Introduction
2.1
Grants administration in the Australian Government is captured by a legislative framework designed to provide guidance and parameters for non-corporate Commonwealth entities in administering grants programs. The objective of this framework is to promote proper use and management of public resources through collaboration with government and non-government stakeholders to achieve government policy outcomes.
2.2
Auditor-General’s Reports 5 and 12 of 2019-20 considered non-corporate Commonwealth entities – the Australian Research Council (ARC) and the Department of Infrastructure, Transport, Cities and Regional Development, respectively – which were subject to the Commonwealth Grants Rules and Guidelines 2017 (CGRGs).
2.3
As a corporate Commonwealth entity, Sport Australia was not subject to the CGRGs in Auditor-General’s Report 23 of 2019-20.
Public Governance, Performance and Accountability Act 2013
2.4
The Public Governance, Performance and Accountability Act 2013 (PGPA Act) is the cornerstone of the Commonwealth resource management framework. The PGPA Act mandates the way in which officials utilise and manage public resources, and focuses on public accountability and transparency for Commonwealth entities in performing their functions.
2.5
The PGPA Act is supported by the Public Governance, Performance and Accountability Rule 2014. According to section 105C of the PGPA Act, the Finance Minister may make provision about Commonwealth grants by written instrument.
2.6
The PGPA Act also stipulates responsibilities for Ministers and accountable authorities. In particular, Ministers are required under the PGPA Act not to approve proposed expenditure of money by a corporate Commonwealth entity without being satisfied that expenditure would be a ‘proper use of relevant money’. The PGPA Act also outlines requirements for accountable authorities of Commonwealth entities, including that they must govern entities in a way that promotes the proper use and management of public resources.
Commonwealth Grants Rules and Guidelines 2017
2.7
The CGRGs are the central element of the legislative framework for grants administration. Issued by the Finance Minister under section 105C of the PGPA Act as a legislative instrument, the CGRGs were introduced in July 2014. They were a suite of reforms to ‘improve the transparency and accountability of grants administration’.
2.8
The CGRGs apply to all non-corporate Commonwealth entities subject to the PGPA Act. Corporate Commonwealth entities are not subject to the rules, but are encouraged to utilise the Resource Management Guides by the Department of Finance in managing grants programs.
2.9
According to the Department of Finance, the CGRGs ‘have been developed in line with better practice grant administration, and are intended to provide a largely principles based framework, with some specific requirements’. The Department of Finance further stated that the CGRGs are intended to ‘articulate the expectations’ for relevant entities.
2.10
Prior to the CGRGs being introduced in July 2014, there was no consistent and overarching policy framework governing the administration of grant programs by the Commonwealth. In Report 21 of 2011-12, the ANAO identified that more than one-third of the grant program guidelines examined involved a non-competitive process.
2.11
According to the Commonwealth Grants Rules and Guidelines 2017 (the CGRGs), the objective of grants administration is:
[T]o promote the proper use and management of public resources through collaboration with government and non-government stakeholders to achieve government policy outcomes.
2.12
Seven key principles of grants administration are provided in the CGRGs to assist in guiding entities managing grants programs:
1
Robust planning and design;
2
Collaboration and partnership;
4
An outcomes orientation;
5
Achieving value with relevant money;
6
Governance and accountability; and
7
Probity and transparency.
2.13
The Department of Finance stated that the above key principles are designed to promote ‘flexibility in how accountable authorities and officials apply the key principles in order to administer grants that achieve government policy outcomes’.
2.14
The CGRGs also stipulate a number of specific requirements in relation to grants administration, including: ascertaining whether a proposed expenditure of funds is a grant; developing grant guidelines; providing advice to Ministers where relevant; ministerial reporting obligations in certain situations; and accountability mechanisms.
2.15
In conducting grants administration, accountable authorities and Ministers are ‘responsible for understanding and complying with any requirements that apply under Finance law (PGPA Act and Rules, including the CGRGs, and Appropriations Acts) and any other legal framework’. Further, accountable authorities are required by Section 16 of the PGPA Act to establish risk and control systems for entities, including ‘implementing measures directed at ensuring officials of the entity comply with the finance law’.
2.16
In their submission to the Committee, the ANAO stated that the introduction of the CGRGs had resulted in improved performance in grants administration. The ANAO further outlined that, when first launching the CGRGs, the Finance Minister had suggested that the ‘administration of grant programs had become significantly debased’, which the new framework would ideally improve. The ANAO stated:
[I]t is now common for program guidelines to be in place and for those guidelines to include clear eligibility and merit assessment criteria. The establishment of the CGRGs had also meant that entities have clear minimum briefing standards they must meet when advising Ministers on the award of grant funding and (through the GrantConnect website) there is a consistent standard of public reporting on the award of grant funding once a funding agreement has been signed.
Other legislation and administrative arrangements
2.17
The expenditure of Commonwealth funds is subject to the Australian Constitution, and all Commonwealth expenditure is subject to the powers and limitations contained within it. Grants programs are also subject to the enabling Act of the agency, Appropriation Acts, and relevant Program Guidelines.
2.18
While policy and program development responsibilities reside with departments or agencies, the administration of grants services is frequently delivered through Grants Hubs. Grants Hubs are shared-services arrangements which provide support in processing grants to support policy outcomes. There are currently two Grants Hubs: The Community Grants Hub within the Department of Social Services, and the Business Grants Hub within the Department of Industry, Science, Energy and Resources.
Role of the Department of Finance
2.19
The Department of Finance is the entity responsible for the grants management framework across the Australian Government. The Department of Finance provides advice to the Australian Government in relation to governance and transparency policies in order to meet obligations under the PGPA Act. The Department of Finance also administers GrantConnect, the centralised website providing information about all government grants, and compiles and distributes guidance material to assist government entities and grant applicants.
2.20
In addition to these roles, the Department of Finance has a role in grants administration risk assessment processes. In conjunction with the Department of Prime Minister and Cabinet, the Department of Finance conducts risk assessments for grant programs and assign ratings based on the risk posed to the entity, which then informs the publication of guidelines.
Reporting requirements and compliance mechanisms for grants administration
2.21
The PGPA Act and the CGRGs provide limited mechanisms for reporting breaches with the relevant program’s guidelines. Relevantly, the CGRGs provide that Ministers report to the Finance Minister in situations such as where:
the relevant Minister or Assistant Minister approves a proposed grant within their own electorate; or
the relevant Minister approves a grant for funding which the relevant official has recommended be rejected, under paragraph 4.12 of the CGRGs.
2.22
To improve transparency and accountability to the Parliament and relevant stakeholders, on 12 May 2020 the Senate agreed to Order for Documents 23E, to require reporting on grants approved by Ministers which a relevant official has recommended be rejected.
2.23
Further reporting requirements may be found within program guidelines or relevant establishing Acts.
2.24
Compliance with guidelines for both administering entities and grant recipients are the responsibility of and managed within departments or agencies. The Department of Finance states that:
Under the devolved framework, decisions regarding the classification of grants, and ensuring compliance with the CGRGs rest with accountable authorities. Finance does not have visibility of individual expenditure approvals other than what is publicly available on GrantConnect.
Best practice guidance for Commonwealth entities
ANAO guidance documents
2.25
The ANAO has previously published seventeen Better Practice Guides for the information of Government entities, one of which focused on grants administration. Implementing Better Practice Grants Administration (the Guide) was first published in 1994, and was reissued in 1997, 2002 and 2013 reflecting updated legislative frameworks and guidance.
2.26
The Guide was designed by the ANAO to ‘provide practical assistance to those involved with the planning, project selection, management and review of Commonwealth grant programs’. The Guide was also intended to demonstrate a ‘normative model against which performance audits of grant programs would assess entity performance’.
2.27
The Guide provided information in relation to a range of aspects of grants management, including: an overview of the legislative and policy framework, identifying decision-making roles and responsibilities, developing guidelines and relevant procedures, the selection process, providing advice to the relevant decision-maker, and administering approved grants. The Guide also outlined applicable examples for varying types of scenarios, practical guidance and best practice advice.
2.28
In 2015, the independent Review of Whole-of-Government Internal Regulation (the Review) recommended that:
The ANAO take the opportunity, where regulators and policy owners have developed or are developing policy guidance material, to review whether there is a continuing need for it to develop, release and maintain its own separate guidance.
2.29
This recommendation was made on the basis that entities had expressed confusion in relation to whether the Guide set out mandatory requirements or whether it was issued merely as guidance. The Review further stated that the content of the Guide could be incorporated into policy guidance material produced by policy owners ‘to ensure a single, clear source of mandatory minimum requirements and better practice observance’.
Department of Finance guidance material
2.30
The Department of Finance currently produces guidance and directions documents in the form of the Resource Management Guides (RMGs). The documents are designed to ‘assist accountable authorities in discharging their responsibilities under the framework’.
2.31
There are five RMGs issued that are directly relevant to grants administration:
RMG No. 400: Commitment of Relevant Money;
RMG No. 411: Grants, Procurements and other financial arrangements;
RMG No. 412: Australian Government Grants – Briefing, Reporting, Evaluating and Election Commitments;
RMG No. 415: Commonwealth Grants and Procurement Connected Policies; and
RMG No. 421: Publishing and reporting Grants and GrantConnect.
2.32
The RMGs provide guidance to officials administering grants programs, which incorporates information such as: relevant legislative requirements and powers for decision-makers, guidance on using whole-of-government grants hubs, reporting requirements, and some examples of previous practice. The RMGs also contain tools and templates for officials administering grants.
2.33
For example, RMG No. 412: Australian Government Grants – Briefing, Reporting, Evaluating and Election Commitments (RMG No. 412) contains advice in relation to: briefing requirements for accountable authorities and officials, ministers’ reporting requirements, evaluation requirements, and advice on election commitments.
2.34
RMG No. 412 also contains advice on mandatory steps that must be taken under legislation, but does not clearly outline what practices otherwise included in the document are considered mandatory or best practice principles or examples. RMG No. 412 also contains a checklist for officials briefing ministers on proposed grants, and two templates concerning reporting on grants awarded in a Minister’s electorate, and an annual ministerial report where a minister has approved a grant that the relevant entity official recommended be rejected.
2.35
The RMGs also generally provide a statement on its intended audience, particularly stating what kinds of Commonwealth entities should use the document. For example, RMG No. 412 states that the guide is ‘relevant to accountable authorities and officials involved in grants administration in all non-corporate Commonwealth Entities’.
2.36
However, the Department of Finance includes a footnote in RMG No. 412 outlining that ‘Corporate Commonwealth Entities should use this as a guide where they … undertake grants administration on behalf of the Commonwealth’.
2.37
In Report 14 of 2019-20, the Auditor-General reviewed the Department of Finance’s guidance in the context of whether the RMGs adhered to the ‘clear-read’ principle. This principle was first developed by the JCPAA in 2015 in the context of entities’ performance information as exhibiting three characteristics.
2.38
The ANAO found that the Department of Finance had been partially effective in designing the ‘clear read’ principle under the Commonwealth Resource Management Framework. The report recommended that the Department of Finance update their guidance ‘to include better practice examples of reporting’ which better reflected programs that are joined or linked together, and ‘facilitates comparison between entities’. The Department of Finance agreed to these recommendations with the caveat that improvements to advice were dependent on Government consideration and consistency with the principles-based framework.
Current issues in grants administration
2.39
Over the course of its auditing activities, the ANAO has conducted a number of audits into grants administration programs. These audits included a range of areas of government administration, such as infrastructure programs and the operation of government agencies in relation to complex policy strategies.
2.40
The ANAO identified a number of common issues in the administration of government grants, particularly regarding application assessment processes and decisions made to fund applications including: developing and publishing program guidelines; non-adherence to program guidelines; using open and competitive selection processes; the role of ministerial advisors in grants administration; recording reasoning for decisions and reporting decisions overturned.
Developing and publishing program guidelines
2.41
Program guidelines are a core component of a successful grants program. Guidelines ensure that programs are administered effectively and in a transparent manner, in addition to providing applicants with expectations of how the process is to be managed by administering entities. The CGRGs require that officials develop grant program guidelines for every grant program, with regard to requirements under the CGRGs and the key principles.
2.42
The ANAO has consistently identified issues in relation to the development and publication of grants program guidelines. The ANAO stated that:
There is evidence of programs being implemented without their own specific guidelines in place as well as instances where significant changes to program parameters are not being reflected in amendments to the guidelines. There have also been audits that have identified shortcomings or gaps in the published criteria having regard to the stated program objectives.
2.43
Examples identified by the ANAO included: guidelines not including merit criteria which applications are to be assessed against; lack of equitable access; and failing to include criteria which directly address the objective of the program.
2.44
Recommendations for improvements from the ANAO included updating the CGRGs to provide clarity and enhancing guidance material. In particular, the ANAO suggested the removal of the exemption contained in paragraph 5.2 of the CGRGs, which exempts grants provided on a one-off or ad-hoc basis from the mandatory publishing of details regarding grant guidelines on GrantConnect. The ANAO further advocated that, ‘where a decision is taken that there is a policy reason not to publish the guidelines, this reason should be published consistent with the transparency and accountability principles in the CGRGs’.
Non-adherence to Program Guidelines
2.45
Non-adherence to program guidelines has been an issue in a number of audits. Problems identified have included: eligibility criteria not being applied or criteria otherwise unpublished being applied; applications not being assessed according to the published merit criterial; and deviations to the published assessment process, such as applying weightings to applications which were unpublished or not doing so where program guidelines required it. These issues could have significant consequences for grants applications, as it affects which applications are successful, and that departure from the guidelines ‘is detrimental to the conduct of a transparent and equitable program’.
2.46
The CGRGs contain seven ‘key principles’ which are designed to inform better practice grants administration. The ANAO proposes that the CGRGs be amended to incorporate an eighth key principle, ‘adherence to published guidelines’, in order to address issues it often identifies in audits. The ANAO also suggested that guidance on meeting this principle could be met by identifying practices inconsistent with best practice principles, such as: changing criteria during the program’s administration, unclear or opaque merit criteria, and failing to apply published criteria. Where it is necessary to deviate from the published guidelines, the ANAO recommended that changes be published and applications permitted to be amended.
Using open and competitive selection processes
2.47
The ANAO raised concerns in relation to grants programs not providing sufficiently open and competitive selection processes for applicants. The ANAO stated that, while the CGRGs ‘express a preference for competitive, merit-based selection processes based on clearly defined selection criteria’, audits conducted since 2012 have found a number of grant programs not complying with this requirement. The ANAO identified the following issues raised in audits:
Non-competitive processes applying where program guidelines state that a competitive process would be used to assess applications;
Projects not meeting the published selection processes;
Ad-hoc or one-off grants being delivered in a non-competitive fashion; and
Using competitive programs as a ‘funding vehicle’ externally to the competitive process established by the guidelines.
2.48
Recommendations for reform to address these issues were suggested by the ANAO, including strengthening the CGRGs to require that guidelines state why a competitive or non-competitive process is being utilised, and how the approach taken will provide value for money.
The role of ministerial advisers in grants administration
2.49
The ANAO reported that in some cases, ministerial advisers were performing a grants administration role. The ANAO stated that, while Ministers are subject to section 71 of the PGPA Act which provides the legislative framework for ministerial authorisation of the expenditure of funds, this does not extend to ministerial advisers. The ANAO stated that it understands that the CGRGs apply to ministerial advisers when they participate in grants administration, as they would fall under the definition of ‘third parties’ outlined in the instrument.
2.50
The ANAO stated that it has found evidence in audits of ministerial advisors having a significant role in grants administration, and that in those instances there was limited understanding demonstrated that the CGRGs applied to advisors. The ANAO suggested that amendments should be made to CGRG guidance material to clearly articulate the responsibility of ministerial advisors to adhere to the CGRGs.
Recording reasoning for decisions
2.51
Both Ministers and officials are required by the CGRGs to record the reasoning for decisions regarding the approval of grant funding and how this meets the program guidelines and demonstrates value for money. The ANAO stated that this is required for probity and accountability, particularly in relation to competitive grant programs where decision-makers must demonstrate an equitable process. The ANAO stated that audits conducted have demonstrated that the requirement to record the reasons for a decision is not being adequately met, as the reasons provided show ‘little substantive insight into the basis for the decision’. The ANAO further states that this is particularly evident in grant programs where ‘decisions are taken to approve grants that have not been recommended, and/or not approve grants that have been recommended’.
2.52
Improving the CGRGs to require that decisions have informative and substantive reasoning documented was suggested by the ANAO as a possible method of addressing these concerns.
2.53
Recommendation 4 of this report addresses the importance of record keeping, including where a Minister approves a grant that a relevant official/entity has recommended be rejected.
Reporting decisions overturned
2.54
Ministers are required to report to the Finance Minister annually in relation to whether they approved a grant application for funding which the relevant official recommended be rejected. The ANAO stated that this requirement does not capture instances identified in its audits such as:
where decisions are made not to approve funding to applications which had been recommended by the entity which ‘met to a high standard the published assessment criteria’; or
where decisions are made to approve funding for applications that had not been recommended but neither had they been explicitly not recommended for rejection by the entity.
2.55
The ANAO recommended that the CGRGs be amended to incorporate a requirement for the Minister to report these sorts of decisions to the Finance Minister. Recent changes to regulations (which mirror the CGRGs) have the effect of requiring the reporting of these decisions.
Committee comment
2.56
Grants administration is a key aspect of the administration of government expenditure and is therefore a matter in which the Committee has and will continue to have an interest in monitoring.
2.57
The findings of the ANAO and this Committee over a number of years demonstrate ongoing issues regarding grants administration, beyond the remit of a singular department or agency. This is of concern, given the extent of Australian Government funding that is channelled through grants and the number of programs which are now almost solely delivered via grants funding.
2.58
The reported lack of transparency in decision-making is of significant concern to the ANAO and to stakeholders. Record-keeping practices and reporting guidelines appear to be of particular importance in this respect, and have been raised as an issue over a number of audits. The Committee is of the view that strengthening the reporting requirements contained in the CGRGs would be a meritorious way of improving the transparency and overall operation of grants administration.
2.59
The Committee welcomes the opportunity to revisit the matter of the Better Practice Guides since their discontinuance by the ANAO. When consulted about changes to the Better Practice Guides issued by the ANAO, the Joint Committee of Public Accounts and Audit of the 45th Parliament proposed that the ANAO work with Finance ‘to incorporate a standard, regularly updated section within each guide, along the lines of ‘Better Practice Notes’’ into Finance’s Resource Management Guides (RMGs).
2.60
The Committee considers that the Department of Finance’s RMGs, while a helpful resource for officials administering grants programs, do not contain the detail which was previously included in the ANAO’s Guide, which may help officials involved in grants administration. The Committee also recognises that the Department of Finance has previously been advised to work with the ANAO in compiling the Guide. The extent to which this has occurred is unclear. Providing clear and effective resources to Commonwealth officers administering grants programs is essential in ensuring that such programs are managed appropriately and to the standards required of public entities.
2.61
Given that grants administration is now a significant component of many Commonwealth entities’ work and appropriations, it is critical that Commonwealth officers are appropriately trained and advised in how best to carry out such work.
2.62
The Committee holds concerns that appropriate guidance and advice is not being provided to Commonwealth entities administering grants programs.
2.63
In particular, the diversity of resources (for example, having four RMGs applying to grants), the lack of best practice examples contained in the RMGs, and the uncertainty regarding which processes are mandatory or not, is concerning. This matter has been previously addressed in reports regarding grants administration and this Committee has encouraged entities to improve officers’ training regarding the management of grants programs.
2.64
The Committee is of the view that a single guide to grants administration containing clear guidance, practical advice and best practice examples would greatly assist the public sector in administering effective grants programs. In addition, this approach would ensure compliance with legislative requirements, best practice methods and public accountability standards.
2.65
Finally, the Committee reconfirms its intent to continue to monitor the administration of grants programs in future. It looks forward to seeing improvements demonstrated in the areas examined in this chapter.
2.66
The recommendations below address key issues identified across the Regional Jobs and Investment Package, the Australian Research Council's Administration of the National Competitive Grants Program, and the Community Sport Infrastructure Program.
Recommendations
2.67
The Committee notes the recent regulatory changes to require that all grant programs run by corporate and non-corporate Commonwealth entities be administered in accordance with the Commonwealth Grants Rules and Guidelines 2017, and recommends that the Department of Finance review the operation of the guidelines and associated regulations two years after the tabling of this report to ensure they remain efficient and effective.
2.68
The Committee recommends that the Department of Finance, in consultation with the Australian National Audit Office, revise its Resource Management Guides to:
Provide a single consolidated authoritative guide to grants administration in the Australian Government for all corporate and non-corporate Commonwealth entities, including a focus on best practice models and principles;
Provide detailed information in relation to legislative requirements of administering officials, practical advice and best practice examples; and
Provide clear guidance where advice is either mandatory or optional in administering grants programs.
2.69
The Committee recommends that the Department of Finance review the established reporting and compliance system and approach to improve assurance that Commonwealth grant program guidelines are adhered to at all points of grant administration for all applicable entities and decision makers. The Department of Finance should report to the Committee on the outcome of this review within six months of the tabling of this report.
2.70
The Committee recommends that the Department of Finance review the official record-keeping requirements of the Commonwealth Grants Rules and Guidelines 2017 with a view to addressing probity issues, including a requirement for all parties involved in grant administration to disclose and record any conflicts of interest. Further, changes should be made to ensure records are kept of the reasoning for decisions of a relevant Minister(s) to approve or reject grant applications and recommendations, including ministerial panels. This is particularly important where a Minister approves a grant that a relevant official/entity has recommended be rejected or assessed as ineligible.
2.71
The Committee recommends that the Commonwealth Grants Rules and Guidelines 2017 be amended to:
emphasise the importance of ensuring that all relevant entities involved in grants administration receive and complete sufficient training, with documented processes to ensure the ongoing quality assurance of assessments;
ensure the timely announcement and communication to stakeholders of grant opportunities and outcomes of grant programs. This should provide for greater consistency in the timing of announcements and notifications, and the provision of appropriate feedback to applicants;
include an eighth key principle for grants administration of “Adherence to published guidelines”. This would uphold the expectations of the Parliament and other stakeholders and provide transparency to applicants when published criteria is amended.