Part 2: Department of Internal Affairs: Administration of two grant schemes

Background

2.1
The Department of Internal Affairs (the Department) aims to contribute to building strong, sustainable communities, hap , and iwi. To help achieve this aim, the Department administers schemes that provide grants to community organisations. The Department's website says that this is because:

Strong, sustainable communities, hap and iwi have the potential to more effectively find solutions to local problems and achieve their own well-being.

2.2
The Department is responsible for administering several grant schemes. Many community organisations, such as clubs, charities, cultural bodies, and small incorporated societies, depend heavily on grants for their operational funding or special projects.

The scope of our performance audit

2.3
This was the fourth in our series of performance audits of public entities that administer grants.¹ We carried out a performance audit to determine whether the Department's administration of grants is consistent with the principles and expectations that we outlined in our 2008 good practice guide Public sector purchases, grants, and gifts: Managing funding arrangements with external parties.

2.4
We examined the Department's administration of two grant schemes:

• the Lottery Grants scheme (Lottery);² and
• the Community Organisation Grants Scheme (COGS).³

2.5
Lottery is funded from the profits of the Lotto products, such as Lotto and Instant Kiwi. In 2010/11, it approved 3311 grants, distributing about $124 million.

2.6
COGS is funded directly by the Government. In 2010/11, it approved 4218 grants, distributing about $14 million to 4271 organisations.

2.7
Locally elected (COGS) or politically appointed (Lottery) committees decide who gets these grants. We did not examine whether the way that the committees reached decisions was appropriate. However, we did review whether the Department provided the committee members with enough guidance and effective systems to help them to follow due process when making decisions.

Our findings and recommendations

2.8
We found that the Department's systems and processes were effective in helping the Department to put into practice the principles referred to in paragraph 2.3 during all four main stages of grant administration:

• planning how the grant schemes would work;
• selecting grant recipients (in this case, providing support to those making decisions);
• monitoring how the money is spent; and
• reviewing how effective the grant schemes are.

2.9
However, the Department's electronic grant administration system, Grants Online, had limitations that affected how effectively and efficiently it administered grants. These limitations included:

• difficulty in organising and retrieving information for analysing, evaluating, or reporting;
• lack of features to help workflow; and
• difficulty and expense in changing or improving systems.

2.10
The Department intended to address these limitations by introducing a new system for managing grants and clients in 2011. Because many other improvements depended on this new system, we made a recommendation to help ensure that this project was carried out. In case the project was delayed, we encouraged the Department to plan for and carry out improvements, where possible.

2.11
We considered that the Department could do more to support committees to make their decisions in a more transparent and accountable way. We made three recommendations to help to improve transparency and accountability, and suggested other ways that the Department could improve.

The Department of Internal Affairs' response to our findings and recommendations

2.12
The Department accepted our recommendations and many of our other suggestions. On occasion during our audit, the Department incorporated suggestions from our discussions with the Department's staff into its planning.

2.13
The Department has not yet replaced Grants Online, so other changes that depend on the new system have not been introduced. However, the Department has tried to introduce some of the improvements that our report called for. The Department has made good progress in making the committees' decisions more transparent and recording them better.

Electronic grants administration system to replace Grants Online

2.14
In our report, we identified ways to improve processes that Grants Online did not support well. The Department had also identified many of these. The review and business case for a new business system was thorough. The Department included further suggestions we made during our audit. It intended that the new business system would start by the end of 2010 and be fully implemented by April 2011.

2.15
However, after the vendor was contracted and detailed business requirements were under way, it became clear that customising the system to the Department's needs would take considerably longer and potentially cost more than had been anticipated. In July 2011, the business improvement project was incorporated into an all-of-government project known as the Grants Common Capability Project. In September 2011, the contract with the original vendor was cancelled.

2.16
Since July 2011, work has been under way on a prototype for a new system based on a grants management system already established in the Ministry of Science and Innovation. This prototype builds on work done on system requirements and process improvements, and includes enhancements specific to the grant schemes that the Department administers. In December 2011, the Department finished testing the prototype to work out whether it was suitable for its needs.

2.17
Initial assessment showed that the prototype did not deliver all of the Department's business requirements. At the time of writing, the Department was unlikely to proceed with the prototype and was pursuing other avenues, such as considering another procurement process.

2.18
The Department changed its approach to ensure that the business system supports all the needs of the Government, in line with Cabinet's directions and priorities. The Department expected that this approach would help it to bring the project back within the budget and timeline as revised early in 2011. The work required to assess the prototype and reconsider its options means that the Department will need to review its time frames. Given that these time frames are likely to be extended, the Department will consider other improvements proposed in the business case and in our recommendations.

2.19
There are lessons to be learned from the Department's experience, which could usefully be shared with other public entities that are looking at similar arrangements for joint large-scale projects. Through our regular relationship meetings and the annual audit process, we expect that we will be kept informed about the Department's progress in introducing a new system for managing grants and clients.

Improving record-keeping

2.20
We recommended that the Department improve how it records decisions that Lottery and COGS committees make by:

• working with committees to ensure that they properly record the reasons for approving or declining applications; and
• ensuring that the members of COGS committees complete the information required for the Local Distribution Committee Members' Assessment Tool (the Assessment Tool).

2.21
The Department has reviewed how the Lottery committees keep records and has identified opportunities to improve these practices. The Department has produced guidance (available from February 2012) for advisors, committee co-ordinators, and committee members. This includes guidance about how to record decisions and reasons, and how to tell applicants those decisions. The assessment information will be part of the committee's schedule for making decisions. Lottery committee members are expected to adopt the new recording practices by July 2012. The Department has discussed these changes with the presiding members of the committees and with staff.

2.22
In the 2011/12 funding round, the Department introduced a slightly revised, clearer Assessment Tool for COGS. The Department has also improved the range of COGS decision reasons (for grant or decline). It has updated the Business Process Manual (staff guidance on administering grants), and provided instructions for using the Assessment Tool to staff and members of the Local Distribution Committee.

2.23
The Department has also revised the COGS Handbook for Local Distribution Committees (COGS committee handbook), which now emphasises more strongly the duties of membership, including using the Assessment Tool. Training for members after committee elections reinforced this emphasis. In October 2011, at the meeting of the national Lottery Presiding Members Policy Advisory Group, the Department presented and discussed information about the new guidance material and requirements for recording decisions. The presiding members were to discuss the new recording requirements with their committees.

Accountability requirements for the Lottery Outdoor Safety Committee

2.24
We recommended that the Department revise its agreement with the Lottery Outdoor Safety Committee to ensure that accountability requirements for recipients of large grants are adequate and appropriate for the size and nature of those grants.

2.25
The Department has set up a new risk assessment framework to be introduced alongside the new business system. Until then, the Department has committed to assess aspects of the new framework that could be introduced before the new business system is fully installed.

2.26
In 2011, the framework was piloted on some funds that handle large grants, including the Lottery Outdoor Safety Fund, the Lottery Marae Heritage and Facilities Fund, the Lottery Environment and Heritage Fund, the Lottery Community Facilities Fund, and the Lottery Regional Community Fund. The Department is considering how the framework should be used until the new business system is in place.⁴

Other improvements

2.27
As well as responding to our recommendations, the Department has acted on some of our suggestions for improvement. These include:

• plans to enhance electronic capability as part of the new business system to allow staff to share information about clients more widely (to be addressed as part of introducing the new system in 2012);
• better guidance in the revised COGS committee handbook and during induction of committee members on expressing priorities that clearly relate to community benefits; and
• encouraging regional staff to improve how they record and report in Grants Online.

2.28
The Department has begun other activities that should support our recommendations and suggestions for improvement. A review of the Community Operations Management Structure has led to a new role being established: Senior Planning and Information Analyst.

2.29
The Lottery Grants Board has asked for a minor review of the Lottery Distribution Committee structure to rationalise committees and to streamline consistency and outcomes between committees. In March 2012, the Department gave initial advice to the Lottery Grants Board.

1: The reports about our previous audits of three other grant funding bodies (Te Puni Kōkiri, the Foundation for Research, Science and Technology, and New Zealand Trade and Enterprise) are available on our website.

2: Lottery Grants Board Annual Report 2010/11, page 4, which is available at www.dia.govt.nz.

3: Department of Internal Affairs Annual Report 2010/11 and COGS Profile 2010/11, which are available at www.dia.govt.nz.

4: At the time of writing, the Department had not finished analysing the pilot projects.