Part 3: Progress in administering freshwater clean-up funds

Crown investment in freshwater clean-up.

In this Part, we discuss:

Summary of findings

The Ministry has taken a proactive approach to improving its administration of the freshwater clean-up funds. There is clear evidence of the Ministry implementing recommendations made in independent project reviews, audits, and evaluations. The Ministry has also revised its funding deed documents so they have clearer guidelines and governance arrangements for project managers.

However, the Ministry could further improve existing administration arrangements. These include how the Ministry administers its funding application processes, data management systems (including the reporting of voluntary contributions), and how it ensures that project benefits are maintained after the project funding period ends.

Administration of freshwater clean-up funds has continuously improved

The Ministry's funding deeds

For the four freshwater clean-up funds we looked at, we saw evidence of funding deeds for individual projects improving as the Ministry gained experience in administering funding. These changes show the Ministry's commitment to improving administration processes and providing more flexibility.

After the Minister approves a freshwater clean-up project for funding, the Ministry's Freshwater Investment team prepares a funding deed with assistance from the Ministry's legal team. This funding deed is a legal agreement between the funding applicant and the Crown. It includes administrative requirements such as contract term, project description, reporting requirements, funding conditions, and payment conditions.

The Ministry's legal team reviews all funding deed documentation to ensure that the deeds clearly define the Ministry's terms of funding. This review also protects the Crown from legal risks associated with the Ministry funding a third party and entering into a funding deed.

We discuss the improvements to the Ministry's funding deeds for each freshwater clean-up fund we looked at below.

Rotorua Te Arawa Lakes Programme funding deed

The Ministry's earliest funding deed under the Rotorua Te Arawa Lakes Programme did not fully describe the contractual requirements and lacked clarity for the funding recipients, which resulted in issues for the projects being funded.

The first Rotorua Te Arawa Lakes Programme funding deed also did not specify detailed project administration or finance requirements for funding recipients. It incorporated the project's 10-year work plan into the deed. This proved inflexible and left no room for contingency arrangements. For example, a delay to project timelines because of adverse weather or inability to source appropriate contractors would still require a formal amendment to the funding deed (deed variation).

The funding deed created a significant administrative burden for the Ministry and the project team. This burden was alleviated by minor changes to the original 10-year plan and changes to the funding deed, so that changes to the work programme could be made.

The funding deed did not adequately explain the Ministry's financial expectations. It stated that the Ministry would transfer funds to Bay of Plenty Regional Council annually in advance. However, the funding deed did not provide requirements for any funds that the Regional Council had not spent in the previous financial year. A revised deed was issued in 2013 that clarified how funds should be carried over from year to year and how accrued interest should be accounted for. This resulted in greater clarity of expectations and reduced the need for a deed variation for minor matters.

Fresh Start for Fresh Water Clean-up Fund funding deed

In January 2014, an independent audit was carried out on the Lake Ellesmere/Te Waihora project, which was funded by the Fresh Start for Fresh Water Clean-up Fund. The audit made it clear that this was one of the first projects given funding and noted that "the contractual, operational and reporting requirements were not initially as well developed as later funded projects".

The audit report noted that the funding deed was not specific about expectations for co-funding contributions, types of permitted expenditure (for example, whether overheads are allowed), or what constituted reasonable hourly rates for council staff or consultants. Financial reporting and procurement processes were not adequate – for example the audit report noted that "the project is either not using Council procurement, contracting conflict of interest and gift register policies, or these policies are not in place at the Council".

Funding deeds for later projects contained more detailed information about project objectives, record-keeping requirements, and instructions on how to manage Official Information Act requests, insurance, health and safety, risk, and finance statements. The Ministry told us that, since our fieldwork, it has implemented a change management process that can manage minor changes internally without needing a deed variation.

Te Mana o Te Wai Fund funding deed

Some of the iwi and hapū we spoke to reported administrative issues as a result of the funding deeds issued under the Te Mana o Te Wai Fund. This funding deed specified that invoices would be paid in arrears and that any changes to the deed, even if they were minor, needed to be submitted in a deed variation.

This resulted in delays to some project completion dates. It also created cash-flow issues for smaller groups that needed support from their regional council partners to pay supplier invoices because they had not yet received funding from the Ministry.

Several of the Te Mana o Te Wai Fund recipients (including regional councils) also mentioned that applicants needed significant amounts of investment and additional project planning to meet the requirements for implementing the funding deed. In some instances, they received support from the regional council or external consultants, but the funding deed prevented them from using any of the funding to pay for up-front costs.

The Ministry revised subsequent funding deeds for the Fresh Start for Fresh Water Clean-up and Te Mana o Te Wai Funds to address some earlier issues and clarify expectations. The most significant changes related to fund administration. For example, the Te Mana o Te Wai Fund funding deed included a project plan template that was pre-populated with information from the project application form template.

Freshwater Improvement Fund funding deed

The Ministry explained that the latest Freshwater Improvement Fund funding deed has improved the degree of flexibility it can apply to individual projects. It represents the culmination of lessons from earlier funds.

For the Freshwater Improvement fund, the Ministry now contributes towards planning costs at the project planning stage when applications have been approved. There are two different funding deed templates for the Freshwater Improvement Fund. Only projects that receive more than $1 million of funding are required to include the entire project plan as part of the funding deed.

Reporting and monitoring requirements also vary depending on funding amounts. For example, project managers are required to complete progress reports every six months for projects that receive less than $0.5 million in funding and quarterly reports for projects of more than $0.5 million. Projects that cost more than $1 million require an annual audit. This is further evidence of the Ministry's improving its administration of clean-up funds and its flexibility to promote greater efficiency and clarity for funding recipients.

We did not see evidence of audits carried out for projects funded by the Freshwater Improvement Fund because most projects were still in their first year of operation (the funding deed specifies that an independent audit is an annual requirement for some projects). However, we did see evidence of the Ministry acting on recommendations from earlier audits of projects, leading to greater effectiveness and improved financial controls.

Given the scale of some of the projects funded by the Crown, we consider it prudent that, to manage risk, the Ministry continues to develop its funding deeds to provide effective guidance for funding recipients.

Actions to further improve administration of freshwater clean-up funds

The Ministry could make improvements to its administration and management of freshwater clean-up funds by:

  • establishing national cultural monitoring indicators;
  • ensuring that its processes support maintaining benefits after projects are completed;
  • providing sufficient time to develop applications;
  • improving transparency in the funding application process;
  • improving consistency of due diligence processes for funding applications;
  • improving data management and data capability; and
  • improving project reporting to reflect the full effect of voluntary contributions.

Establishing national cultural monitoring indicators

In December 2017, the Ministry briefed the Minister for the Environment on transferring $1 million from Te Puni Kōkiri to the Ministry to support the Te Mana o Te Wai Fund's freshwater projects.

The Ministry recommended that the $1 million be used to establish a National Freshwater Cultural Monitoring Programme. It proposed that the programme would provide funding to iwi and hapū in four regions (identified by the Ministry) to "develop freshwater cultural monitoring indicators and actions by iwi/hapū authorities to improve waterways for swimming". The Minister for the Environment approved this on 31 January 2018.

In 2015, the then Minister for the Environment had also allocated $400,000 from the Te Mana o Te Wai Fund to carry out four regional iwi case studies in Gisborne, Southland, Waikato, and Hawkes Bay. These case studies aimed to consider iwi rights and interests in local freshwater management plans.

The Ministry recommended funding the 2017 National Freshwater Cultural Monitoring Programme and considered that this would "allow iwi/hapū groups access to data on cultural indicators that support cultural values in order to deliver on agreed Crown-iwi policy objectives for freshwater management". It would also support the ability of the Crown and iwi to "implement the National Policy Statement – Freshwater Management and identify local achievements".

When we asked the Ministry how the National Freshwater Cultural Monitoring Programme was progressing, the Ministry said that the case study funding deeds were still being negotiated.

One of the aims of the Te Mana o Te Wai Fund included enabling iwi and hapū to have an active role in managing their local freshwater sources. It is disappointing that we did not find more evidence of progress with the case studies. We would like to see further progress in this area. However, we note that the Essential Freshwater report contains an intent to establish a Kāhui Wai Māori Group, the Māori Freshwater Forum, to "broaden the conversation with Māori on freshwater".7 This could support the development of cultural monitoring indicators.

Recommendation 3

We recommend that the Ministry for the Environment prioritises current freshwater clean-up projects to develop national freshwater cultural monitoring indicators, including developing actions to improve waterways for swimming.
The Waikato River Authority's promotion of cultural values

Cultural values are integral to the Authority's vision and strategy. The Authority prepared a Restoration Strategy to ensure that the cultural priorities of the five river iwi were included and that all five iwi were able to contribute. The Authority also demonstrates its commitment to iwi capacity and engagement building, through finance workshops to support iwi in completing project applications.

Working with the National Institute of Water and Atmospheric Research and others, the Authority prepared a whole-of-catchment report card that explains the cultural values of the five river iwi. The report card is structured around eight strands (taura) of a rope. Each taura equates to a high-level value set (such as kai) that can be broken down to smaller strands (such as a species of fish). Several indicators are used to describe each strand. The report card provides a baseline from which improvements can be measured.

Maintaining benefits after projects are completed

A lack of post-project maintenance can present some risk to the long-term effectiveness of Crown investment in freshwater clean-up. Ensuring that the benefits of individual projects' continue when the funding relationship ends is important to the effectiveness of freshwater clean-up funds.

We wanted to see how effectively the Ministry's processes contribute to protecting the Crown's freshwater clean-up investment to ensure that the benefits of the projects are enduring.

When we talked to the Ministry, it told us that, for the Te Mana o Te Wai Fund and the Freshwater Improvement Fund, the independent assessment panel considers whether funding applications have identified next steps and are able to support enduring outcomes after the project is completed.

For all of the projects that the Ministry funds, it completes a comprehensive project-closure report. It requests a full analysis of the project's objectives and benefits, finances, and any lessons learned. It also asks for information on how the organisation will ensure that the project will continue after funding ends.

The Ministry acknowledges that it has good information on the types of projects funded, but it has limited capacity for capturing or integrating data from funded projects when the funding period ends. The Ministry has relied on data collected for other purposes (such as environmental reporting) to make links between projects and post-project outcomes.

In our view, it is important that the Ministry ensure that benefits continue for as long as reasonably possible, which could involve imposing conditions or covenants as part of project funding deeds.

Recommendation 4

We recommend that the Ministry for the Environment implements processes designed to ensure that the benefits of freshwater clean-up projects are maintained after funding ends.
The Waikato River Authority's approach to ensuring long-term benefits of its freshwater clean-up projects

The Authority's online application form includes a video advising applicants how to plan for long-term improvements after a project is completed. Another section of the form explains that covenant protection is likely to be implemented for projects receiving more than $100,000 in funding. The form outlines evaluation requirements and confirms that the Authority carries out a final visit to the project to ensure that work has been satisfactorily completed.

Providing sufficient time to develop applications

It is important to provide enough time for funding applicants to apply so that quality applications are received. Several applicants told us that there was a short time frame from announcing the Freshwater Improvement Fund to the deadline for completed applications to be submitted to the Ministry.

Because application requirements are comprehensive, we consider that the short time frame could have prevented less experienced iwi, hapū, or community groups from submitting applications on time. Some regional councils told us that the short time frame created pressure for them to meet the deadline and one regional council representative expressed concern that this could also affect applicants' ability to fully determine the feasibility of their application.

Not giving organisations enough time to make an application for funding affects the quality of applications received and can also prevent, for example, less experienced groups from applying, thereby reducing the size of the selection pool.

We reviewed the Te Mana o Te Wai Fund application form and its guide for applicants, which is supplied to each prospective applicant. These documents clearly demonstrate the Ministry's improvement in providing clear guidelines for funding applications. However, some iwi and hapū we spoke to, who had little experience of applying for freshwater clean-up funding, did not consider that they received sufficient guidance from the Ministry to make a successful application.

Following the recommendation in the Essential Freshwater report to prepare a sustainable and catchment-based framework, we would encourage the Ministry to improve future application processes to support a more timely and transparent approach for funding applicants.

We understand that the Minister for the Environment has discretion on these decisions, which directs the Ministry's actions. However, these are all factors that contribute to the overall effectiveness of Crown funding, and it is important that the planning process for new funds allows applicants sufficient time and instructions on how to make good quality submissions.

Improving transparency in the funding application process

For some funds, we saw evidence of projects being approved that did not fully meet funding criteria or that were approved outside of the contestable application process. Although the Ministry provided us with an acceptable rationale to explain this, we do not consider that this was adequately clarified for funding applicants. This risks the public having a negative perception of the Ministry's transparency and consistency in its management and allocation of Crown funds and undermines the specified criteria established for each fund.

The Ministry has a robust process for recommending funding applications to the Minister for the Environment. Although the Secretary for the Environment made the final decision on whether projects would be funded by the Fresh Start for Fresh Water Clean-up Fund, the Minister for the Environment has been responsible for final approval on all subsequent funds.

When we looked at the Fresh Start for Fresh Water Clean-up Fund, $6 million of its funding was allocated outside of the contestable funding process. This was a one-off Cabinet decision to support the Lake Ellesmere/Te Waihora project. The remainder of the projects were funded after applications were made through the Ministry's contestable funding process. After the allocation of funding to six projects, $1 million of the Fresh Start for Fresh Water Clean-up Fund remained unallocated.

An additional application under the Fresh Start for Fresh Water Clean-up Fund was made for Lake Horowhenua about 18 months after the application period closed (in late 2011). The Ministry recommended that, because of the low response for the 2011 funding round and only a small number of enquiries being received since, it was unlikely that other applications for funding would be received.

The Ministry did highlight that other regional councils might question why they did not have the opportunity to apply for Fresh Start for Fresh Water Clean-up funding after the application for funding date had closed. After assessment by an independent panel, the Lake Horowhenua project received approval for funding of up to $540,000 in 2014. Again, we consider this could have led to negative perception of the Ministry's transparency in applying a consistent contestable funding approach.

Cabinet agreed to a proposal from the Minister for the Environment to reallocate $475,000 of the Fresh Start for Fresh Water Clean-up funding to the Community Environment Fund to support freshwater reform projects in 2013/14.

The Freshwater Improvement Fund's eligibility and assessment criteria do not state that council "business-as-usual" responsibilities may not be funded. However, the independent assessment panel for the Freshwater Improvement Fund evaluated the applications it received and decided against projects considered to be council "business-as-usual" responsibilities (such as wastewater upgrades). In most cases, the Minister for the Environment agreed with that approach.

Cabinet papers about the Freshwater Improvement Fund suggested that council "business-as-usual" responsibilities may not be funded, but the Freshwater Improvement Fund's eligibility criteria for applicants did not make this clear. As a result, there were several applications for wastewater upgrade projects that were considered council "business-as-usual" responsibilities and were unsuccessful.

When we asked the Ministry about this, it told us that there was some discretion with this matter and that some projects were funded (for example, Lake Tarawera). The Rotorua Te Arawa Lakes Programme steering group asked the Ministry whether the Rotorua Te Arawa Lakes Programme was available for reticulation schemes. The Ministry told the steering group that this might be an option.

In our view, because submitting applications for funding is resource and time intensive, the Ministry could have expressed the criteria for the Rotorua Te Arawa Lakes Programme more clearly so applicants could better decide what to include in their application or whether to apply at all.

The Waikato River Authority's guidance for funding applicants

The Authority publishes an annual funding strategy for the current annual contestable funding round. This provides comprehensive guidance for applicants and outlines the Authority's funding priorities for the year. It clearly provides application information and directs applicants to the online application template, which contains further guidance material including information videos.

After publication of its annual funding strategy, the Authority carries out funding workshops for iwi that cover funding strategy, matauranga Māori priorities, important dates, and what should be included in funding applications. This is complemented by the online application process and supplementary videos describing the Authority's requirements.

Improving consistency of due diligence processes for funding applications

By due diligence, we mean formal checks carried out by the Ministry to ensure that successful project applicants have the capacity to effectively govern environmental clean-up projects, manage them (including project management), and provide either relevant support or previous experience to carry them out, including financial capability.

The Ministry could not provide evidence about the extent of due diligence checks it carried out for the Fresh Start for Fresh Water Clean-up Fund. For the Te Mana o Te Wai Fund and subsequent funds, due diligence has not always been consistent, particularly for regional councils the Ministry had worked with before.

For the Te Mana o Te Wai Fund, the Ministry contracted an external company to do due diligence checks on organisations that had projects recommended for funding. This was effective in identifying potential issues facing successful applicants (including lack of experience with environmental clean-up programmes, lack of project management experience, and not being equipped to provide the robust financial control their project needed).

For the Freshwater Improvement Fund, where funding was being supplied to regional councils, rather than smaller iwi and hapū and community groups, the Ministry relied more on its previous experience of working with a particular regional council instead of carrying out due diligence checks.

Although the Ministry might not need to repeat full due diligence checks, we consider it prudent to do at least some additional checking (for example, confirming that there are no changes to a regional council's financial position or to key governance or project management staff or systems).

We consider that the Ministry should put in place a consistent process for carrying out due diligence checks for any organisation that successfully applies for freshwater clean-up funding (including those that have received funding before).

This would record important information, including any organisational changes since previous due diligence checks (for example, checking changes to staff with previous project management or freshwater clean-up experience and confirming that adequate financial controls remain in place).

Recommendation 5

We recommend that the Ministry for the Environment improves the contestable funding application process by:
  • having timelines (or a phased approach) to allow sufficient time to promote high-quality applications and provide guidance and support;
  • having transparent and easy to understand criteria that support a consistent quality of applications; and
  • carrying out rigorous due diligence processes, including for organisations that have previously received funding, to assess all applicants' suitability to manage Crown funds.
The Waikato River Authority's online portal

The Authority's online applications portal provides comprehensive details of its financial requirements and expectations. It shows evidence that the Authority collects consistent information on all applicants. This should provide the Authority with enough information to secure its investment and minimise project funding risks.

Improving data management and reporting capability

During our discussions with Ministry staff, we learned that the current data management system for freshwater clean-up funding is resource intensive and relies on manual inputting. This reduces the Ministry's ability to take full advantage of the significant amounts of reporting data it collects.

The reporting data collected during a project allows the Ministry to share lessons with other funding recipients, provide timely feedback and guidance to recipients, and potentially improve future-funding programmes. This could also improve the Ministry's integration with other freshwater clean-up funders (see Part 2).

If the current system were updated to provide an automated data and fund management system, applications and reports could be submitted online. This would improve resource capability, reduce the risk of human error, and lead to more accurate and sophisticated data analysis to inform a national freshwater clean-up picture. It would also help to promote more integration and oversight of other freshwater clean-up funding providers and could increase the effectiveness of Crown investment as a result.

Recommendation 6

We recommend that the Ministry for the Environment considers implementing an automated data and fund management system that is compatible with other organisations to improve its existing capacity to use and analyse the data it collects about the use of freshwater clean-up funding and contribute to providing a national freshwater picture.

Improving project reporting to reflect the full effect of voluntary contributions

Although the Ministry acknowledges the importance of "in kind", or voluntary contributions to individual project effectiveness, its financial reporting does not adequately account for "in-kind" contributions. In our view, this creates uncertainty for project managers and has resulted in confusion and inconsistency in how much detail to provide for reporting purposes. It also leads to inadequate data being available to contribute to a realistic national picture of the scale and importance of voluntary contributions in effective freshwater clean-up.

The success of freshwater clean-up projects supported by Crown funding relies heavily on donations of time and expertise from iwi and hapū, industry partners, individuals and community groups, and, in some cases, professional experts (such as environmental consultants, architects, and lawyers).

The Ministry needs to form a clearer picture of the value and size of voluntary contributions and account for the difference they make in increasing the effectiveness of available Crown funds.

The Ministry accounts for actual dollars spent through its financial monitoring requirements, but we did not see specific reporting of voluntary contributions (either itemised or effectively tracked). For example, for the Lake Ellesmere/Te Waihora Project, the budget summary provides an indication of how Crown funds have been used and itemises financial contributions from other organisations. Voluntary contributions are reflected in the financial summary by acknowledging that voluntary contributions were received from other contributors, but does not identify their value.

During interviews with the Ministry, we asked about voluntary contributions. The Ministry told us that these are not included in the financial statements. According to the Ministry, there is a requirement to disclose what voluntary contributions were made, but only at a nominal level. It is not a critical part of the project receiving payment from the Ministry.

The Ministry told us that "there is consideration for in-kind but it's difficult to measure". Co-funding is more important and, although it is different for each project, the more co-funding a project has attracted, the more funding it is likely to receive from the Ministry.

We saw no evidence of any support from the Ministry to help organisations calculate voluntary contributions. To our knowledge, there is no guidance for project managers about how to report voluntary contributions, and we were told during interviews that voluntary contributions tend to be underestimated.

The Waikato River Authority's approach to voluntary contributions

The Authority's approach includes voluntary contributions in the application and decision-making processes as a financial contribution that appears alongside financial information. The online funding system also requires reports on co-funding.

We saw evidence of some funded projects having a larger voluntary contribution than the cash contribution. The Restoration Strategy includes some standard costs and assumptions, and the funding workshops that the Authority carries out for iwi also discuss voluntary contributions.

We consider it important to include voluntary contributions in overall project results. Voluntary contributions clearly affect the overall success of freshwater clean-up projects nationally. Because they are currently not accurately measured, it is not possible to fully understand the scale of voluntary contributions or how much they contribute to freshwater clean-up projects.

Recommendation 7

We recommend the Ministry for the Environment improves the accuracy of reporting voluntary (in-kind) contributions alongside financial information in order to recognise those contributions and improve the national picture of their importance to freshwater clean-up efforts.

7: Ministry for the Environment and Ministry for Primary Industries (2018), Essential Freshwater: Healthy Water, Fairly Allocated, Wellington, page 18.