Auditor-General's overview

Principles to underpin management by public entities of funding to non-government organisations.

In recent years, more public attention has been focused on the effectiveness of public entities’ funding arrangements with non-government organisations (NGOs).

Most public entities have their own policies and procedures to guide any funding arrangements they have with third parties. Also, there is a range of useful guidance for public entities to follow to ensure that public resources are applied for the optimal public benefit – notably, the Treasury’s Guidelines for Contracting with Non-Government Organisations for Services Sought by the Crown.

I decided to publish this good practice guide to further enhance public entities’ existing practices. It complements the existing guidance about NGO funding arrangements by taking a principles-based approach to guide public entities’ decisions when they enter into funding arrangements with NGOs.

The guide has been developed for both the central government and local government sectors – and I expect all public entities to demonstrate that they have considered and acted in keeping with these principles.

Public entities are accountable for their performance and use of public resources whether they use those resources directly themselves, or whether the resources are disbursed to a third party. Where funding arrangements with third parties are used, public entities are accountable for the measurable achievement of the goals that the funding arrangements were designed to meet. At the same time, I recognise that public entities must manage their business within the resources available, and have therefore suggested a risk-based approach to managing funding arrangements with NGOs.

NGOs operate in a wide range of areas involving central and local government – from economic development to social services, recreation and culture. NGOs do not form part of the public sector (even though some of them may be heavily reliant on public funds for their revenue). NGOs have charitable purposes, are independent, and often draw heavily on voluntary contributions of both time and money.

The principles contained in this guide are not exclusively applicable to funding arrangements with NGOs. Rather, I encourage public entities to consider the principles of lawfulness, accountability, openness, value for money, fairness, and integrity in their decision-making about all of their funding arrangements, including those with the private sector.

The principles in this guide cannot be applied equally in all circumstances. That is why “how to” procedural guidance is not always appropriate and could sometimes be counter-productive.

Public entities need to assess funding arrangements on the basis of best possible public benefit. They need to be aware of the principles, and of any compromises that need to be made between principles in order to achieve the best possible public benefit. They must manage the risks inherent in doing so, and be open and transparent about their decisions.

There is tension between the principle of accountability, the principle of openness, and the trust relationship set out in the Government’s commitment to a genuine partnership with the community and voluntary sector. While relationships or partnerships are not included as principles in this guide, I do consider that relationship-building is essential for the effective operation of public entities’ funding arrangements with NGOs.

Collaboration and partnership between local and central government public entities and communities is now often expected if public policy objectives are to be realistic and achievable. However, I acknowledge that strong and sustainable relationships and, most particularly, partnerships, may be difficult to achieve where there are major disparities between public entities and NGOs in terms of relative power, size, and governance structures.

Once a decision is taken that public resources can be best applied for the public benefit through funding arrangements with NGOs, public entities should seek to understand the context that NGOs operate in, and work with them to identify and manage the risks to both parties of entering into funding arrangements.

There are increasing expectations about what acceptable conduct is for public officials and what constitutes the responsible use of public resources. Public entities need to recognise and respond to these expectations when they enter into funding arrangements with NGOs. The dynamic relationship between the principles set out in this guide, the need to take a risk-based approach (because no one size fits all), and effective relationship management must all be taken into account in managing public resources responsibly.

I wish to thank the various individuals and public entities that we sought advice and feedback from during the preparation of this guide.


K B Brady
Controller and Auditor-General

22 June 2006

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