Commonwealth, states and territories flag more grants audits

Even in states and territories where audits aren’t scheduled in forward plans, auditors have the power to respond to political demands for inquiries, now on the rise in the wake of high-profile audits and media scrutiny of a number of Commonwealth programs.

But although Australian National Audit Office (ANAO) audits are getting the most attention, most state authorities have also confirmed that more audits are on the cards. The Victorian Auditor General, for instance, confirmed in late June that it was pressing ahead with an investigation into "Fraud control over local government grants" affecting five municipalities.

Grantmakers wanting to ensure they keep their noses clean will see patterns in recent investigations by national, state and territory authorities. The dossier of audits here includes repeated recommendations calling for grantmakers to do better on guidelines, assessments, reporting, recording, measures, checks and compliance.

In the wake of highly critical audits of sports and regional funding in the past year, the ANAO shows no signs of letting up its rigorous scrutiny of grants programs.

[ANAO Auditor-General Grant Hehir’s forward program heralds more scrutiny for grants managers]

In a January 2020 report into the Community Sport Infrastructure Grant Program, the ANAO found the $100 million scheme “was not informed by an appropriate assessment process and sound advice”.

Meanwhile, a November 2019 audit into the federal Regional Jobs and Investment Packages (RJIP) program found “eligibility and merit assessment processes were not to an appropriate standard”. Other 2019 studies examined the Australian Research Council’s National Competitive Grants Program and the $443 million grant to the Great Barrier Reef Foundation.

Read the report into the recent ANAO investigation into the Community Sport Infrastructure Fund in the March edition of Grants Management Intelligence, and a report on the RJIP program in the December 2019 edition of Grants Management Intelligence.

The ANAO site lists 19 other performance audits of grants programs in the past four years. The 2016 report Delivery and Evaluation of Grants Programmes found that inadequacies in the administration of grants agreements were common, as were delays in the delivery of projects. It found that only one of three audited entities had delivered timely and comprehensive evaluations.

Its recommendations ranged from “more realistic advice to ministers” about delivery timeframes, to the need to implement and follow through with evaluation findings.

The ANAO’s current audit work program of 89 issues includes an ongoing focus on the key accountabilities spelled out in the Public Governance, Performance and Accountability Act (PGPA), which requires compliance with the Commonwealth’s Grants Rules and Guidelines (CGRGs).

The ANAO said its work would target any areas involving major investment, the measurement of performance and impact, and the management of risks – including those related to probity, integrity and fraud.

The office said in its program overview that it would continually monitor developments across the public sector, Parliament, government and politicians, as part of an “environmental scan”.

The scan highlighted grants administration as a key consideration or risk driving the 2019–2020 program, the overview says.

As a result, grants managers can expect a close watch on:

• Compliance with the Commonwealth Grants Rules and Guidelines
• Effectiveness and efficiency of grant program management through grants hubs and other third parties
• Assurance arrangements to demonstrate that grant program objectives are being met in a way that provides value for public funding

The ANAO expects to expend about 9% of its resources in examining grants administration in the current financial year.

This follows a January query from shadow sports minister Lynda Voltz about the grants process for the Greater Sydney Sports Facility Fund.

In response, the office said, “The effective allocation of funding for grants and projects is an important focus area for the Auditor-General’s Performance Audit Program.”

The office said the proposed audit was likely to begin this year.

NSW Acting Deputy Auditor-General Scott Stanton told Grants Management Intelligence that although the office “doesn’t have a specific role in grants administration oversight … the Auditor-General can choose to do an audit on this issue at her discretion”.

He said grants administration was regularly examined under the performance audit program, and pointed to a 2018 investigation into regional assistance grant programs handled by Infrastructure NSW. The programs had allocated billions of dollars at the time of the study.

While largely positive, the study could not determine whether program objectives were being achieved because of a lack of adequate measures. Its string of recommendations included calls for:

• better documentation of assessment and probity matters
• annual compliance audits of randomly selected projects
• publishing how unspent funds could be allocated
• measuring the benefits of completed projects.

That study was generally positive, with the Auditor-General declaring: “The Department of Education effectively and efficiently allocates grants to non‑government schools. Clarifying the objectives of grants, monitoring progress towards these objectives, and improving oversight, would strengthen accountability for the use of public funds by non‑government schools.”

The office made six recommendations for improvements.

The audit office also drew attention to its report Performance audit insights: Key findings from 2014-2018, which compiled findings from six areas of government activity, including good governance and transparency.

That audit found there were several common gaps in governance across NSW entities, including “inconsistent risk management practices, lack of consistency or transparency in decision-making, low compliance or inadequate frameworks for managing due diligence and conflicts of interest, and lack of clarity in strategic purpose or direction.”

That audit made a series of recommendations to improve governance and transparency, drawing attention to a series of previous audit case studies. It suggested NSW agencies follow the model established in its 2015 Governance Lighthouse framework.

The Victorian Auditor-General’s Office (VAGO) will put the risks of fraud and corruption in council grants under the microscope in its 2020–21 audit program.

Its “Fraud control over grants in local government” audit will interrogate whether existing controls are well designed and operating the way they are supposed to, by targeting selected councils. Those councils were named in late June 2020 as Hume City Council, Knox City Council, Loddon Shire Council, Southern Grampians Shire Council, West Wimmera Shire Council.

According to VAGO: "This audit is the second in a series of our audits on fraud and corruption in local government. It presents an opportunity to identify potential fraud and corruption in grants to and from local councils, and to consider how well councils are managing their exposure to fraud risk."

According to VAGO, Victorian local councils received $1.9 billion worth of government grants in the 2016–17 financial year. The same year, the Local Government Inspectorate (LGI) – which polices compliance under the Local Government Act – released a damning investigation into the Central Goldfields Shire Council, which led to the council’s sacking.

The Inspectorate – the only authority of its type in Australia – found “significant grant funding had been mismanaged by the council and could not be accounted for”. In some cases, multiple invoices were used to acquit separate grants.

The investigation prompted the government to strengthen the role of council audit and risk committees and propose new laws to require those committees to “monitor and provide advice on risk management and fraud prevention systems and controls”.

The latest audit will also examine grants allocated by Local Government Victoria.

Recent council probes into the Yarriambiack Shire (2019) and the West Wimmera Shire (2018) also found shortcomings with grants practices.

A significant 2014 study into the Greater Geelong Council uncovered a “Community Priorities Scheme” which gave each councillor $600,000 a year to allocate to projects they nominated. The scheme had been running for nearly a decade, dishing out $59 million, before it was investigated and stopped.

In 2013, the then mayor, Keith Fagg, wrote to the Premier to complain about the scheme, saying: “There is no public application process, no business modelling for most projects and little rigorous testing normally expected for the expenditure of public funds. It is essentially the ward councillor alone who determines where these funds are allocated.”

The Inspectorate found the scheme “fundamentally failed the tests of openness, transparency and accountability, nor did it ensure or demonstrate that scarce local resources were used in the most efficient and effective manner”.

Legal reforms in 2014 prohibited such spending, and the entire council was sacked in 2016.

The Inspectorate now compiles lessons from these investigations for all councils to follow, and has summarised recommendations about best-practice grants management based on several investigations.

It recommends that councils should:

• ensure funds are used in a way that aligns with the council’s plan
• make regular contact with grant recipients to ensure they’re meeting grant terms
• confirm funds have been used for their intended purpose
• keep accurate records about grants
• ensure all grants have been acquitted
• ensure staff involved with grants are well trained and accountable for the grants process.

More Victorian Local Government Inspectorate (LGI) investigations

Other recent Victorian investigations into grants management have come under the auspices of VAGO itself.

A May 2019 audit into regional development grant funds managed by Regional Development Victoria (RDV) followed up a 2015 investigation into the program.

The findings were not complimentary.

“Having administered more than $1 billion in allocated funds since 2011, RDV still cannot reliably determine whether their grants have improved economic or social outcomes directly or indirectly, or whether any benefits have been sustained beyond the immediate injection of funds into a community. There is a high risk that its next evaluation, scheduled for 2021, also will not provide the answers to these questions.”

VAGO said part of the issue related to an evaluation framework with “incomplete measures and targets”, which lacked a full program logic model and data plan.

And VAGO found that the RDV’s difficulties in assessing grants related to a failure to adopt a “risk-based approach to grant assessment”. The Auditor-General also suggested the agency could improve transparency by publishing a comprehensive list of the grants awarded, and by publicly releasing information about how it assessed applications.

In 2016, VAGO turned its attention to grants for non-government schools by the Department of Education and Training (DET).

In short, the probe found that “there is limited assurance that grant funds are being used for their intended purpose or are achieving the government's intended outcomes”.

The audit pointed to “weaknesses in funding agreements, and DET's inadequate grants management including limited oversight of grant recipients and poor monitoring and reporting”.

The department responded the same year to address deficiencies in the process.

VAGO has also kept an eye on racing industry grants, which it found were “administratively weak” when it carried out an assessment in 2013.

The audit concluded that there had been a lack of guidance provided to assessors and record-keeping had been poor in the handling of regional infrastructure assistance grants, which meant it was unclear whether applications had met funding criteria or been assessed consistently.

The audit also uncovered weaknesses in how some of the controlling bodies managed grants funds, in departmental oversight, and in assessment of intended outcomes.

A series of recommendations addressed the need for

• guidelines to assess applications against funding criteria
• applicants seeking funding for large or complex projects to support their applications with a business case
• the provision of advice to the Minister for Racing about the merits of applications against funding criteria
• better outcomes reports, and publicly available information about projects, funding sources and grants

An August 2018 audit by Northern Territory Auditor-General Julie Crisp highlighted major challenges for the territory’s grants management process.

The Auditor-General produces a voluminous report to Parliament each year on the financial operations of many departments. Her office also has a mandate to review the performance management systems of certain NT agencies and organisations “to assess whether its objectives are being achieved economically, efficiently and effectively.”

But it is the most recent grants program audit that will most interest the nation’s grantmakers.

The territory’s leaders continue to roll out the $3.4 million online grants management system GrantsNT, which it is hoped will iron out many of the issues highlighted by the auditor.

An 11-page summary of the investigation dished out harsh criticism of the territory’s 2014–15 $996 million grants distribution program, finding “there exists no consistent reporting solution for the management of grants”.

The audit found that the way grants were managed was “inefficient and ineffective”, and that grants were “time intensive” for applicants and “resource intensive” for agencies. The study criticised existing processes as being “prone to human error due to a lack of programmed checks and … oversight”. And the report found each of the government’s 23 agencies employed different processes for managing grants. In some cases, grants management systems were not even used consistently within business units.

Not surprisingly, the auditor recommended a consistent grants management policy across government, as well as consistent procedures, processes and guidance wherever possible.

Recommendations included:

• a move to centralised grants management
• clearly defined processes and responsibilities with the implementation of GrantsNT
• to establish processes that allow visibility of grants information across agencies
• the establishment of standard processes and controls within each agency
• the introduction of controls to ensure the verification and reconciliation of grants payments
• enhanced monitoring and reporting, including creating performance indicators before the commencement of funded programs
• creating a strategic alignment of grants outputs with agency outcomes, and
• improvements in documentation to increase the transparency of approvals and decisions.

The Auditor-General did find that the GrantsNT project had been well managed, on time, and within budget at the time of the audit. It remains unclear when all agencies will be migrated to the system, with the roll-out having begun in November 2018.

In the wake of that report, there’s no doubt that major upheavals are to come for grants managers in the Top End.

ABC media report: Lack of oversight for NT grants funding

The Office of the Auditor-General in Western Australia is reviewing “grants administration” at the state level and expects to table a report in the second quarter of 2020, according to its audit program.

According to the office: “The objective of the audit is to determine if policies, procedures and controls over the grant administration are adequate and effectively implemented to ensure that grants are awarded equitably, expended for the intended purposes and contribute to the intended program outcomes”.

In a statement, the office’s communications manager Natasha Farrell confirmed to Grants Management Intelligence that the grants probe would be “one of our focus area audits”.

“These audits are an extension of our annual financial audits and use more detailed testing than is required for forming our financial audit opinions,” Ms Farrell said.

The investigation comes after a 2016 audit found eight agencies’ processes were generally satisfactory, but that improvements should be made to avoid perceptions of bias.

The most recent audit of grants administration in WA made a series of recommendations likely to be revisited in the new probe.

Those recommendations suggested agencies should:

• ensure policies and procedures are reviewed regularly and updated to reflect current practice
• appropriately advertise the availability of grants
• document any conflicts of interest as part of the grant assessment process
• monitor grants in accordance with approved policies
• undertake timely follow-up of recipients with outstanding acquittal information
• periodically assess the effectiveness of grant programs.

The office has previously conducted audits of grants programs in 2007, 2004 and 2001.

In South Australia, all regular local government audits could soon be conducted by the Auditor-General, bringing it in line with other states, and local government grantmakers should brace for the change.

The minister in charge of local government, Stephan Knoll, released a discussion paper on the issue late last year, although the reform has been recommended multiple times.

Currently, South Australia is the only state where the Auditor-General does not have some role in the annual audit process for councils. In every other state and territory – apart from the NT – the Auditor-General is the external auditor for councils.

In other states, too, auditors-general are able to trigger a performance audit of a council or of the local government system.

The SA authority already conducts a wide-ranging review of state departments each year, but adding the state’s 68 local councils would substantially extend its remit.

The Auditor-General has discretionary powers to investigate issues of concern and selected local government agencies, but currently local government audits are conducted by private sector firms, without oversight.

Councils have strongly resisted the proposals, with the Local Government Association taking a stand against the plan.

“The LGA does not believe there is a need for the Auditor-General to assume responsibility for council audits, especially in light of the additional costs this could be expected to put onto councils and their ratepayers,” a spokesman told Grants Management Intelligence.

In defence of the existing system, the LGA said, “the standard of existing council external audits in South Australia is generally high and improving”.

In a written statement, the Auditor-General’s office would only say that “the appointment of the SA Auditor-General as the auditor for local government is a matter for the Parliament to determine.”

If the proposal does proceed, it seems inevitable that heightened scrutiny will come from an audit office that already places a strong emphasis on performance and regulatory compliance, as well as ensuring financial matters are properly handled.

At the broader state level, a huge number of South Australian agencies face a sweeping examination of their finances and processes in the Auditor-General’s annual report to Parliament.

Grants are often the focus of the attention of the 120 staff of the audit office. For instance, the 2019 report mentions the term “grants” 213 times across 532 pages, and the office maintains an eye on grants as “a material area of government activity”.

Past investigations involving grants have included a series of 2017 reports on local government governance, and a critical report on the handling of a 2016 grant worth more than $750,000 used in a campaign against federal budget cuts to SA health and education.

The office also examined the performance of the Job Accelerator Grants scheme in 2018 (see report 5, executive summary, page 64).

Unlike Auditors-General in other states, the office would not reveal its calendar of forthcoming audits.

“As a matter of practice, the forward audit plans of the Auditor-General are not made available to any external parties so (we) cannot advise specifically about our proposed audits of South Australian Government grants,” the office said in response to questions.

The Queensland Audit Office has repeatedly conducted grants-specific audits in recent years, and while there are none planned before 2023, the Auditor-General Brendan Worrall told Grants Management Intelligence in a statement that the organisation reviewed its strategy in December each year.

“Grants expenditure is an area we routinely consider as part of our annual financial audit program,” Mr Worrall said.

Even without the special attention of the audit office, the state remains in the midst of significant reforms to the way local government is managed, including grants management.

In 2008, an audit sparked concerns about transparency of council grants and discretionary funds, accountability and integrity in Queensland. In 2009, the government issued guidelines for local government administration of community grants, which continue to be updated.

The 2011 follow-up report found things had changed dramatically for the better in the state, especially as a result of “prescribed requirements for administering grants and funding”. Many of the recommendations from the original report have since been implemented. Queensland continues to run a program of “rolling reforms” aimed at improving transparency, accountability and integrity in the local government sector.

In the meantime, the Queensland Audit Office provided Grants Management Intelligence with information about significant recent audits which investigated grants management.

Investing in vocational education and training (August 2019)

The office examined whether the Department of Employment, Small Business and Training was achieving successful learning and employment outcomes through its public and private providers. Recommendations included developing and applying performance measures to support the value of grants, and reviewing methods used to determine that value.

Oversight of recurrent grants to non-state schools (March 2015 and March 2019)

The study found gaps in the oversight of recurrent grants to non-state schools. School surveys, validation processes, grant agreements and monitoring of compliance and performance were all areas of concern. Recommendations focused on improving the accuracy of information from schools. A follow-up report in 2019 found that recommendations had been largely implemented, but noted risks in data security.

Gambling community benefit funds: grant management (May 2013 and February 2016)

The fund currently distributes $57 million worth of grants from gambling taxes, but a 2013 audit of programs found that the benefits to the community were diluted by the ineffective and inefficient administration of the grant programs. Recommendations included documenting the rationale for each funding decision, ensuring that funding criteria were applied consistently.

A follow-up investigation in 2016 found six recommendations had been followed, two had been only partially implemented, and one had not been implemented at all. It also found that the Department of Justice and Attorney-General was unable to administer the grants efficiently because of delays in a new grants management system. The report noted the challenges of allocating funds fairly when demand was escalating while the amount of available funding was not.

Royalties for the Regions (R4R) (December 2015)

This program allocated $509 million to councils and other agencies throughout Queensland over four years. The audit report highlighted inconsistencies in the application of funding criteria, shortcomings in assessments of the eligibility and merits of applications, and inconsistencies in assessments of the costs and benefits of funded projects. In some cases, the minister funded projects where there was no departmental assessment, and value for money was not considered. In a harsh assessment, the report found “many unnecessarily invested their time, resources and money to demonstrate the value of their applications against criteria that were apparently irrelevant”.

The report included this recommendation to the Queensland Treasury:

“(To) require decision-makers to demonstrate clearly that grant decisions are equitable, transparent and represent value for money. This includes recording the criteria on which their decisions were based and the reasons for the decisions. In particular, when they approve lower ranked applications over higher ranked applications.”

While the size of their budget is smaller than that of their colleagues in other jurisdictions, auditors in the ACT have turned their attention to grants administration on multiple occasions.

The most significant study by the ACT’s Auditor-General in recent times appears to have been in 2013, when three departments came under scrutiny in an audit of the management of funding for community services.

The audit found the processes for funding, including grants, were “predominantly sound” or better, but concluded a single web-based system for managing grants would increase efficiency.

The ACT now uses the SmartyGrants platform. (SmartyGrants is an enterprise of Our Community, which also produces Grants Management Intelligence.)

Other recommendations aimed to mitigate risk, promote grants, increase consistency and establish explicit probity guidance for some departments.

The Tasmanian Audit Office’s forward plan shows it will examine outcomes from grant programs involving Communities Tasmania and the not-for-profits it is funding.

According to the plan, the audit will examine compliance and the ability of Communities Tasmania to assess the performance of non-government organisations it works with.

In August 2018 the office audited the Department of State Growth’s administration of two grant programs: the Regional Tourism Infrastructure and Innovation Fund, and the Regional Revival Grant Fund Program.

The audit found that the programs’ designs were sound, but their assessment processes lacked probity, and there were inconsistencies between assessments and funding decisions.

In one case, a grant recipient won an extra $25,000 without an assessment of whether other applicants should also have received top-up funds.

The audit also showed the programs had not always confirmed that applicants had contributed cash from other sources as promised in grant agreements, that funds had been spent for approved purposes, or that actual outcomes matched those expected.

The audit also highlighted problems with records management and risk management.

The audit made eight recommendations covering these areas.