The urgent need for Commonwealth grants reform
Catherine Williams
18.05.2022
Upwards of $55 billion has been spent on Commonwealth grants programs since mid-2018, when the current Prime Minister came to power. In that period, there has been a series of findings of maladministration – and worse – by the Australian National Audit Office (ANAO) in respect of Commonwealth grants programs, giving rise to an urgent need for reform in this area. The agency’s 2022 audit of the Safer Communities Fund reported:
Funding decisions were not appropriately informed by departmental briefings and, for the majority of decisions, the basis for the decisions was not clearly recorded.
This followed the ANAO’s 2021 audit of the Regional Jobs and Investments Packages, which found that ‘Applications were not soundly assessed in accordance with the program guidelines’. Although, at least in that case, in contrast to the award of funding under the Commuter Car Parks Project, there were established program guidelines. Sports grants were reportedly administered in such a way that ‘the award of grant funding was not informed by an appropriate assessment process and sound advice’, and a similar conclusion was reached in respect of the Supporting Reliable Energy Infrastructure Program, where it was reported that the award of funding:
was not fully informed by an appropriate assessment process and sound advice on the award of grant funding. Aspects of the approach did not comply with the Commonwealth Grant Rules and Guidelines.
Similar allegations around misuse of public money in New South Wales led to an inquiry that last week made 19 recommendations to improve the way in which grants schemes are administered. Yet, at the Commonwealth level there has been conspicuous silence. In light of this lack of response, the Centre for Public Integrity has been working on a set of reforms at the Commonwealth level to promote transparency and accountability through a framework that sets clear criteria, robust reporting and an augmented accountability framework.
1. Clear criteria
The Centre for Public Integrity’s first reform proposal is for there to be published merit selection criteria and program guidelines for all significant grant programs. The need for the development and publication of clear criteria against which grants can be assessed is self-evident: in their absence, no proper assessment of the merit of selected grants can be undertaken.
In recognition of the need for smaller programs to be administered quickly and with flexibility, the Centre for Public Integrity proposes that merit selection criteria and program guidelines be published for all grants programs worth up to $100 million. They should be made publicly accessible in an easily accessible and searchable online repository.
In addition to the need for grant criteria to be publicly available, it should also be set and overseen by the federal Parliament. To this end, the Centre for Public Integrity has proposed that grants programs worth over $100 million should have their merit criteria set out in primary legislation. Such a reform would have the benefit of ensuring that the Parliament can perform an appropriately meaningful role in cases where significant amounts of public money are being expended. In a post-Williams world, where all Commonwealth grants program require a legislative basis, this requirement would also provide primary legislative authority for government grant-making.
2. Robust reporting
The Centre for Public Integrity’s second proposal is to increase the information available to Parliament about the administration and award of grants. Without access to sufficient information, Parliament cannot perform its scrutiny role effectively. Its ability to perform this role would be aided by a requirement that departments periodically table grant administration documentation. Such a requirement would have the ancillary benefit of encouraging appropriate departmental record-keeping – which was found by the ANAO to be deficient in the Commuter Car Parks Project audit and capable of being improved in the sports grants audit – and enabling access by the public to these records.
There are some disclosure requirements already: the current requirement under paragraph 4.12 of the Commonwealth Grants Rules and Guidelines requirements Ministers to notify the Finance Minister where they approve grants against the advice of relevant officials. The Rules and Guidelines also allow Ministers to approve grants within their electorates, though they are required in most cases to advise the Finance Minister where this is the case.
Notification within the executive is simply not sufficient to facilitate responsible government, and this notification should be replaced with a requirement for Ministers to report such cases to the Parliament. Transparency and accountability of executive spending is hardly furthered by one member of the executive being required to report to another.
3. Augmented accountability
The Centre for Public Integrity’s final proposal is to introduce a new, augmented accountability framework: that is, a framework in which there are consequences for maladministration and corruption in the administration of these programs. This accountability would be promoted by a series of mutually-reinforcing reforms consisting of:
the establishment of a dedicated parliamentary committee;
reform to the legislative framework governing grants administration;
the adoption of an independently enforced Code of Conduct for parliamentarians and political staffers;
the establishment of a fit-for-purpose National Integrity Commission; and
strengthening the public service.
(a) A dedicated parliamentary committee
Already in a number of areas, committees play an important information and transparency role and promote accountability of the executive to the Parliament. Given the significance and distinct nature of grants programs, the Centre for Public Integrity recommends that there should be established a joint parliamentary committee with the function of overseeing government grant administration and reporting to the Parliament. Such a committee could report on a quarterly basis throughout the administration of any grant program worth in excess of $100 million, with a discretion to report more frequently and in respect of programs below the threshold.
The Commonwealth Parliamentary Association recommends that scrutiny committees should ensure ‘meaningful opportunities for minority or opposition parties and independent MPs to engage in effective oversight of government expenditures’, and avoid the inherent conflict that arises where executive-dominated committees are responsible for holding the executive to account. Instead, any such committee must be multi-party with no more than half of its members coming from parties forming government. The Chair should be a non-government member.
(b) Legislative reforms
Much also needs to be done in order to bolster the legislative framework which governs grants administration and consists of the Public Governance, Performance and Accountability Act 2013 (Cth), the Public Governance, Performance and Accountability Rule 2014 (Cth), and the Commonwealth Grants Rules and Guidelines.
The Public Governance, Performance and Accountability Act provides for the use and management of public resources by the Commonwealth and Commonwealth entities. Key among the requirements relating to Ministers, is s 71(1), which requires that a Minister:
must not approve a proposed expenditure of relevant money unless the Minister is satisfied, after making reasonable inquiries, that the expenditure would be a proper use of relevant money.
‘Proper’ is defined in s 8 of the Act to mean ‘efficient, effective, economical and ethical’. Section 71(3)(b) requires that Ministers must ‘comply with any other requirements prescribed by the rules in relation to the approval’, and section 71(2) requires that where a Minister approves a proposed expenditure, they must record the terms of the approval and comply with any other relevant requirements established by the Rules.
The Commonwealth Grants Rules and Guidelines are created pursuant to s 105C of the Public Governance, Performance and Accountability Act and apply to non-corporate Commonwealth entities. They require that in administering grants, accountable authorities and officials must consider their obligations under the Public Governance, Performance and Accountability Act and Rule, and internal guidelines, operational guidance and grant opportunity guidelines must be consistent with that framework’s requirements. They must ensure that arrangements are supported by legal authority, and that opportunity guidelines are developed for all new grant opportunities. Under the Rules and Guidelines, Ministers must receive written advice from officials on the merits of a proposed grant before approving expenditure in relation to it; they are required to record the basis for approval ‘relative to the grant opportunity guidelines and the key principle of achieving value with relevant money’. This is precisely what did not happen in the administration of the Sports grants, where the Rules and Guidelines did not apply.
The Public Governance, Performance and Accountability Rule 2014, Part 2-4, provides for the use and management of public resources by corporate Commonwealth entities. Where a Minister is to approve a grant by such an entity, grant guidelines must be prepared and published (although the accountable authority or the Minister can decide that there is a specific policy reason to not publicise the guidelines, and publication is not required where the grant is provided on a one‑off or ad hoc basis), and in circumstances where the entity recommends to the Minister that the grant not be made, and the Minister continues with their intention to make it, the accountable authority must provide the Minister with written notice meeting particular requirements. The Rule further specifies that the Minister must not approve the making of a grant without receiving notice meeting the specified requirements, assessing the grant by having regard to the matters in the notice, and creating a record of their assessment. The Rule also sets out reporting requirements for Ministers who are members of the House of Representatives and who approve grants in their electorates, as well as Ministers who approve a grant in spite of a contrary recommendation by a corporate Commonwealth entity.
The current framework has, however, a number of shortfalls. Currently, even where they involve significant amounts of money, and share many of the characteristics of grants, various kinds of payments are taken not to be grants for the purposes of the Commonwealth Grants Rules and Guidelines (para 2.6). These include payments made pursuant to the Federal Financial Relations Act 2009 (Cth), as well as those made to state and territory governments under s 96 of the Constitution, and to local governments under the Local Government (Financial Assistance) Act 1995 (Cth). If integrity is to be achieved, there is every reason to extend the application of the Commonwealth Grants Rules and Guidelines to other kinds of payments with the characteristics of grants.
(c) Enforcement: independently enforceable code of conduct and National Integrity Commission
There is also the problem of enforceability, with neither the Public Governance, Performance and Accountability Act 2013, the Public Governance, Performance and Accountability Rule 2014, nor the Commonwealth Grants Rules and Guidelines imposing any penalty for breach of their provisions. The Australian Public Service Code of Conduct ensures that there may be consequences for breach by public service officials, but the ANAO findings are predominantly directed at the actions of Ministers, not the public servants. There is no code for ministerial staff, and the Statement of Ministerial Standards is not independently enforceable, rather, enforcement and sanction is at the discretion of the Prime Minister. The political reality that a Prime Minister has a strong incentive to minimise perceptions of any ministerial wrongdoing militates against this being an effective enforcement arrangement.
Enforcement of the framework created by the Public Governance, Performance and Accountability Act 2013, the Public Governance, Performance and Accountability Rule 2014, and Commonwealth Grants Rules and Guidelines in relation to grant spending is effectively left to whoever has the motivation, standing and resources to pursue such matters. This is evinced by the recent challenge brought by the Northern Territory Environment Centre in respect of the Beetaloo Basin fracking program; and the challenge in the Federal Court brought by the Beechworth Lawn Tennis Club in relation to the administration of sports grants.
An independently enforced Code of Conduct for parliamentarians and political staffers, and a National Integrity Commission with appropriate powers and resources to investigate and report on cases which may involve broadly defined corrupt conduct, are required to redress this.
(d) Strengthening the public service
Finally, if we are to see improvements in the administration of grants programs, we need to shore up the ability of the public service to provide ‘frank and fearless’ advice with respect to the merit of grants applications: the public service, if appropriately empowered, can serve as a vital bulwark against the misuse of public funds.
A good start to strengthening the public service would be the adoption of the outstanding recommendations made by the 2019 Independent Review of the Australian Public Service, led by David Thodey AO. These recommendations were designed to support a public service that is ‘apolitical, merit-based and open [and] underpinned by integrity’. The Government agreed “in full” with 15 of the Review’s recommendations, and ‘in part’ with a further 20, a number of critically important recommendations remain to be adopted. These relate to:
the implementation of “robust processes” governing secretaries’ terminations (recommendation 39c);
the empowering of the APS Commissioner to undertake own-motion investigations and reviews, and to require agencies to provide integrity information (recommendation 7); and
the establishment of a legislated code of conduct for ministerial advisers, as well as the implementation of guidance that policy advisors with public service experience compose at least half of the advisory staff within ministerial offices (recommendation 11).
Conclusion
There is, clearly, much to be done in order to improve the administration of grants programs. There is also much reason to do it. Without clear criteria, robust reporting and augmented accountability, we can have no confidence that public funds are being used for proper, public purposes.
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Dr Catherine Williams is Research Director at the Centre for Public Integrity, where her work focuses on strengthening executive accountability.
Suggested citation: Catherine Williams, ‘The urgent need for Commonwealth grants reform’ on AUSPUBLAW (18 May 2022) <https://www.auspublaw.org/blog/2022/05/the-urgent-need-for-commonwealth-grants-reform>