Introduction

1. In August 2006 the Australian Government established the Liquid Petroleum Gas (LPG) Vehicle Scheme to promote the use and uptake of LPG. Under the Scheme, private vehicle owners claim a grant following the purchase of new LPG-powered vehicles, or conversion of existing petrol or diesel vehicles to operate on LPG only, LPG and petrol, or LPG and diesel. From commencement and through to its conclusion on 30 June 2014, it is anticipated that over 535 000 vehicle owners will be provided grants under the Scheme at a cost of approximately $870 million.

2. Applicant and vehicle eligibility criteria for the Liquid Petroleum Gas Vehicle Scheme (LPGVS) are set out in Ministerial Guidelines. Individuals meeting the Scheme's eligibility criteria are paid a grant. There are no limits on the numbers of eligible persons. When the Scheme commenced, LPG conversions of registered vehicles resulted in a grant of $2000, which will decrease to $1000 per vehicle from 1 July 2012. From 10 November 2008, owners of new dedicated LPG vehicles receive a $2000 grant (the grant was previously $1000), while the grant for owners of new vehicles fitted for LPG before first registration is $2000 for the duration of the Scheme.

3. The Scheme is administered by the Department of Innovation, Industry, Science and Research (DIISR) through its program delivery arm, AusIndustry. DIISR engaged Centrelink and Medicare Australia (Medicare) to deliver the Scheme due to their extensive service delivery experience. Centrelink and Medicare offices are the contact points for lodging applications. Centrelink is responsible for grant assessment, payment (using funds provided by DIISR), quality assurance and compliance.

4. To claim a grant, individuals submit an application form together with certified copies of the installer/dealer's tax invoice (paid in full), the vehicle's registration papers and their driver's licence. When assessing applications, Centrelink staff cross-check documentation, examine installer/dealer Australian Business Number (ABN) details and undertake other pre-payment eligibility checks. Quality reviews of processing accuracy are also undertaken for selected applications prior to payment.

5. Following payment of grants, Centrelink reviews a percentage of granted applications to provide assurance on payment accuracy (random reviews) and manage compliance risks (targeted reviews). These reviews primarily involve re-examination of supporting documentation, and confirmation of details with the applicant and/or installer via telephone.

6. There are approximately 3250 installers/dealers nationally, varying from small workshops to large car dealers, which accounted for some 85 000 grants in 2008–09. Almost all of these grants were for conversions of registered vehicles. Given that many State and Territory vehicle registration offices do not physically check that vehicles have been fitted for LPG, or record them as such in vehicle registration papers, there is a key reliance on the authenticity of the documentation provided by installers/dealers.

Audit approach

7. The audit objective was to assess whether the administration of the LPG Vehicle Scheme is effective. To address this objective, the audit considered whether:

• there is a sound framework for the operation of the Scheme;
• grants are promoted, assessed and approved in accordance with relevant guidance and regulations; and
• the Scheme's performance is monitored and reported.

8. The audit was a cross-portfolio review. It included an examination of the roles and responsibilities of DIISR (including AusIndustry), Centrelink and Medicare in the administration of the Scheme.

Overall conclusion

9. Since its establishment in August 2006, the LPGVS has encouraged vehicle owners to buy new LPG-powered vehicles or to convert existing petrol and diesel vehicles to operate using LPG. In aggregate, the Scheme provided grants to 226 619 vehicle owners between August 2006 and June 2009 at a cost of $451.8 million, well in excess of the initial estimate of $305 million for this period.

10. Overall, the LPGVS is well-designed and effectively administered. Eligibility requirements and administrative arrangements are clearly articulated in policy, guidelines and agreements; DIISR, Centrelink and Medicare combine to provide central contact points for applicants and effective service delivery; and, managerial oversight and risk management for the program are generally sound.

11. Application and assessment procedures for the Scheme are operating smoothly. Applicants have ready access to Scheme information and 93 per cent of applications are approved upon first being lodged. The majority of grant eligibility checks undertaken by Centrelink prior to payment are effective, providing assurance concerning payment correctness and enabling timely processing of applications. Where weaknesses in eligibility checks exist, options to strengthen them are limited by a lack of available information, and the likely low cost-effectiveness of improved measures. Fraud and compliance risks for the Scheme can be more appropriately mitigated through tailored compliance assurance activity than by further strengthening application assessment procedures.

12. Consistent with the LPGVS Fraud and Risk Compliance Strategy, Centrelink reviews just under five per cent of granted applications—almost all of which are ‘random' reviews, and normally performs checks on multiple payments to individuals' bank accounts. These measures help to address the Scheme's fraud and compliance risks. Further, in the period analysed by ANAO, less than one per cent of granted application reviews led to a debt being raised, and using the same information sources as Centrelink's compliance team the ANAO confirmed the appropriateness of decisions for a sample of these reviews.

13. Notwithstanding these conclusions, there are some relatively low cost improvements which could be made to quality assurance and compliance activity for the Scheme. Centrelink's ‘random' reviews of granted applications should be undertaken using a random sampling approach so that they provide an unbiased basis for assessing payment accuracy for the broader population.¹ Meanwhile, Centrelink's targeted reviews of granted applications should be better focused on the Scheme's key compliance risks. Improvement can also be made by Centrelink better documenting all checks on multiple payments to individuals' bank accounts.

14. Wherever possible, funding agreements for grant programs should convey appropriate authority to allow checking that the activity to which a grant relates has occurred. In the case of the LPGVS, Centrelink is unable to compel applicants, installers/dealers or other third parties to provide (or give access to) supplementary information to confirm eligibility, which increases reliance on the validity of core documentation. DIISR and Centrelink have recognised that their limited authority does present a compliance risk, and have previously explored options to strengthen the Scheme's review rights. In this regard, the results of better targeted granted application reviews will further inform the need for additional compliance checks. If required, any strengthening of Centrelink's review rights would need to be commensurate with the scale, nature and complexity of risks for what is a high volume but small sized grant.

15. When the LPGVS was first introduced, its objective was articulated as promoting the use and uptake of LPG. Subsequently, the Scheme has been linked to other objectives, such as providing financial assistance to families experiencing the high cost of fuel prices, and promoting cleaner environmentally friendly technology. Performance measures for the Scheme focus on inputs and outputs, rather than whether the outcomes sought are being achieved. In light of this, there would be benefit in clarifying the Scheme's objectives, and examining whether the grant has helped to achieve these objectives by influencing individuals' behaviour as intended.

16. The ANAO has made three recommendations directed towards strengthening compliance activity; improving quality assurance; and conducting a formal evaluation to assess the impact of the Scheme.

Key findings by Chapter

The Framework for the Scheme (Chapter Two)

17. Administration of the LPGVS is supported by a set of clearly articulated guidelines. Ministerial Guidelines outline eligibility criteria and administrative arrangements; Customer Guidelines provide relevant information to potential applicants; and, operational policy advice guides Centrelink staff in processing and reviewing applications. In all cases, revisions to policy and guidelines have been appropriately managed and authorised.

18. The respective roles and responsibilities of DIISR, Centrelink and Medicare in administering the program are properly documented. Regular meetings and consultation between the delivery partners facilitate changes to eligibility requirements, and address operational and compliance issues. A range of avenues exist for applicants to provide feedback on the Scheme and DIISR has responded appropriately to applicant correspondence.

19. AusIndustry and Centrelink regularly assess the Scheme's risks and implement measures to mitigate their impact. Within the framework provided by the Ministerial Guidelines, Scheme risk management is sound, but there is scope for improved documentation of reasons for changes to some annual risk assessments.

20. The absence of precedents to assist in making forecasts of Scheme demand and volatility in petrol and diesel prices resulted in underestimation of the funding required for the Scheme by $57 million (88 per cent) in 2006–07 and $67 million (69 per cent) in 2007–08. Since then, DIISR's engagement of a consultancy firm to forecast Scheme demand has resulted in more accurate forecasts and improved budgeting.

Applying for LPG Grants (Chapter Three)

21. DIISR produces a range of promotional documents for the Scheme which are distributed by Centrelink and Medicare offices nationally, and appropriately focuses promotional activities on applicant awareness of eligibility requirements, including by educating installers/dealers. To support the application process, DIISR has regularly updated the LPGVS application form to reflect changes in eligibility criteria, and improve its design and clarity. Further, the majority of applications rejected upon first being lodged are approved after being resubmitted with appropriate supporting documentation. As a result, the final application rejection rate is only two per cent.

22. To assess the eligibility of applications, Centrelink staff use an assessment checklist and undertake a range of pre-payment checks using the application form, supporting documentation and other publically available information. The ANAO found these checks were correctly applied for a sample of applications. There is, however, scope to improve assessment procedures by implementing a uniform assessment checklist at all LPG processing centres, rather than the practice observed during the audit of using different checklists at two processing centres and none at the other.² In addition, pre-payment checks in relation to two eligibility criteria³ are of limited effectiveness owing to their reliance on applicant information.

23. Approximately one-fifth of applications are quality reviewed before being finalised to check for processing errors. Despite this, around 10 per cent of Centrelink's electronic records were found to contain keying errors—mostly in relation to applicant, installer/dealer and vehicle details. During audit fieldwork, Centrelink classed date of birth and name keying errors as non-critical to quality reviews, implying applications with these errors may have been approved without being returned to grant assessors for correction. In response to the draft audit report Centrelink advised that it had reclassified these keying errors as critical.

Scheme Compliance and Payment Correctness (Chapter Four)

24. Under DIISR's and Centrelink's LPGVS Fraud and Compliance Risk Management Strategy, Centrelink is required to review five per cent of granted applications, and to check for multiple payments to individuals' bank accounts for all applications. Reviews of granted applications comprise of a small proportion of targeted reviews based on compliance risks, and a large proportion of reviews selected by Centrelink's processing centre staff (known as random reviews). Between July 2007 and June 2009, 7505 granted applications were reviewed (4.7 per cent) of which only 45 reviews (0.6 per cent) resulted in a debt being raised, indicating high levels of processing accuracy.

25. Some checks undertaken as part of granted application reviews are only partially effective as a result of their reliance on information voluntarily provided by the applicant and installer/dealer.⁴ If Centrelink had some additional authority to allow checking of applicant or installer/dealer records that show anomalies or of a certain risk degree to confirm eligibility criteria have been met⁵, it would help to address the residual risk of ineligible payments. As always, there is a balance to be struck between the costs and benefits of applying additional review measures; nevertheless this is a matter worthy of further consideration by DIISR and Centrelink.

26. ANAO reviewed LPGVS data held by Centrelink and found instances of multiple payments to individuals as a result of incorrect entry of personal details, and instances of multiple payments in relation to the same vehicle. While the number of cases identified represented less than one per cent of payments for the period in question, they indicated that Centrelink can improve its targeted compliance activity to identify multiple payments for the same individual or vehicle.

27. For the period analysed by ANAO only three per cent of all granted application reviews (or 223 reviews) were targeted reviews, most of which resulted from return to sender correspondence. As mentioned previously, further work is required to better focus targeted compliance reviews on the Scheme's key risks. This includes undertaking additional reviews where application and assessment patterns for installers are unusual; to mitigate identified weaknesses in eligibility checks; and following improved interrogation of LPGVS data.

Monitoring and Reporting (Chapter Five)

28. Monitoring and reporting responsibilities in relation to administration of the Scheme are included in documents to which all parties have agreed. Centrelink and Medicare produce reports for DIISR in accordance with the Program Protocol and Service Level Agreement (SLA) respectively. These reports provide DIISR with relevant management information and assist it in administering the Scheme. However, reporting on granted application reviews could be improved to provide a better indication to DIISR of the adequacy of Centrelink's compliance activity.

29. DIISR, Centrelink and Medicare report information on the LPGVS in their respective annual reports. Information in annual reports could be improved if DIISR clarified and reported on the Scheme's objective. The proposed formal evaluation of the Scheme would explore in more depth the premises underpinning the multiple objectives to which the Scheme has been linked, and how the grant has influenced individuals' behaviour.

Summary of agencies' responses

Department of Innovation, Industry, Science and Research

30. The department welcomes the ANAO's conclusion that the Scheme is well-designed and effectively administered, and is pleased with the finding that DIISR, Centrelink and Medicare combine to provide effective service delivery and that managerial oversight and risk management for the program are generally sound. The department also notes the ANAO's confirmation that the department is responding appropriately to applicant feedback and where necessary amending its policy and guidelines. The department agrees to implement the report's three recommendations.

Centrelink

31. Centrelink agrees with the recommendations in the report. Centrelink welcomes this report and considers that implementation of the recommendations and findings will further strengthen the delivery of the LPG Vehicle Scheme.

Medicare Australia

32. As a delivery partner for the LPG Vehicle Scheme, Medicare Australia welcomed the opportunity to participate in this audit. Medicare Australia notes that the majority of LPGVS applications are lodged at a Medicare office and these applications maintain a low rejection rate. Medicare Australia supports Recommendation 3; to commence a formal evaluation of the LPG Vehicle Scheme, and would welcome the opportunity to provide appropriate service delivery input based on its experience as a service delivery partner. Medicare Australia also supports the suggestion that a new key performance indicator relating to the proportion of complaints resolved be established.

Footnotes

¹ In response to the draft audit report, Centrelink advised that it had implemented an independent sampling process to ensure unbiased selection of applications for review.

² In response to the draft audit report, Centrelink advised that it had implemented a uniform assessment checklist as part of the assessment process across all LPG processing centres.

³ These are that the vehicle is registered for private use, and is not subject to a salary sacrifice arrangement or novated lease.

⁴ These are that the applicant has undertaken a conversion of a vehicle or purchased a new vehicle fitted with an LPG unit, and the vehicle is for private use.

⁵ Or to obtain information from third party sources such as vehicle registration offices.