Part 4: Enterprise Development Grants
- Introduction
- Cabinet and additional NZTE criteria for the award of Enterprise Development Grants
- The application process
- Monitoring of Enterprise Development Grants
Introduction
4.1
Enterprise Development Grants (EDGs) are one type of funding available through the
Enterprise Development Fund.10
4.2
EDGs replaced the former Enterprise Awards Scheme, which was part of a similar
Industry New Zealand scheme.
4.3
NZTE’s objective for EDGs is to assist individual entrepreneurs and companies to gain
additional business skills by obtaining external expertise to assist with developing
business projects.
4.4
We examined a sample of grants approved during the period 1 July 2003 to 31 March
2004, because:
- the merger of Industry New Zealand and Trade New Zealand took effect from 1 July 2003; and
- a sufficient numbers of grants had been given under this programme for a meaningful sample to be taken.
4.5
In the 2003-04 year, NZTE had $4 million available to be distributed as EDGs.
Figure 8 on the next page sets out a summary of the applications.
Figure 8
Applications for Enterprise Development Grants in 2003-04
| |
Number | Total ($) | ||||
|---|---|---|---|---|---|---|
| Approved | Declined | Returned | Cancelled | Approved | Paid | |
| All applications | 116 | 20 | 5 | 1 | 1,411,225 | 238,984 |
| Applications we examined | 59 | 5 | 5 | 1 | 1,035, 084 | 215,951 |
4.6
Approved applications ranged in value from $638 to $20,000. For the period under
review, NZTE was able to provide us with adequate data for all EDGs that had been
approved, declined, returned to the client for more information, or cancelled.
4.7
This Part discusses only approved applications. Our examination of the files did not
reveal any issues with the declined, returned, or cancelled grants.
Cabinet and additional NZTE criteria for the award of Enterprise Development Grants
4.8
Criteria set by Cabinet for EDGs require eligible businesses to:
- be resident in New Zealand for tax purposes;
- operate, or intend to operate, in a commercial environment;
- be GST-registered (where required); and
- be financially viable.
4.9
NZTE has stipulated an additional criterion – businesses must have an annual
turnover of no more than $5 million and/or no more than 20 full-time equivalent staff.
4.10
Cabinet has also stipulated that entrepreneurs must be:
- New Zealand citizens or have permanent resident status; and
- able to show how they are going to finance the project or activity.
What can Enterprise Development Grants be used for?
4.11
EDGs provide assistance to entrepreneurs and businesses to:
- engage the services of a business mentor for a defined period;
- undertake more advanced management and technology-based training;
- employ specific external advice and expertise in a management area; and
- undertake international market development activities, including new market investigation, trade fair participation, trade/business missions, business exchanges and visiting buyers.
4.12
Grants can be for up to 50% of approved costs, on a reimbursement basis, to a maximum
of $20,000 for each financial year. NZTE has stipulated that a maximum of $3,000
is available for mentoring and $3,000 for training costs.
What can Enterprise Development Grants not be used for?
4.13
There are a range of costs that are not eligible for funding. These include:
- costs relating to normal business operating expenses, non-developmental costs of the project, business establishment and the purchase of assets;
- costs incurred internally by the organisation such as salaries, wages, fees, personal expenditure, in-kind expenses or donations;
- work being undertaken by any of the applicant’s employees or immediate family, or the employees or immediate family of any subsidiary, associate or parent companies;
- costs of anyone with a financial interest in the project or activity such as shareholders;
- cost of New Zealand permits or consents, and licence, renewal, or registration fees;
- costs relating to website design and implementation;
- costs associated with making an application under another government assistance programme;
- costs relating to establishing the project as a commercial venture, such as printing brochures or advertising; and
- costs incurred by the applicant before the completed application form was received by NZTE and accepted as complete.
Were the Cabinet and additional NZTE criteria met?
4.14
In the sample of grants we examined, the Cabinet and additional NZTE criteria were
met. In our view, NZTE has developed strong procedures and templates to ensure
that all criteria are explicitly addressed and met before an application is considered for
assessment.
The application process
4.15
There is a standard application form for all EDG applications, which can be downloaded
from the NZTE website. Applications must include:
- a clear outline of the project or activity;
- a detailed plan that takes the proposed project or activity from concept to implementation;
- information about the company or individual making the application;
- quotes and terms of reference to substantiate the costs applied for, including the name, address and contact details, company/personal profile of the provider, and the scope and cost of the work to be provided;
- a realistic budget including the potential costs of the whole project; and
- the company’s most recent annual financial statements.
4.16
A 3-member EDG Team, located in Wellington, is responsible for processing, assessing,
managing, and monitoring all EDG applications.
4.17
Once the completed application has been received, the EDG Team members score the
application on a standard assessment sheet against the following criteria:
- robustness of the proposal;
- financial and organisational stability;
- ability of the individual/business to implement the project or undertake the activity, and their commitment and drive to undertake the planned work;
- potential for growth within the organisation and the benefit to regional/national economies;
- level of need for government assistance/funding assistance as a catalyst for growth; and
- level of innovation of the product, service, project and activity.
4.18
Each criterion is given a score out of 10, which is then multiplied by a percentage to
produce a “weighted” score. The result is a final score out of 1000. NZTE has
developed guideline notes for assessing proposals against each of the areas noted
above. Figure 9 below sets out the approval process for EDGs.
Figure 9
Approval process for Enterprise Development Grants
4.19
After an application is approved, applicants have 20 working days to accept or decline
the offer of a grant. As part of accepting the offer, applicants are required to
acknowledge that information about the grant may be passed on to Members of
Parliament or the media, and that 20% of the grant will be withheld until the
final report has been submitted. Applicants have one year to uplift their grant.
4.20
In addition to the EDG Team’s joint assessment of each grant application, we noted
that internal peer review had been sought for applications that scored close to the
benchmark.
Guidelines
4.21
NZTE has developed a comprehensive operational procedures manual for the members
of the EDG Team. This manual sets out the processes that EDG Team members are
expected to follow throughout the application process. The manual includes:
- instructions on the entry and processing of declined, awarded and expired applications into NZTE’s client management system;
- application processing time requirements;
- background procedures for the New Zealand Companies Office and credit check inquiries;
- various templates (e.g. for acknowledging applications, declining and approving applications, a document cover sheet for the paper file, and the final report form);
- how to process claims from applicants; and
- the processes for contacting successful applicants who have not had contact with, or made a claim to, the EDG Team for 180 days.
4.22
Grant guidelines and criteria are also published in the publicly available EDG
brochure.
4.23
The EDG manual contains an assessment sheet based on the Cabinet criteria that
each Team member uses to assess every application. To be approved, applications must meet
a total benchmark score that is documented in the manual.
4.24
A one-page appendix to the manual provides an overview describing how the criteria
are to be scored. However, this advice is brief, and some criteria are not addressed at
all. Assessment of key criteria is therefore determined by the skills and experience of
the EDG Team members.
| Recommendation 10 |
|---|
| We recommend that NZTE develop more comprehensive guidance for how each Enterprise Development Grant criterion is to be interpreted. |
Documentation
4.25
Grant files were generally well organised.
4.26
Where incomplete applications had been submitted, the EDG Team sought additional
information from the applicants. As a result:
- 4 applicants withdrew their applications;
- 2 applications were declined by the EDG Team;
- 2 applications were still pending at the time of our review; and
- 4 applicants provided more information and the application proceeded through to approval.
NZTE’s approach to risk for Enterprise Development Grants
4.27
Two of the EDG assessment criteria address the financial and organisational stability
of an applicant, and the ability and commitment of the applicant to implement their
project. These 2 criteria make up 30% of the overall score of an application.
4.28
Credit checks and New Zealand Companies Office checks are required for each grant
applicant. The EDG manual includes instructions for undertaking these checks.
Were NZTE’s assessment procedures satisfactory?
4.29
NZTE’s assessment procedures were satisfactory. The EDG Team applies the same
effort to each grant, regardless of the size of the grant sought. However, from time to
time, the team will seek further information on an applicant from NZTE staff who
have previously dealt with the applicant.
4.30
The assessment approach used for EDG applications helps to ensure consistent
application of the guidelines. EDG Team members compare scores for each application,
and agree on a collective set of scores for the grant Applications that meet the benchmark
are sent to the Manager Business Development Services for review and
endorsement. The applications are then sent to the Group Manager Business
Development Services for final approval.
4.31
Documentation was generally clear for each step of the approval process. However,
as there was very little written comment to support and explain the EDG Team’s
assessment scores, it was difficult for our audit team to follow the decision-making
process behind grant approvals.
4.32
EDG criteria are contained on the assessment sheet used by the EDG Team. All of the
grants that we reviewed had been assessed using this sheet, and there were individual
score-sheets from each EDG Team member. However, the EDG manual does not state
that an application should be ruled ineligible by a score in any one criterion that is so
low that, in effect, the criterion is not met. Instead, an application that achieves a low
score for some criteria can still meet the required total by rating highly in other areas.
| Recommendation 11 |
|---|
| We recommend that NZTE set required scores for each Enterprise Development Grant criterion, to ensure that an applicant who receives a low score for one criterion such that, in effect, the criterion is not met, is not eligible for an Enterprise Development Grant. |
4.33
From our review of grants files, it was difficult to see that the approvals process had
been followed. This was because the EDG Team keeps the summary sheets that are
sent for approval in a separate file. We cross-checked this approvals file with the
individual grants files and found that 12 of the 70 grants we examined did not have the
appropriate approvals and delegations.
| Recommendation 12 |
|---|
| We recommend that NZTE ensure that a copy of all Enterprise Development Grant approvals, and the reasons behind any decisions made, are accurately recorded on each grant file, to ensure that the decision-making process is transparent and easy to follow. |
Monitoring of Enterprise Development Grants
4.34
The EDG Team performs all monitoring of EDGs. A standard approach is
followed for all grant recipients with no apparent reference to the risk assessment
activities (such as credit and New Zealand Companies Office checks) that are
undertaken as part of the application process.
| Recommendation 13 |
|---|
| We recommend that NZTE tailor its monitoring activities for Enterprise Development Grants to take account of the risk profile of the grant recipient. |
4.35
We found that appropriate payment controls had generally been exercised over the
grants that we examined. The EDG Team monitors each grant to ensure that claims
align with the qualifying costs identified in the “letter of offer” to the grant recipient.
We saw 6 examples of NZTE rejecting ineligible costs that grant recipients had sought
to claim.
4.36
Applicants are contractually required to complete a final report form at the conclusion
of the activity or project. The form requires applicants to:
- indicate whether the project has been completed;
- indicate whether the project has reached implementation;
- assess the additional business expected based on the project that has been undertaken; and
- rate the service provided by NZTE.
4.37
The standard terms of EDGs require NZTE to withhold 20% of each grant, until the
final report is returned on completion of the project. This 20% had been correctly
withheld in all the grants we examined.
4.38
Withholding 20% of the grant gives recipients a clear incentive to complete their
final reports and, where necessary, to submit any additional information. As a result,
there was a corresponding final report for all fully paid grants.
10: Enterprise Network Grants are the other type of funding available through the Enterprise Development Fund. Enterprise Network Grants are discussed in Part 5 of this report.
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