Part 3: Implementing aid programmes

3.1
In this Part, we set out our expectations for how NZAID:

• arranges funding for delivering programmes;
• promotes sustainable outcomes;
• works alongside development partners; and
• co-ordinates funding.

3.2
We then set out our findings on the extent to which NZAID met those expectations.

Our expectations

3.3
We expected NZAID to:

• have a sound basis for the funding arrangements it puts in place;
• promote sustainable outcomes through the funding arrangements it uses; and
• work effectively alongside partners and contractors to effectively implement aid programmes.

Summary of our findings

3.4
NZAID works closely with its development partners and contractors to implement its aid programmes, and promotes sustainable outcomes through its funding arrangements in various ways. However, NZAID does not have comprehensive, clear, and easily accessible processes or procedures for putting in place its funding arrangements. In some cases, it had not completed those processes and procedures. NZAID has no clear exit strategy for ending aid projects or initiatives, and its staffing capacity is stretched in Head Office and at the posts in Port Moresby, Jakarta, and Suva.

3.5
In our view, NZAID needs to:

• regularly monitor and review compliance to ensure that its processes and procedures are consistently applied to all funding arrangements;
• regularly train all relevant programme staff in these processes and procedures;
• prepare guidance for staff on exit strategy planning for aid projects and initiatives;
• provide training on leadership and people management for staff before they are sent to overseas posts;
• provide ongoing training in financial management for local staff in overseas posts;
• clarify the responsibilities and accountabilities of NZAID staff at Head Office and staff in overseas posts for managing and monitoring funding arrangements;
• work with the Ministry to ensure that guidelines for Head of Mission funds are followed; and
• ensure that all relevant information on sources of funding received by development partners from NZAID is accessible centrally to reduce the risk of duplication in funding.

Funding arrangements for delivering programmes

3.6
To deliver its programmes, NZAID uses funding arrangements that generally fall under two categories - contracts for services and grant funding. NZAID programme teams, with advice from the Management Services Group, explore and decide on the most suitable options and criteria for programme funding.

3.7
At the time of our fieldwork, NZAID had a set of processes and procedures for putting in place its funding arrangements. However, they were not comprehensive, clear, easily accessible, or held in one place. In some cases, they were not finalised.

3.8
At the time of our fieldwork, NZAID had:

• an operational handbook, which included NZAID's procurement policy and several financial management, contracting, and finance guidelines;
• draft budget policy and operational guidelines for contracting and grant funding;
• a series of operational guidelines to support a new contracts workflow information system;
• a series of standard instruction forms (including a conflict of interest declaration relevant only for contracts for services); and
• an Approved Contractor Scheme (ACS) handbook that sets out processes and procedures for contractors appointed under the ACS.

3.9
NZAID had a process that was sometimes used instead of the approved procurement process. It was called the "exceptional/non-standardised procurement process", and through it the Executive Director or a Director could approve variations from the usual procurement process.¹ In our view, the existence of this alternative process increased the risk of poor practice and could, without clear guidance, undermine the processes and procedures that NZAID had put in place.

3.10
NZAID's operational handbook sets out the formal "exceptional/non-standardised procurement process". The operational handbook also included some guidelines about Executive Director's variations and Directors' variations, but provided no detailed guidance on the circumstances in which variations would be acceptable.

3.11
We reviewed a sample of nine NZAID funding arrangements (including two ACS assignments, one contract for service, and six grant arrangements) within the three programmes we looked at. We found poor practice in six of the nine funding arrangements.

3.12
Of the six funding arrangements where we identified poor practice, three arrangements had been approved through Director's variations and exemptions. The poor practices included:

• contractors being contracted before a search was carried out on the ACS database;
• management of conflicts of interest not being documented;
• contractors starting work before a contract was in place;
• contracts not being tendered when the contract value exceeded the stated limits;
• contractor fee rates increasing during the contract without a clear documented reason for the increase; and
• contract variations for retrospective funding.

3.13
We interviewed NZAID staff responsible for managing the funding arrangements. Although they told us that contract management was a large part of their work, they said that there was often limited time and training available to do the work properly.

3.14
After our review of a sample of funding arrangements and similar work carried out by Audit New Zealand as part of the annual financial audit, NZAID carried out a project to strengthen its contract management.

3.15
As a result of the project, a new Procurement, Contracting and Grant Funding Policy and Procedures Manual was finalised in November 2007. The manual includes a conflict of interest policy for staff that covers all procurement, contracting, and grant funding; a statement on using exceptions to public sector rules; and NZAID policy requirements and good practice. An internal risk and assurance function has begun to be implemented, and NZAID staff at Head Office have attended a workshop on public sector contracting principles and the results of the annual financial audit work on funding arrangements.

3.16
In our view, to ensure that the new processes and procedures are effectively applied and to promote better practice in procurement and contract management, NZAID needs to regularly:

• monitor and review compliance to ensure that those processes and procedures are consistently applied to all funding arrangements; and
• train all relevant programme staff in its processes and procedures for funding arrangements.

Promoting sustainable outcomes

3.17
NZAID promotes sustainable outcomes through the funding arrangements it puts in place in various ways, including:

• contractors working directly with local consultants as part of wider teams;
• local membership of governing boards for particular assignments;
• providing direct support, assistance, and training for local organisations; and
• directly strengthening local organisations and partner government organisations to build human resource capacity and deliver local programmes, projects, and services.

3.18
Local involvement and strengthening local capabilities to deliver aid programmes is also provided for through NZAID's strategic partnerships (see paragraphs 2.10-2.16) and sector-wide approaches, with funding aligned to development partners' objectives and priorities. Figure 5 provides more detail on sector-wide approaches and the Health Sector Improvement Programme within the Papua New Guinea bilateral programme.

Figure 5
Sector-wide approaches and the Health Sector Improvement Programme within the Papua New Guinea bilateral programme

3.19
An important part of promoting sustainable outcomes is planning for the end of aid projects or initiatives. Such plans are known as "exit strategies". The sustainability of aid projects and initiatives is improved if funding is reduced gradually as the capacity and capability of local communities and organisations increases. Managing exit strategies is the responsibility of the NZAID programme teams. Although programme strategy guidance and operational procedures provide direction on when and how to develop a strategy to phase out a bilateral programme and on the length of a contract agreement, NZAID staff noted that formal strategies for ceasing funding for aid projects and initiatives were rare.

3.20
We recognise that NZAID is moving from project-based aid funding to long-term programmes designed to deliver fewer but more strategic activities. This brings a long-term perspective to planning exit strategies. However, in our view, well-planned exit strategies for aid projects and initiatives within programmes would promote more effective sustainable outcomes and inform ongoing decisions about the direction and nature of the support provided by NZAID. They would also inform the design and implementation of NZAID's aid projects and initiatives, including the types of funding arrangements NZAID puts in place and the nature of the relationship and support required for NZAID's development partners.

Working alongside development partners

3.21
NZAID works with its development partners in supporting aid programmes. Despite practical difficulties associated with the location, capacity, and capability of some development partners, the partners we spoke to in Papua New Guinea, Indonesia, and Fiji indicated that NZAID staff were accessible and supportive. However, NZAID staff capacity in Port Moresby, Jakarta, and Suva was stretched during our fieldwork.

3.22
In Port Moresby, there were two seconded NZAID staff members and one local staff member. There were meant to be four local staff assigned to the post. In Jakarta, there was one seconded NZAID staff member and three local staff managing several funds and initiatives based at the post, as well as the unanticipated and continuing rehabilitation and reconstruction support for Aceh and Nias. In Suva, there was one seconded NZAID staff member and three local staff managing in-country engagement for all of the Pacific Regional programmes, including the Pacific Regional Health programme.

3.23
NZAID staff working in overseas posts have access to the information needed to support the aid programmes. Generally, the NZAID staff we spoke to during our audit felt comfortable with the support provided to them, but some pointed out the need for specialist support (particularly financial management support).

3.24
Some aspects of the management and support arrangements in place for NZAID staff working in overseas posts could be improved. In our view, there is a need for more effective management supervision (particularly with work prioritisation and planning, and managing staff ) and administrative support. NZAID has recently reviewed the roles in overseas posts that have two NZAID managers, and recommended that the capacity and capability of these posts be increased to meet projected workload increases.

3.25
NZAID staff told us that the level and extent of training and support for staff at overseas posts has increased, but training needs to be more focused on the roles and responsibilities of the positions within those posts.

3.26
Basic training is available for NZAID staff before they are posted overseas, and professional training and opportunities for local staff are also available. Although management training has been made available to some staff , basic training does not specifically prepare NZAID staff to manage teams at posts overseas, because it does not focus on leadership and people management skills. Although local staff are often responsible for managing programmes and monitoring the financial management and accountability systems for aid initiatives and projects, they do not have access to ongoing financial management training.

3.27
At the time of our audit, there were two NZAID programme managers responsible for the Papua New Guinea bilateral programme, one programme manager responsible for the Indonesia bilateral programme (who was also responsible for the Timor Leste bilateral aid programme), and one programme manager responsible for the Pacific Regional Health programme (who also had Pacific Regional Education programme responsibilities).

3.28
Staff in NZAID's Head Office are responsible for strategy, programming, policy development, programme management, financial management, managing relationships, and Ministerial and interdepartmental support. NZAID staff at overseas posts are responsible for in-country management, including programme implementation, financial management, managing relationships, and managing staff . NZAID Head Office staff report directly to the team leader of the programme group. NZAID staff overseas report directly to the post's Head of Mission.

3.29
NZAID Head Office and overseas staff work collaboratively when designing and implementing aid programmes. NZAID staff we spoke to said that there was close communication between Head Office and overseas posts, mainly by email but increasingly through the Ministry's formal messaging system. Although responsibilities for financial and contract management are shared between NZAID Head Office staff and staff at overseas posts, it is not clear who is responsible and accountable for managing and monitoring the funding arrangements. In our view, these responsibilities and accountabilities need to be clarified.

Co-ordinating funding

3.30
NZAID has no central mechanism to gather information on all its funding arrangements with development partners throughout its bilateral and regional programmes and contestable funding managed by overseas posts (for example, Head of Mission Funds and Small Project Funds).

3.31
We looked at the guidelines for, and the recipients of, Head of Mission Funds in Port Moresby, Jakarta, and Suva from 2003 to 2007. We also looked at how the Small Projects Fund (part of the Papua New Guinea bilateral programme administered by the post at Port Moresby) had been used from 2003 to 2007.

3.32
The Head of Mission Fund in Port Moresby was used to contribute to individuals (contrary to the guidelines for using that fund) and initiatives involved in, or carried out by, organisations already funded within the wider Papua New Guinea bilateral programme. The Small Projects Fund in Port Moresby was also used to contribute to an initiative by a civil society organisation already funded by a grant arrangement.

3.33
Head of Mission funds can be used to complement and support relevant NZAID strategies, objectives, and priorities. Grants from the Small Projects Fund can be used as co-funding with other NZAID programmes. However, there is a risk of duplication when development partners receive more than one source of funding from NZAID.

3.34
In our view, to reduce the risk of duplication in funding, NZAID needs to work with the Ministry to ensure that overseas posts follow the guidelines for Head of Mission funds. NZAID could better co-ordinate its own bilateral programme funding, regional programme funding, and other contestable funding managed by overseas posts by ensuring that all relevant information on sources of funding received by development partners is held centrally and is easily accessed.

1: Staff can seek a Director’s variation to depart from the NZAID policy or procurement rules in exceptional circumstances. Staff at Director level or higher approve the variation. Executive Director’s variations are usually used when approval is sought to not carry out an open tender for procuring goods or services worth more than $100,000. Only the Executive Director can grant such approval.