Part 2: Findings across the grant programmes

• Introduction
• Merger of Industry New Zealand and Trade New Zealand
• Variation in the approaches taken to administering the grant programmes
• Data collection and reporting practices
• Standards of documentation
• Approach to the assessment of risk
• Monitoring, and collecting monitoring information

Introduction

2.1
As we conducted our audit, some clear themes emerged from our findings for each of the grant programmes. They were:

• variable data collection and reporting practices;
• variable standards of documentation;
• an inconsistent approach to the assessment of risk; and
• inconsistent approaches to monitoring, and the collection of monitoring information.

2.2
NZTE has not yet established a common framework to ensure that, for each grant programme, consideration is given to the key aspects of grants administration. We expected NZTE to have started to consider and document, for each grant programme, how it would collect and store application data, assess applications, assess risk, approve grants, monitor grants, and evaluate the effectiveness of the grant programmes.

Merger of Industry New Zealand and Trade New Zealand

2.3
We recognise that bringing together the systems and processes of the 2 organisations (Industry New Zealand and Trade New Zealand) is a time-consuming and complex task. However, we still expected NZTE (or its predecessor organisations) to have a high-level framework to ensure that consideration had been given to the key aspects of grants administration for each grant programme, taking account of the individual requirements of each.

Variation in the approaches taken to administering the grant programmes

2.4
There were inconsistencies in the extent of guidance for each grant programme. For example, there was a comprehensive manual for Enterprise Development Grants, which set out the procedures to be followed when recording and assessing applications and paying claims. In contrast, the 3 pages of guidelines for the Strategic Investment Fund merely listed the principles and criteria for the Fund. There were also inconsistencies in the assessment and approvals processes.

2.5
There was a lack of common understanding as to how the different criteria for each grant programme should be applied. This was particularly evident in the Strategic Investment Fund, where guidance as to how the Cabinet criteria were to be applied had not been developed.

2.6
We identified some approved grants where it was unclear whether the Cabinet criteria had been met, and some instances where in our view the Cabinet criteria had clearly not been met. In its output agreement, NZTE agreed to “ensure that all programmes are delivered in accordance with policy agreed in the relevant Cabinet papers”. By awarding grants where the Cabinet criteria have not been met, NZTE is in breach of its output agreement.

2.7
For those cases where there has been a breach of the Cabinet criteria, NZTE should take appropriate action to correct the situation. In considering what action it is appropriate to take, NZTE should take into account:

• the substantiveness of any breach;
• that the application may have been made, and the grant received, in good faith; and
• that, after approval by NZTE, the recipient may have incurred costs based upon an assumption that the application met the required criteria.

2.8
NZTE should also review those cases where we were unable to determine if the Cabinet criteria had been met, to determine what action it is appropriate to take.

2.9
After the start of our audit, NZTE began to work on a “Business Process Mapping Project”, looking specifically at the grant programmes we examined. One of the aims of the project is to ensure consistency of NZTE processes. Work from this project has included:

• a risk profile for the Strategic Investment Fund; and
• a new Enterprise Network procedures manual.

Data collection and reporting practices

2.10
We expected there to be comprehensive data on all grants that had been approved, cancelled, declined, or returned, for all grant programmes. Comprehensive data is vital, so that NZTE can accurately analyse:

• who is receiving grants;
• the size of grants being awarded;
• the amount paid to grant recipients;
• how much of NZTE’s appropriation for grants has been spent at any given time in a financial year; and
• the reasons why grant applications are being declined, cancelled or returned.

2.11
The quality of the data supplied to us by NZTE was variable. For some grant programmes, NZTE had difficulty producing reports of basic information, including:

• the grant recipient;
• the amount of the grant; and
• the amount paid to date.

2.12
The data available for the Enterprise Network programme was particularly poor. NZTE was unable to tell us how many grant recipients were in each Enterprise Network, and had considerable difficulty in telling us how much had been paid to each Enterprise Network to date.

Standards of documentation

2.13
Maintaining full and complete files is an important tool in ensuring accountability and transparency for the spending of public funds. It is critical that, where public funds are being awarded to grant recipients, there are clear accountability trails to:

• document all the key points in the assessment and decision-making process; and
• record all monitoring after the award of a grant.

2.14
The standard of the documentation throughout NZTE was variable. For some grant programmes, such as Enterprise Development Grants, the team responsible had maintained a good standard of documentation. A central team made all Growth Services Fund payments, and these files held all the requisite information.

2.15
However, the documentation in other programmes was poor. Important documents were missing from many files, such as the application for the grant or the contract signed with the grant recipient. This was particularly evident for Strategic Investment Fund files, which had key documents missing in many cases, and often contained no supporting information for the propositions put forward in an application.

2.16
There was also great variation in the standard of documentation held in Client Managers’ files, which were often missing important documents (such as credit checks, development plans, and receipts for work undertaken). This was particularly evident for the Growth Services Fund, the Enterprise Network Grants and the Major Events Fund programmes.

Approach to the assessment of risk

2.17
In our report Inquiry into Public Funding of Organisations Associated with Donna Awatere Huata MP, we noted that the assessment of contractual risk as it applied to non-governmental organisations was an integral part of any contracting arrangement. We noted that all entities –

... need to establish procedures to review the governance and accountability arrangements of organisations that have applied for funding. Such a review should include–

• checking the legal status of the organisation (including a review of its constituting documents);
• checking that there is adequate segregation of duties between the governing body and management;
• assessing the potential for personal benefit to any of the Trustees; assessing the ongoing financial viability of the organisation; and
• checking whether or not the organisation has applications to or is receiving funding from other government agencies for the same or a similar purpose.⁶

2.18
This approach is equally applicable to organisations responsible for the administration of grants. The funding entity must be satisfied with the operational capability and suitability of the organisation applying for the grant. It should then assess the grant applicant’s governance and management arrangements for indicators of its ability to:

• adequately use the grant for the purposes for which it has been sought; and
• satisfy accountability requirements under the contract – which in turn flow into the funding entity’s own accountability duties.

2.19
Although there are significant transaction costs in doing this “front-end” work, this risk-based approach has the advantage of enabling the funding entity to concentrate (equally resource-intensive) monitoring and enforcement efforts on grant recipients identified as carrying a higher degree of risk.

2.20
NZTE does not yet have a consistent approach to the assessment of risk. In the Growth Services Fund, a risk profile is built for each applicant, based on comprehensive guidelines. In contrast, grants are approved under the Strategic Investment Fund without any formal risk profiling of applicants. This is of particular concern, given the size of the grants available under the Strategic Investment Fund. The approach taken to the assessment of risk for each grant programme is discussed further in Parts 3 to 7.

2.21
NZTE has not developed a common approach to the receipt of adverse risk information. For example, we found some grant recipients with adverse credit findings, but we did not see any applications that were ruled out because of such adverse findings.

Monitoring, and collecting monitoring information

2.22
In our report Inquiry into Public Funding of Organisations Associated with Donna Awatere Huata MP, we identified that a funding entity needs to –

• ensure that it obtains an in-depth breakdown of actual costs of the projects funded and review these costs for reasonableness;
• require production of, and make sure that it receives, annual audited financial statements of the organisations that it is funding, within specified time frames;
• better document the contract monitoring and management undertaken – this includes: recording the funded organisation’s compliance with all contractual obligations associated with the funding arrangement; documenting the results of site visits and management meetings held with the funded organisation; and documenting all significant issues that arise during the contract and how these issues are addressed;
• ensure that final project reports are received on a timely basis; and
• where a contract is to be varied or extended for a future period, review carefully the costs of the project, what has been achieved to date, and what still has to be achieved – before progressing on to the next phase.⁷

2.23
Risk-based monitoring of projects reinforces the need for the parties to a contract to be clear about their expectations and their obligations, when they are dispensing public resources.

2.24
NZTE’s monitoring of grant recipients throughout the life cycle of grants was inconsistent. Because of the variable state of the documentation maintained on Client Managers’ files, the audit team often saw no evidence of contact being maintained with grant recipients once a grant was approved.

2.25
We would expect Client Managers to identify those grant recipients who present a higher risk (based upon an appropriate risk profile during the assessment process), and to focus their efforts on those grant recipients. We saw no such targeting of Client Manager effort.

2.26
Similarly, the collection of monitoring information was variable. For Enterprise Development Grants, 20% of each grant was withheld until the required standard final report was returned on the completion of the project. In the Growth Services Fund, the final claim was not paid until the final report was provided.

2.27
There were standard completion report forms for Enterprise Networks, although these were not always filled out. At the time of our audit, NZTE did not collect information in a standard format from recipients of grants from the Major Events Fund and the Strategic Investment Fund.

2.28
Some reports had been submitted by grant recipients, but the information provided did not follow a standard format and was not readily comparable. The data collected was therefore incomplete. This is likely to adversely affect any future evaluation activities.

6: Pages 9-10.

7: Pages 10-11.