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Confession chosen as the cure for government grant grievances

19.01.2021

In many countries, using government grants to influence voting preferences is almost a national sport. Politicians are often accused of discriminating between grant applicants for ulterior motives, and subsequent inquiries often prove these accusations to be true. In response, the Australian government has introduced new rules to avoid this kind of behaviour. They are aimed at making sure that Ministers cannot act other than upon advice based on program guidelines, must confess ‘own-electorate’ and ‘unrecommended’ funding, and that the details of all grants made are published.

In this Government Briefing, Moulis Legal special counsel Lucinda Watson reports on these new developments.

‘Distribution bias’ – newspeak for favouritism

The Australian Government has not been immune to accusations about politicised grant funding. A recent Australian National Audit Office (ANAO) report recommended that decision making and reporting requirements be tightened. The damning report concerned the Government’s Community Sport Infrastructure program[1] and concluded that funding recommendations from the Australian Sports Commission had been largely ignored when the Minister’s office handed out the cash.

As it turned out, over the three rounds of funding, more than half of the projects funded through the Community Sport Infrastructure program had not been recommended to the Minister. According to the ANAO:

There was evidence of distribution bias in the award of grant funding… The award of funding reflected the approach documented by the Minister’s Office of focusing on ‘marginal’ electorates held by the [Liberal/National] Coalition as well as those electorates held by other parties or independent members that were to be ‘targeted’ by the [Liberal/National] Coalition at the 2019 Election. Applications from projects located in those electorates were more successful in being awarded funding than if funding was allocated on the basis of merit assessed against the published program guidelines.

Distribution bias has also been levelled against the Community Development Grants program administered by the Department of Infrastructure, Transport, Regional Development and Communications, involving exponentially greater dollar-amounts than the Community Sport Infrastructure program. Following requests from two senators, the ANAO has decided not to audit the Community Development Grants program in 2020-21.

What should be the objective?

Of course, government grants have an important role. They support the attainment of government policy objectives, especially from a social welfare perspective. With grant funding, projects for the benefit of the Australian public, which might otherwise not be viable, are able to proceed. These programs involve the expenditure of very large amounts – in the case of the Community Development Grants program mentioned, well into billions of dollars. The government has a special responsibility to ensure that its administration of grant programs fulfills a social objective and promotes the proper use of public resources. A government may be re-elected if its grant program improves the welfare of the nation. However, an important aspect of that welfare objective is for the funding decision to be rules-based and even-handed. The money needs to be invested where the social need is greatest, not where most votes are needed.

Take note of the new grant rules

A new Division has been introduced into the Public Governance, Performance and Accountability Rule 2014 (PGPA Rule)[2] to guard against the awarding of grants for political gain rather than based on merit. Importantly, the new rules apply to Commonwealth corporate entities (CCEs), and to the Minister responsible for any final approvals. CCEs include entities such as the Clean Energy Finance Corporation, Indigenous Business Australia, Murray-Darling Basin Authority and Tourism Australia, to name a few.[3]

The new rules introduce mandatory advising, decision-making and reporting requirements for CCEs and Ministers. These are the new key responsibilities:

  • CCEs must prepare written grant guidelines and provide written advice to the Minister before the Minister decides on the grant; and
  • grant guidelines and information about grants approved by a Minister must be published on GrantConnect.[4]

In addition, in a clear nod to recent woes, Ministers must now report to the Finance Minister, or in the case of the Finance Minister, to the Prime Minister, if they approve the making of a CCE grant that:

  • is in the Minister’s own electorate; or
  • the CCE recommended not be made.

CCE officials will need to assist the Minister to meet these reporting requirements where they apply. The PGPA Rule sets out the minimum level of information that must be included in the grant guidelines and the advice given to the Minister. The detail that is required in the written notice to the Minister is clearly aimed at ensuring Ministers are given the information they need to make an effective assessment of grant applications against the grant guidelines and to understand their obligations and limits on their decision-making role. In its report on the Community Sport Infrastructure program, the ANAO was critical of the Minister’s office running a parallel assessment process against considerations other than the assessment criteria. Accordingly, in addition to providing the Minister a copy of the guidelines, the advice to the Minister must provide an assessment against those guidelines including the selection criteria. All of this aims to increase transparency and accountability in both the process and grant award decisions.

Some exemptions, and conditions where Departments remain subject to existing rules

As is often the case with rules, there are some exceptions that may apply in specific circumstances. One example is that grant guidelines are not required to be published on GrantConnect if there is an urgent need for payment; to address an unexpected or unforeseen need. Where an exception is relied on, the reasons for that decision must be recorded in writing.

The changes bring forward requirements of the Commonwealth Grant Rules and Guidelines (CGRGs) that already apply to non-corporate Commonwealth entities, notably Government Departments and their Ministers, to CCEs. Clearly, the main exception is that the new rules do not apply to CCEs when the Minister is not involved in the making of the grant. Although most CCEs are not subject to the CGRGs (unless undertaking a grant on behalf of the Commonwealth), CCEs can still benefit from the best practice guidance in the CGRGs. CCEs may find the detailed guidance in the CGRGs, regarding the development of grant guidelines, to be useful.

If you would like any assistance managing your grant program, please get in touch with us.

Moulis Legal is one of the Australian Government’s legal services panel firms, in the areas of general contract law (which includes grants, funding agreements and MOUs), intellectual property, and information and communications technology.

This memo presents an overview and commentary of the subject matter. It is not provided in the context of a solicitor-client relationship and no duty of care is assumed or accepted. It does not constitute legal advice.

© Moulis Legal 2021

 

[1]               See Auditor-General Report No. 23 of 2019–20, Award of Funding under the Community Sport Infrastructure Program.

[2]              Division 6A of the Public Governance, Performance and Accountability Rule 2014 (PGPA Rule)

[3]              Full list available at https://www.finance.gov.au/sites/default/files/2021-01/Flipchart%20Jan%202021%20FINAL.pdf

[4]              GrantConnect is the Australian Government’s grants information system. More information is available at https://www.grants.gov.au.