Part 3: The Technology for Business Growth scheme

3.1
In this Part, we:

• describe the Technology for Business Growth scheme; and
• present our findings from the applications and grants we audited.

Overview of the Technology for Business Growth scheme

3.2
TBG is the largest scheme of the TechNZ programme, accounting for nearly three-quarters of the total value of TechNZ grants. TechNZ aims to increase the ability of firms to adopt new technology, and apply technological learning and innovation for business growth.

3.3
The purpose of the TBG scheme is to partially fund projects undertaken by firms that have the potential to improve technological capability, and enable the firms to move towards high-value, technology-based products, processes, or services. The Foundation funds up to 50% of the research and development costs of approved projects.

Our audit sample

3.4
We chose our TBG audit sample from applications assessed by the Foundation between 1 July 2003 and 30 June 2005. There were 306 TBG grants approved during this period, worth a total of $79.5 million (including GST).

3.5
We audited 42 (or 14%) of the approved grants. This was equivalent to 31% of the total value of approved funding during the period. We selected grants from a range of values because the Foundation applies different levels of assessment scrutiny according to the size of funding applied for (see paragraphs 3.16-3.18). Our sample included both completed and incomplete projects. We also audited 5 of the 26 (19%) TBG applications declined between 1 July 2003 and 30 June 2005. Our audit sample is summarised in Figure 6.

Figure 6
Audited Technology for Business Growth grants

* Total number and value assessed by the Foundation between 1 July 2003 and 30 June 2005.
** Including GST.

Ministerial criteria for awarding Technology for Business Growth grants

3.6
The Foundation must comply with criteria contained in a Ministerial direction governing the Technology for Business Grants scheme. This direction defines:

• the characteristics of the type of firms that are the scheme’s intended recipients;
• the criteria the Foundation should assess applications against when making funding decisions; and
• how funding should be allocated.

3.7
The Ministerial direction for the TBG scheme requires funding recipients to be “technologically capable” New Zealand-resident firms. The definition of “firm” for the TBG scheme can include sole traders.¹ “Technologically capable” firms are defined in the governing Ministerial direction as –

…those firms that, in the Foundation’s view, have developed a comprehensive set of competencies in the area of technological innovation and recognise that research, science and technology capability is fundamental to sustained competitive advantage.²

3.8
All the TBG grants we audited complied with the requirement for recipients to be technologically capable New Zealand-resident firms.

3.9
The Ministerial direction requires the Foundation to fund projects that, in its view, best meet the following criteria:

• have a clear link to a business strategy focused on creating new markets for high-value, technology-based products, processes, or services with reasonable commercial potential;
• are not likely to proceed without the scheme’s support;
• are technology-based projects undertaken in a “learning by doing” model; and
• have the potential to create an enduring increase in technological capability in the firm.

3.10
These criteria were routinely applied to assessments of applications, with the exception of the criterion that a project is not likely to proceed without the scheme’s support. It was unclear with most grants we audited whether the project would not have proceeded without TBG funding.

3.11
The Ministerial direction also requires the Foundation to fund only up to 50% of the research and development costs a firm will incur in undertaking a project which meets the TBG scheme’s aims. In a few cases, it initially appeared that approved funding exceeded the 50% limit. These discrepancies were able to be explained by the relevant Business Managers in the Foundation. They resulted from either an initial failure to include GST in calculations, or calculation amendments not being included in files. However, this is an area of the application process where there is potential for errors.

The approval process

3.12
There is a 2-stage application phase for Technology for Business Growth grants. Applicants initially complete, and electronically submit to the Foundation, a “Concept Level” application. This preliminary application is an opportunity for applicant firms to provide summarised information to the Foundation about their operations and proposed project.

3.13
Business managers in the Foundation provide feedback to applicants on their concept applications, with applications assessed as having a reasonable chance of being approved proceeding to a full application stage. Full applications build on the concept application by including detailed project costs and a project plan.

3.14
The Foundation requires TBG applications to include information supporting a set of criteria that expand on the criteria set out in the Ministerial direction. Business managers then assess the applications against the criteria, before making an initial approval recommendation. These assessment criteria are summarised in Figure 7.³

Figure 7
Assessment criteria for Technology for Business Growth applications

3.15
In our view, all the TBG grants we examined met the required criteria.

Assessing applications

3.16
The Foundation uses a tiered system of assessment for TBG applications, depending on the level of funding sought. The degree of scrutiny and review by the Foundation is progressively increased as the requested funding level increases. This is good practice.

3.17
A Business Manager in the Foundation assesses proposals worth up to $100,000, with peer review undertaken by a second Business Manager. If they do not agree, then a third Business Manager also reviews the proposal.

3.18
Members of a reference group assess applications for more than $100,000. A reference group is a panel of experienced professionals selected from business and research organisations. Reference groups or their members make recommendations for the Foundation to consider, but do not have funding decision-making powers. There are 3 levels of assessing TBG applications that involve reference group members:

• proposals for between $100,000 and $400,000 are assessed by 2 reference group members, or the whole reference group if those 2 members do not agree with each other;
• proposals for between $400,000 and $1 million are assessed by 3 reference group members, who make a recommendation for the full reference group to consider; and
• proposals for more than $1 million are assessed by 3 reference group members, who should also conduct a site visit, and make a recommendation for the full reference group to consider.

3.19
All the grants we examined followed the appropriate assessment procedures for the funding amount requested. The electronic records and paper documentation showed that the level of review by Business Managers and reference group members was in-depth and considered.

3.20
The reasons for declining applications were well-documented, and based on the applications failing to meet all the assessment criteria.

Approving applications

3.21
The Foundation uses a tiered approach, depending on the size of funding sought, for approving TBG applications. The final approval for funding is given by:

• Regional Managers, for grants of $25,000 and under;
• a Group Manager, after consideration by the Management Investment Committee,⁴ for grants between $25,000 and $100,000;
• the Chief Executive, after consideration by the Management Investment Committee, for grants between $100,000 and $1 million; and
• the Investment Sub-committee of the Board, after consideration by the Management Investment Committee, for grants of more than $1 million.

3.22
All the grants we audited followed these approval procedures. Sign-off decisions were clearly documented in the files (except for 2 grants, where Board minutes documenting the approval were missing).

3.23
The approval process for TBG grants is summarised in Figure 8.

Documentation

3.24
The Foundation uses both paper files and electronic records to document the TBG scheme. Check sheets are used in each paper file to ensure that all required documentation is kept on file, including signed Statutory Declarations from grant recipients, and a copy of the signed contract between the Foundation and the recipient. This system generally works well, although we did find one case where a Statutory Declaration was missing from a file.

3.25
The web-based system used for TBG grants (and other TechNZ schemes) was well-maintained and easy to navigate. Review comments of Business Managers and reference group members were clear and comprehensive.

Figure 8
Approval process for Technology for Business Growth grants

3.26
It was sometimes difficult to determine whether reference group members had undertaken a site visit, as required, for grant applications of more than $1 million.

Monitoring Technology for Business Growth grants

3.27
TBG grant recipients are required to submit to the Foundation a monthly progress and invoicing report. A standard reporting and invoicing template is used for recipients to record actual costs incurred, and progress against milestones. All the claimed costs must be directly related to achieving the technical objectives contained in the project plan for approved applications. The Foundation requires original copies of invoices for costs of more than $1,000.

3.28
Foundation staff check these monthly reports and invoices and, where appropriate, ask grant recipients to provide clarification or amend claims before making payments. This reporting system works well. It was clear from electronic records and file documentation that Foundation staff routinely reviewed reports.

3.29
In some cases, applicants had not submitted invoices and reports in keeping with the agreed expected drawdown schedule (contained in the approved project plan). The Foundation produces exception reports, which identify the recipients who are not claiming in keeping with the expected drawdown schedule. Although the reasons for delays were rarely recorded on file, the Business Managers we spoke to were aware of the reasons why a recipient would be running late. It is important that this information is recorded, either in the paper file or as an electronic record.

3.30
The Foundation has a similar auditing arrangement for TBG grants as for the GPSRD scheme, with an annual target to audit 10% of all current TBG contracts. The methods used to select grants to audit encompass both regions and Business Managers responsible for different grants. Audits are undertaken by either the Foundation, or a private accountancy firm on a contracted basis.

3.31
Issues identified in individual audits are reported to the recipient and relevant Business Manager for comment. The Foundation produces quarterly reports summarising any issues found in audits, and regularly briefs the Chief Executive and the Board. The Foundation also maintains an audit issues register, which summarises identified issues. This is a useful process for ensuring that issues identified in audits are dealt with.

Evaluating the Technology for Business Growth scheme

3.32
TBG grant recipients are required to complete online performance reports when they finish their projects. The Foundation does not release the final instalment of a grant until the report is submitted. This process works well. Performance reports had been submitted to the Foundation for all the completed TBG contracts we audited.

3.33
The reports provide evaluation information to the Foundation on the size and characteristics of recipient firms, along with information on the effect of the grants for several performance indicators.

3.34
The Foundation requires recipients of grants of $50,000 and more to provide additional performance information 18 months after, and 3 years after, the completion of the contract. This reporting requirement has been in effect since October 2004, so none of the completed contracts we audited had reached the 18-month mark. We therefore did not assess compliance with this reporting requirement.

3.35
The Ministry of Research Science and Technology is evaluating the TechNZ grant schemes, including TBG, in the first half of 2006. The evaluation will aim to report on the effects, benefits, and barriers to growth of the TechNZ programme.

1: Crown-owned body corporates or other entities governed by the Education Act 1989 and the Crown Research Institutes Act 1992 are ineligible for TBG funding. However, the Foundation may allow, on a case-by-case basis, other Crown owned body corporates or entities to apply to the scheme.

2: Hon. P. Hodgson MP (2004), Notice of Revocation of Ministerial Scheme and Introduction of New Ministerial Scheme Under Section 8A of the Foundation for Research, Science and Technology Act 1990 – the Technology for Business Growth Scheme.

3: The assessment criteria used by the Foundation were regrouped and renamed during the period from which we selected our audit sample (1 July 2003 – 30 June 2005). Grants were therefore audited against the criteria that applied when they were assessed. The criteria presented here are the current definitions used by the Foundation. However, the criteria they replaced were materially the same.

4: The Management Investment Committee is comprised of senior managers of the Foundation, appointed by the Chief Executive.