Summary

New Zealand Trade and Enterprise: Administration of grant programmes.

Introduction

In 2003, we conducted 2 inquiries that found weaknesses in the administration of grant programmes. The first inquiry – Industry New Zealand – Business Growth Fund Grant to The Warehouse1 – identified administration deficiencies with the Business Growth Fund. The second inquiry – Inquiry into the Public Funding of Organisations Associated with Donna Awatere Huata MP2 – revealed poor contract management and monitoring in relation to the Export Network Fund.

At the time of those inquiries, the 2 funds were administered, respectively, by Industry New Zealand and Trade New Zealand. In July 2003, those 2 entities were merged to form New Zealand Trade and Enterprise (NZTE).

NZTE has needed to manage a significant amount of change following the merger of Industry New Zealand (the Government’s economic development agency) and Trade New Zealand (the Government’s trade promotion agency).

In the 2003-04 year, NZTE was appropriated $47.064 million for grants to firms, sectors and regions. Nearly half of this appropriation is accounted for by the 5 grant programmes discussed in this report:

  • the Growth Services Fund;
  • Enterprise Development Grants;
  • Enterprise Network Grants;
  • the Major Events Fund; and
  • the Strategic Investment Fund.

We decided to conduct an audit to assess how effectively and efficiently the grant programmes, for which NZTE assumed responsibility in 2003, were being administered. We did not look at whether grant programmes were meeting their objectives, or the performance of grant recipients.

Findings across the grant programmes

Regardless of the type or size of the grants awarded under the different programmes, we expected grant programmes to be designed to meet specific, measurable objectives. We expected assessment, approval, and management of applications to be robust, and to comply with well-defined guidelines and procedures. Approved grants should be effectively monitored, and we expected programmes to be evaluated.

During the course of our audit, we found:

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

NZTE has not yet developed 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 its grant programmes.

A summary of our findings for each grant programme is provided in Figure 1 on page 12.

Data collection and reporting

The quality of the data maintained by NZTE was variable. NZTE collected comprehensive data for some grant programmes, but 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. Poor data collection has implications for the integrity of NZTE’s reporting.

Standard of documentation

Similarly, the standard of documentation held across the grant programmes varied. A good standard of documentation had been maintained for some grant programmes, but in others – and in particular, the Strategic Investment Fund – the quality of the documentation was poor.

Assessment of risk

NZTE does not yet have a consistent approach to the assessment of risk. The approach for the Growth Services Fund was comprehensive, but practices across the other grant programmes were not as thorough. This has implications for determining who should be awarded grants, and also affects how well NZTE is able to focus its monitoring efforts once a grant has been approved.

Monitoring

Finally, the monitoring of grant recipients and the collection of monitoring information was inconsistent between grant programmes. For Enterprise Development Grants, for example, 20% of each grant was withheld until the grant recipient provided the required report at the completion of a project. In some other grant programmes, however, no funding was withheld; nor was there any requirement for grant recipients to provide NZTE with information on the impact of the funding.

Summary

The nature and scale of our findings indicates that there are common areas of weakness in NZTE’s administration of its grant programmes that will require significant management effort to address. NZTE has assured us that it is addressing our concerns.

We recommend that NZTE review all its grant programmes to ensure that it is administering them appropriately. For all grant programmes, this includes ensuring that a sound set of administrative principles and standards are applied to:

  • policies and procedures manuals;
  • assessment of risk;
  • documentation;
  • decision-making processes; and
  • monitoring of grant recipients.

Figure 1 Summary of findings for the grant programmes examined

Growth Services Fund Enterprise Development Grants Enterprise Network Grants Major Events Fund Strategic Investment Fund
Criteria
Criteria not always adequately considered Criteria met in sample examined Applications often lacked supporting evidence Criteria met in sample examined Unable to ascertain if criteria had been met Criteria not met in some cases. Unable to ascertain if criteria had been met in other cases.
Guidelines
From October 2003, satisfactory Comprehensive Being developed Adequate Inadequate
Documentation
Variable Satisfactory Variable Variable Poor
Risk
Comprehensive approach Some consideration given to assessment of risk No specific risk analysis No comprehensive risk profiling of applicants Minimal risk profiling of applicants
Assessment procedures
Satisfactory Satisfactory Mostly satisfactory Satisfactory Unsatisfactory
Monitoring, and collecting monitoring information
Satisfactory Thorough Variable Inadequate Poor

The Growth Services Fund

The Growth Services Fund (GSF) exists to assist small and medium-sized enterprises to access new business opportunities, skills and expertise, innovation and new technologies, and finance. Recipients must be committed to increasing the size and scale of their business.

In the assessment of some GSF applications, the criteria set by Cabinet for the Fund were not adequately considered. The Cabinet criteria need to be explicitly addressed, so that it is clear that the Government’s intentions and instructions are being followed.

NZTE has had satisfactory operating guidelines for the GSF since October 2003. The standard of documentation held by Client Managers was variable, but the central payment and contract management files were complete. NZTE has developed a comprehensive approach to risk for GSF applicants.

NZTE’s assessment procedures and the collection of monitoring information were satisfactory.

Enterprise Development Grants

Enterprise Development Grants (EDGs) assist individual entrepreneurs and companies to gain additional business skills, through obtaining external expertise and gaining assistance in developing business projects.

NZTE has developed a comprehensive operational procedures manual for members of the EDG Team. In the sample of grants we examined, the Cabinet criteria were met.

Some consideration had been given to the assessment of risk when considering grant applications, and grant files were generally well-organised.

NZTE’s assessment procedures were satisfactory. We found NZTE’s monitoring of EDG recipients to be thorough, with 20% of each grant being withheld until grant recipients had submitted the required final report.

Enterprise Network Grants

Enterprise Network Grants assist groups or networks of businesses to gain additional business skills, through increased business opportunities and obtaining external expertise in developing network-based business projects.

Assessment sheets that were used to score applications included assertions that the Cabinet criteria were met. Supporting evidence was often missing from the files.

NZTE has an internal Enterprise Network fact sheet for Client Managers. At the time of our audit, NZTE had also developed a draft process manual. NZTE is now significantly revising its internal documents.

The standard and level of documentation within individual Client Manager files was variable. In many cases, important documents, such as credit checks, were missing from the files. There was no specific risk analysis of companies receiving funding. In some cases, the application for funding listed only the names of companies applying for funding, and there was little or no analysis of the companies involved.

NZTE’s assessment procedures could be improved. All applications received a score based on an assessment sheet. It was possible for applications to receive a score of zero in one or more of the areas identified in the assessment sheet, but still be approved.

The monitoring of grant applications was variable. In some cases, grant recipients had provided NZTE with the required completion report forms. In other cases, there was no evidence of any monitoring after a grant had been approved.

The Major Events Fund

The Major Events Fund supports major events that have the potential to create or contribute to wider economic development opportunities.

In the sample of files we examined, the Cabinet criteria were met. NZTE has adequate guidance for the Major Events Fund. Although the documentation in the files varied, the Events Group Manager had reviewed the files in 2003 and identified that documentation was missing. At the time of our audit, NZTE was already taking steps to rectify this situation.

No comprehensive risk profile of applicants is completed. Such risk profiles should be developed.

NZTE’s assessment procedures for the Major Events Fund were satisfactory. However, because of the lack of definition around how to interpret and score each element of the assessment matrix, there could be inconsistency in how scores are awarded.

There was some evidence of monitoring after approval of funding, but the monitoring was often inadequate. NZTE did not require grant recipients to submit standard information upon the completion of an event. Some reports had been submitted by grant recipients, but the information provided did not follow a standard format, and was therefore not readily comparable. This makes future evaluations of the Fund more difficult.

The Strategic Investment Fund

The Strategic Investment Fund (SIF) exists to:

  • encourage significant investment in new added-value projects;
  • demonstrate the Government’s commitment to support major new investments;
  • provide firms making significant investment decisions with an informed opportunity to compare the benefits of investing in New Zealand with other options; and
  • identify any impediments to investments proceeding, and, where appropriate, advise the Government of the need for procedural change.

In many cases, we were unable to ascertain whether the Cabinet criteria had been met, as the documentation for those grants did not address the criteria explicitly enough. Further, NZTE has not determined how the Cabinet criteria are to be applied.

NZTE had a 3-page set of guidelines for the SIF. These guidelines were inadequate. They did not describe how an application was to be processed or considered, how the Cabinet criteria were to be applied, or how risk was to be assessed.

Important documents were missing from many files. The standard of documentation in the files was poor, and the audit team often had difficulty tracing grants through the application process.

NZTE undertook minimal risk profiling of SIF applicants, and the approach to risk under this programme was poor. This was of particular concern, given the size of the grants able to be awarded under the SIF.

NZTE’s assessment procedures for grants under the SIF are not satisfactory. The Chief Executive of Investment New Zealand3 approves feasibility study grants on a case-by-case basis, and does not have a clear framework for assessing applications.

We saw little evidence of monitoring documentation in the files. Controls over the payment of SIF grants were inadequate, with submitted invoices containing very little information. For example, it was not clear who had undertaken the work, or how charges had been calculated.

Evaluation of grant programmes

Programme evaluation plays a key role in understanding how effective Government programmes are. The Ministry of Economic Development (MED) and the Ministry of Foreign Affairs and Trade (MFAT) are jointly responsible for monitoring and evaluating NZTE’s services. NZTE also has an internal Strategy and Evaluation group.

Before the merger that formed NZTE on 1 July 2003, different evaluation approaches were applied – Industry New Zealand focused on activity measures while Trade New Zealand focused on outcome measures.

The main evaluative activity that has taken place in relation to NZTE has been:

  • in-depth or programme reviews by MED and MFAT;
  • an annual review by MED that provides an assessment of programme performance to date; and
  • development of evaluation and research plans by MED.

At the time of our audit, evaluation and research plans had been developed for only 2 of the 5 grant programmes discussed in this report. Some evaluation activity has taken place; namely an in-depth review of the Implementation of Investment New Zealand. We found evidence of the results of that evaluation being fed into the future design of the programmes administered by Investment New Zealand.

Recommendations

Based on the findings of our audit, we have made 47 recommendations, spread throughout this report, for NZTE to improve its administration of grant programmes.

1: Reported to Rodney Hide MP, 29 July 2003.

2: ISBN-0-478-18111-6, November 2003.

3: Investment New Zealand is a business unit within NZTE, and is New Zealand’s dedicated investment promotion agency.

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