Part 2: Planning for the grant schemes

Department of Internal Affairs: Administration of two grant schemes.

In this Part, we describe the aspects of planning that the Department has done well. It has:

We also discuss the aspects of planning that we consider could be done better. These include:

  • improving the existing electronic system for administering grants;
  • clarifying the rationale for the decision-making committees' structural arrangements; and
  • better co-ordinating the quality control framework.

Summary of our findings

The Department's approach to administering the grant schemes is consistent with its role and responsibilities. Its approach is also consistent with the principles we expect a public entity will give effect to when administering grants, including lawfulness and integrity. Its approach is also supported by clear and consistent processes and procedural guidance.

The Department is well aware of the limitations of its existing grant processing systems. It has prepared a business case with extensive specification of the improvements required to address these limitations.

Approach consistent with role and responsibilities

The Department's role is to as act as administrator and secretariat to the committees. Its responsibilities include processing and assessing grant applications, providing administration, training, and support services to the committees, and advising Ministers on appointments to boards, committees, and trusts.

The Department's work in carrying out these functions was consistent with its role and responsibilities.

Clear funding principles

The Department adopted the six principles in our 2006 good practice guide, Principles to underpin management by public entities of funding to non-government organisations, as a basis for its overarching framework for administering grants. (Our 2008 good practice guide expresses these same principles in terms of grant funding.) The Department's expression of the principles and its expectations for grant recipients are consistent with our expectations.

The Department includes these principles and expectations for grant recipients in its guidance material for staff. The Department plans to make this available to grant recipients through its grant website when updated as part of its planned improvements (see paragraphs 5.7-5.11). We consider that this approach may be useful to other public entities involved in grant administration. We have reproduced the Department's expression of these principles in Appendix 3.

Useful process and procedural guidance

The Department's online Better Funding Practice Business Process Manual (the Business Process Manual) provides a logical and coherent framework for grant administration guidance and procedures. It brings together six closely related components:

  • the Department's funding principles;
  • guidance for staff on day-to-day administrative tasks, including electronic links to standard forms;
  • the Department's generic business processes for grant administration tasks;
  • a detailed description of the administration processes to follow for each stage of making a grant;
  • a database of operational policy for all grant programmes, administered by the Department's Local Government and Community Branch; and
  • information about the Department's review of business processes and policy.

There is some flexibility in the Department's practices relative to the risks, nature, and size of the grants involved. In our view, this is appropriate.

We also consider the Business Process Manual to be useful and comprehensive.

Replacing the grant administration system

The Department's electronic business system, Grants Online, supports the Department's administration process for the two grant schemes. The purpose of Grants Online is primarily to support the processing and preparation of applications for decision-making about grants. However, it is also used for all other stages of the administration process, including tracking recipients of grants and processing payments of grants. Grants Online is adequate for regular grant administration tasks, and is relatively accessible for people making online applications.

However, Grants Online does not easily allow information to be retrieved for analysis, evaluation, or reporting purposes. Although some staff do retrieve useful information, this is time-consuming, and staff have to transfer information manually to a spreadsheet when they need to use the information for analytical purposes. It is also difficult and costly to add, amend, or upgrade features in Grants Online. Grants Online also lacks some features that would assist workflow, such as flags indicating outstanding accountability reports or risky applicants, or listing staff activity events in a logical order (such as date order).

The Department is well aware of the problems and gaps in Grants Online, and is procuring a new system (see paragraph 5.9). Many of the limitations that staff identified to us have been addressed in the business case for this new system. Appendix 4 sets out a summary of the limitations of the current system and the functionality required of its replacement.

Important features of the new system include provision for:

  • easier extraction, reporting, analysis, and evaluation of information about grant applicants and applications, and the characteristics of their communities;
  • streamlined grant application processes, including greater ease of use and more accessible information for applicants and grant recipients, and more efficient workflow within the Department;
  • better quality control of grant administration; and
  • better risk rating of grant applicants.

The Department has identified potential costs savings of $350,000 each year in its business case for a new grant administration system. The Department expects these savings to come from many grant schemes, including the Lottery Grants scheme and COGS. We consider it important that the Department monitor these savings as the new grant administration system is implemented.

The Department's envisaged savings are from changes to administrative processes, including reducing manual work. They are not from changes to the structure of the grant schemes, such as changing the number of committees, which would require a policy change. However, the structure of the schemes and costs of administering them are clearly related.

We commend the Department for its extensive work towards a much improved system and in determining specifications for designing the new system. The Department has identified many concerns about the existing system that staff told us about and that we had also identified.

Recommendation 1
We recommend that the Department of Internal Affairs implement, in a timely manner, a new business system for grant administration that meets the identified requirements, and then monitor that system to ensure that it improves the effectiveness and efficiency of grant administration as intended.

Clarifying the rationale for the committees' structural arrangements

COGS was reviewed in 2003, and some changes were made to align its purpose and operations better – in particular, to target funding to support specifically identified and local community outcomes. The geographical boundaries of the Lottery Grants scheme committees were also aligned more closely with local authority boundaries. However, we were not able to judge the extent to which the committee structures for either scheme align with more general community outcomes or specific communities of interest. We accept that aspects of the committee structure are beyond the Department's direct control.

In our view, there would be merit in the Department examining the extent to which the committee structures align with the intent of supporting the building of strong, sustainable communities, hapū, and iwi, and with specific communities of interest. This would be as part of its responsibility to provide the Government with advice that supports the effective operation of grant schemes.

We encourage the Department to draw on the detailed knowledge of local communities, gathered through its community development activities, to support this work.

Better co-ordinating the quality control framework

The Department has some control mechanisms intended to ensure that staff follow its grant administration approach and the associated policies and procedures. Team leaders, regional managers, and regional administration advisors can produce reports on staff performance against service standards and office administration. The Grants Audit and Review team carries out audits and investigations – regular, random audits and investigations on request – to check that grant funds are used in ways that comply with the conditions placed on those grants. Grants Audit and Review auditors visit regions to raise awareness about the accountability obligations of grant recipients.

In our view, the Department's quality control mechanisms could be more strategically aligned to ensure that they are ongoing and comprehensive. A more aligned approach could help improve compliance by ensuring that higher-risk clients are identified and helped to meet compliance requirements.

In 2008/09, a nationwide, risk-based audit of grants in all Funds of the Lottery Grants scheme found that about 76% of the recipients were complying with the conditions of their grants.4 Although this audit represented only a small sample (144 grants), the findings suggest that there is some scope for improving how well grant recipients comply with the conditions of their grants.

We also noted that the mechanism for peer reviewing the reports from advisors to the committees they support does not include a requirement to check financial information, the soundness of the judgements made, or what changes have been made as a result of peer review comments. The Department could review its peer review mechanism to ensure that it incorporates these requirements, where appropriate.

4: Some recipients (8.5%) were not complying with the conditions of their grants. The compliance of the others was not able to be determined (for example, because the grants were not fully spent, or there was not enough information available).

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