across Australia and abroad’.⁷

1.2 The Australia Council delivers arts funding principally through a range of grants programs. In 2015–16, grants programs delivered by the Australia Council included:

• the Major Performing Arts Program—a total of $107.8 million was provided to 28 companies in the fields of dance, theatre, circus, opera, and orchestral and chamber music under the National Framework for Governments’ Support of the Major Performing Arts Sector;
• government initiatives—$15.4 million for the National Regional Programs, Sounds Australia, and the Visual Arts and Craft Strategy; and
• the Australia Council Grants Program—multi-year funding for organisations ($22.6 million) as well as funding for individual artists and small to medium organisations ($28.0 million).

1.3 In 2015–16, the Australia Council’s total expenditure on grants programs ($173.8 million) represented 88 per cent of total expenses ($197.6 million) for that year.

The Australia Council’s Grants Program

1.4 The Australia Council delivers five grants programs (collectively referred to as ‘the Grants Program’) for which successful applicants are identified through a peer assessment process.⁸ These five grants programs are:

• Arts Projects (Individuals and Groups)—grants of $10 000–$50 000 for activities that deliver benefits to the arts sector and wider public, including national and international audiences;
• Arts Projects (Organisations)—grants of $10 000–$100 000 for activities that deliver benefits to the arts sector and wider public, including national and international audiences;
• Career Development Grants for Individuals—grants ranging from $5 000–$25 000;
• Fellowships—grants of up to $80 000 to support outstanding, established artists’ creative activity and professional development for a period of up to two years; and
• Four Year Funding for Organisations—grants of $75 000–$300 000 per annum for four years for small to medium arts organisations of significant regional, national or international standing.

1.5 In administering its Grants Program, the Australia Council is required to use public funds efficiently. This responsibility is explicitly stated in the:

• Public Governance, Performance and Accountability Act 2013 (PGPA Act) which requires the accountable authority—in this case, the Board of the Australia Council—to manage and use public resources efficiently⁹; and
• Australia Council Act 2013 which requires the Australia Council’s Board to ensure the proper and efficient performance of the Australia Council’s functions, and the delivery of these through a range of policies and programs, including the provision of grant funding.¹⁰

Introduction of a new grants model

1.6 The Australia Council’s purpose, administration and governance model was reviewed in 2012. The report (Review of the Australia Council¹¹) included a recommendation that a new model of grant allocation be developed. To address this recommendation, a new Grants Program model was designed and initially implemented in January 2015. Following changes in the Council’s operating environment, the Grants Program was subject to significant redesign and commenced operating in its current form in 2016. The new Grants Program model aimed to streamline the Australia Council’s approach to grants funding and make funding more accessible for artists by: condensing over 140 grant categories into five categories; simplifying the eligibility and assessment criteria; and involving more peers in the assessment process.¹²

1.7 The new grants management framework has been subject to post-implementation reviews of: the design and operation; all grants administration stages (application to contract execution); and the peer assessment processes. The new Grants Program model was revised to improve efficiency following changes in the Australia Council’s operating environment in 2015 (these are discussed further in paragraphs 3.5–3.7).

Audit approach

Audit objective and criteria

1.8 The objective of this audit was to determine whether the Grants Program is being administered efficiently by the Australia Council in relation to suitable comparators. To form a conclusion against the audit objective, the following high level criteria were adopted:

• How do the costs and other input and output indicators of administering the Grants Program compare against suitable comparable organisations as well as to the Australia Council’s previous approach?
• Does the design, implementation and administration of the Grants Program promote the efficient use of resources?

Scope

1.9 The ANAO examined the extent to which the Australia Council is administering the Grants Program efficiently including by comparing the Australia Council against entities that undertake similar activities.

1.10 The audit did not examine the Australia Council’s administration of other grants and initiatives. Further, the ANAO did not assess the effectiveness of the grants programs in delivering outcomes.

Audit methodology

1.11 The ANAO’s methodology for auditing efficiency is based on a general model for assessing public sector performance (Figure 1.1). Efficiency is defined to mean the use of resources such that output is optimised for any given set of resource inputs, or input is minimised for any given quantity and quality of output.

Figure 1.1: A general model for assessing public sector performance

Source: ANAO.¹³

1.12 The methodology recognises that an examination of efficiency needs to be ‘fit-for-purpose’ for each entity or subject matter being audited. In most cases, this is likely to include:

• identifying the relevant input and outputs, as well as the policy outcome(s) being sought;
• determining appropriate performance measures, drawing on data for inputs and outputs;
• identifying suitable comparators to benchmark against, to identify relative efficiency;
• identifying the key operational processes that are used to transform input into outputs (or outcomes) and the linkages between these elements; and
• undertaking appropriate audit procedures to understand and account for any material differences in the comparison of measured efficiency.

1.13 As part of audit fieldwork, the ANAO:

• examined the Australia Council’s records;
• interviewed Australia Council officers;
• identified suitable organisations to compare the Australia Council’s grants administration against; and
• examined data and interviewed officers from benchmark organisations.

1.14 The ANAO benchmarked aspects of the Australia Council’s grants administration against a number of organisations that undertake similar activities to monitor performance and identify improvement opportunities.¹⁴ Comparators used by the ANAO included Commonwealth entities that conduct grants administration activities and Australian state government arts funding entities.¹⁵ The ANAO also compared the contestability of the Australia Council’s grants administration costs against a cost estimate for the provision of grants administration services by an external provider.

1.15 The audit was conducted in accordance with the ANAO Auditing Standards at a cost to the ANAO of approximately $157 000.

1.16 The team members for this audit were Sally Ramsey, Brian Boyd and Vincents – Assurance & Risk Advisory.

Has the Australia Council established grants administration efficiency metrics?

2.1 The Australia Council has not developed metrics to measure and report on how efficient it is at distributing arts grants funding.¹⁶ As the provision of grant funding is the principal activity through which the Australia Council seeks to achieve its overall outcome, including some measures of efficiency in its reporting would:

• provide the Board of the Australia Council (the accountable authority) with management information to inform decisions on whether, and where, further efforts to improve efficiency may be required;
• assist the Board to demonstrate that its obligation under the Australia Council Act 2013—to ensure the proper and efficient performance of the Australia Council’s functions¹⁷—is being met; and
• provide a richer performance story¹⁸ to the Parliament and other stakeholders.

2.2 In considering appropriate performance information, the Australia Council should have regard to the guidance material provided by the Department of Finance on the enhanced performance reporting framework. In particular, Finance has provided guidance material on developing good performance information, and this includes advice on developing efficiency measures, as well as input and output measures.¹⁹

Can efficiency measures be calculated from the Australia Council’s data?

2.3 The Australia Council had not previously undertaken an analysis of the costs of administering the Grants Program. For the purposes of this audit, the Australia Council prepared a grants administration costing for the period from December 2015 to November 2016. The Australia Council’s costing data was sufficiently granular to support an analysis of efficiency for the Grants Program: at the aggregate level; at the individual grants program level; and for all activities within the grant management life cycle.

2.4 In the absence of the Australia Council identifying its own efficiency measures, the ANAO has selected two measures that could be calculated from the data available to provide insight into what influences efficiency in relation to the Australia Council’s administration of the Grants Program.²⁰ These measures are the:

• administrative cost of providing $1 of grant funding; and
• administrative cost per application received (to assess the application and for the ongoing management of successful applications).

2.5 Box 1 outlines key factors identified by the ANAO for assessing the efficiency of grants administration at the Australia Council.

2.6 Analysis against the two measures selected by the ANAO is based on the following Australia Council data (as outlined in Table 2.1), the:

• results of funding rounds, including the number of applications received and approved grant funding; and
• costs of administration such as, overheads, costs associated with staffing—such as salaries, leave and superannuation—and the costs associated with the peer assessment of applications for grants funding.

Table 2.1: Selected results and costs for the Grants Program (December 2015 to November 2016)

Source: ANAO analysis of Australia Council data.

Administrative cost of providing $1 of grant funding

2.7 The administrative cost of providing each $1 of grant funding considers the amount of grant funding awarded as the key output of grants administration. This measure is calculated by dividing total costs of administration (costs as a proxy for actual inputs) by the total approved grant funding amount.

2.8 For the period December 2015 to November 2016, the cost to administer the Grants Program was $0.04 for each $1 of grant funding. For the same period, the cost to administer each of the five grants programs varied from $0.01 to $0.51 for each $1 of grant funding provided (see Figure 2.1).

2.9 Based on this measure, efficiency indicators vary across the five grants programs for the period covered by the costing. For example, the administration of the Four Year Funding for Organisations ($0.01) costs the Australia Council significantly less per $1 of grant funding than the administration of the Career Development Grants ($0.51). The cost drivers affecting the results for this measure were the quantum of funding and the number of applications.²¹ Relative to the other grant programs, the:

• Four Year Funding for Organisations program had a high quantum of approved funding and a low number of applications; and
• Career Development Grants program had a small quantum of approved funding and a high number of applications.

2.10 The Four Year Funding for Organisations data strongly influences the Grants Program’s cost to administer each $1 of grant funding. For example, removing the Four Year Funding for Organisations program from the Australia Council’s Grants Program data set results in an increase in the cost of administering $1 of grant funding from $0.04 to $0.23.

Figure 2.1: Administrative cost of providing $1 of grants funding December 2015 to November 2016

Source: ANAO analysis of Australia Council costing data.

2.11 The variability of administrative cost associated with providing each $1 of grant funding across the five grants programs may indicate that there are opportunities to improve efficiency at this level. Better alignment between the number of applications received and quantum of funding available would result in efficiency improvements against this measure. Managing the number of applications through demand controls is discussed further in paragraphs 2.32–2.34.

Average cost of administration per application received

2.12 The average cost of administration for each application received focuses on the accessibility of funding opportunities. For this measure, the number of applications received is a proxy for the output. This is a useful measure for the Australia Council as it is seeking to make its grant funding widely accessible through the new grants model. This measure was calculated by dividing the total cost of administration by the number of applications received which provides insights into how the resource intensiveness of the assessment process varies between grant categories.

2.13 For the period from December 2015 to November 2016, each application the Australia Council received cost, on average, $1 359 to administer. For the five grants programs, the cost per application varied between $1 231 and $2 522 (as outlined in Figure 2.2).

Figure 2.2: Average cost of administration per application received December 2015 to November 2016

Source: ANAO analysis of Australia Council costing data.

2.14 The average cost of administration was higher for programs that received a low number of applications. This indicates that fixed costs may have a significant influence on the result. Implementing activities to reduce fixed costs (such as overheads) would assist to improve the efficiency of all grants programs operated by the Australia Council, not just the Grants Program.

Has the Australia Council become more efficient over time?

2.15 Comparing current performance to past performance is one way of examining efficiency, including monitoring the impact of efforts to improve efficiency. To examine efficiency over time an entity must identify its starting point, and then assess changes over time through trend analysis.

2.16 As previously discussed, the Australia Council introduced a new Grants Program model in 2015 with the aim of being more flexible and responsive to the needs of the arts sector. In its 2014–15 Annual Report²², the Australia Council reported the implementation of the grants model was ‘supported by a revised organisational structure and efficient new business processes implemented throughout 2014–15’. Changes to the grants model were intended to deliver a consistent and efficient approach to grant-making which would improve the Australia Council’s ability to use available resources effectively and integrate new programs into existing processes.

2.17 The Australia Council identified the following benefits with a potential impact on the efficiency of the Australia Council’s Grants Program administration:

• consistent assessment criteria, resulting in time savings for peers due to a greater understanding of the grant requirements; and
• reduced internal complexity and having a fit-for-purpose corporate structure, resulting in the reduction of inputs (staff costs) for the Australia Council.

2.18 As part of the implementation of the new Grants Program, the Australia Council’s Board and management monitored and reviewed the ‘outcomes’ of funding rounds including: approved grants funding; the number of applications received; the number of successful applications; and other ‘fundable’ applications. Matters monitored and reviewed by the Board also include the applicants’ geographic details²³, success rates by State and Territory, the tracking of first time applicants and the number of unsuccessful applicants requesting feedback.

2.19 The Board’s monitoring and review arrangements have not provided sufficient focus on the extent to which the implementation of the Grants Program has improved grants administration efficiency—a key responsibility of the Board. For example, the project plan for the implementation of the Grants Program did not identify baseline data, a measurement framework or efficiency targets. Without baseline data and analysis against targets, it is unclear whether the new grants model has resulted in efficiency improvements as the Australia Council intended.

Does the Australia Council benchmark the efficiency of its grants administration processes against other relevant organisations?

2.20 The Australia Council has not benchmarked its grant administration processes against the grant administration processes of other entities. In the absence of Council benchmarking activities, the ANAO has benchmarked the Australia Council’s grants administration against a number of organisations that administer grants.

2.21 External benchmark data that draws together data from a range of entities with relevant characteristics provides a point of comparison to assess the relative efficiency of the Australia Council’s Grants Program. There is no single Commonwealth entity that is an exact match to the Australia Council’s grants administration approach, but grants programs are a common approach used to achieve Commonwealth and state government policy objectives, working in partnership with recipient individuals and organisations. On this basis, the ANAO identified a group of Commonwealth entities that conduct grants administration (as outlined in Table 2.2) and obtained costing data. In recognition of the Australia Council’s peer assessment based grant model, the ANAO included in the group of comparators the:

• National Health and Medical Research Council—as its grant assessment process also involved peer assessments; and
• Western Australia Department of Local Government, Sport and Cultural Industries (which includes a division called Culture and the Arts WA²⁴)—as it provides grants to the arts sector and uses a peer assessment based grant assessment model.²⁵

Table 2.2: Entities identified as suitable comparators to benchmark the efficiency of the Australia Council’s grant administration processes

Note a: These 11 departments, along with an additional two government departments, are participants in the Streamlining Government Grants Administration Program (the SGGA Program). The SGGA Program is discussed further in paragraphs 3.20–3.22.

Note b: Culture and the Arts WA’s new grants program came into effect on 1 March 2017.

Source: ANAO summary of the entities’ advice.

2.22 Based on the data available, the Australia Council’s efficiency in administering the Grants Program and the five individual grants programs could be benchmarked against the comparator entities using one measure—the cost of providing $1 of grant funding. Benchmarking would provide more useful information about the Australia Council’s efficiency in terms of the costs of administering grants programs if: a range of qualitative and quantitative metrics were compared; and the process was repeated periodically.

Comparing entities average cost of providing $1 of grant funding

2.23 Across the group of comparator organisations, the cost of providing $1 of grant funding ranged from $0.01 to $0.11 with the average cost being $0.03 (as shown in Figure 2.3). As previously discussed in paragraph 2.8, the Australia Council’s cost of providing $1 of grant funding was $0.04 for the Grants Program.

Figure 2.3: Comparison of the Australia Council grants administration costs (for the Grants Program) against other organisations

Source: ANAO analysis of costing data.

2.24 This analysis indicates that, on the basis of the cost to administer $1 of grant funding, the Australia Council was relatively less efficient than the average population of grants administrators as its overall ratio was $0.01 higher (33 per cent) than the average across the comparators. The Australia Council’s result was within the range of costs across the group ($0.01 to $0.11). For the period from December 2015 to November 2016, a $0.01 reduction in administration cost per $1 of grant funding provided by the Australia Council represented $1.35 million that could otherwise be provided as grant funding.

2.25 When compared to the other entities, the Australia Council’s overhead costs were relatively high against the direct staffing costs applied to each grants program. On average, the Australia Council’s overhead costs contributed 47 per cent of the total costs to administer a grants program.²⁶ Further, peer assessment costs ranged from 13–32 per cent of the total costs to administer an individual grants program. There would be merit in the Australia Council examining its major costs (including overheads and peers assessment costs) and looking for opportunities to drive efficiency.

2.26 Using cost as a proxy for actual inputs suggests that cutting costs is the key to improving efficiency. There is a balance to be struck though, between cutting costs and achieving quality outcomes and other important goals. For example, applying a high proportion of total costs to assessment reflects the importance of the grant selection process to identify those applications that will provide the greatest value with public money in the context of the objectives of the granting activity. To better identify cost drivers (such as risk, complexity, phase in the grants administration lifecycle) and assess their impact on costs and the achievement of outcomes, there would be merit in the Australia Council undertaking further benchmarking against comparators and against its own performance over time.

Comparing cost of providing $1 of grant funding for individual programs

2.27 Program level data was available from comparator entities for eight individual programs. The cost of providing $1 of grant funding for each of the Australia Council’s five grant programs was compared against the average costs for those eight programs (as shown in Figure 2.4).

Figure 2.4: Comparison of administration costs of the five Australia Council grants programs and individual grants programs from other organisations

Source: ANAO analysis of costing data.

2.28 Based on the data in Figure 2.4, the average cost to provide $1 of grant funding for: a non-Australia Council program was $0.15; and an Australia Council program was $0.22 (46 per cent higher), which suggests that the Australia Council could administer grants more efficiently.

2.29 In terms of the individual grants programs, the cost to provide $1 of grant funding for:

• three of the Australia Council’s five grants programs was lower than the non-Australia Council programs’ average cost; and
• two of the Australia Council’s five grants programs was higher than the non-Australia Council programs’ average cost. In each case, the small quantum of funds available and a large number of applications were contributing factors. Specifically:
  • for the Career Development grants program, a relevant factor is the small quantum of funding awarded ($2.133 million being awarded but with an average of 282 applications received in each funding round for the last three rounds); and
  • there was a high number of applications for the Australia Council’s Arts Projects—Individuals and Groups grants program (2135 applications received in a year).

2.30 Further work by the Australia Council is necessary to develop a clearer picture of the efficiency of the Australia Council’s programs as there are limitations to this type of benchmarking analysis, including the:

• data represents a single period in time. It is not clear if the data collected from any of the entities is ‘typical’ of the programs delivered. A better understanding of the Australia Council’s efficiency would be apparent from periodic analysis of costing data and benchmarking activity;
• different costing frameworks applied by organisations;
• amount of grant funding awarded. This varies considerably across entities, as well as within the Australia Council; and
• analysis does not consider the different activities, complexities and grants programs undertaken across the entities.

Managing demand

2.31 A key objective of the Australia Council’s revised Grants Program was to make grant funding accessible to a more diverse range of artists and organisations. The Australia Council advised, in its 2014–15 Annual Report, of an ‘unprecedented’ response to the new model with over 2 200 applications received, including from a significant number of new applicants to the Australia Council.²⁷

2.32 The number of applications received by the Australia Council is a key cost driver in administering the Grants Program. The relative impact of the quantum of funds versus the number of applications received was clear in relation to the administrative costs per $1 of grant funding (discussed in paragraph 2.11). For example, a lower number of applications relative to the quantum of funding positively influenced the result. In terms of the quality of applications received, the Australia Council’s records indicate that only a very small number of applications were ineligible (0.5 per cent since the March 2015 funding rounds), while a larger percentage were assessed as ‘not fundable’.²⁸

2.33 To try to reduce the large number of applications that are ‘not fundable’ within the Four Year Funding for Organisations program, the Australia Council has introduced a staged expression of interest process to minimise the number of low quality applications received and thereby reduce the assessment burden on the Australia Council. As shown in Figure 2.4, the Four Year Funding for Organisations program is already the most efficient program within the Grants Program. On this basis, there would be merit in targeting efforts to improve efficiency towards other programs.

2.34 In addition, the Australia Council advised the ANAO that it implemented a pre-application questionnaire in May 2017. The questionnaire is expected to assist potential applicants to better understand the eligibility requirements to reduce: the time officers spend on enquiries; and the number of ‘unfundable’ and ‘ineligible’ applications. The Council advised the ANAO that 82 per cent of applicants used the questionnaire, with the overwhelming majority directed to a suitable grants category and a small number referred to speak with a grants officer. In addition, 22 per cent terminated the questionnaire before completion. While the Australia Council aims to make funding more accessible for artists, further analysis of this category of applicants would be beneficial to determine if additional actions can be taken to manage demand as efficiently as possible within the available funding.

Has the Australia Council taken steps to promote efficient grants administration?

3.1 Through the introduction of the new grants model, the Australia Council has sought to introduce a consistent, adaptable and efficient approach to grant-making. The Australia Council has also sought to promote efficient grants administration by establishing systems and processes to support its grants administration more broadly.

Introduction of the new model for the Grants Program

3.2 In response to the 2012 Review of the Australia Council29, the Australia Council restructured the model underpinning its Grants Program to:

• simplify the suite of grants programs to be more easily understood and accessible to artists;
• strengthen the diversity and breadth of peers involved in the assessment process to better reflect and respond to contemporary Australian artistic practice;
• increase transparency, improve fairness for applicants and improve the Australia Council’s ability to evaluate the impact of their grant-giving; and
• introduce a consistent, adaptable and efficient approach to grant-making across the Australia Council to use resources more effectively and to integrate new programs into existing processes.

3.3 The key changes made to the model underpinning the Australia Council’s Grants Program are outlined in Table 3.1.

Table 3.1: Key changes made to the model underpinning the Australia Council’s Grants Program

Source: ANAO analysis of Australia Council information.

3.4 In line with the introduction of the new grants model, the Australia Council undertook a change program and restructure. This included centralising the grants administration team.

Revising the grants model to reduce costs following the May 2015 budget

3.5 As part of the May 2015 Budget, the Government announced that $110.0 million (over four years) was to be redirected from the Australia Council to the Ministry for the Arts in the Attorney-General’s Department. The Ministry for the Arts was to: establish a National Programme for Excellence in the Arts³⁰; operate the Visions of Australia and Festivals Australia programmes and the Major Festivals Initiative that had been transferred to it; and continue Creative Partnerships Australia’s matched funding programme for a further three years.

3.6 The redirection of funds was in addition to a budget measure for the Arts and Cultural Program—efficiencies of $7.2 million over four years to 2018–19 and the reduction of $6 million over three years to 2017–18 for the establishment of the Book Council.

3.7 In response to these budget reductions, the Australia Council took a number of steps to reduce its costs including :

• revising the grant guidelines. From 1 September 2015, any successful applicant could not submit an application for funding in the subsequent round;
• reducing the maximum funding provided. Maximum funding under Arts Projects—Organisations program was reduced from $150 000 to $100 000 and maximum funding under the Fellowships program was reduced from $100 000 to $80 000;
• reducing the duration of funding for Arts Projects—Organisations and Arts Projects—Individuals and Groups programs from three to two years;
• reducing funding for organisations from six-year funding blocks to four-year funding blocks, introducing a funding cap ($300 000 in grant funding per year) and restricting successful companies from accessing organisational project funding; and
• reducing the frequency of project grant rounds from four rounds to three rounds per year.

3.8 As the Australia Council has not previously prepared detailed costings, it was not able to assess and measure the impact of these changes or the impact of the new grants model on its efficiency. As a result, it is not clear whether these actions had the intended impact on the Australia Council’s efficiency. Some steps, such as reducing the duration of funding, may actually reduce efficiency if the output is negatively impacted as a result.

Systems and processes supporting grants administration

3.9 The Australia Council has established systems and processes to support its grant administration including:

• IT systems across the entire grant administration process (application, decision making, and management of funding agreements); and
• guidance material to support officers and peer assessors to undertake their roles.

The use of IT systems

3.10 The Australia Council uses IT systems to reduce staff time used for data entry and processing tasks. For example:

• applications are submitted online (99 per cent of grant applications are submitted online);
• grant recipients acquit funding online (96 per cent of acquittals are performed online);
• notification emails are generated automatically and emailed to grant applicants/recipients at different stages of the grant process³¹;
• grant funding agreements and peers’ contracts are generated and accepted; and
• peer assessors access applications and materials, and submit their application scores through an online portal.

3.11 In February 2017, the Australia Council approached the market to engage skills to conduct an IT business needs analysis, to support the development and implementation of its IT Plan. The Australia Council identified that there are challenges associated with the iterative development of the IT systems used to support grants administration.

3.12 Since 2014–15, the Australia Government has pursued a number of specific efficiency measures, including the Streamlined Government Grants Administration (SGGA) Program. The SGGA program aims to deliver consistent and efficient grants administration across Government, through two grants administration hubs. In this context there would be merit in the Australia Council considering the option of sourcing grants administration support and services via the hubs rather than maintaining its own system. The grants hubs are discussed further in paragraphs 3.20–3.22.

3.13 In addition, the Australia Council aims to improve its efficiency by automating the process for grant recipients and peer assessors to create and submit invoices to the Australia Council for payment.³² At present the process to make payments involves grant recipients and peers issuing their own bespoke invoices prior to payment. These must be entered into the payments system manually. By automating this process, the Australia Council aims to: avoid peer assessors or grant recipients submitting hard-copy/incorrect invoices to the Australia Council for processing of payments; reduce staff time involved in the coordination and processing of invoices (including data entry); and reduce regulatory burden on the peers and grant recipients relating to the presentation of invoices.

3.14 The Australia Council advised the ANAO in August 2017 that it finalised implementation of automating the process for grant recipients and peer assessors to create and submit invoices for payment in July 2017 and that the final cost of the automation process was $24 400. Automation is expected to deliver an incremental estimated cost saving of $28 500 per annum from 2017–18.

Procedural documentation

3.15 The Australia Council’s Grants Division has developed procedures, roadmaps, checklists, handbooks and induction material to assist and guide staff and relevant peer assessors through the grant process. Guidance material was generally up-to-date, covered the span of grants processes and was accessible from the Australia Council’s records management system or their online system for peer material.

3.16 At the time of audit fieldwork, the Australia Council had identified two opportunities to improve procedural documentation and was taking steps to address both matters. The matters identified were:

1. an April 2016 internal audit conducted by the Australia Council had identified that there was guidance across all steps in the process but there was not a single end-to-end procedural document in relation to key activities of the Peer Services team. There is merit in establishing such a document as the absence of easy-to-follow key procedural documentation has the potential to increase costs, for example, when new staff commence; and
2. procedural documentation for the management of Four Year Funding for Organisations funding agreements had been established and was being refined to incorporate the roles of staff involved with the process. Clarification of the guidance around operational activities would assist in minimising the Australia Council’s input costs if new staff commenced managing these funding agreements.

Reductions in grant administration staff numbers

3.17 Through its use of systems and processes to support its grant administration, the Australia Council has reduced its staff numbers. Between 2012–13 and 2016–17, grants staffing numbers fell from 52 full-time equivalents to 29 full-time equivalents (44 per cent). This has reduced the Australia Council’s grants staffing costs by nearly half.

3.18 The reduction in staff numbers has resulted in surplus of office space (an overhead cost) under the existing lease arrangement. Based on analysis performed by the Australia Council, in the best case scenario leasing all the surplus space out until the lease expires in 2019 has the potential to reduce lease costs by $506 343, of which savings of $158 296 would flow through to the administration costs of the Grants Program.

3.19 Reductions in administration costs (staff time and lease costs) positively influence measures of the Australia Council’s grants administration efficiency, if outputs are not reduced. It is not clear if output quality has been impacted (positively or negatively) over the same period by the adjustments the Australia Council has made to reduce costs following the May 2015 Budget or through automation of process and the availability of guidance material.

Opportunities to test the market

3.20 An example of an entity demonstrating ways to improve efficiency is to explore opportunities in the market for the provision of grants administration services. A new option available to public sector grant administrators is the Community Grant Hub (the Hub) which has been established as part of the government’s Streamlining Government Grants Administration (SGGA) Program.³³ The Program’s objective is to introduce a simpler, more consistent and cost-efficient grants administration process across government.

3.21 The Hub is operated by the Department of Social Services (DSS) and offers information for grant applicants and recipients about grants opportunities, products and policies.³⁴ Under an arrangement with the Hub, the client agency retains policy control for its grants program(s) while DSS provides grants administration services to the client. Currently, thirteen Commonwealth agencies are participating in this arrangement.

3.22 The Australia Council has not considered the option of engaging with the Hub for grants administration services. DSS provided indicative costs³⁵ to the ANAO for the provision of grants administration services for the Australia Council’s Arts Projects—Organisations and Arts Projects—Individuals and Groups programs through the Hub.

3.23 Based on the indicative costs provided, the ANAO identified potential cost savings for the Australia Council if the Hub was used to deliver grant funding. On this basis, there would be merit in the Australia Council considering accessing grants administration support and services via the Hub as part of the Australia Council’s planned IT business needs analysis.³⁶

Has the Australia Council applied a risk-based approach to grants administration?

3.24 The proportionality principle in grants administration involves striking an appropriate balance between the complexity of the granting activity, including the ongoing requirements for the grant recipients, and effective management of the risks for beneficiaries and the Commonwealth.³⁷ Not only does a risk-based approach help protect an organisation from the realisation of an identified risk, it can also reduce input costs by aligning administrative requirements with the assessed level of risk.

3.25 In relation to the Grants Program, the Australia Council advised that a risk assessment had not been performed.³⁸ Potential risks or contentious issues are to be identified for each funded project through the peer assessment process and reported to the Australia Council’s Executive (on an exception basis). However, this information is not recorded in the Grant Management System (GMS) to ensure staff awareness or to inform an assessment of recurrent risks. This situation has the potential to increase input costs if staff time is not being directed to activities that are rated as higher in risk.

3.26 There was evidence of a risk-based approach being applied in some aspects of the Australia Council’s design of its grants administration framework. For example, the Australia Council tailored acquittal and reporting requirements depending on the value of the grant provided. While the Australia Council is not required to meet the Commonwealth Grant Rules and Guidelines (CGRGs), there would be benefits in the Australia Council undertaking a more formal risk assessment to inform a risk-based approach to its administration of grants. A formal risk assessment would assist the Australia Council to identify key risks to the Grants Program and establish mitigation strategies through the grant management procedures and guidelines.³⁹ Application of the proportionality principle to the design of the Grants Program may offer opportunities for cost-savings.

3.27 Case Study 1 outlines how the proportionality principle might be implemented in the Grants Program in relation to the peer assessment process.

Note a: For example, for the Arts Projects—Individuals program and the Arts Projects—Organisations program: the level of experimentation and risk taking involved in the work may be considered under the artistic merit criterion; the relevance and timeliness of the proposed activity may be considered under the viability criterion; and the skills and artistic ability of the people involved and their relevance to the proposed activity.

Note b: In 2015–16, the Australia Council, approved 705 grants for amounts of less than $50 000 for the Arts Projects and Community Development Grants programs.

Appendix 1 Entity responses