Part 4: Managing and reporting on the Provincial Growth Fund as a whole

Managing the Provincial Growth Fund

4.1
In this Part, we set out our observations and findings about managing the Fund as a whole. We looked at:

4.2
In February 2018, Cabinet established the PDU as a central business unit to administer, monitor, and report on the Fund. There has been a tension between the roles of the PDU and the other departments that have a mandate to administer and report on the appropriations and projects they are responsible for. In our view, reporting on and evaluating the effectiveness of the Fund as a whole has not received the focus it needs.

How the Provincial Growth Fund was expected to operate

4.3
Cabinet recognised the need for the Fund to be managed as a whole when it gave the PDU responsibility for administering, monitoring, and reporting on it.

4.4
However, Cabinet papers from 2018 also directed other departments to administer parts of the Fund. The departments largely responsible for parts of the Fund include:

  • MBIE, for capacity building and local projects as well as tourism infrastructure;
  • the Ministry for Primary Industries, for the One Billion Trees programme;
  • the Ministry of Transport, for road and rail projects; and
  • the Department of Conservation, for conservation projects.

4.5
These departments manage the Fund in two ways: within the structure and authorities of the particular department and between departmental and agency boundaries.

4.6
The ways public sector accountability is managed within a department are well established. Departments either set up new systems or expand their existing systems to manage the extra funding.

4.7
Appendix 2 describes the processes used by the three main departments to manage the portions of the Fund that each is responsible for.

4.8
There was pressure to set up the Fund and respond to funding requests quickly. There were several areas where we recommended to the three main departments changes to systems and processes (see Appendix 1). The departments responded positively to these recommendations and improved how they managed specific components of the Fund over time.

4.9
The departments also needed to operate collaboratively across many regions, organisations, groups, and individuals. In our view, effective management – operating both within and outside central government – is fundamental to operating the Fund as a co-ordinated and cohesive set of investments to achieve its objectives.

4.10
We describe in Part 5 our intention to review the officials' evaluation of the effectiveness of the Fund.

Is there a balanced portfolio?

4.11
The Fund is unified by a set of broad objectives. It has Cabinet decisions, an investment statement, and accompanying guidance, particularly for applications, that sets out at a high level how the Fund will be allocated. Cabinet expected the IAP to provide advice on the balance of investment throughout the three-year period of the Fund.33

4.12
The Fund's investment statement was released in July 2018. The investment statement is supported by various regional strategies and subsequent position papers. The investment statement focuses more on providing guidance to applicants for funding than it does on setting out the desired balance of investments across different regions and sectors.

4.13
We understand from the IAP that balance is sought more as an iterative process and relies on what applications are received rather than an active consideration of what the optimal balance might be. In our view, the lack of specificity of what balance means makes it difficult to see how consideration was given to the balance of investments in terms of both the Fund's objectives and coverage across the regions, particularly the surge regions.

Fund-wide risk management

Cross-agency risk management

4.14
A cross-agency risk management group was established to discuss risks in common for the Fund. This included Fund-wide risks, such as those around attaining a balance of projects within each region aligned to the strategic objectives of the Fund.

4.15
However, it is unclear from the meeting minutes how the departments mitigated or even considered the Fund-wide risks identified in the risk register, either individually or collectively.

4.16
Risk management is critical to an investment fund. In our view:

  • cross-agency risk management arrangements should have been set up when the Fund was first launched and the PDU established; and
  • Fund-level risks – such as the risk to an effective evaluation process across the whole programme – need to be constantly identified, assessed, and mitigated. We expected that, in their ongoing management of the Fund, the PDU and the other departments would collectively identify and manage risks for the Fund as a whole.

Co-ordinated management of conflicts of interest

4.17
In Part 3, we described how the three departments managed the Fund, including how they managed conflicts of interest. In this Part, we note how Ministerial conflicts of interest are managed in the context of the Fund as a whole.

4.18
Effectively managing conflicts of interest with the Fund is not straightforward, given the range of individuals and organisations involved in submitting, assessing, and making decisions about applications.

4.19
Ministers make decisions on some applications for funding, particularly the larger ones. In our view, this makes it necessary to declare and manage any potential conflict or the perception of a conflict34 as soon as it arises.

4.20
Ministers manage their conflicts of interest through the processes set out in the Cabinet Manual 2017.35 Those processes are not the responsibility of the PDU or the other departments.

4.21
From time to time, questions are raised about Ministers' alleged conflicts of interest related to the Fund. The Cabinet Manual 2017 describes processes for handling these. They include the Minister instructing officials to not give them official papers or reports about a matter for which they have declared a conflict.36

4.22
Concerns were raised with us in one instance about whether a declared Ministerial conflict of interest in a Fund decision was managed appropriately. We concluded that, overall, we did not consider that the Minister's involvement raised any significant concerns about the decision made. However, we also said that it might have been better for the Minister not to have expressed a view on the particular project at the meeting where funding was decided for it. If he was going to express a view, it would have been better for minutes of that meeting to have been kept.37

4.23
When multiple parties are involved in decision-making, the process for Ministers to manage their own conflicts of interest relies on robust channels of communication between departments and between departments and Ministers. This is not an area that we looked at in detail. Our focus was more on departments' systems and processes. However, other than the incident noted above, we have not been made aware of other issues involving conflicts of interest.

4.24
It remains good practice, in complex programmes such as this, to closely monitor all sources of possible conflicts of interest to ensure that real or perceived conflicts are well managed.

Reporting on the Provincial Growth Fund

Reporting on the Fund as a whole

4.25
Cabinet saw the Fund as a single investment fund and set objectives for it as a whole. This means that Parliament and the public should expect to see how the Fund works, where money from it is being invested, and what it is achieving both regionally and nationally. Despite recent enhancements to reporting, there are still improvements needed.

4.26
We acknowledge that the departments that administer the Fund have each reported on the parts of the Fund they are responsible for, in accordance with the requirements of the Public Finance Act 1989. They have also made publicly available additional information at the project level and by region. Although all of this is necessary and helpful, it is not yet sufficient for a fund of this nature.

4.27
Although there have been many Fund announcements relating to individual projects, there needs to be full and relevant reporting about the nature and purpose of the Fund's investments and the impact of those investments against the objectives set for the Fund when it was established. This will strengthen the trust and confidence that the public has in how the Fund is being administered.

Collaboration on consolidated reporting

4.28
Cabinet gave the PDU the responsibility to administer, monitor, and report on the Fund as a whole.

4.29
However, it took some time for officials to set up informal mechanisms to collectively support the PDU to provide consolidated financial reporting at a project and appropriation level. The PDU is now collecting whole-of-Fund data from the departments that are responsible for specific parts of it.

4.30
The PDU has been working at improving the timeliness and accuracy of the data. The PDU told us that it "sense-checks" the data and raises any obvious anomalies as part of this process. The whole-of-Fund data is reported to the RED Ministers, but these reports are not made public. However, a high-level report of funding by agency, as at 31 March 2020, was made public.38

4.31
In our view, timely and accurate analysis of the data needed to be available throughout the Fund's three-year period.

Reporting on the Fund's performance

4.32
Information about the Fund's performance is reported to Parliament at a department or agency level. However, we found that no clear responsibility was assigned for reporting to Parliament on the performance of the Fund's investments. It was left to us to bring together information to provide a picture of the Fund as a whole for Parliament's select committees when they were considering the Estimates for 2019/20.39

4.33
In our view, there needs to be a transparent mechanism for reporting to Parliament. This will allow Parliament to track the spending on, and assess the effectiveness of, large and flexible multi-agency, multi-year initiatives such as the Fund. No such mechanism was available to Parliament when it was considering the Fund as part of Budget 2019 or Budget 2020. This made it difficult for Parliament to scrutinise the Fund as a whole.

4.34
Select committees have a particular interest in tracking the Fund's performance as a whole. At present, Parliament's scrutiny of the Fund involves several committees, depending on the Vote or department involved.

4.35
The Economic Development, Science and Innovation Committee noted in August 2019 that reporting on the Fund was more difficult because the funding was spread between several departments. The Committee agreed that improved and consolidated reporting would be beneficial.40

4.36
An improved and consolidated reporting mechanism would be able to report on the financial and non-financial performance of the Fund as a whole. The Minister for Regional Economic Development told the Committee that the PDU would evaluate the effectiveness of the Fund's investment activity by the end of 2020, with ongoing measurement and evaluation over the longer term to capture the long-term effects of its projects.41 The PDU told us it has advised Ministers that, as a result of Covid-19, the evaluation of the Fund will be delayed until mid-2021.

4.37
The PDU prepares monthly reports for Ministers that now include information about:

  • the amount of the Fund that has been allocated for particular purposes;
  • funding approved for individual projects;
  • appropriations to departments to spend in those areas;
  • numbers and value of contracts for the projects; and
  • funding that has been spent so far.

4.38
The PDU also produces a monthly dashboard that provides a summary of the Fund as a whole, from inception to date. This dashboard is for the Minister for Regional Economic Development, the State Services Commission, and the Department of the Prime Minister and Cabinet. However, this reporting is not publicly available.

4.39
In our view, regularly publishing a dashboard for the Fund as a whole would be a more meaningful way of reporting to the public than what is currently publicly available. The PDU should also consider including, both at the regional and the whole of Fund level, information on the expected contribution of the projects and investments to the key indicators of the Fund's performance (for example, the number of jobs created compared with the number they were expected to create).

4.40
We note that in the case of the Student Loans Scheme, another cross-agency initiative, there is consolidated reporting to the public. The PDU could consider this as a model as it improves on current reporting.

Reporting on key indicators can be complicated

4.41
We looked at the key indicator "job creation". The Fund is expected to contribute to "increased employment and earnings (in general and for Māori particularly)".42

Meaningful reporting

Useful reporting about the Fund would take the needs of different audiences into account. For example, potential applicants might need to know how long each stage of the application process is likely to take. Residents in different regions might want reports about the amount of funding their region was likely to get – in which industries, when and where, and to meet which of the Fund's objectives. Ideally, different communities would also see how the various initiatives would complement each other to get the best results for that region.

4.42
The objective is not just an increase in job numbers but:

... high quality jobs … and sustainable economic development over the long term, particularly in regions and sub-regions where unemployment is high and there are significant social challenges [and] social inclusion through effective training, work preparation and support that enables more people to fully participate in work and society.43

4.43
We understand that the PDU expects that, in the longer term, measures such as the employment rate (by region) and median incomes will indicate whether that outcome is being achieved. In the meantime, "number of jobs created" is one of a range of indicators that the PDU will use to measure the Fund's effectiveness.

4.44
However, this indicator is not straightforward, and several complications need to be resolved. The PDU is addressing these by considering matters such as:

  • What counts as a job? – Is a job permanent and full-time or can it be temporary, contracted, or part-time?
  • Sustainability of the job – How long does it need to continue to be counted as a job created by the project or initiative? The Fund's objective is longer-term sustainable development and social inclusion.
  • The period for collecting job numbers – Jobs will continue to be created as projects mature and end.
  • Does the skill level of the job need to be reported?

4.45
The number of people employed in Fund-supported projects is published on the Grow Regions website each quarter. Currently, part-time and full-time jobs in projects that are under way are counted at the end of each month. However, they might not be the same jobs as those counted a month later.

4.46
Given the importance of job creation as an objective of the Fund, and the complexity in defining what should be counted as a job, the PDU and the other departments need to consider these employment variables and plan for them when determining evaluation criteria. The PDU is aware of this and is designing a process for reporting on job creation that addresses these matters.

4.47
In our view, the PDU should have established this process much earlier, both for recipients of funding and for reporting to Parliament and the public. The integrity of data about job creation is even more important now given the effect of Covid-19 on unemployment.

4.48
Parliament and the public will be better served by definitions and explanations that support clear reporting on the Fund's short-term and longer-term objectives. This is true for all of the key indicators, not just job creation.

Recommendation 2
We recommend that the Ministry of Business, Innovation and Employment, the Ministry for Primary Industries, and the Ministry of Transport work together to continue to enhance consolidated reporting and more meaningfully report to Parliament and the public on the Provincial Growth Fund as a whole.

33: Cabinet paper (February 2018), Operational design of the Tuawhenua Provincial Growth Fund at pages 2 and 13.

34: The risk of a perceived conflict of interest is heightened by the Fund's public profile, the involvement of Ministers in decision-making, and the range of individuals and organisations applying for funding. See Controller and Auditor-General (2020), Managing conflicts of interest: A guide for the public sector, Wellington, page 10.

35: Department of the Prime Minister and Cabinet (2017), Cabinet Manual 2017, Wellington at chapter 2.

36: Department of the Prime Minister and Cabinet (2017), Cabinet Manual 2017, Wellington at paragraph 2.74.

37: See Controller and Auditor-General (2019), Request to inquire into decision to grant funds to the Manea Footprints of Kupe Cultural Heritage and Education Centre at oag.parliament.nz.

38: Status of Provincial Growth Fund Appropriations and Funds Committed to date by Agencies at www.growregions.govt.nz.

39: For example, our briefing to the Economic Development, Science and Innovation Committee on Vote Business, Science and Innovation: Regional economic development appropriations, 13 June 2019 (see the Committee's paper at parliament.nz).

40: Economic Development, Science and Innovation Committee, 2019/20 Estimates for Vote Business, Science and Innovation, August 2019, page 23.

41: Economic Development, Science and Innovation Committee, 2019/20 Estimates for Vote Business, Science and Innovation, August 2019, page 26.

42: Cabinet paper (August 2018), Further decisions on the Provincial Growth Fund at page 5.

43: Cabinet paper (December 2017), The Provincial Growth Fund at page 4.