Executive summary

The focus of our audit

In 2007-08 New South Wales spent $5.5 billion or 12 per cent of general government expenditure on grants that were neither subsidies nor inter-agency payments.

This audit asks how grants are defined, where grants went and what recipients think of the grant system. It will be followed by a second report that examines specific grant programs.

Grants mean different things to different people. Traditionally a grant was a gift where the grant maker did not expect to receive a benefit. More typically, a grant is funding for a specified purpose directed at achieving goals and objectives consistent with government policy.

Most NSW grant spending funds social, health, transport and education services. A large number of smaller grants fund community activities and a range of other activities such as research and environmental works.

Audit opinion

In 2006 the Department of Premier and Cabinet (DPC) coordinated the release of a Good Practice Guide to Grants Administration to encourage transparency and coordination, less red-tape and effective evaluation. Agencies need to spend wisely to maximise the benefits to the State.

The Australian National Audit Office has used electoral analysis as a consistent way of examining where grants go. We used such analysis to look at the distribution of 26,800 grants worth $5.2 billion made by five agencies over five years. Ninety-two per cent of this was paid by the Department of Ageing, Disability and Home Care (DADHC) and the Department of Community Services (DoCS). Some agencies have concerns about the electoral analysis of their data and DADHC maintains that its grants cannot be accurately mapped to electorates.

We found no significant difference in the funding of government and opposition electorates. However, more money was given to electorates that were safely held by the major parties. These seats received $1.29 for every dollar given to marginal and independent seats with government marginals getting the least. Electorates also receive different levels of funding according to which region they are in.

Such variations may reflect valid agency objectives such as meeting State Plan targets or addressing socio-economic disadvantage. But while agencies publish who gets what, they do not adequately evaluate or explain what grant programs have achieved. As a result, there is a risk that New South Wales may not get the best value for its spending.

We recommend that agencies regularly evaluate their grant programs and publish the results. We are not suggesting that agencies have to justify every grant electorate by electorate, but they should explain what programs achieved, why funding was distributed the way it was and how it could be made more effective. Agencies generally support the need for improved transparency.

Agencies have to balance a range of factors when managing grants including efficiency and the objectives of the specific program. One factor agencies should consider is the impact on grant recipients. We surveyed 65 councils and 101 non government organisations (NGOs) to get their views about NSW grants. This self-selected sample, which represents 40 per cent of councils but less than four per cent of NGOs, indicates some areas of concern.

The respondents are positive about what grants achieve. But many are dissatisfied with the lack of information about available funding, how applications are assessed and why applications fail. Less than one in five say decisions to approve or reject grant requests are fair and transparent. And less than one in five agree that grants are directed at the areas of highest need. There is a risk that some communities may miss out on worthwhile projects.

Most respondents say reporting requirements are reasonable and that agencies are clear about what has to be reported. But many respondents identify how red-tape can interrupt and frustrate their operations.

Agencies need to achieve an appropriate balance between accountability, transparency and value for money. Risk has to be managed and multi-million dollar grants require more rigorous controls than modest grants to community groups.

It is encouraging that some agencies are improving their grant administration. For example, DoCS is standardising grant applications and reports, while the Environmental Trust has published objective evaluations of some programs. Agencies should consider extending these reforms and those achieved in other jurisdictions.

Recommendations

We make a number of recommendations that seek to:

▪ inform the community about available funding and how to apply

▪ reduce red-tape

▪ ensure the State gets the best value from its grant spending.

Specifically, grant-making agencies should:
1.	manage risk and streamline procedures to the minimum needed to ensure accountability and value for money.	Pages 14 and 34
2.	improve transparency by publishing in an accessible and timely way:
	▪ a rolling calendar of grants funding expected to be available in the next 12 months	Page 30
	▪ their procedures for making grant decisions	Page 31
	▪ Ministerial Directions to make or refuse grants outside of normal procedures	Page 31
	▪ evaluation of what grant programs achieved and how the distribution of funds has supported government objectives.	Page 21
3.	set up timely monitoring systems, tie payment to clear performance measures and require the recipient to establish internal controls.	Page 14
4.	tell unsuccessful applicants why their proposal was rejected.	Page 32
5.	reduce red-tape by using:
	▪ standard terminology when dealing with grant recipients	Page 37
	▪ three or four year agreements for recurrent services and ongoing projects	Page 38
	▪ targets to better manage the time taken to process grants	Page 38
	▪ integrated funding and management of multiple grants.	Page 35
For its part, the Department of Premier and Cabinet (DPC) should, by June 2010:
6.	review its Guide and amend it to provide:
	▪ more assistance for planning, evaluating and reporting on programs, designing funding agreements and managing risk	Page 13
	▪ consistent standard terminology for agencies dealing with grant recipients.	Page 37
7.	encourage agencies to regularly evaluate programs and publish the results.	Page 29
8.	encourage agencies to use web-technology to:	Page 32
	▪ make it easier to apply for grants
	▪ improve the information available to grant makers and recipients
	▪ streamline interactions between grant makers and recipients.

	Key audit findings
Chapter 1	What are grants?
	Grants mean different things to different people. Traditionally a grant was a gift where the grant maker did not expect to receive a benefit. More typically, a grant is funding for a specified purpose directed at achieving goals and objectives consistent with government policy. Most NSW grant spending funds human, transport and other services to the community. A large number of smaller grants fund community activities and a range of other activities such as research and environmental works. The Department of Premier and Cabinet (DPC) issued a good practice guide (the Guide) in 2006 to improve grant management across government. This encourages agencies to manage grants with more transparency, less red-tape and greater evaluation and coordination. More needs to be done to ensure grant makers spend wisely and get value for money. There is a risk that agencies may not have the control they need. Where outcomes are important and substantial funds are involved, agencies should set up timely monitoring systems, tie payment to clear performance measures and require the recipient to establish internal controls. At the same time agencies need to ensure that less risky funding is not tied up in red-tape and a one size fits all approach (see Chapter Three). We recommend that DPC review the Guide to provide more assistance to agencies planning, evaluating and reporting on programs, designing funding agreements and managing risk.
Chapter 2	Where did the money go?
	The Government does not have a centralised picture of overall grant distribution to inform resource allocation and help ensure that grants are well spent. To get an indication of where grants went, we followed the lead of the Australian National Audit Office and examined internal agency records to assess the electoral and geographic distribution of grants. We looked at grants made by NSW Health, the Environmental Trust (ET), the Departments of Community Services (DoCS), Ageing, Disability and Home Care (DADHC) and Environment and Climate Change (DECC). This consisted of 26,800 grants worth $5.2 billion or about 20 per cent of government grants made between 2002-03 and 2006-07. Some agencies had concerns about analysing their data electorally and DADHC maintains that its grants cannot be accurately mapped to electorates. Nevertheless on the best information available, we found no significant difference in the way these grants were distributed to government and opposition electorates. We did find that safe electorates held by the major parties got $1.29 for every dollar received by marginal and independent seats. Regions also received different levels of funding.
	Agencies can have good reasons for funding electorates differently. These vary depending on the specific program and can include socioeconomic need or the particular population, resources, infrastructure or environmental and heritage features being addressed. While agencies publish who gets grants and how much they get, most do not publish robust evaluations that explain what grant programs have achieved and how the distribution of funds has made good use of public money. We recommend that agencies regularly evaluate their grant programs and publish the results. This would allow the public to assess for itself the integrity and effectiveness of NSW grants.
Chapter 3	What do recipients think of the grant system?
	This chapter presents the views of 65 councils and 101 non government organisations (NGOs) who volunteered to complete a survey on NSW grants. The respondents, who account for 40 per cent of councils and under four per cent of NGOs, raise a number of concerns about how grant managers manage and communicate their grant programs. Some of the agencies, whose grants distribution we examined in the previous chapter, are concerned this chapter will be seen as all about them. It is not. We asked recipients about grants made by all NSW agencies. The findings in this chapter are general in nature except where reference is made to specific agencies. Our respondents are very positive about what grants achieved, but many have concerns about transparency and red-tape. Transparency means citizens should be able to "see through" what goes on when public officials act. The NSW communitybuilders website is meant to be a single point of information about NSW grants, but agencies are not posting comprehensive information about funding that can be applied for. Only a minority of respondents agree that agencies provide timely information on available grants, advice on how applications are assessed and the reasons for rejection. Less than one in five say decisions to approve or reject grant requests are fair and transparent or agree that grants are directed at the areas of highest need. There is a risk that some communities may miss out on worthwhile projects. Red-tape refers to inconvenient and unnecessary procedures. It is proper for agencies to require applicants to document grant requests and for recipients to report on what they did with the money. Most respondents say reporting requirements are reasonable. But respondents indicate that red-tape can interrupt and frustrate their work. Less than a third agree that the amount of work to apply for grants is reasonable and that reporting requirements are consistent across programs. Fewer than one in four agree that decisions to approve grants are timely and only one in ten say there is coordination between grant-making agencies (including the Commonwealth). Some respondents indicate that agencies create unnecessary paperwork by requiring annual applications for recurrent funding.
	Grant makers need to balance efficient process, transparency, accountability and value for money. This balance will depend on the risks of the program, the amounts involved and the recipient.
	The 2006 Department of Premier and Cabinet DPC Guide provides advice on good practice and provides templates for managing grants. We recommend that DPC review the Guide and that agencies: § use consistent, standard terminology with grant recipients § electronically publish a rolling calendar of funding expected to be available over the next 12 months § increase the use of technology to streamline applications and reporting.

Response from the Department of Premier and Cabinet

Thank you for your letter providing the Performance Audit Report of Grants Administration.

It is pleasing to see the Performance Audit finds there is no evidence of electoral bias in the allocation of grants in New South Wales. I note your findings that similar levels of funding are provided for government and opposition seats; safe electorates held by major parties receive more funds while marginal Government seats received the least funds.

Generally agencies do not routinely collect data on an electoral basis. For example, the Department of Ageing Disability and Home Care maps their funding to administrative centres rather than electorates. Many large non-government organisations submit their applications from their head office but provide services around the State. The grants are recorded against the administrative location rather than the electorates in which the services are provided. The Performance Audit has sought to adjust for this by excluding grants to NGOs totalling $1.5 billion from the analysis which is a material consideration.

As acknowledged by the Performance Audit, agencies can have good reasons for funding electorates differently. Funding programs often have a specific geographic focus such as coastal or remote areas, places of concentrated disadvantage or of heritage sites. Agencies may also strive for equity in overall service distribution by balancing direct government and NGO service components which means grants are only one element of the service delivery picture.

I welcome the Performance Audit’s emphasis on achieving a balance between competing demands. On the one hand there is a need to ensure that the levels of accountability and controls are appropriate to achieve value for money in the use of public funds. On the other applicants seek more information about grant processes, less ‘red-tape’, and greater coordination between agencies that provide grants. There are opportunities for agencies to improve transparency about what their funding programs achieved.

The Performance Audit acknowledges the Good Practice Guide for Grants Administration released in 2006. It may be appropriate that the Guide be updated to include a greater focus on a risk management approach to grants administration. It is encouraging to see the progress achieved by individual agencies in adopting good practice and their readiness to continue to improve.

Thank you for the opportunity to respond to the Performance Audit Report.

(signed)

John Lee

Director General

Dated: 8 April 2009