Part 1: Introduction

1.1
We have committed to carry out a series of annual performance audits of grant programmes managed by public entities. The purpose of this scrutiny is to provide assurance to Parliament on how effectively and efficiently grant programmes are being administered. It is important that public entities give grants in keeping with the Government’s intentions, and that grant recipients spend the money as planned.

1.2
Our performance audit of the Foundation for Research, Science and Technology (the Foundation) is the second in our series. We decided to audit the Foundation after a detailed review of the various grant programmes administered by public entities. Factors that influenced our choice included:

• the size of grant budgets administered;
• the extent to which grant recipients are in the public and private sectors; and
• whether there has been a recent audit of the grant programmes.

What is the Foundation for Research, Science and Technology?

1.3
The Foundation for Research, Science and Technology is a Crown entity, created by the Foundation for Research, Science and Technology Act 1990 (the Act). The Foundation’s main objective is to invest in science and technology research for the benefit of New Zealand. It is governed by a board appointed by the Minister of Research, Science and Technology (the Minister).

1.4
The main roles of the Foundation are:

• to allocate the Government’s main investments in public good science and technology¹ research that supports economic and social development, and environmental sustainability;
• responsibility for administering several other Government funding schemes that have been set up to address specific research, science, and technology aims; and
• to provide advice to the Minister on matters about research, science, and technology.

1.5
The Foundation is required under the Act to comply with directions issued periodically by the Minister. For grant programmes, these Ministerial directions specify criteria the Foundation must assess when making funding decisions, and also how funding should be allocated.

Grant programmes administered by the Foundation for Research, Science and Technology

1.6
The Foundation allocates about $400 million a year of public funding in research, science, and technology. In 2005-06, the Foundation was allocated $412 million (excluding GST), through Vote: Research, Science and Technology. The funding is distributed to 9 grant programmes predominantly administered by the Foundation, shown in Figure 1.²

Figure 1
Grant programmes administered by the Foundation for Research, Science and Technology

Source: Foundation for Research, Science and Technology (2005), Statement of Intent 2005-2008.

1.7
The Foundation is the largest public sector provider of grants for research, science, and technology. The $412 million allocated to the Foundation in 2005-06 made up more than 68% of the total public investment in research and development from Vote: Research, Science and Technology. Overall, the Foundation contributes about one-third of the total investment (public and private sector combined) in research and development.

1.8
Four grant programmes dominate the Foundation’s funding of research, science, and technology:

• Research for Industry;
• Environmental Research;
• New Economy Research Fund; and
• Technology New Zealand.

1.9
These 4 programmes collectively accounted for more than 94% of the total funding in the 2005-06 appropriations for the 9 grant programmes in Figure 1.

1.10
Recipients of funding from the Foundation’s grant programmes are a mix of public sector and private sector clients. Figure 2 shows that Crown Research Institutes were the largest single group of grant recipients in 2004-05, receiving 61% of all funding in that year from the Foundation. Private sector recipients received 16% of the total Foundation grant funding in 2004-05. The funding included grants to both private firms for research and development, and fellowships to individuals.

Figure 2
Allocation of the Foundation’s research, science, and technology grant funding by organisation type, 2004-05

Source: Foundation for Research, Science and Technology (2005), Briefing to the Incoming Minister of Research, Science and Technology.

How we conducted our audit

1.11
Our audit examined whether the Foundation was effectively and efficiently administering its grant programmes, and doing so in keeping with the policy direction set by the Government.

Which grant programmes did we audit?

1.12
We audited 2 of the largest grant programmes administered by the Foundation − Technology New Zealand (TechNZ), and Research for Industry (RFI).

1.13
We selected TechNZ because it has experienced very rapid growth in funding levels in recent years, and is directed predominantly to the private sector. The Foundation administers 4 schemes within the TechNZ programme:

• Grants for Private Sector Research and Development (GPSRD) – a scheme which provides assistance for small and medium-sized “technologically aware” firms to undertake research and development projects with potential to raise their technological capability;
• Technology for Business Growth (TBG) – a scheme which aims to promote research and development and innovation by part-funding projects that enhance the technological capabilities of firms;
• Technology for Industry Fellowships (TIF) – assistance for placing researchers or technologists in firms to build links and encourage technological innovation; and
• TechLink – a scheme which provides technology guidance, strategic planning, and promotional services to stimulate awareness of technological innovation in firms.

1.14
We selected grants from the TBG and GPSRD schemes. We selected TBG because it makes up nearly three-quarters of the total value of TechNZ grants. GPSRD was selected because it targets small and medium-sized firms which are not covered by the TBG scheme.

1.15
We selected RFI because it is the largest single grant programme, accounting for nearly 46% of the Foundation’s total grant funding in the 2005-06 appropriations (Figure 1). RFI funding predominantly goes to the public sector – as at mid-2005, 95% of RFI funding went to public institutions, mainly Crown Research Institutes.

1.16
We chose to audit grants directed to the food and fibre industries because this area accounted for nearly 60% by value of all RFI funding when we selected our sample of grants to audit (in mid-2005). Neither the Foundation nor the Ministry for Research, Science and Technology have formally evaluated or reviewed the food and fibre area in recent years.

1.17
Between them, the TechNZ and RFI programmes provided us with a good split between auditing grants going to the public and private sectors.

How we selected individual grant applications to examine

1.18
We selected individual grant applications from those assessed by the Foundation between 1 July 2003 and 30 June 2005. This allowed us to select from a wide range of recent grant applications, while helping to exclude older applications that were assessed by processes no longer used by the Foundation.

1.19
In selecting our sample of grants to examine, we considered:

• the value of individual grants, to ensure that we looked at small and large grants (because – especially in the case of TBG grants – the Foundation applies different levels of assessment and monitoring scrutiny, depending on the size of grant applications);
• the number of grants that had been fully and partially paid, so we could assess monitoring activity undertaken by the Foundation;
• the regional distribution of grants, so we audited grants administered from all of the Foundation’s regional offices; and
• declined applications in the GPSRD and TBG schemes, to ensure that assessment criteria were applied consistently.³

1.20
A summary of the grants and applications we audited is provided in Figure 3. Overall, we examined 119 out of 743 grants (16%) from the 3 schemes (GPSRD, TBG, and RFI) allocated funding by the Foundation between 1 July 2003 and 30 June 2005. We also examined 10 declined applications.

Figure 3
Summary of grants and applications we audited

* RFI grants usually involve funding allocations spanning several years. This figure is the funding allocation made between 1 July 2003 and 30 June 2005.

Fieldwork

1.21
We reviewed grant documentation and interviewed staff in the Auckland, Wellington, and Christchurch offices of the Foundation. Documentation we examined included online databases used by the Foundation for administering the grant programmes. We also interviewed agents involved with the GPSRD scheme. (We discuss the role of these agents in Part 2.)

Our audit criteria

1.22
The audit criteria we applied for reviewing grants were originally prepared for our first performance audit examining the administration of grant programmes, the audit of New Zealand Trade and Enterprise, in 2004.⁴

1.23
We audited whether:

• there were sound and appropriate policies and procedures in place to ensure that grants were provided in keeping with programme policy objectives;
• these policies and procedures were being complied with;
• there was appropriate monitoring of grants as they were paid; and
• there were appropriate frameworks in place to evaluate the grant programmes.

1.24
We expected:

• the assessment, approval, and management of grant applications to be sound, and comply with well-defined guidelines and procedures;
• approved grants to be effectively monitored; and
• grant programmes to be evaluated to see if expected results were being achieved, and, if not, that programmes were redesigned accordingly.

1: Public good science and technology is explained in paragraph 4.2.

2: Administration for the following funds is co-managed by the Foundation with other agencies: Supporting Promising Individuals, Māori Knowledge and Development Research, and the International Investment Opportunities Fund. Only funding allocated to the Foundation is shown in Figure 1.

3: We did not examine declined applications in the RFI grant programme, because the basis of assessment meant that there were technically no declined applications.

4: New Zealand Trade and Enterprise: Administration of grant programmes, ISBN 0-478-18124-8.