Rural research and development corporations

1.1 Rural research and development corporations (RDCs) engage with research organisations to deliver research, development and extension (RD&E) services for the benefit of the industry and wider community. The RDCs are partly funded through industry levies, which the Commonwealth matches up to certain limits.³

1.2 In 2019 there were 15 RDCs, of which five were statutory and 10 industry-owned (see Table 1.1). The statutory RDCs have legislated levies, which are compulsory for industry participants.⁴

Table 1.1: Statutory and industry-owned rural research and development corporations

Source: Department of Agriculture, Rural Research and Development Corporations. Available from: http://www.agriculture.gov.au [accessed 28 May 2019].

1.3 The establishing legislation for AgriFutures Australia and the Cotton, Fisheries and Grains RDCs is the Primary Industries Research and Development Act 1989 (the PIRD Act). The fifth statutory RDC, Wine Australia, was created under the Wine Australia Act 2013, to merge the Grape and Wine Research and Development Corporation and the Wine Australia Corporation.

1.4 The two establishing Acts provide that the RDCs can only spend monies received from the Commonwealth if they comply with a written funding agreement. The corporations signed four-year agreements with the Commonwealth in June 2015 and extended them in June 2019 until December 2019, or until the execution of a new agreement. The agreements reinforce compliance with obligations under the Public Governance, Performance and Accountability Act 2013 (PGPA Act) and the respective establishing Act. The agreements also require the RDCs to undertake a performance review.

1.5 The establishing Acts require the Minister to declare at least one industry body for each corporation as a representative organisation. These declared bodies are involved in the appointment of directors, must be consulted during the corporations’ planning, can be reimbursed for reasonable consultation expenses, must receive certain types of reports and plans, and must be able to meet with the corporation annually.

Research, development and extension activities

Functions and powers

1.6 The four RDCs’ functions under section 11 of the PIRD Act include preparing research and development plans and annual operational plans, coordinating and funding research and development activities consistent with the annual operating plan, disseminating and commercialising the research and development, and arranging marketing.⁵ The RDCs have powers under section 12 to do anything necessary or convenient for the purpose of these functions, including buying, holding and selling all types of property.

1.7 Wine Australia’s functions under section 7 of the Wine Australia Act 2013 include coordinating or funding wine and grape research and development, disseminating, commercialising and promoting the adoption of this work, marketing grape products and controlling the export of grape products. Its functions do not include conducting research and development. Section 8 gives Wine Australia the power to do all things necessary or convenient to perform its functions.

1.8 Examples of research projects that the corporations are funding are:

• AgriFutures Australia is providing $226,000 to co-fund with the Queensland Department of Agriculture and Fisheries a project to develop a visual guide to litter management for chicken meat producers to improve their management of litter;
• the Cotton RDC is providing $705,000 and $124,000 in-kind to co-fund with the CSIRO a project to model and assess cotton quality using spatial data to improve crop management;
• the Fisheries RDC provided $1.7 million to co-fund the Australian Aquatic Animal Health and Vaccine Centre with the Tasmanian Government, the Tasmanian Salmonid Growers’ Association and the Seafood Co-operative Research Centre to conduct salmon vaccine research to reduce production losses through disease;
• the Grains RDC is providing $45 million over five years to Bayer to support the development of new herbicides⁶; and
• Wine Australia is providing $12.1 million to the Australian Wine Research Institute over five years to conduct seven research projects into wine texture, taste, quality and the effects of soil and climate.

Outcomes

1.9 In its 2011 report, the Productivity Commission noted that the rural RD&E sector had reported the following benefits from RD&E:

• increased productivity and competitiveness through new breeds, varieties and production technologies;
• environmental outcomes such as reduced pesticide use, improved fire management in forests and use of trees in urban areas to mitigate climate change; and
• social outcomes including reduced food borne illness, business opportunities for Indigenous Australians, and improved livestock welfare.⁷

1.10 The Productivity Commission stated that these categories are not separate and that the interests of consumers and producers are often linked. Improved livestock welfare could improve or maintain demand for the product, for example.⁸

1.11 The Council for Rural Research and Development Corporations is the sector’s peak body. The Council has overseen the production of impact assessment materials that the corporations use to conduct or commission cost benefit analysis of RD&E projects.⁹ The Council commissioned a 2016 study that collated individual impact assessments across the corporations. It found, for 167 projects in randomly submitted project groups across nine corporations, a weighted present value cost/benefit ratio of 1 to 4.5 for RDC funded projects.¹⁰

Governance

1.12 The PGPA Act and the two establishing Acts set out the corporations’ governance structure. Section 16 of the PIRD Act provides that each corporation is constituted by a Chairperson (who is a director), an Executive Director (the chief executive officer) and five to seven other directors. Sections 17 and 77 provide that the Minister appoints the directors, except the Executive Director, whom the directors appoint. Section 13 of the Wine Australia Act 2013 states that Wine Australia comprises the directors only. The Minister appoints the directors under section 14. Wine Australia has a general power to appoint employees, including the principal employee, under section 30.

1.13 The directors appointed by the Minister comprise the corporations’ governing bodies.¹¹ For corporate entities, section 12 of the PGPA Act provides that the accountable authority of an entity is its governing body.

The board’s role in promoting probity

1.14 The PGPA Act places a number of duties on accountable authorities. Section 15 requires each accountable authority to promote the proper use of public resources. Section 26 requires officials of corporations (both directors and staff) to act for a proper purpose. Section 8 defines ‘proper’ as efficient, effective, economical and ethical. There are broad probity obligations on the directors (and staff) of the corporations. The boards must fulfil their governance role, including in relation to probity matters.

1.15 Major Australian corporate governance reviews have included the 2003 Royal Commission into HIH Insurance, the 2018 APRA Prudential Inquiry into the Commonwealth Bank of Australia and the 2019 Royal Commission into the financial services industry. These reviews have discussed the importance of the ‘soft’ aspects of governance, in particular organisational culture. Their findings included that the corporations’ boards were not receiving appropriate information and had accepted management’s representations instead of forming an independent opinion.¹²

1.16 These issues were discussed in the introduction to the performance audit report, Effectiveness of Board Governance at Old Parliament House. The report noted that current guidance for accountable authorities focuses on legal compliance and Commonwealth boards do not have guidance along the lines of the ASX Corporate Governance Council’s Corporate Governance Principles and Recommendations and the Australian Institute of Company Directors’ resources. The report recommended that the Department of Finance update its guidance to incorporate lessons learnt from wider governance reviews. The department accepted the recommendation, noting that it reflected work underway.¹³

1.17 In order to fulfil their governing role in relation to probity, the corporations’ accountable authorities would be expected to set out roles and reporting within the corporation, approve and review probity policies, ensure they are informed about the corporation’s activities, act on information promptly, and take an active role when working with management.

Profile of the corporations

1.18 The corporations have similar frameworks but differ in relation to their industries, size and other arrangements. Key points about individual corporations are:

• AgriFutures Australia is responsible for industries related to buffalo, goat fibre, honey, kangaroo and wallaby, meat chicken, pasture seed, rice, deer, ostrich, ginger, fodder, tea tree oil and thoroughbred horses, as well as new and emerging industries such as hazelnut, goat milk and hemp. The RDC supports industries that do not have their own research and development function, new and emerging industries, and issues that affect the whole of agriculture.
• The Cotton RDC is responsible for industries related to cotton fibre and seed cotton.
• The Fisheries RDC is responsible for Australian fishing and aquaculture related to all living aquatic natural resources in Australian rivers, estuaries and the sea.
• The Grains RDC is responsible for industries related to wheat, coarse grains, pulses and oilseeds.
• Wine Australia is responsible for industries related to grapes and wine. In addition to RD&E, the corporation regulates the export of wine and the geographical indicators on Australian wine, and conducts wine marketing. From 2018 to 2020 Wine Australia is also administering the Export and Regional Wine Support Package that includes export and regional tourism grants, training and export marketing.

1.19 The differences between the corporations give them different profiles for probity risk. For example, Wine Australia undertakes marketing, which may increase risk around the receipt of gifts, benefits and hospitality. A common risk for the entities is achieving value for money when procuring RD&E due to the specialised nature of the work in some cases and the resulting lack of competition. Another common risk is that conflicts of interest may arise due to the corporations’ links with industry.

1.20 The corporations’ operations are compared in Table 1.2.

Table 1.2: Comparison of the operations of the corporations, 2017–2018

Note: Wine Australia’s program spending includes $12.0 million in marketing expenditure, which the other entities do not engage in. Its overseas operations are managed by subsidiary corporate bodies.

Source: The corporations’ 2018 annual reports. Department of Agriculture, Rural Research and Development Corporations [Internet], 2019, available from: http://www.agriculture.gov.au [accessed 28 May 2019].

1.21 AgriFutures Australia relocated from Canberra to Wagga Wagga at the end of 2016. The corporation advised that, of its current personnel of 35, only two remain from the Canberra staff. The RDC also advised that its corporate and research teams in Wagga Wagga were under-resourced during establishment in that city.

Rationale for undertaking the audit

1.22 It is critical that the corporations uphold high probity standards given their often close interactions with a small number of researchers over time, and potential conflicts arising from the corporations’ directors being industry representatives themselves. Total expenditure for the corporations in 2017–18 was $359 million and the audit was designed to provide assurance that RDCs are appropriately managing public funds in terms of probity risks. RDCs were last involved in a performance audit in 1998.¹⁴ The findings can provide lessons for future funding agreements managed by the Department of Agriculture, and the corporations can adopt examples of better practice highlighted in the audit.

Audit approach

Audit objective, criteria and scope

1.23 The audit assessed the effectiveness of the rural research and development corporations’ management of probity.

1.24 To form a conclusion against the audit objective, two high-level criteria were adopted:

• do the corporations have appropriate probity arrangements?
• have the corporations complied with applicable probity requirements?

Accordingly, effective management of probity requires RDCs to have high levels of compliance with appropriate probity arrangements

1.25 The audit examined probity processes and compliance with those processes in 2017 and 2018 for the five rural research and development corporations that are Commonwealth entities. The audit report focuses on practices and processes in place in those two years. Each of the five RDCs was responsive to issues raised during the audit, and sometimes had separate processes to review probity policies and practices, and accordingly made a number of improvements to their management of probity in 2019. Some of these improvements are recognised in the report, but not all to reflect the primacy of the audit testing results and for the sake of reporting clarity.

1.26 The audit mainly addressed five probity themes: conflict of interest; gifts, benefits and hospitality; value for money in spending program funds, especially in relation to RD&E; intellectual property; and credit cards.

1.27 The audit did not examine Wine Australia’s regulatory activities. The audit also did not examine the 10 industry-owned corporations that have funding arrangements with the Department of Agriculture.

Audit methodology

1.28 Audit procedures included:

• examining the entities’ board documents, policies, risk assessments, internal audit records and compliance records;
• testing procurements, gifts and credit card records against entity policies and better practice standards;
• interviews with Chairs, Audit Committee Chairs, and senior staff at the corporations; and
• interviews with selected industry organisations.

1.29 The audit was conducted in accordance with ANAO Auditing Standards at a cost to the ANAO of approximately $625,000.

1.30 The team members for this audit were David Monk, Irena Korenevski, Anne Kent, David Willis, Danielle Page, William Richards and Andrew Morris.

2.1 The accountable authority of each research and development corporation (RDC) is the board. Section 15 of the Public Governance, Performance and Accountability Act 2013 (PGPA Act) requires the accountable authority to govern the entity in a way that promotes economy, effectiveness, efficiency and ethics. The sub-criteria in this chapter trace how the boards exert their authority over the RDCs, starting with their own governance, then the policies they approve or delegate, and finally how they ensure compliance with policy through internal controls.

Do the boards’ governance arrangements promote probity?

2.2 The corporations’ boards are responsible for the corporations’ governance under the Public Governance, Performance and Accountability Act 2013 (PGPA Act), the Primary Industries Research and Development Act 1989 (PIRD Act) and Wine Australia Act 2013. Section 15 of the PGPA Act requires the board, as the accountable authority, to promote the proper use and management of the public resources for which it is responsible. This would include mandating particular conduct and receiving sufficient reporting to be informed that it occurs. ‘Proper’ includes probity because the PGPA Act defines it as efficient, effective, economical and ethical.

2.3 The corporations’ status as corporate Commonwealth entities means they have more discretion in how they conduct their affairs than non-corporate Commonwealth entities.

Did the boards establish appropriate governance frameworks for probity?

2.4 One way in which boards establish a governance framework is through a board charter that sets out the functions, roles, powers and membership of the board.¹⁵ All the corporations had a charter except for Wine Australia, which has subsequently prepared one that is awaiting board approval. While recognising the clarity provided by a charter, Wine Australia advised that the roles of the board, its committees and staff were well understood at the time of the audit, but did not provide supporting documentary evidence.

2.5 A board would typically be responsible for the entity’s statement of values, which would include proper standards of behaviour.¹⁶ The boards at the Cotton, Fisheries and Grains RDCs used their charters to either affirm their commitment to ethical standards or acknowledge the board’s role in ensuring the entity conforms to them. The charter at AgriFutures Australia required the directors to uphold certain ethical standards but did not comment on the ethical standards required at the corporation generally. Management set the ethical standards required of staff.

2.6 A board can use its charter to delegate responsibility for policies to management, including probity policies. The boards for the Cotton and Fisheries RDCs used their charters to retain responsibility for all policies. The board of the Grains RDC has approved a policy framework that reserves to it governance policies that cover areas such as standards for behaviour, financial limits, and external reporting. Additional to its charter requirements, this board approved its intellectual property policy. The charter for AgriFutures Australia reserves strategic policies for the board and delegates operational policies to the Executive Director, which does not make clear whether the board has retained responsibility for probity policies.¹⁷

2.7 Seven probity policies were tested to determine whether board practices of approval and review were consistent with their charters for the Cotton, Fisheries and Grains RDCs:

• five directly related to statutory standards of conduct under the PGPA legislation: ethics; use of position; use of information; disclosure of interests; and fraud¹⁸; and
• two related to the corporations’ key activities: the procurement of research and development; and the management of intellectual property and project technology.¹⁹

2.8 Under their charters, the three relevant boards were expected to approve the five policies relating to standards of conduct. The boards of the Cotton and Fisheries RDCs did so. The board of the Grains RDC approved policies for use of position, disclosure of interests and fraud, but not for ethics or use of information. The boards of the Cotton and Fisheries RDCs were expected to approve the policies for procurement and intellectual property, which the Cotton and Fisheries RDCs did.

2.9 There are opportunities for improvement in how the corporations’ boards manage probity policies. The board of AgriFutures Australia can take responsibility for policies around ethics, which would be consistent with generally recognised governance principles. The boards of AgriFutures Australia and the Grains RDC should approve their policies for procuring RD&E and managing intellectual property, given the importance of these areas to the entities. The board at Wine Australia should also take responsibility for these matters when it receives the draft charter developed by management.²⁰ The board of the Grains RDC can approve all its policies for ethics, as required by its charter.

2.10 The boards of the Cotton and Fisheries RDCs effectively managed their charters and complied with them when approving probity policies.

Did the boards receive appropriate reporting on probity?

2.14 Section 15 of the PGPA Act requires the boards, as the accountable authority, to promote the economical, effective and efficient use of public resources. To implement this requirement, the boards can receive reporting on probity topics proportionate to risk as well as on confirmed probity incidents. Reporting to the board was examined for: procurement; conflicts of interest; the receipt of gifts, benefits and hospitality; and credit cards.

Procurement

2.15 Progress reporting to the boards on their portfolio of projects, for example in relation to time and budget, would inform them about the economy of their procurements. The boards of AgriFutures Australia, the Cotton and Fisheries RDCs and Wine Australia received this reporting but the board of the Grains RDC did not. Reporting on project impact would provide information on effectiveness. All boards received some reporting on effectiveness, which was typically based on impact assessments and cost-benefit analysis.

2.16 Reporting to the boards about compliance with procurement policies provides further information about economy and ethics. This particularly applies where procurement was delegated to management. The Cotton and Fisheries RDCs and Wine Australia had a low delegation limit and their boards approved a high number of projects.

2.17 AgriFutures Australia and the Grains RDC had high delegation limits and their boards approved four and zero projects respectively. The Audit Committee of AgriFutures Australia received and considered an internal audit report on RD&E procurement in February 2018, which found non-compliance with policies in relation to conflicts of interest and assessing value for money. During 2018, neither the board of AgriFutures Australia nor its Audit Committee used the audit to revise the policies. The board of the Grains RDC did not receive reporting about compliance with procurement policies. This board should receive regular compliance reports to assure itself that management is exercising delegations consistent with policy.

Conflicts of interest

2.18 Under section 16 of the PGPA Rule, staff at the corporations must disclose material personal interests in line with any directions given by the accountable authority. The funding agreements make the same requirement of panel members. All the corporations except for the Cotton RDC managed panels. In light of these requirements, the boards were expected to receive reporting about conflicts of interest held by staff and panel members.

2.19 Of the four corporations that managed panels, none of their boards received reporting about conflicts of interest held by panel members. The board of the Grains RDC received reporting about an internal audit on panels that included managing conflicts of interest.

2.20 The Audit Committee of the Cotton RDC received reporting on staff conflict of interest, through a fraud risk management review. In February 2018, management presented the register of staff interests to the board, along with the statutory requirement that staff must disclose material personal interests. The board noted the register.

Gifts, benefits and hospitality

2.21 None of the boards received reporting on gifts, benefits and hospitality. During interviews, the corporations advised of infrequent or nil levels of receiving these items. The exception was Wine Australia, where the CEO reported attending dinners for industry consultations and receiving bottles of wine as trade samples ‘to improve his knowledge of the sector and its products’. Wine Australia advised the ANAO that these gifts and hospitality were under the $200 reporting limit in its gifts policy and did not formally need to be recorded or otherwise reported. Reporting to the boards on gifts, benefits and hospitality is proportionate to risk. Management of gifts, benefits and hospitality is discussed further in Chapter 3.

Credit cards

2.22 None of the boards received reporting on credit card use. One means by which a board could receive reporting on them would be through conducting an internal audit. None of the entities conducted an internal audit of credit cards in 2017 or 2018. Compliance with policy in managing credit cards can be an indicator of culture, in which case its importance to senior management and the accountable authority extends beyond the materiality of the transactions.

Probity incidents

2.23 Six probity issues arose across the five corporations in 2017 and 2018. On the basis of confirmed incidents and legal requirements, reporting to the boards was appropriate. Two occurred at AgriFutures Australia, which investigated and finalised the matters with a nil finding. Four occurred at the Grains RDC. Two occurred within the board and were resolved by the board. One was a public interest disclosure made under the Public Interest Disclosure Act 2013 and not eligible to be reported to the board.²¹ The final matter involved staff. It was not investigated, not confirmed, and not reported to the board.²² The probity incidents are discussed further later in this chapter (see paragraphs 2.99 to 2.102).

Did the boards appropriately manage probity risks?

2.24 Section 16 of the PGPA Act requires the accountable authority of each Commonwealth entity to establish and maintain an appropriate system of risk oversight and management.²³

2.25 One way that boards can demonstrate risk oversight is to approve appropriate risk policies and to receive risk reports in line with these policies. All the boards approved a risk framework through a board charter or risk policy. Table 2.1 provides further information on how the boards oversighted risk.

Table 2.1: Board oversight of risk at the RDCs, 2017 and 2018

Notes: The Fisheries RDC board adopted a new risk framework in August 2018 which did not have specific reporting requirements.

In the last two columns, the first figure is the number of meetings that the board received risk reporting and the second figure is the number of regular board meetings that year.

The years in the ‘framework approved’ column show if the board approved a framework in 2017 or 2018, as well as the most recent approval before then.

Source: ANAO analysis of the corporations’ risk policies and board papers.

2.26 All five corporations had risk management plans and risk registers, which demonstrated risk management practices, as required under section 16. Combined with the oversight arrangements, AgriFutures Australia and the Cotton and Fisheries RDCs provided sufficient evidence to indicate compliance with section 16.

2.27 The corporations’ risk registers would typically be expected to show inherent risks, risk treatments, and residual risks within the context of their entities’ risk appetites.²⁴ The risk registers for AgriFutures Australia and the Cotton RDC did this. The register for the Fisheries RDC did so from May 2018. The register for the Grains RDC and Wine Australia had some of these elements, but not all, meaning these corporations did not have an accurate, overall assessment of their risks:

• the Grains RDC register from January 2017 did not cover inherent risk and had little detail about treatment. The corporation revised its register in September 2018 to cover inherent risk and treatment, but omitted risk targets; and
• the Wine Australia register did not include risk appetite, some risks increased after treatment, some risks were incomplete, and some risk ratings did not comply with the process in the risk management plan. During the audit, Wine Australia provided a new risk register that addressed these matters.

2.28 Section 16 of the PGPA Act requires an accountable authority to establish an appropriate system of risk oversight and management. Key risks for the RDCs are value for money (the specialised nature of their procurements) and conflicts of interest (links to industry). Further, section 10 of the PGPA Rule requires the accountable authority to conduct fraud risk assessments regularly. The registers of all five corporations included fraud. Only the Grains RDC explicitly covered value for money (from September 2018). The registers of AgriFutures Australia, the Cotton RDC and Wine Australia included conflicts of interest and the register for the Grains RDC did so until September 2018. The register for the Fisheries RDC did not. In 2019, the Fisheries RDC updated its register to include risks for value for money and conflicts of interest.

2.29 In June 2019, the board of the Grains RDC approved a new strategic risk register that covered fraud, value for money and conflicts of interest. The register also covered inherent risks, risk treatments, residual risks, and risk targets. A new treatment in the register is regular compliance reporting to the Audit and Risk Committee and the board.

2.30 Probity incidents represent an opportunity for the corporations to update their risk registers. As discussed below, the only corporation subject to a confirmed incident was the Grains RDC. There was no evidence that this corporation updated its register to take the incidents into account. The Cotton RDC did not have a probity incident, but its audit committee considered the risk impact of a civil case involving a funded researcher and requested management to examine whether the matter was covered under the current risk register.

Do the corporations have appropriate policies in place to promote probity and value for money in funding decisions, and manage intellectual property and credit cards?

2.31 By approving policies, the corporations’ boards and senior management can stipulate standards required of staff in relation to conduct, ensuring value for money in funding decisions, appropriately managing intellectual property, and appropriately managing credit cards. Clear, comprehensive policies mean that staff need to apply less discretion in probity matters, which decreases the chances of them engaging in conduct that is, or is perceived to be, inappropriate.

Do the corporations’ policies promote probity in funding decisions?

2.32 The Commonwealth Procurement Rules (CPRs) apply to non-corporate Commonwealth entities and prescribed corporate Commonwealth entities. The RDCs are corporate Commonwealth entities, and do not need to comply with the Rules. The exception is the Grains RDC, which has been prescribed under the PGPA Rule. The CPRs do not state that they represent better practice for other Commonwealth entities.

2.33 The corporations’ funding agreements stated that they should draw on better practice guidance in establishing a governance framework for managing and investing their funds. The Department of Finance has issued guidance outlining 11 principles to support probity in procurement.²⁵ Five of the principles relate to legal requirements placed on the corporations through the PGPA Act, PGPA Rule and the funding agreements. These relate to ethical behaviour, use of position (which also covers accepting gifts or benefits from potential suppliers), confidential information and conflict of interest.

2.34 All the corporations had policies in place for ethical behaviour, use of position, and confidential information.

Conflict of interest

2.35 The corporations are subject to multiple legal requirements in relation to conflict of interest under section 29 of the PGPA Act, sections 14 to 16 of the PGPA Rule, and clause 4 of their funding agreements. The legal requirements include detail on how the board must manage directors’ declared interests. The requirements are listed in Appendix 2.

2.36 The corporations were effective or largely effective in incorporating these legal requirements into their policies (see Table 2.2). At Wine Australia, the CEO rather than the board approved the conflict of interest policies. This does not comply with section 16 of the PGPA Rule that requires staff to disclose their material personal interests in line with any instructions given by the accountable authority. Better practice would be for the directors to take responsibility for declaring and managing their interests and approve the policies that apply to them, rather than the CEO doing this.

Table 2.2: Inclusion of conflict of interest requirements in RDCs’ policies

Key: 

 no requirements implemented 

 up to one third of requirements implemented

  between a third and two thirds of requirements implemented

 between two thirds and all except one requirement implemented

 all requirements implemented

Note: Nine legal requirements for conflicts of interest were tested. The Cotton RDC did not manage industry panels, so it had eight applicable requirements. Wine Australia had ten because its Act modifies the definition of a material personal interest for that entity.

Source: ANAO analysis of the RDCs’ policies.

2.37 As noted in paragraphs 1.19 and 2.28, the corporations have links with industry, creating the potential for conflicts of interest. This risk is recognised in their establishing legislation and all the corporations had conflict of interest policies that sought to avoid and manage this risk. The legislation provides some detailed processes and two of the corporations can improve their policies by incorporating all these requirements.

2.41 Testing of procurements, discussed further in Chapter 3, identified opportunities for the RDCs to extend or clarify policies around conflicts of interest. In one case, the board of the Fisheries RDC approved a project out of session at the request of management. Its policies and procedures for managing conflicts do not refer to out of session decisions²⁶ and those for out of session decisions do not refer to managing conflicts of interests. The corporation could not demonstrate that it had considered conflicts of interest before making its decision. The Fisheries RDC is revising its board governance policy to address this issue.

2.42 The corporations’ policies did not fully cover managing declared interests, particularly those of staff. Section 29 of the PGPA Act requires directors and staff to declare material personal interests. Section 16 of the PGPA Rule requires staff to disclose material personal interests in accordance with any instructions made by the accountable authority. The purpose of these declarations is that the RDCs and their panels can then manage the interests.²⁷ In respect of policies to manage conflicts:

• A Director at Wine Australia had an interest in a research organisation that received funding at a meeting. The minutes did not record it or whether the board managed it. Wine Australia’s policies did not provide guidance on managing conflicts.²⁸
• The policies for AgriFutures Australia and the Grains RDC described systems for managing disclosed interests of staff, including at meetings. The policies for the other corporations did not. The testing in Chapter 3 indicated that no corporation could demonstrate using the disclosures to manage interests, partly because three of the corporations did not have this in their policies. It is suggested that these corporations amend their policies so they can positively demonstrate they are managing declared conflicts of interest.

2.43 The Department of Finance guidance to support probity in procurement (discussed in paragraph 2.33) lists six further principles that are not legal requirements. They are:

• officials avoiding claims of bias;
• entities not benefitting from dishonest, unethical or unsafe supplier practices;
• treating all tenderers equitably;
• applying probity and conflict of interest requirements proportionately;
• not excluding suppliers from consideration for inconsequential probity reasons; and
• appointing external probity specialists only where justified.²⁹

2.44 The policies of the Grains RDC incorporated all these principles. The four other entities incorporated four of the principles in their policies. The principles that were typically omitted were in relation to not excluding suppliers from consideration for inconsequential probity reasons and appointing external probity specialists only where justified.³⁰

Gifts, benefits and hospitality

2.45 A policy for giving and receiving gifts, benefits and hospitality is an important element of a robust control environment and supports ethical conduct. Section 27 of the PGPA Act states that an official must not improperly use their position to gain, or seek to gain, a benefit to themselves or another person. The giving or receiving of gifts, benefits and hospitality can create the perception that the RDCs are subject to inappropriate external influence. In his speech to the Australian Public Service in April 2019, the Prime Minister stated that entity decisions must be made in the best interests of the general public, not organised interests.³¹

Receiving gifts, benefits and hospitality

2.46 Officials at the five RDCs, which includes the board and staff, have legal obligations around the receipt of gifts, benefits and hospitality. Accepting a gift, benefit or hospitality connected to employment at one of the corporations could raise the question of compliance with section 27 and can create a real or perceived conflict of interest.

2.47 All the corporations had policies for the receipt of gifts, benefits and hospitality. The policies were generally available on the corporations’ intranet. Except for the Cotton RDC, they also defined gifts, benefits and hospitality and required approval to retain gifts of a certain value (see Table 2.3).

Table 2.3: Details of the RDCs’ policies for receiving gifts, benefits and hospitality

Note: The policy for the Fisheries RDC required a recipient to report the gift, benefit or hospitality immediately.

Source: The corporations’ gifts, benefits and hospitality policies.

2.48 The most commonly omitted provisions across the entities were for the reporting timeframe and whether there was a value threshold above which the staff member had to provide written advice to the RDC about the gift, benefit or hospitality received. The policy for AgriFutures Australia was due to be reviewed in December 2018 and was reviewed in May 2019. The boards of the Cotton and Grains RDCs approved new gifts policies in June 2019 that set a $50 reporting threshold and addressed all the other items in the table, except reporting period for the Cotton RDC. The Fisheries RDC updated its employees policy in September 2019 to include detailed processes for the receipt of gifts, benefits and hospitality.³²

2.49 Testing of compliance with the corporations’ policies, discussed at paragraph 3.23, showed that AgriFutures Australia had significant detail in its central gifts register.³³ This demonstrated the scale of the risk of improper external influence through the receipt of gifts, benefits and hospitality, and that AgriFutures Australia was managing the risk. This approach applies to Wine Australia to a lesser extent because the $200 reporting limit provides less visibility than the $0 limit that AgriFutures Australia applied.³⁴ Given the nature of its business, Wine Australia’s $200 limit as a sole reporting criterion is too high. It is suggested that the RDCs set reporting criteria that manage the risk of inappropriate external influence and provide visibility around the volume of gifts, benefits and hospitality received and offered.³⁵

2.50 Official hospitality may include the provision of meals and beverages to directors and staff as part of conducting official business. AgriFutures Australia had a policy to manage this but the other four RDCs did not. Due to the risks to the corporations’ reputation and to avoid the perception of undue influence on conduct or decisions, it is also suggested that these four RDCs implement guidance around receiving hospitality when undertaking official business.

Giving gifts, benefits and hospitality

2.51 Three of the corporations had policies for giving gifts, benefits and hospitality³⁶:

• AgriFutures Australia’s policy had an approval process, required a work purpose, and had clear guidance and examples;
• the Fisheries RDC policy had an approval process; and
• Wine Australia’s policy had an approval process and had clear guidance and examples.

2.52 In June 2019, the board of the Grains RDC approved a policy and guidelines for the giving of gifts and hospitality. The policy has an approval process, requires the giving to be for a work purpose, and has clear guidance and examples.

2.53 The corporations may wish to compare policies to take advantage of each other’s better practice. These include:

• AgriFutures has specific guidance about what is reasonable hospitality at functions (for example quantities of alcohol and around tips), and required the Chair to approve gifts received by the Executive Director to exclude self-approval;
• the Grains RDC policy gave specific examples of what is or is not a gift or benefit and required staff to declare the cumulative value of gifts received from the donor; and
• Wine Australia’s policy had examples of inappropriate conduct and suggestions about how an official might make a judgement, for example what is the intent of the gift, likely perceptions, and what if the situation was reversed.

2.54 More broadly, in October 2019 the Australian Public Service Commission released whole of government guidance on gifts and benefits that requires agency heads to publicly declare all gifts and benefits received of over $100 in value every quarter. The guidance states that it represents better practice for corporate Commonwealth entities such as the RDCs and that one of its principles is to promote consistency across Commonwealth entities.³⁷

Do the corporations’ policies promote value for money?

2.55 As discussed in paragraph 2.2, section 15 of the PGPA Act requires the accountable authority of a Commonwealth entity to promote the proper use and management of its public resources, where ‘proper’ is economical, effective, efficient and ethical. Section 26 requires the accountable authority and staff to act for a proper purpose. As corporate Commonwealth entities, the RDCs are not bound by the CPRs or the Commonwealth Grant Rules and Guidelines (CGRGs) and can establish their own processes provided they comply with sections 15 and 26 of the PGPA Act. One exception is the Grains RDC, which has been prescribed by section 30 of the PGPA Rule and must use the CPRs for procurements at $400,000 and over.³⁸ Other exceptions are that the corporations must comply with the CGRGs when they make grants on behalf of the Commonwealth³⁹ or agree to do so in a funding contract. One means by which the corporations might support value for money is to have policies that promote competition. Such an approach would need to be flexible and take into account that the market for research and development is specialised and in some cases there may be only one suitable supplier.⁴⁰ The corporations’ procurement policies and procedures were examined for whether:

• they had thresholds for running an open tender on a procurement;
• the thresholds were reasonable⁴¹;
• any exemptions to an open tender were reasonable and based on evidence or consultations;
• exemptions to an open tender had the appropriate level of approval;
• the value of the procurement needed to be estimated; and
• application selection criteria covered contractor experience, cost and adoption.

2.56 AgriFutures Australia and the Fisheries RDC had all these items in their procurement policies and procedures. The Cotton RDC’s policy required the board to approve the procurement method for all RD&E procurements.⁴² Testing in Chapter 3 indicated that the Cotton RDC used open tender for the majority of its large procurements. The Grains RDC, which is also covered by the CPRs, had all items except for the minimum selection criteria. Wine Australia only required its staff to estimate the total maximum value of the procurement.

2.57 For procurements of $300,000 and above, the procurement policy of the Fisheries RDC required one of three methods: open tender; government panel (selecting three panel members); or an open call for research proposals. The policy included an exemption to this if the board approved a project. Testing of its 20 major projects (reported in Chapter 3) revealed no documentary evidence that the corporation used any of these methods for the projects; the Fisheries RDC advised that one of them went to open tender. The board approved all of the 15 general RD&E procurements tested without management formally appraising them of the tender method. All 15 were above the relevant threshold. The corporation better managed the five procurements under the National Carp Control Plan by documenting management’s recommendation to the board to delegate approval to the Executive Director and use limited tender due to time constraints, as well as the board’s approval of this. It is suggested that the Fisheries RDC amends its procurement policy so the board only uses the general exemption if management formally briefs it on the tender method.

Financial variations

2.58 The requirements for economical, effective, efficient and ethical procurements in the PGPA Act also applied when a corporation considered whether to increase the value of a contract after it had commenced. The means by which the RDCs might support value for money in financial variations were to:

• have an appropriate level of negotiation and approval;
• consider a budget for the additional work;
• assess the reasonableness of the budget;
• consider the cumulative effect of prior variations; and
• consider contractor performance to date.

2.59 None of the corporations’ policies covered all the criteria for assessing whether to approve a variation. The policies of all the corporations had guidance on who would approve a variation. Further, the Cotton RDC had a Researchers’ Handbook that explained how a researcher should apply for a variation, for example submitting a revised budget. It is suggested that the corporations develop comprehensive policies on variations to better demonstrate they are achieving value for money when agreeing to a variation.

Economic impact assessments

2.60 The Council of Rural Research and Development Corporations has published guidance on how to calculate the economic impact of research and development projects, such as return on investment and cost/benefit ratio. The corporations conduct these assessments for the projects that they select.

2.61 As one element of the decision-making process, the corporations could analyse this data to determine whether certain project characteristics are correlated with economic, environmental and social outcomes. After comparing projects with a high return against those with a low return, the RDCs can use the results to better target future investments. The corporations’ procurement policies showed no evidence that this had occurred. In July 2019, the Fisheries RDC received a proposal from a consultant for a preliminary study into non-market impact valuations.

Commonwealth Procurement Rules

2.62 The Grains RDC is subject to specific legal requirements that support value for money. It is prescribed under section 30 of the PGPA Rule and must comply with the Commonwealth Procurement Rules for procurements at or above $400,000. The Grains RDC’s policies were tested against six requirements in the Rules. Its policies reflected the legal requirements that:

• it must use AusTender for open tenders;
• it must estimate the value of the procurement before making a decision; and
• it can obtain an exemption from Division 2 of the Rules (tender types and tender processes) when it is procuring research and development.

2.63 The Grains RDC’s policies did not reflect the legal requirements that:

• the official responsible for the procurement be satisfied, after reasonable enquiries, that they achieved a value for money outcome;
• the entity must consider the six assessment items in the Rules; and
• it must report on AusTender all procurements at or above $400,000 within 42 days of entering into the contract.

Commonwealth Grants Rules and Guidelines

2.64 When conducting its tourism grants program, Wine Australia was subject to the CGRGs because it agreed to do so when it received the funding from the Commonwealth. Wine Australia’s policies were tested against six requirements in the CGRGs. Its policies reflected the legal requirements that it:

• develop grant opportunity guidelines;
• have regard to the seven key principles for grants administration⁴³;
• publish the grants on specified websites within a certain time period after the individual agreements take effect; and
• retain individual grants information on its website for two years, or publish the information on GrantConnect.

2.65 Wine Australia’s policies did not reflect the legal requirements that:

• the grant approval includes an assessment against the grant opportunity guidelines and how the grant achieves value for money; and
• the grant opportunity guidelines will be publicly available.

Do the corporations have appropriate policies for intellectual property and project technology?

2.66 Under section 11 of the PIRD Act and section 7 of the Wine Australia Act 2013, the corporations’ functions include disseminating and commercialising, and facilitating the dissemination and commercialisation of, the research and development for their relevant industries. Legally registering project outputs as intellectual property supports their commercialisation, but registering is not required to disseminate those outputs.

2.67 All the corporations had established policies and procedures, including terms in standard contracts, for managing intellectual property in RD&E procurements. During fieldwork, the audit discussed with the RDCs key issues regarding project technology and intellectual property and how the corporations could manage them in RD&E contracts. They comprised:

• access to the researcher’s intellectual property;
• access to third party intellectual property;
• decision-making around whether to commercialise or disseminate;
• ownership of project outputs; and
• requiring researchers to protect project outputs.

2.68 The corporations had policies that covered these items except for AgriFutures Australia. Its standard contract did not mention third party intellectual property and did not allocate responsibility for access to it. The other corporations’ contracts placed responsibility for this on the researcher.

2.69 The corporations’ policies, procedures and standard contracts favoured the free dissemination of project outputs over commercialisation. They did this by either expressly stating it in policy, stating that commercialisation decisions would be made for the benefit of industry, or having dissemination as the default approach in their standard contracts.

Do the corporations have appropriate policies for credit cards?

2.70 All five corporations issued credit cards to staff. Credit cards provide a flexible and convenient way for the corporations to pay for goods and services, albeit at some risk of inappropriate use. Appropriate policies around the issue of cards, their return, their use, and review of transactions help establish effective controls for the management of credit cards.

2.71 Section 16 of the PGPA Act requires Commonwealth entities to establish and maintain an appropriate system of internal control. There are generally recognised better practice processes in relation to credit cards. The corporations’ credit card policies were reviewed to determine whether they covered these practices:

• for the issue of cards: there is a business need to issue the card; approved by a certain person; there are obligations for the cardholder; the cardholder agrees to the obligations; and the cards have appropriate limits;
• for the return of cards: returned when no longer needed (for example at termination of employment);
• cardholder’s responsibilities in the use of cards: they retain appropriate documentation (invoices or receipts); and they acquit the transactions; and
• reviewer’s responsibilities regarding transactions: they are independent; acquittal is timely; the reviewer confirms that the purchase was for a work purpose; that the amount is reasonable; and the credit card statement matches the invoice or receipt.

2.72 The corporations’ policies had incorporated almost all the better practice processes for the issue of cards, return of cards, and use of cards (see Table 2.4).

Table 2.4: Inclusion of better practice elements in RDCs’ credit card policies

Note: The first number in each cell is the number of better practice elements that the corporation included in its policy and the second number is the number of elements tested (as indicated in paragraph 2.71).

Source: Analysis of the corporations’ credit card policies.

2.73 The corporations’ policies for review of transactions is an area for improvement. None of the policies required the reviewer to assess that the amount was reasonable or match the supporting documents against the credit card statement. Only the policy for AgriFutures Australia required the reviewer to assess that the purchase was for a work purpose.

2.74 Wine Australia included the least number of better practices in its policies. During the audit, Wine Australia prepared a draft policy that meets all these better practices.

2.75 Acquittal of the final statement by employees reduces the chance of them making unauthorised purchases when they have changed roles or ceased employment. Testing of credit card transactions, discussed at paragraph 3.81, showed that the Grains RDC and Wine Australia had an employee leave the corporation without acquitting their final statement, which was not required under their policy at the time.

2.76 The Grains RDC and Wine Australia updated their credit card policies in December 2018 and July 2019 respectively to include a requirement that cardholders must acquit their final statement prior to their exit interview. The Fisheries RDC had this requirement in its policies; the remaining two corporations may wish to adopt it.

Do the corporations have internal controls that promote compliance with probity requirements and effectively address non-compliance?

Have the entities established an appropriate system of internal control?

2.77 Information on the effectiveness of internal controls gives the board assurance around compliance with probity policies and the extent to which staff will uphold standards of conduct. Section 16 of the PGPA Act requires the corporations’ boards to establish an appropriate system of internal control. Section 17 of the PGPA Rule requires the boards to establish an audit committee and systems of internal control. This would include coverage of oversight of the management of identified probity risks including fraud.

2.78 All entity boards have delegated to an audit committee responsibility for reviewing the appropriateness and effectiveness of their RDC’s systems of risk oversight and management, systems of internal control and compliance framework. All RDC audit committees report to their boards about activities undertaken as part of their respective systems of internal controls. The nature and extent of this reporting is based on entity size, delegation, consideration of risk and operational practice.⁴⁴

2.79 Common systems of internal controls include fraud control plans, internal audit and external reviews, checking credit card issue and return processes, and training.

Managing fraud risk

2.80 Section 10 of the PGPA Rule requires the accountable authority to take all reasonable measures to prevent, detect and deal with fraud relating to the entity.⁴⁵ It lists 10 requirements including fraud risk assessments, fraud control plans, and mechanisms for preventing fraud. Apart from Wine Australia, the corporations were either effective or largely effective in complying with these legislated requirements for fraud control as listed in Appendix 2. The corporations’ exceptions against the legal requirements are in Table 2.5.

Table 2.5: Compliance with the requirements for fraud control in section 10 of the PGPA Rule

Key: 

 no requirements implemented

 up to one third of requirements implemented

 between a third and two thirds of requirements implemented

 between two thirds and all except one requirement implemented

 all requirements implemented

Source: ANAO analysis of the selected RDCs fraud documentation and board papers.

2.81 Each entity has a fraud control framework in place consisting of a Fraud Control Plan, Fraud Control Policy, and Risk Management Policy and Guidelines. The corporations’ internal audit programs for calendar years 2017 and 2018 included fraud related topics, except for Wine Australia. The fraud control plans were reviewed every two years for all RDCs.

2.82 Each of the selected entities had arrangements whereby staff and officials can report fraud allegations confidentially through public interest disclosures. Only two entities, the Fisheries RDC and AgriFutures Australia, have a mechanism for the public to confidentially report incidents.⁴⁶ During the audit, Wine Australia established a webpage for the public to report fraud allegations.

Internal audit program and external reviews

2.85 Prioritising topics within an internal audit program through alignment with probity risks is a key part of an entities’ system of internal controls. Each of the five entities had established internal audit programs including probity topics, as outlined in Table 2.6.

Table 2.6: Probity topics included in the RDCs’ internal audit programs

Note a: Data on internal audits was sourced from the entities in response to a request about internal audit programs. This audit reviewed the 2017 and 2018 calendar years, however in some instances the data included in this table also covers timeframes prior and post this two year period because the internal audit programs vary in length from one to three years.

Source: ANAO analysis of entity documentation.

2.86 These audits have resulted in changes to policy and procedures related to probity. Examples are:

• AgriFutures Australia changed the recording of conflicts of interest declarations for panels, and the documentation of value for money when assessing RD&E proposals;
• the Cotton RDC changed a procedure to provide the staff conflict of interest table to the Board when assessing new research proposals; and
• the Fisheries RDC updated its fraud control plan and risk register, and offered fraud awareness training.

2.87 The funding agreement with Department of Agriculture requires all entities to complete a Compliance Assurance Report by an external auditor by 30 November each year, concluding on specific clauses of the funding agreement.⁴⁷ The corporations arranged for private sector auditors to conduct these reports for 2016–17 and 2017–18 as required. Review of the reports confirmed no probity issues were raised in these reports for the five entities.

2.88 AgriFutures Australia and the Cotton, Fisheries and Grains RDCs complete a checklist focused on compliance with legislative requirements. This checklist allows monitoring of controls, including the requirements around fraud. Of these four corporations, only the Cotton RDC had a checklist that covered conflict of interest requirements. The AgriFutures Australia checklist partially covered these matters.⁴⁸ A version of this report has been completed by Wine Australia, but its document omits requirements for conflict of interest, use of position and use of information and most requirements for fraud control.

Processes for the issue and cancellation of credit cards

2.89 As discussed earlier and outlined in Table 2.4, the corporations’ credit card policies were reviewed to determine whether they covered practices including the issue and cancellation of cards. All entities included some requirements for approving the issue of a credit card, although Wine Australia’s policy only included basic guidance about the issue, use, reconciliation and authorisation procedures and expectations. All entities required cards to be returned and cancelled, but none described a process that could be tested, such as a time limit.

2.90 To establish if the policies for issuing cards were being implemented, the audit tested corporations’ compliance against their own policy’s key measures. These included three generally recognised better practice processes in relation to credit cards controls as discussed in paragraph 2.71, and results are summarised in Table 2.7.⁴⁹

Table 2.7: Results for the testing of key controls for the issue of credit cards

Key: 

 no requirements implemented

 up to one third of requirements implemented

 between a third and two thirds of requirements implemented

 between two thirds and all except one requirement implemented

 all requirements implemented

Note: The issue of credit cards was assessed for cards active during the period 1 January 2017 to 31 December 2018. When a requirement is not part of the entity’s policy it has been recorded as NA.

Source: ANAO analysis of the selected RDCs’ documentation.

2.91 The issue policies of the Fisheries and Grains RDCs, and AgriFutures Australia were implemented largely as required. The one exception was that AgriFutures Australia did not document a reason or business need for issuing its cards. The Cotton RDC complied with its policies. Testing of Wine Australia’s records found that it only partially met its own policy requirements. For the 47 cards it issued, the corporation retained evidence of approval in 10 cases.

Promoting probity through education and training

2.92 Raising awareness about probity requirements to board, staff, panels and providers can be included in on-the-job and formal training, staff communication, and documented in guidance as part of the RD&E procurement process. This improves the level of assurance provided around the system of internal controls.

2.93 Four of the five entities provided examples of some training being undertaken on some probity topics within the two years to 31 December 2018. Wine Australia did not provide evidence of having conducted training in probity policies. Fraud training is provided by the Cotton RDC, AgriFutures Australia, and the Grains RDC on an annual basis, and the Fisheries RDC offers fraud awareness training via e-learning. The Grains RDC provides annual procurement training for staff and panels and annual gifts training for staff. Training on use of credit cards, conflicts of interest, procurement, and gifts and benefits are covered less often in other RDCs. A summary of probity training offered by the five entities is in Table 2.8.

Table 2.8: Probity training offered by the five corporations

Source: The table is a summary of evidence provided by the entities on training in probity topics.

2.94 Testing in Chapter 3 indicates that, apart from the Cotton RDC, the corporations overall partially comply with applicable probity requirements. More comprehensive training would assist rates of compliance.

Have the entities effectively addressed non-compliance?

2.99 For the period reviewed during the audit (2017 and 2018), no probity related allegations were identified at the Cotton and Fisheries RDCs and Wine Australia. There were four allegations associated with the Grains RDC and two with AgriFutures Australia. The allegations related to conflicts of interest, breach of contract and/or fraud related to a research project, and confidentiality.

2.100 Identification of the six alleged probity issues occurred by individuals reporting the allegations via a public interest disclosure and correspondence to the entity. Besides the public interest disclosure, the incidents were alleged to have occurred: as part of board meeting proceedings; in the course of contracting and undertaking research; and as reported by a staff member.

2.101 The entities effectively addressed the allegations of non-compliance in five of the six incidents. The incidents addressed according to law or policy are summarised below:

• At the Grains RDC, board minutes for two incidents showed a director leaving the meeting while the board assessed the matter and agreed on a protocol. One matter was investigated by an external party.
• The two incidents reported to AgriFutures Australia were alleged to have occurred in May 2017 and December 2018, and following investigation both resulted in an unsubstantiated finding. One was investigated through an external investigation. The other allegation was managed through an internal investigation documented by the Executive Director.⁵⁰

2.102 One of the probity allegations at the Grains RDC was not managed effectively. There was no written evidence of it being investigated or finalised, although various investigation options were considered. The Grains RDC should take actions to gain assurance that its probity policies are being fully implemented by staff. Entities not effectively managing non-compliance increases the risk that public resources will not be used properly and of reputational damage to the RD&E process and the entity.

3.1 The sub-criteria in this chapter comprise detailed testing of compliance with policy for the five probity themes of the audit: conflicts of interest; gifts, benefits and hospitality; intellectual property; value for money in procurement; and credit cards. The results indicate whether the boards have been successful in promoting economy, effectiveness, efficiency and ethics, as required under section 15 of the Public Governance, Performance and Accountability Act 2013 (PGPA Act).

Have the corporations complied with their probity policies in making funding decisions and managing intellectual property?

3.2 RDC boards, staff and panels are in a position where their activities can expose them to the potential for criticism based on bias or favouritism in making investment decisions. Funding decisions need to be considered not only from a conduct perspective but also from perceptions that might arise from this conduct. Boards, panel members and staff must be able to demonstrate that their decisions are made to best promote the entity’s statutory functions.

3.3 Twenty RD&E projects were selected from each entity on a targeted basis for testing compliance with their probity policies. Targeting was based on risk factors including the larger value transactions, number of industries represented, procurement methods and stakeholder feedback. Figure 3.1 presents the average cost of these 20 projects for each corporation. The focus in assessing the application of probity policies in making funding decisions was on conflict of interest and gifts, benefits and hospitality.

3.4 The Grains RDC has the largest projects and greatest variety of funding streams in the targeted sample.

Figure 3.1: Average cost of the corporations’ 20 projects examined

 

 

Note: Compared to the other corporations, the Grains RDC receives more funding and invests more resources into RD&E. In 2017–18, the Grains RDC’s total investment was $192.1 million.

Source: Analysis of corporations’ data.

Did the boards, advisory panels and staff comply with entities’ policies on conflict of interest for funding decisions?

3.5 Common practices in the five corporations’ policies to manage conflicts of interest for boards included:

• a requirement to declare interests⁵¹ and changes to be notified to the corporation in a timely manner;
• a standing meeting agenda item at the beginning of meetings prompting changes to be advised, considered and managed; and
• documenting in meeting minutes identified conflicts, their consideration, and management (for example, leaving the meeting).⁵²

3.6 The five RDCs complied with their conflict of interest policies for board meetings, typically through maintaining registers of interests, considering the register at the start of each board meeting, and declaring interests when required. The corporations’ policies focused on material personal interests,⁵³ with lesser standards required for perceived conflicts.

3.7 Staff approved Wine Australia’s policy, which restated the requirements of the PGPA legislation. That is, directors must report material personal interests at board meetings and withdraw from a meeting while the other directors consider whether they can participate. The corporation had a process to support compliance through an agenda item at the start of each meeting where directors declared interests. Section 19 of the Wine Australia Act 2013 states that employment as a grape grower or winemaker does not of itself indicate a material personal interest.

Panels

3.8 Industry advisory panels are a means by which the RDCs can bring in expert advice when considering projects for funding. At the five corporations, panels would include growers, researchers, business owners and producers. Panellists are not officials under the PGPA Act and panels do not have decision-making powers, but they can influence the RDCs in the projects they fund and who would conduct them.

3.9 Four RDCs managed panels and were responsible for managing their conflicts of interest — AgriFutures Australia, the Fisheries and Grains RDCs, and Wine Australia.⁵⁴ Members of industry panels are appointed due their skills and experience, often related to the industry, so the management of conflicts of interest is an important part of probity.

3.10 Requirements reviewed for compliance with policy included registers of interests, documenting the disclosure of interests in panel meeting minutes, considering a register of interests at a meeting, and documenting the management of any conflicts that arose.⁵⁵

3.11 Wine Australia complied with its conflict of interest policy, but this only required the declaration of material personal interests with no process outlined for management of conflicts. The Fisheries RDC largely complied and the other two corporations partially complied. The corporations’ key omissions were:

• AgriFutures Australia did not fully document actions taken to manage conflicts or produce the registers that panel minutes referred to; and
• the Grains RDC did not keep full minutes including documented conflicts of interests for all meetings.

3.12 AgriFutures Australia had four projects approved by different panels where a panel member was employed by the receiving organisation. All four members attended the relevant meeting but the minutes showed no action to manage their interest, which two of them declared. These panels are influential in that they made recommendations for 17 of the 20 projects tested, all of which were accepted by the board or management.

3.13 The policy for AgriFutures Australia defined a material personal interest to include where a panel member had a friend or family member who would receive a pecuniary benefit from a decision. The policy did not cover the case where a work colleague of a panel member is applying for funding. Given that this situation occurs at AgriFutures Australia, its policy should define a material personal interest to include where a board or panel member is employed by an applying organisation. The Fisheries RDC does this in relation to its research advisory committees and the Grains RDC does this generally.

3.14 The Grains RDC could not demonstrate that it had effectively managed two declared material personal interests. A member of a regional panel that supported a project was employed by the receiving organisation. The project was a further phase of a previous project. The meeting minutes did not show that the person withdrew from the discussion or the panel discussed their interest.

3.15 The Grains RDC’s National Panel later also endorsed this project. A member of its National Panel had declared they were married to a staff member of this research organisation. The National Panel approved a second project for this organisation as well. The corporation’s Executive Director had previously approved an approach for managing this interest. This included advising members of the National Panel of the interest and managing it on a case by case basis, but the corporation could not evidence that this had occurred. For these two projects, only one provider, or set of providers, were requested to bid.

3.16 Panels at the Fisheries RDC examined five projects out of the 20 that the audit tested. In one case, they did not effectively manage a material personal interest. A member of a research advisory committee worked for a research organisation that received funds from the corporation to extend a program. The corporation advised that the member attended the meeting where the committee supported the project and did not leave the room on the basis that they were not getting a direct benefit from the project. Seven other research advisory committees also considered this project and the board approved it. The Fisheries RDC advised that it is now standard practice for the meeting to ask someone in this position to leave the room.

3.17 Two corporations have made improvements to conflict of interest processes for panels:

• In response to an internal audit conducted in December 2017, AgriFutures Australia added an option to tick a ‘conflict of interest’ box in its online system during the assessment process; and
• In May and August 2018, management at the Grains RDC reported to the board on an internal audit into panels that included findings, management responses and actions for conflicts of interest. Throughout 2018, the corporations’ Northern and Western Panels implemented processes to declare interests and document how the panels were managing them. The Southern Panel and National Panel were in the process of doing so.

Staff

3.18 The RDCs’ management of staff and conflicts of interest is documented in their conflict of interest policy and procedures. Staff are required to disclose any personal, financial, or other interest that may conflict with any duty or responsibility owed to their entity. Some policies do not permit outside employment or require permission to accept outside appointments (paid and unpaid). Interests may be compiled into a register, which the Cotton RDC did and the Grains RDC partly did.

3.19 When conflicts are managed consistently according to policy, and the policy is appropriate, the corporations can gain assurance that processes are in place to avoid bias in the procurement process. Section 29 of the PGPA Act requires staff (and directors) to declare material personal interests. Section 16 of the PGPA Rule requires them to disclose that interest in accordance with any instructions given by the board (the accountable authority). The corporations’ policies incorporated these legal requirements, except for Wine Australia. There, the CEO approved the policy, rather than the board.

3.20 The Cotton RDC complied with its policy, AgriFutures Australia and the Grains RDC had evidence of partial compliance, and the Fisheries RDC and Wine Australia did not have evidence of compliance. Only the Cotton RDC fully demonstrated compliance with section 29 of the PGPA Act. The Fisheries RDC has since established a staff register of material personal interests.

3.21 In addition to these minimum legal requirements for disclosure, better practice indicates that the corporations’ policies would have a system to use this information to manage these interests. The policies for AgriFutures Australia and the Grains RDC described systems for managing disclosed staff interests, including at meetings. The policies for the other corporations did not; the Fisheries RDC has since updated its employee policy to prescribe a process for managing declared interests. Paragraph 2.42 discusses this issue further.

Did the boards, their committees, advisory committees and staff comply with entities’ policies on gifts, benefits and hospitality?

3.22 The corporations need to manage the receipt of gifts to prevent undue influence in procurements, or perceptions thereof. The audit tested appropriate documentation of the RDCs’ gifts, benefits and hospitality policy⁵⁶ for the period January 2017 to December 2018. This was based on compliance with the following requirements from Table 2.3, where the corporations had adopted them in policy: a required period within which staff must report; threshold for written reporting; approval to keep gifts; and maintaining a central gifts register.⁵⁷

3.23 AgriFutures Australia complied with its key policies for documenting the receipt of gifts, benefits and hospitality, and Wine Australia partially complied. The Fisheries and Grains RDCs did not comply with their policies and the Cotton RDC policy did not require written records, as outlined in Table 3.1.

Table 3.1: RDCs’ compliance with their policies for documenting the receipt of gifts, benefits and hospitality in 2017 and 2018

Notes: ‘Yes’ in the table indicates that the corporation’s register has been filled out as per policy.

‘No’ in the table indicates that the RDC either did not fill out the register or did not have a register as per policy.

The figure in brackets is the dollar threshold for the respective requirement. AgriFutures Australia required staff to report all gifts but they only needed approval to keep them if their value was $50 or over.

Source: The corporations’ policies and registers for gifts, benefits and hospitality.

3.24 The register for AgriFutures Australia listed 50 items for 2017 and 2018, reported mainly by staff members.⁵⁸ This comprised both gifts under $50 (which had to be reported) and gifts $50 and over (which had to be reported and then approved if the recipient wished to keep them). The highest value gift received was $85; food hampers were common. All gifts in the register valued at $50 or over were approved by a supervisor as required by policy and kept.

3.25 Wine Australia maintains a register with reporting limits of $200 and five business days. One gift to the value of $400 for dinner/entertainment was accepted during the audit period without record of approval. There is no approval information in the register and timeliness requirements for reporting cannot be assessed without a date recorded.

3.26 The CEO of Wine Australia advised that he attends dinners paid by industry for consultations and receives trade samples of wine for tasting. The CEO advised that tasting wine improves his product knowledge and supports his role in promoting the product.

3.27 Directors and staff advised that bottles of wine are also gifted to the corporations, or provided at functions attended by Wine Australia staff. With the exception of the one entry in the register, dinners and acceptance of wine was not included in Wine Australia’s register. These items were assessed at being below $200 in value.

Did the corporations comply with their standard contracts and policies for intellectual property and project technology?

3.28 The RDCs procure RD&E services to develop new systems and knowledge that will assist industry and, in some cases, deliver social and environmental benefits. These broad outputs are sometimes referred to as project technology. An RDC could freely disseminate project technology or it could apply to legally register it as intellectual property (IP). The corporations’ policies provide that this decision must provide the most benefit to industry, in effect recognising the interests of levy payers.

3.29 The standard RD&E contracts for the Cotton, Fisheries and Grains RDCs had clauses by which the corporations used IP and project technology to achieve their goals and manage the associated risks.⁵⁹ They covered:

• a list of IP the project required (such as access to a particular plant variety) and who was responsible for providing it — this managed the risk that required IP would not be available, leading to delays and increased costs;
• alternatively, provisions giving each party access to each other’s IP (background IP) and making the researcher responsible for accessing third-party IP;
• how the parties will own the project technology — by retaining a share the RDC can help ensure it is used for the benefit of levy payers and enables the corporation to receive a royalty if the project technology is commercialised;
• how the project technology will be used — in some cases, the RDC intends for it to be freely disseminated from the start and in others the outcome is unclear and the contract sets out a process for exploiting any possible project technology; and
• safeguarding the project technology — to protect the interests of the RDC and retain the option of commercialisation.

3.30 The standard contract for AgriFutures Australia had these clauses except in relation to third party IP. The 16 RD&E projects tested for Wine Australia were one-off, long-term arrangements covering multiple projects and did not have standard contracts.⁶⁰

3.31 For 18 projects, AgriFutures Australia covered the items listed above, except for third party IP. In the other two cases, it granted almost all the project technology to the researcher.⁶¹ In one case, the contract required any royalties to be used for the benefit of that industry. In the other, AgriFutures retained the right to use reports provided under the agreement.AgriFutures did not document a reason for assigning the project technology this way. The corporation has forgone influence and the opportunity to receive a royalty if it is commercialised.

3.32 The Cotton RDC covered the five items for all 20 projects tested.

3.33 For five projects, the Fisheries RDC used contracts that did not have clauses governing access to third party IP. A project could be subject to delays and additional cost if the researcher requires third-party IP for the project and it is not covered in the contract. The remaining contracts placed responsibility for acquiring third-party IP on the researcher.

3.34 The Grains RDC had one project that did not allocate ownership of project technology. Therefore, the corporation may not own any of the project outputs and be unable to apply it for the benefit of industry or receive a royalty. It also had two contracts that did not cover background or third-party IP. This means there is a greater risk the researcher will not be able to access required IP, incurring delays or greater cost. In three cases, the RDC managed IP risk by linking the first milestone payment to the researcher providing a completed IP register. The Grains RDC made the payment after receiving the register.

3.35 For Wine Australia’s bilateral agreements, the contract for eight of the 16 applicable projects did not allocate responsibility for accessing third-party IP or describe background IP. The contracts for another six projects did not describe background IP. This created the risk that, if it later became apparent that third party IP was required for a project, there could be additional expenses, as well as delays. Wine Australia partly manages this risk by making the researchers responsible for maintaining an IP register. Further, the agreements establish a management committee comprising members of the RDC and the research organisation to review the register. More robust approaches are available, such as linking the first milestone payment to the researcher providing a complete IP register.

3.36 The Intellectual property principles for Commonwealth entities state that a register of significant IP and project technology can support their effective management.⁶² The policies for AgriFutures Australia and the Fisheries RDC, and from August 2017 for the Cotton RDC, required a register. AgriFutures Australia and the Fisheries RDC maintained their registers as lists. The Cotton RDC maintained it within a database. The Grains RDC and Wine Australia did not have a requirement to maintain a register. The Grains RDC had a register of significant IP and project technology and Wine Australia had a register for its trademarks.

3.37 As required by policy, management at AgriFutures Australia provides regular reports on significant IP and project technology to its Audit Committee through a register. A similar arrangement applied at the Cotton RDC with its IP Committee. None of the other corporations have a reporting requirement in policy, but some reporting did occur:

• the board at the Fisheries RDC received implementation reports in relation to an IP and commercialisation review; and
• management at the Grains RDC reported to the board about enforcement action to protect IP.

3.38 Management at Wine Australia did not report to the board or a board committee on how it was managing the corporation’s stock of IP. Wine Australia advised that in 2017 and 2018 no project technology was developed that could have been commercialised. If there were, it would have been reported to the board through a board committee. In this situation, there is still benefit from some reporting; it would keep board members up to date and allow them to scrutinise management on IP and project technology.

3.39 Project technology and IP are the principal output of the RDCs. It is appropriate that boards be appraised of, and scrutinise, how management is administering these products. It is suggested that Wine Australia establishes a register of significant IP and project technology and that management at this corporation and the Fisheries and Grains RDCs report to the board or a board committee on these matters.

Have the corporations complied with their probity policies on achieving value for money in funding decisions?

3.40 The corporations procure RD&E, deliver grants programs, award scholarships and bursaries, and deliver other programs on behalf of the Australian Government. The RDCs receive the bulk of their resources from taxpayers and levy payers. By complying with suitable procurement policies, the RDCs can demonstrate support for achieving value for money with these funds. By complying with suitable policies for contract variations, the corporations can demonstrate they are maintaining the focus on value for money over the life of their projects.

3.41 The RDCs’ procurement processes varied, depending on the scale of the project and the structure of their panels. An example of a life cycle of a project is shown in Figure 3.2. Elements of this life cycle are discussed below in relation to the RDCs considering value for money in RD&E procurements.⁶³

Figure 3.2: Life cycle of an RDC’s procurement of RD&E services

 

 

Source: The corporations’ policies and interviews with corporation staff. The process varies across the RDCs.

3.42 As noted in paragraph 3.3, 20 RD&E projects were chosen at each corporation for testing based on project value, to reflect each corporation’s approach to RD&E, and to take into account stakeholder feedback.

Have the corporations complied with policies in considering value for money in RD&E procurements?

3.43 The RDCs can demonstrate a focus on achieving value for money by having good processes and documentation for tendering, assessing bids, and approvals. Box 1 explains how these processes contribute to value for money.

3.44 The corporations’ compliance with the policies for their general RD&E procurements is in Table 3.2, along with the areas they did not have an explicit policy. The Cotton RDC complied, the Fisheries RDC largely complied and AgriFutures Australia partially complied. The other two RDCs did not have explicit policies for some aspects of these procurements.

Table 3.2: RDCs’ compliance with value for money policies for RD&E procurements, 2017 and 2018

Key: 

 no requirements implemented 

 up to one third of requirements implemented

 between a third and two thirds of requirements implemented

 between two thirds and all except one requirement implemented

 all requirements implemented

The reference to ‘no policy’ for Wine Australia reflects this RDC negotiating five long-run research agreements that did not have a standard template or policy.

Source: ANAO analysis of the corporations’ policies and records for the purpose of testing for the audit.

AgriFutures Australia

3.45 AgriFutures Australia had seven of the 20 examined projects above its open tender threshold of $220,000 where it used limited tender. It did not document the reason for this and could not demonstrate in these cases that limited tender supported value for money. Further, for the 20 projects, the corporation did not comply with its policy in relation to cost and largely complied with its policies for contractor expertise and adoption. For the seven undocumented exceptions to open tender, AgriFutures had no evidence that the cost was reasonable. In addition, the corporation did not document three panel approvals and one board approval, raising questions about whether the agreements reflected any value for money requirements in the approvals.

Cotton RDC

3.46 The Cotton RDC’s policy requires the board to decide the procurement method for each RD&E project. In 2016 and 2018, management supplied a procurement plan to the board that specified whether a project would be open tender. These documents, combined with the minutes, demonstrated the board complying with policy. In 2017, management’s procurement plan did not specify the procurement method so the RDC could not demonstrate that it complied with policy. The minutes record the board noting that approximately 60 per cent of the procurements will be open tender and requesting management to specify the procurement method in the next round.

3.47 Of the 20 tested projects, 17 went to open tender. For two of the remaining projects, the RDC documented the board approving limited tender. For the last project, the RDC did not document the board approving limited tender, but did document management advising the board that this was the procurement method before the board approved the procurement.

3.48 The Cotton RDC complied with policy for cost, contractor expertise, adoption and approval in all cases. The corporation largely demonstrated value for money for these procurements.

Fisheries RDC

3.49 All of the corporation’s 15 RD&E projects were above the open tender threshold; the corporation advised that it conducted all but one through limited tender. As required by the policy, the board approved the projects to be procured outside policy. ⁶⁴ The corporation complied with its policies for cost and adoption, but not for demonstrating contractor expertise in five cases.⁶⁵ This meant the Fisheries RDC had no evidence that it selected the best researchers for five of the 15 projects. The corporation properly approved all but one of the 15 projects.

3.50 For the five contracts tested for the National Carp Control Plan, the board approved management’s proposal to use limited tender to meet timeframes set out in its agreement with the Commonwealth.⁶⁶ The Fisheries RDC and the Department of Agriculture signed the agreement in December 2016 with a finish date in December 2018. The board of the Fisheries RDC approved using limited tender in April 2017. In September 2018, the two parties agreed to extend the contract to December 2019, with no change in funding.

3.51 The corporation complied with its policy for cost and adoption and complied in three cases in relation to contractor expertise. Therefore, the Fisheries RDC had some confidence around costs and adoption but no documentation for two projects to support the reasons for selecting the researcher.⁶⁷ The board approved one project and delegated approval authority for the other four to the Executive Director, who approved them.

Grains RDC

3.52 The average value of the Grains RDC’s 16 RD&E projects was $3.4 million, which was significantly larger than the other RDCs. It used open tender for six projects and documented its reason for limited tender for two, conducting the other eight limited tender procurements without explanation. The corporation had a policy to assess cost and complied with it. It did not have a policy for the contractor and adoption, and had partial documentation for these. The Grains RDC had some evidence that costs were reasonable, but no documentation in seven cases for the researcher and in five cases for adoption. The corporation did not have documented endorsements from its National Panel for three projects, raising questions whether the contract reflects the National Panel’s value for money decision.

3.53 In 2017, the Grains RDC signed a long-term co-investment agreement with a research organisation across three research categories, totalling $64.6 million.⁶⁸ The board approved direct negotiation with the provider. The resolutions and processes occurred outside the corporations’ procurement policies and procedures, which management had approved, so the board was entitled to take its own approach with the agreement.

3.54 This agreement set out a process by which the co-investing research provider would present proposals under the three categories to a management committee for approval. One of the approved projects complied with the process and the other, to support a research facility, largely complied. The agreement required the management committee to approve the next year’s budget for each project. This did not occur in 2018 for the research facility. Further, at the start of the agreement in 2017, the management committee approved the facility without receiving advice on the activities that would be conducted there, contrary to the agreement. In December 2017, the management committee noted that a different research provider is conducting most of the projects at the facility and that it did not have any links to other projects in the agreement. In 2018, the Grains RDC reviewed the facility’s operations and decided that funding would finish in June 2019.

3.55 The Grains RDC partially complied with the Commonwealth Procurement Rules (CPRs). It met all tender requirements because research and development activities are exempt from open tender under Appendix A of the CPRs. The corporation’s assessments of value for money did not consider all of the six assessment elements in the CPRs.⁶⁹ The Grains RDC estimated the cost of all procurements in accordance with the CPRs prior to a decision. For five of the 16 procurements, there were no records showing that the decision maker was satisfied that the procurement achieved value for money.

3.56 The CPRs also have transparency requirements. The Grains RDC’s open tenders were appropriately accessible on AusTender in line with the CPRs. They also require prescribed entities (such as the Grains RDC) to publish contracts for procurements above $400,000 within 42 days of signing. The Grains RDC complied with this for only one of the 18 procurements, limiting the timeliness of the procurements’ transparency.⁷⁰

Wine Australia

3.57 In 2017, Wine Australia signed long-term agreements with five research providers.⁷¹ The board approved direct negotiation with the providers outside its procurement policies and procedures. The corporation had no policy for assessing the agreements, but it considered cost and researcher expertise for all 16 projects and the adoption strategy for two of the 13 where it was applicable. One of the 16 projects was a general adoption program, but this was not integrated into the individual project assessments or approvals.

Have the corporations complied with their policies in making funding decisions for grants?

3.58 As shown in Figure 3.1, Wine Australia and the Grains RDC were responsible for delivering grants programs. The funding agreements required the RDCs to comply with the Commonwealth Grant Rules and Guidelines if they funded a peak industry body for RD&E. Otherwise, the Guidelines did not apply to the Grains RDC for its infrastructure program because it is a corporate Commonwealth entity independently making its own grants. The Guidelines did apply to Wine Australia’s tourism grants because, in its funding agreement with the Department of Agriculture, the RDC agreed to follow them.

3.59 Wine Australia’s grant program guidelines for the International Wine Tourism Competitive Grants (the tourism grants) and the Grains RDC’s application guidelines for infrastructure grants outlined the process for making funding decisions. The processes included eligibility assessments, criteria against which to assess the proposals, and a panel to conduct the assessments.

3.60 Testing of compliance against grant guidelines covered four of Wine Australia’s 21 approved tourism grants. Wine Australia complied with its policies for the projects tested, except that it did not publish the grants on GrantConnect within 21 days of them commencing; it published them during the audit. The RDC’s approval documented how it related to the grant opportunity guidelines and the principle of achieving value for money.⁷²

3.61 Testing also covered two of the Grains RDC’s 15 approved infrastructure grants. The RDC complied with its grant guidelines for the projects tested. The Grains RDC initially approved $3 million in funding for one project, which was the limit in the guidelines.⁷³ The RDC later varied the amount to $5.175 million.

Have the corporations considered value for money in RD&E contract variations?

3.62 A proposed contract variation can indicate different circumstances, such as:

• the project is producing unexpected positive outcomes and should be extended;
• the project is in difficulty and the corporation needs to manage it; or
• the winning bid was an inaccurate costing or the project was not accurately scoped at the start, raising a question about the original decision on value for money.⁷⁴

3.63 To determine how well the corporations were managing these risks, the audit selected their 15 largest contract variations in 2017 and 2018 (by dollar) for testing against their policies.

3.64 A contract variation percentage was generated for each corporation to provide aggregate information about their variations. It comprised total variations approved divided by total project size for that RDC’s 15 projects, prior to the variations. A statistic for average project size prior to each variation was also calculated.

3.65 The Grains RDC had larger varied projects with an average of $3 million and a variation size at a little over 20 per cent. AgriFutures Australia, the Cotton RDC and Wine Australia had similar results with an average project size of around $500,000 and a contract variation percentage of 10 to 25 per cent. The Fisheries RDC had a similar project size to the other three at a little under $500,000, but its variation measure was the highest of all entities at 70 per cent, as shown in Figure 3.3.

Figure 3.3: Variation percentage for the corporations’ 15 largest contract variations for RD&E projects

Notes: Variation percentage is calculated by totalling the contract variations and dividing this by total project budgets prior to the variations.

The Fisheries RDC had one project with two large variations. Excluding this project would reduce the corporation’s variation percentage to 37 per cent.

Source: ANAO analysis of the corporations’ data.

3.66 All corporations had guidance on who would approve a contract variation. Three corporations appropriately approved financial variations in line with their policy. AgriFutures Australia did not provide documentation for the approval of one variation. Wine Australia did not have a record of approval for two financial variations, and advised they did not have a record of this. Its approval of two other variations to RD&E contracts was inconsistent with internal policy, where a selection of board members rather than the full board provided approval.

3.67 Only the Cotton RDC had further policies in relation to contract variations. These required notification from the researcher and their submission of a revised budget. The Cotton RDC complied with this requirement for all 15 variations. Outside its policies, this corporation generally approved variations on the basis of an internal memorandum that provided a progress report on the project. This demonstrated that the decision-maker knew the project status when they approved the variation. The RDC provided this evidence for 14 of the 15 variations. The Cotton RDC considered value for money in approving variations.

3.68 The other corporations had limited documentation to support their contract variations and did not demonstrate they considered value for money in approving them. Their standard contracts require researchers to provide progress reports, but the RDCs did not often refer to the reports in the approval.

3.69 The corporations’ policies did not cover the circumstance of a contract variation taking a project exceeded the open tender threshold. If such a project were initially approved from a limited tender, the variation would raise the question of whether the corporation should have used open tender in the first instance.

3.70 The audit examined the projects associated with the 75 variations (15 for each corporation) to determine if a variation had pushed a project past that RDC’s open tender threshold. This analysis identified six out of 30 projects across two corporations that started with a limited tender. For five projects, variations increased their value by more than 100 per cent, as shown in Table 3.3.

Table 3.3: RD&E projects procured through limited tender that the corporations varied past their open tender threshold, 2017 and 2018

Note: The open tender threshold is at the date the contract variations were approved.

Source: ANAO analysis of the corporations’ documentation.

3.71 Consistent with Figure 3.3, the Fisheries RDC had the largest number and value of variations in the table. Its largest variation came about because management independently commenced a substantial project in 2016 using an amount within their delegation. The board approved two large variations in 2017 and 2018. The RDC documented this was due to time constraints and it anticipated bringing the project to the board. Noting that the Fisheries RDC had a policy for out of session decisions, the variations constituted a breach of its procurement policy.

3.72 Although the corporations approved these contract variations in line with their delegations, they did not document the value for money consequences of passing the open tender threshold.

Have the corporations met the probity requirements in the use of credit cards?

3.73 Credit cards represent a probity risk because cardholders have direct access to the corporations’ cash, which is sourced from levy payers and taxpayers. The corporations would manage this risk by achieving close to 100 per cent compliance with their credit card policies. Every breach of policy is a potential probity incident.

3.74 The corporations use credit cards for official administrative expenses such as travel, hospitality and meetings. Figure 3.4 shows the total amount of the corporations’ credit card expenditure over the two years between January 2017 and December 2018. It also shows, as a relative measure, the proportion of total administrative expenses paid by credit card.⁷⁵

Figure 3.4: Credit card expenditure of rural RDCs in 2017 and 2018

Note: The corporations used credit cards for administrative expenses. This comprises most overheads and excludes salaries and programs.

Source: ANAO analysis of the corporations’ credit card and payments data.

3.75 Wine Australia was the biggest user of credit cards with $2.3 million of credit card expenditure over 2017 and 2018. The Fisheries RDC had the highest proportion of credit card expenditure in comparison to the other corporations, with credit cards comprising 34 per cent of its administrative expenses over 2017 and 2018. The credit card policy at the Fisheries RDC requires all staff to be issued a card and for credit cards to be used for as many business purchases as practicable.

3.76 Transactions were selected for testing on the basis that they represented higher probity risks at the corporations between January 2017 and December 2018. The transactions tested included: single large transactions; transactions during employee leave and after ceasing employment; by type of good purchased; and multiple transactions of the same amount close to each other by date. The number of transactions tested ranged from 20 to 80 (AgriFutures Australia 21, Cotton RDC 20, Fisheries RDC 52, Grains RDC 72 and Wine Australia 80).

Responsibilities of cardholders in using credit cards

3.77 The corporations’ credit card transactions were tested to determine if cardholders were retaining appropriate records and checking their credit card statements.

Retaining purchase documentation

3.78 Retaining receipts or invoices is an important control that assists the corporations in reconciling their purchases against the amounts charged to the credit card. All the corporations required the cardholder to include a receipt or invoice of the purchase in their acquittal. Only the Cotton RDC retained documents for all tested transactions.

3.79 For AgriFutures Australia, supporting documentation for purchases was not included for three of the 21 transactions tested (14 per cent); two of these transactions were over $3,000. For the Fisheries RDC three of the transactions tested (six per cent) did not have appropriate purchase documentation. In these instances, staff signed statutory declarations for the purchases. The Grains RDC and Wine Australia each had one transaction without a receipt. The Wine Australia transaction was over $1,000. The RDC provided an unsigned lost receipt declaration for this. During the audit, the manager of the person who incurred the charge verified that it was valid.

Acquitting transactions

3.80 The requirement for cardholders to acquit their transactions places the burden on the person who made the purchase to approve their statement and sign off that they have complied with policy. All the corporations required the cardholder to sign off on their acquittal and submit it for review.

3.81 For AgriFutures Australia, six transactions (29 per cent) were not signed off by the cardholder before progressing to the reviewer for approval. For the Fisheries RDC, acquittals for three transactions (six per cent) were not signed off by the cardholder. The Grains RDC and Wine Australia each had one transaction where the acquittal was not signed off by the cardholder.

Review of credit card transactions

3.82 Key controls in each of the corporations for the review of credit cards were also tested. As discussed in Chapter 2, the five key controls expected in the corporations’ policies were independent review, timeliness of acquittals, match between the receipt and credit card statement, spending is for a work purpose, and the amount is reasonable. The first four of these controls were tested.⁷⁶

3.83 Controls for reviewing credit cards were effective at the Cotton RDC and partially effective at the other RDCs.

Independent review

3.84 Approval by an independent reviewer with knowledge of the cardholder’s role in the organisation, often their manager, helps detect omissions in the acquittal and encourages cardholders to fulfil their responsibilities. The corporations had a policy requiring independent review, except for Wine Australia.

3.85 All tested transactions at the Cotton and Grains RDCs showed evidence of independent review. For the Fisheries RDC, one of the transactions tested did not include approval by a reviewer. AgriFutures Australia had two acquittals where it advised that it could not retrieve the reviewers’ approval from storage.

3.86 For the 80 Wine Australia transactions, a supervisor approved one transaction by email and another supervisor approved a transaction through the bank’s FlexiPurchase system. For the remaining 78 transactions, the Finance Manager approved 56 within this system, and a Finance Officer approved 22 transactions. Wine Australia did not provide documentary evidence of the checks undertaken for approvals by Finance officers. Wine Australia advised that the Finance team and General Manager (Corporate Services) regularly reviewed all credit card transactions through automated reports produced by the FlexiPurchase system. Wine Australia provided evidence of one instance where the General Manager (Corporate Services) followed up a transaction (outside the 80 transactions tested) following a FlexiPurchase report.

Timeliness of acquittals and review

3.87 The timely acquittal of credit card statements helps the cardholder to check the accuracy of their most recent transactions and for a supervisor to take prompt action if required. The policies for AgriFutures Australia and Wine Australia had time limits for cardholders to reconcile the transactions and provide supporting documentation (five and three working days respectively). These corporations did not prescribe time limits for review. In testing, thirty days was chosen as a minimum standard for acquittal by the cardholder and an independent reviewer.

3.88 Only dated acquittals were tested for their timeliness. The number of transactions tested ranged from 0 to 57 (AgriFutures Australia 13, Cotton RDC 9, Fisheries RDC 52, Grains RDC 57 and Wine Australia nil). All of the acquittals at the Fisheries RDC were dated. Wine Australia’s acquittal process did not record the date the acquittal was received by the finance team.

3.89 For AgriFutures Australia, 15 per cent of transactions were not acquitted within 30 days of the release of the credit card statement. For the Fisheries RDC, 50 per cent of transactions were not acquitted within 30 days of the release of the credit card statement. For the Grains RDC, 21 per cent of transactions were not acquitted within 30 days of the release of the credit card statement.

3.90 Where receipts or invoices are mislaid, the timely submission of a statutory declaration or lost receipt form allows the reviewer to assess the acquittal within a normal processing timeframe. Staff at the Fisheries RDC completed their statutory declarations between three and eight months after the transaction date. Before December 2018, the Grains RDC’s credit card policy required cardholders to complete a statutory declaration when documentation was mislaid. In the one instance where a receipt was mislaid in early 2017, a statutory declaration was signed during the audit. Wine Australia provided an unsigned missing receipt form for its undocumented transaction.

Transactions for work purpose and acquittals consistent with purchase documentation

3.91 All of the corporations required corporate credit cards to be used only for business purposes. A common way of checking this is to examine whether the purchase amounts in the monthly credit card statements align with the receipts or invoices submitted. The credit card policies for all the corporations except Wine Australia required the reviewer to check documentation, but matching was not specifically required.

3.92 Related to work purpose, the RDCs often placed additional restrictions on credit card use, for example that gifts could only be purchased by certain staff members or that certain purchases required Executive Director or CEO approval. Testing included compliance with these additional requirements.

3.93 For the Fisheries RDC, three transactions (six per cent) were not supported by policy. Two transactions were at restaurants and the corporation could not document why the amount in the credit card statement exceeded the amount in the receipt. The RDC did not document following up these transactions. One transaction was for a staff function; these were not permitted under policy. At the Grains RDC, eight per cent of transactions were not purchases supported by policy. Five transactions were at restaurants and the corporation could not demonstrate that policy supported the amount in the credit card statement being higher than in the receipt. One transaction was for the purchase of a gift by a staff member who did not have authorisation to do so.

3.94 For Wine Australia, six transactions (8 per cent) were not supported by policy or by law. Two of the six unsupported amounts were over $1,000:

• three transactions included tips at restaurants and the corporation could not demonstrate that policy supported paying tips;
• two transactions were for staff events that were not supported by policy; and
• one transaction was for a wine allowance for a senior member of staff where the RDC did not provide the relevant contract of employment.⁷⁷

3.95 Wine Australia had two transactions where it could not demonstrate that policy supported the amount in the credit card statement being higher than in the receipt. The corporation followed up one of the transactions with the supplier during the audit and they have offered a voucher as recompense. The other was one of the staff events mentioned above, which the RDC held at a restaurant.

3.96 For AgriFutures Australia, 19 per cent of transactions did not include a stated reason for the purchase in the acquittal. These three transactions each exceeded $4,000.

3.97 None of the corporations followed up the transactions at the time.

Appendix 1 Entity responses

 

 

 

 

 

 

ANAO comment on AgriFutures Australia response

1. The board of AgriFutures Australia had access to a copy of the full draft audit report and associated ‘Audit Snapshot’ as part of the legislated section 19 consultation process. The board had 28 days in which to consider and comment on the draft report and snapshot. The ANAO did not provide an overall conclusion (or Audit Snapshot) in the preliminary Report Preparation Papers, as these are intended to facilitate discussion with audited entities on the preliminary audit findings. It would have been premature at this early stage to draw overall conclusions as outlined in the Audit Snapshot. The overall conclusion that AgriFutures Australia was ‘partially’ effective in managing probity issues stemmed from the opinion that AgriFutures Australia had ‘largely appropriate’ probity arrangements (the conclusion to Chapter 2 as reproduced in paragraph 9) and partial compliance with its applicable probity requirements (the conclusion to Chapter 3 as reproduced in paragraph 10).

 

 

 

 

 

 

 

 

 

 

 

 

Appendix 2 Selected legal probity requirements for the corporations

Table A.1: Conflicts of interest

Note a: Under section 13 of the PGPA Act, an ‘official’ is generally a director or employee of a corporation.

Source: PGPA Act, PGPA Rule, the Wine Australia Act 2013 and the corporations’ funding agreements.

Table A.2: Fraud control

Source: PGPA Rule.