Part 7: Funding arrangements with non-government organisations

Central government: Results of the 2003-04 audits.


In this article, we provide some background to the issues relating to contract and other funding arrangements between government and non-government organisations (NGOs), and set out our planned work programme intentions in relation to these issues over the next few years.


We live in an era of collaboration and partnership between the Government and communities, where the Government makes policy choices on the spending of public money and the services are increasingly delivered by NGOs in the private and voluntary sectors. There is broad consensus about the involvement of NGOs in publicly funded service delivery, and the importance of values such as collaboration and mutual trust between the Government and NGOs. This has been reflected in a number of developments, including an agreed statement of government intentions towards the voluntary sector.

Nevertheless, there are expectations of transparency and accountability, and the best use of public money. A collaborative approach does not, on its own, ensure either transparency or accountability. There are tensions between collaboration and mutual trust on the one hand, and control and strict enforcement of contractual performance on the other hand.

With justifiably high expectations of accountability over the use of public funds, more relaxed controls create substantial risks for both the Government and NGOs.

Since 2000, when a range of issues were raised relating to the Waipareira Trust1, we have been extensively involved in issues relating to contract and other funding arrangements between the Government and NGOs.

In our 2003 report of an inquiry into the management of funding arrangements with several NGOs connected with Donna Awatere Huata MP2 (“the Huata inquiry”), we outlined some of our expectations of how public entities contracting with NGOs, or providing funding to them, should ensure proper accountability, transparency, and best use of public money. Parts of the inquiry report have been used as a de facto best-practice guide, although it was not written to be so.

Based on our experience from this and other studies, we have identified several risk areas, including particularly:

  • scrutiny of the governance and management capability of the potential provider;
  • monitoring of the arrangements with the provider; and
  • review of whether the arrangements have the desired impact.

We have advocated a risk-management approach. Policies and standard procedures should be designed to mitigate risks that are systemic and common to this type of funding arrangement. This should be done in ways that are most cost effective for the funding entity, and most efficient in terms of transaction and compliance cost for the NGO. Key and critical risks in the funding arrangements should be identified and mitigated, with resources being re-allocated where necessary to ensure that the higher level of risk is mitigated.

Since the Huata inquiry, we have continued to be involved in NGO issues across a range of government agencies, particularly in the health, social services and education sectors, including providing best-practice advice. We have also contributed to several forums on this issue.

Treasury guidelines

The Treasury has issued Guidelines for Contracting with Non-Government Organisations for Services Sought by the Crown (the Guidelines). The Guidelines are intended to encourage better contracting practices by all departments and Crown entities involved in negotiating arrangements with NGOs for services that support the Government’s objectives. The Guidelines were first issued in 2001, and were updated in 2003.

The Guidelines cover the following aspects of the contract lifecycle:

  • planning;
  • selecting a provider;
  • negotiating the contract;
  • managing the contract;
  • review and evaluation; and
  • starting over.

The Guidelines do not diminish the need for government agencies to exercise informed judgement about the arrangements that may be appropriate in their own circumstances. The Treasury is clear that the Guidelines are not a manual on how to write contracts.

What we plan to do

During our recent cycle of strategic audit planning, we further developed and refined our work programme in relation to the issues surrounding NGOs. We have identified the NGO area as one that would benefit from an integrated audit approach. We set out our intentions below.


During 2004-05, we intend to continue to provide wider assurance to public entities on their NGO-funding activities where appropriate.

We will continue to highlight NGO issues with our appointed auditors through the audit briefs we issue. Our auditors have been asked to ensure that public entities within the Crown reporting entity that contract with NGOs are fully aware of our best-practice recommendations arising from the Huata inquiry, and the Treasury guidelines.

We have asked our auditors to review the quality of departments’ and Crown entities’ contract management systems in the course of the 2004-05 annual audit, to ensure that they are consistent with the Treasury guidelines – with a particular focus on the adequacy of the monitoring and audit arrangements in place to ensure that services purchased are properly delivered. Any audit concerns will be reported to the public entity in the management letter, and, where appropriate, to the Minister and the relevant Select Committee as part of the financial review.


In 2005-06, we intend to develop a best-practice guide on our audit expectations of NGO contracting and funding arrangements. We will use the knowledge and expertise built up over recent years to develop our audit expectations. In developing those expectations, we expect to have discussions with central agencies, and we will take account of the Treasury guidelines.

We also intend to establish the specific work we could usefully carry out on NGO issues as part of annual audits. We expect that this work will link closely to our best-practice expectations.

2006-07 onwards

In 2006-07 and future years, we intend to reflect the outcomes of our research and development work in annual audits. We also intend to institute a rolling performance audit programme examining different agencies’ management of NGO contracting arrangements, using our best-practice expectations as audit criteria.

1: Central Government: Results of the 1999-2000 Audits, parliamentary paper B.29[00c]), pages 52-55.

2: Inquiry into Public Funding of Organisations Associated with Donna Awatere Huata MP, ISBN 0-478-18111-6, November 2003.

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