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Consideration & Noting - Auditor General Report (No 2) 2018-19 - Administration of Two Grant Pro

[11.23 a.m.]

Ms ARMITAGE (Launceston) - Madam Deputy President, I move - That the report of the Auditor-General (No. 2) 2018-19, Administration of two grant programs by the Department of State Growth, be considered and noted.

This was to determine whether the grants provided under the Regional Tourism Infrastructure and Innovation Fund and the Regional Revival Fund Grant Program were effectively and efficiently administered. Were application and assessment processes transparent and equitable?

While five unsuccessful applications scored higher than two successful projects, the Tasmanian Audit Office - TAO - found these applications were not funded due to qualitative factors that appear to have been reflected in the scores at the panel assessment stage.

The TAO refers to some of these qualitative factors as being insufficient information being provided in the business case, profit growth forecast being unrealistic, other funding sources considered to be more appropriate, and insufficient evidence to support funding capacity.

Similar comments were also made about projects which ultimately received funding. Being reasonably subjective in nature, qualitative factors appear to have overridden demonstrable quantitative factors, directly influencing the success or failure of an application to receive funding. This seems to indicate a flawed decision-making process.

I agree with the TAO's conclusion that the scoring approach used by the panel members in assessment was not overly transparent and a risk management plan was not in place prior to the receipt of grant applications.

Significantly, the TAO found that State Growth's record management practices were inadequate, highlighted by its analysis of the RTIIF, with business case reviews being unavailable to the TAO at the time of its examination and expressions of interest received in August 2015 being stored on a flash drive until June 2018.

The risk assessments undertaken by State Growth on all applications were found by the TAO to have been used as an input to the funding decision rather than an exercise to identify and manage risk associated with funded projects.

Two of the four projects rated at medium risk had no additional conditions in their grant agreements than low-risk projects. A more thorough approach to managing risk through conditions set out in grant deeds would have had a twofold benefit: first, it would have provided greater clarity about the overall objectives of the grants and their projects; and, second, it would have seen better management of projects assessed as having greater risk than others, thereby protecting the interests of State Growth and the Tasmanian Government.

A lack of prescriptive factors required in the grant agreements appears to have left too much scope for error and enhanced risk for the grantor. To have this deficiency of guidance at such an early stage could not have augured well for the administration of either the RRFGP or the RTIIF over their lifespans. In other words, something was bound to go wrong somewhere at some point.

Moreover, I tend to agree with the TAO's assertion that because adequate documentation was not maintained, the probity of the assessment process was commensurately reduced.

Finally, that one project received an additional funding tranche of $25 000 may reflect further inequity for other applicants and grant recipients, where quantitative criteria may have justified either choosing to provide further grant money to one particular project or withhold such funding from others. I concur with the TAO's assertion that a more equitable and transparent approach would have been to contact all successful applicants to identify those projects for which project costs had increased since the application for funding was made and then allocate the remaining funds using a consistent approach, such as an agreed formula.

Although State Growth advised that undertaking such an approach would not have allowed for adequate turnaround time to both carry out such assessments in time to receive Commonwealth approval, I believe this goes back to the notion of the probity and transparency of decision-making processes. Public funds are better left unspent or unallocated than inconsistently or inequitably managed.

The TAO report also stated - We consider that a merit-based application and assessment process is an equitable approach to award grants and would be consistent with potential recipients' expectations regarding the provision of public funds to industry.

I agree. I contend that such an approach would be consistent with taxpayers' expectations of how public funds are allocated, monitored and managed. To the question of whether grant funds were used as intended, the TAO examined the executed grant deeds to ascertain what the approved purposes of funding expenditure were. It found that for the RRFGP the grant deeds referred back to the original expressions of interest as being the approved purpose for the grants.

However, for the RTIIF the approved purposes were less descriptive. One such example simply stated that its approved purpose was -

To fund part of the broader $7.1 million development. This project will provide crucial infrastructure items including power and water supply and visitor access. The $4 million provided to proponents were not insignificant amounts. For RTIIF, the TAO reported on 15 projects that obtained grants between $75 000 and $500 000, not including the funding provided for the Masters Games. With such sums, proponents would rightfully expect there to be thorough processes in place to monitor the spending of those funds and for purposes consistent with the reasons for which they were given. It is therefore important to note that the greater the ambiguity of an approved purpose, the more difficult it is to ensure that the expenditure of funds granted is consistent with the objectives of the overall program. It is conversely more difficult for proponents to manage the scope of their projects if their parameters are not adequately articulated. The TAO further examined the timing of the grant tranches being transferred to the proponents and the setting of dates for milestones. One of its findings was that 12 of the 16 grant agreements executed for RTIIF were signed after the first instalment date.

To reporting requirements the TAO rightly states that -

The content of progress and acquittal reports ... should ... be proportional to the risk associated with the funded project.

Lower risk projects need a certain amount of information and evidence, and a high-risk report should be scrutinised to a greater degree commensurate with the risk related to it. No matter the risk level, this task is made more difficult where quantified outcomes are not sufficiently expressed in acquittal reports, as TAO found with the RTIIF.

While visitor expenditure has increased from 2013-14 to 2017-18, and the number of visitor nights has increased, there is no evidence to show whether the projects under the RTIIF have directly contributed to this. This is problematic for two reasons.

First, it does not show whether projects under the RTIIF actually met the outcomes that were expected under the grant deeds and the program as a whole. The second part of the entire purpose of these grant programs is to experiment with what does and does not work to boost tourism, investment and visitor expenditure. The information gathered from the outcomes of these projects goes beyond justifying the provision of grant moneys to informing wider tourism policy and has important practical implications and uses. Much the same can be said about the RRFGP projects, as TAO found that actual employment-related outcomes or impact on economic activity have not been quantified.

Funding programs administered by the Department of State Growth for the objective of boosting tourism in regional Tasmania did not appear to be effectively and efficiently managed. The TAO found that even at the outset of the department's administration of the grant fund for these programs, decisions to fund projects lacked quantifiable and verifiable assessment criteria. Where such information was available, TAO found that some projects with high scores were not funded and projects with low scores were. This significantly affected the transparency and probity of the assessment process and may have simply defeated the purpose of having quantifiable criteria in the first place.

In addition, $25 000 of unallocated funding was transferred to one project without any apparent examination of the merits of additional funding, further impairing the equity of the funding method. Grant agreements were examined by TAO and were also found to omit risk management clauses or left them too ambiguous in nature. In other words, grant agreements also lacked quantifiable and specific standards to which projects should be held.

Premier Will Hodgman's media release in August 2015 announcing the RTIIF rightly stated that the program had the potential to support projects that would enliven regional Tasmania through tourism, strengthen the economy and create jobs. These were outcomes to which the programs opened opportunities.

While Tasmanian tourism statistics have continued an upward trend in recent years, it is almost impossible, given the TAO's findings, to determine whether the RTIIF or the RRFGP had any effect on these outcomes. This is disappointing because such data would have helped inform further policy relating to boosting region tourism, a keystone area for Tasmania's gross state product, especially considering the burgeoning overseas markets to which Tasmania appeals and has the opportunities to capitalise on.

I do not suggest any wilful or deliberate wrongdoing, but I believe a more conscientious approach to administering all kinds of grants programs should be taken by State Growth to ensure that Tasmania remains an attractive option for the Commonwealth government to entrust with the management of taxpayer money. I encourage the department to take heed of the TAO findings and to continue implementing processes and a culture conducive to excellent management of programs and initiatives that make Tasmania an outstanding place to invest in, visit and live.

I note the report.

[11.34 a.m.]

Mrs HISCUTT (Montgomery - Leader of the Government in the Legislative Council) - Madam Deputy President, the Department of State Growth administers numerous grant programs. Two of these were selected by the Tasmanian Audit Office to examine. This is a small sample considering the numerous programs the department administers. Both these programs successfully facilitated their stated objects.

The Regional Tourism Infrastructure and Innovation Fund was an Australian Government program facilitated by the department. It did not require an application and assessment process; however, the department ran a process to ensure it was equitable and transparent. The major findings of the Auditor-General's report highlighted the need for improved record management with the RTIIF program.

This finding has, in part, been addressed and improved in subsequent programs. In respect to the Regional Revival Fund Grant Program, a $5 million program to generate or sustain ongoing economic activity or jobs with a focus on regional areas, the Auditor-General found the program designed was sound and the approvals regarding the purpose of funding under the RRFGP were clear, but noted that risk assessment and management could be improved in the planning and design phase.

While it is disappointing these shortcomings occurred, I have been advised that before this report was undertaken, and in conjunction with its internal audit providers, grant management practices across the department were reviewed. The findings of this Tasmanian Audit Office report were incorporated into the review process. The implementation of this review remains a key business improvement activity for the department over the coming six to 12 months.

Work has already commenced on trialling a new grants management system with potential to be used across the department. The Government notes the report.

Motion agreed to.

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