Part 9: Contract management and monitoring by the Ministry of Education

• Our findings and conclusions

9.1
Our review of the Ministry’s contract management and monitoring practices focused on:

• the clarity of the roles and responsibilities of the parties;
• whether the contract established reporting requirements that were sufficient to enable the Ministry to ensure that scholarships were being awarded in accordance with relevant criteria, only on scholarship programmes approved by the Ministry, and within appropriated funds; and
• whether the monitoring procedures were adequate to ensure that reporting obligations were being met, and that apparent anomalies were identified, investigated and resolved with the Trust.

9.2
In order to assess the quality of the Ministry’s contract management and monitoring practices, we selected a sample of milestone reports from each year. We examined whether each report was consistent with the contractual requirements, and, where it varied from the requirements in any material respect, that the Ministry had made appropriate inquiries of the Trust.

Our findings and conclusions

9.3
In our view, the quality of the monitoring activity performed by the Ministry was variable in the period 1994 to 2003. There were periods where the level of file documentation was of a high standard. There were also periods where the documentation was not adequate.

9.4
Practice has not met our expectations in the following respects:

• variable monitoring of the value of scholarship payments being made through the Trust scholarship schemes;
• no clear process for approving the schedule of Trust scholarship schemes to which the Crown subsidy could be applied (that is, Appendix 3 of the scholarships contract);
• no clear policy regarding the nature of income items which are able to attract the Crown subsidy; and
• variable levels of follow-up inquiry when milestone reports did not meet contractual reporting requirements.

Milestone reports

9.5
Between 1998 and 2003, the Ministry received all the required milestone reports from the Trust. However, several reports were submitted late. Financial reports in particular tended to be provided several months in arrears.

9.6
Many milestone reports we reviewed did not meet all the contractual requirements. For example:

• performance measures reported on by the Trust were not consistent with contract requirements;
• actual performance against contract targets was omitted;
• there were inconsistencies within the milestone reports in relation to the number of scholarships awarded in particular categories; and
• there were inconsistencies between the number of scholarships awarded and financial information included in the reports.

9.7
Although required by the Manaaki Tauira contract, the Trust has not reported in its milestone reports on administration costs.

9.8
For the majority of milestone reports we reviewed, there was evidence of some analysis being carried out by Ministry officials. This evidence was generally in the form of a letter to the Trust acknowledging receipt of the report, and commenting on, or inquiring into, various aspects of the report.

Responsibility for monitoring

9.9
Responsibility for monitoring the contracts was transferred within the Ministry a number of times during the 10 years. In the period from 1996 to 2001, at least 10 different Ministry contracts staff worked with the Trust. Where responsibilities are transferred frequently, the risk of monitoring procedures becoming less rigorous is increased, as it takes time for staff to become familiar with the contract and the relationship.

Evidence of monitoring

9.10
We found no evidence that the value of scholarships awarded by the Trust from schemes listed in Appendix 3 of the scholarships contract was monitored. Without monitoring actual expenditure against the level of subsidy income, the Ministry was unable to quantify whether the Trust still held Crown funds for future use.

9.11
The scholarship schemes listed in Appendix 3 changed when the scholarships contract was renewed. There was no evidence on file that the Ministry had reviewed the changes and confirmed that any new schemes were consistent with the Ministry’s objectives for the scholarship funding. While the Ministry’s signing of the scholarships contract could be seen as acceptance of the changes, we would have expected evidence that some analysis was performed to support any changes to Appendix 3 of the scholarships contract.

Previous Internal Audit reviews

9.12
The Ministry’s Internal Audit Group (the Group) has carried out a number of audits relating to aspects of the Ministry’s relationship with the Trust. Specifically, an audit by the Group in April 2002 reviewed the Ministry’s management of its scholarships contract with the Trust for the administration of the Māori and Polynesian Scholarships.

9.13
The report concluded that 2 key factors had contributed to the over-allocation of scholarship funds in 2000-01 (see paragraph 4.19), namely:

• Over time, a drift away from strict observance of the Māori and Polynesian Scholarship Regulations had crept into both the Trust’s and the Ministry’s processes.
• A lack of controls over both eligibility and expenditure within Ministry processes left the Ministry relying on the Trust to correctly assess eligibility, and to recommend numbers that could be funded within the contractual limits.

9.14
The Ministry did take steps to address these concerns in a variation to the scholarships contract that took effect from December 2002. Schedule 7 of the variation included specific criteria for assessing eligibility, and specific reporting that would be required to accompany the schedule of successful applicants submitted to the Ministry for approval.

9.15
The scholarships contract variation did not specifically provide for the Group to have access to the Trust’s records. However, the variation did provide the Ministry with the power to “evaluate the services itself or by an authorised provider.” The most recent occasion on which the Ministry sought to evaluate the Trust’s services using an external provider was 1996, and the date of the most recent Ministry evaluation was 1997.

9.16
The clarity of the contractual arrangements between the Crown and the Trust (including the processes that support the ongoing operation of the scholarships and Manaaki Tauira contracts) could be improved.