Chapter 3 Audit Report No.45 2011–12 Administration of the Health and
The Health and Hospitals Fund (HHF) was one of three funds established
by the Commonwealth Government in the 2008–09 Budget, and given effect through
the Nation-building Funds Act 2008. The HHF objectives, while not
replacing state and territory effort, were to:
- invest in major
infrastructure programs that would make significant progress towards achieving
the Commonwealth’s health reform targets; and
- make strategic
investments in the health system that would underpin major improvements in
efficiency, access or outcomes of health care.
All infrastructure proposals for funding under the HHF were to be
assessed by an Advisory Board appointed by the Health Minister. The Advisory
Board was to consist of persons ‘with substantial experience or knowledge’ in a
field relevant to its function. The Board included the Secretary of the
Department of Health and Ageing (DoHA) and a range of other individuals,
including a person with expertise in economics; a health practitioner; a
clinician; a person with research expertise; an eminent community or business
leader; and a person with expertise in infrastructure financing.
The Health Minister was responsible for formulating the evaluation
criteria to be applied by the Advisory Board in its assessment of applications.
Of the projects assessed by the Advisory Board as meeting the evaluation
criteria, the Health Minister would put forward selected projects to the
Government for policy approval.
DoHA was responsible for administering the HHF. This included providing
advice to the Health Minister; providing administrative support to the Advisory
Board; and administering HHF grants. DoHA also provided advice on eligibility,
as well as background and contextual information to the Advisory Board during
the proposal assessment processes.
Four HHF funding rounds have taken place to date:
- The first round,
announced in May 2009, totalled $2.61 billion and included identified ‘shovel
ready’ projects in contribution to the Government’s economic stimulus strategy
in response to the global financial crisis.
- The second round,
announced in early 2010, totalled $540 million and targeted regional cancer
- The third round,
announced in May 2011, totalled $1.33 billion and focused on regional
infrastructure, in response to agreements with the independent members of
- The fourth round,
announced in May 2012, totalled $475 million and also targeted regional
Funds provided to states and territories under the HHF were not
considered to be grants under financial management regulations. Rather, these
funds were regarded as National Partnership project payments, subject to the
terms and conditions set out in implementation plans under the National
Partnership Agreement on Health Infrastructure. HHF funds provided to other
organisations, however, were considered to be grants and therefore were subject
to the Commonwealth Grant Guidelines.
The ANAO audit
Audit objective and scope
The audit objective was to assess the effectiveness of DoHA’s
administration in supporting the creation and development of health
infrastructure from the HHF, including DoHA’s support for the Health Minister and
the HHF Advisory Board.
To form its opinion, the Australian National Audit Office (ANAO) used
the following criteria drawn from the requirements and principles of the Commonwealth
Grant Guidelines and the ANAO better practice guide on grants administration:
- DoHA’s administration
of the planning and conduct of the funding rounds effectively supports the
purpose of the HHF;
- DoHA provides
appropriate support in the selection of projects for funding consistent with
the requirements of the Nation-building Funds Act 2008 and the Financial
Management and Accountability Act 1997 (FMA Act);
- DoHA’s negotiation
and management of funding agreements is effective in delivering projects and
outcomes from projects into the future; and
- DoHA develops,
collects and assesses output and outcome indicators of HHF performance and
reports on them.
The audit focused on DoHA’s role in the administration of the HHF
relating to Rounds 1 to 3. This included the advice and support provided by
DoHA: to the Health Minister in directing the work of the Advisory Board; and to
the Board and the Health Minister in the assessment and selection of projects
Overall audit conclusion
The ANAO concluded that DoHA had generally established effective
administrative processes to support the development of HHF funded
infrastructure; established sound arrangements to support the HHF Advisory
Board; and generally provided effective support to the Health Minister, although
had ‘at times adopted a relatively narrow view of its role’.
The ANAO found that the department’s administrative and support
arrangements had improved over time. The report noted that these improvements
had been made in the context of timing pressures caused by the first and third
HHF rounds being expedited by the Government, and significant resource
constraints within DoHA. These pressures were,
however, found to have had some impact on the program’s administration:
The limited time and resources available to DoHA to establish
processes for Round 1 militated against the adoption of a more structured
approach to the planning and conduct of that round. At the local and state
level, DoHA relied on the infrastructure needs and gaps identified by stand and
territory governments—a ‘bottom up’ approach. While the focus of the round at
the national level was decided by government, with extra time and resources
devoted to the administration of the HHF the department could have utilised a
more formal ‘top down’ strategic planning approach, including independently
assessing health infrastructure needs and gaps against government priorities.
Despite the department’s positive contribution to the HHF’s
administration and the advancement of projects, the ANAO identified scope for
the department to better assist key decision-makers, particularly the Health
Minister, in discharging their responsibilities.
The ANAO noted that the Health Minister had been provided with a
significant number of eligible projects with a value, if agreed, well in excess
of the funds available in the HHF. However, the Health Minister did not receive
further advice—such as a merit list or scores for individual projects against
the evaluation criteria—to support her assessment of the relative merits of the
eligible applications. The ANAO described DoHA’s claim that there was no
requirement for the Board or the department to rank projects for the Government
as reflecting ‘a relatively narrow view of responsibilities in grants
The ANAO also identified scope for DoHA to expand its advice to the
Minister and financial approvers on the financial implications of proposed early
payments for HHF projects. For the first three HHF rounds, 14 projects
were provided with payments in advance of project requirements, and the ANAO
estimated that the net present value of interest foregone by making these payments
in advance of requirements was $145 million.
While noting that HHF funded projects were intended to result in
improvements to health outcomes, the ANAO reported that DoHA plans to implement
an evaluation approach that focuses on progress against construction
milestones. The ANAO suggested that while this approach was reasonable, it
would be challenging to measure any tangible improvements to health outcomes at
a project level. There would accordingly be benefit in further developing the
evaluation strategy to determine the program’s overall contribution to
improving health outcomes.
The ANAO made three recommendations intended to improve the
effectiveness of DoHA’s administration of the HHF.
Table 3.1 ANAO recommendations, Audit Report No.45 2011–12
To maximise transparency in
decision-making, the ANAO recommends that, for all future HHF assessment and
selection processes, the Department of Health and Ageing:
all significant aspects of the selection process in funding guidelines; and
the Health Minister on priorities for funding proposals assessed as eligible
by the HHF Advisory Board.
DoHA Response: Agreed
To enable decision-makers to form a considered view on the
proper use of Commonwealth resources to fund Health and Hospitals Fund
projects, the ANAO recommends that the Department of Health and Ageing
provides advice to:
Health Minister on the risks, if any, and opportunity costs of making
payments to funding recipients in advance of need; and
b) the FMA
Regulation 9 approver on government decisions, if any, relating to payments
in advance of need and the implications of those decisions for spending
proposals requiring consideration under FMA Regulation 9.
DoHA Response: Agreed
To improve the transparency and accountability of
reporting on the outcomes achieved through HHF funding, the ANAO recommends
that the Department of Health and Ageing further develops its evaluation
strategy to determine the program’s overall contribution to improving health
outcomes, in addition to measuring progress against project milestones.
DoHA Response: Agreed
The Committee’s review
The Committee conducted its review of the audit report through written
The Committee sent DoHA eight questions in writing. DoHA’s response provided
the Committee with evidence on the following matters:
- The implementation of ANAO recommendations
- Communications between the Commonwealth and states.
Implementation of ANAO recommendations
DoHA’s response to the audit report noted that the department was not
allocated additional resources for the administration of the HHF until the
2011–12 Budget, when funds were reallocated from savings made as a result of a
strategic review of the portfolio. Although supporting the ANAO’s recommendations,
the response said that the department would continue to improve and strengthen
HHF administration ‘if resources can be identified to do this, taking into
account a constrained resources environment and other competing priorities’.
In a question to the department, the Committee sought to clarify this
response, asking whether there had been any progress in finding additional
resources and whether the ‘resource availability’ caveat applied to all three
The department responded that HHF capital works projects were being
administered ‘within existing resources’, supported by expert advice from the
Centre of Excellence for Capital Works, which had been established to advise on
establishing construction milestones, appropriate milestone payments and
monitoring construction progress. However, the department recognised the need
to ‘consider additional resources to both manage the funding round and
implement the audit recommendations’ should a further HHF funding round be
DoHA advised that its ‘resource availability’ caveat applied primarily
to implementing the ANAO’s Recommendation 3 (regarding the HHF’s evaluation),
but would also apply to Recommendation 1 (regarding transparency in the
decision-making process) if further funding rounds were held.
Timing of implementation
Given the timing of the audit report’s finalisation and the conduct of
the fourth HHF round, the Committee asked DoHA to advise whether the ANAO’s
preliminary findings had been taken into account in Round 4.
The department advised that it had received the ANAO’s preliminary
findings in relation to the first three HFF rounds on 21 March 2012. The HHF
Advisory Board’s advice to the Health Minister (dated
27 February 2012), and the department’s information to the Minister
relating to the Board’s advice (dated 28 February 2012), both preceded the departments
receipt of the ANAO’s preliminary findings.
Implementation of ANAO Recommendation 1
The Committee asked the department how it was implementing the ANAO’s recommendation
that it advise the Health Minister on the priorities of eligible funding
proposals and include all significant aspects of the selection process in
The department’s response stated that it would ‘give consideration to
the implementation of the recommendation’ if the Government announced a further
HHF funding round.
Implementation of ANAO Recommendation 2
In the context of the ANAO’s recommendation that DoHA improve its advice
in relation to making payments in advance of need, the Committee asked the
department what steps it was taking to ensure that future advice regarding
pre-payments under the HHF, and other similar programs, would take the full
financial implications into account.
The department replied that its internal procedures for HHF projects,
and other similar programs, required an executed funding agreement with
payments linked to milestones. The department said that advice from the Centre
of Excellence for Capital Works on construction milestones and appropriate milestone
payments ensured that delegates were ‘fully informed of the payment conditions
for each project and of the importance of providing advice to the Minister on
the financial implications of making advance payments’.
Implementation of ANAO Recommendation 3
The Committee asked DoHA how it was implementing the ANAO’s
recommendation to include, in its evaluation strategy for the HHR, an
assessment of the program’s overall contribution to improving health outcomes.
Additionally, the Committee asked when the first evaluations were likely to
The department informed the Committee that it had ‘commenced development
of an evaluation framework’. The framework would be ‘progressed through the
2012–13 financial year’ and the outcomes of the evaluation would be available
Communications between the Commonwealth and states
The Committee asked DoHA for the chronology of communications between
the Commonwealth and states in respect to the HHF. The department advised that
‘to compile the requested information would involve a significant resource
effort that the department is not currently in a position to undertake’.
In addition, in relation to the nomination of projects, the Committee
asked DoHA whether the Commonwealth had sought further information on:
- any hospitals offered
by states for approval through the HHF; or
- any hospitals not
offered by states for approval.
requested details of which states, which hospitals and at what moment in the
In response to both questions, the department advised that there had
been 669 applications received across the four HHF funding rounds, and that it
had sought information on some hospital applications at the request of the
However, the department indicated that it could not disclose the
requested information as it ‘concerns the business and commercial affairs of
the states’ and its disclosure ‘may impact on the Commonwealth’s future
dealings with the states’. In relation to non-government organisations, the
department similarly said that it was ‘not in a position to release this
information’ as it concerned ‘the business and commercial affairs of those
The Committee welcomes the Auditor-General’s report, and notes that the findings
were positive overall regarding DoHA’s role in administering the HHF.
It is concerning that DoHA was required to implement such a large
program as the HHF for approximately three years before being provided with
additional funding, particularly given that the implementation of Rounds 1 and
3 were fast-tracked. Under the circumstances, DoHA’s performance in the
administration of the HHF was commendable.
There are, however, some areas of concern identified in the report and
in the department’s response to the Committee’s questions that are worthy of
The Committee’s primary aim during its review of the audit report was to
ensure that the Auditor-General’s recommendations were being effectively
implemented by the department. Additionally, concerns raised by constituents of
some Committee members indicate a level of dissatisfaction in the community
about the transparency of the process used to select projects for HHF funding. Accordingly,
the Committee focused its questions on how the department was implementing the
ANAO’s recommendations to improve the process in future rounds, and on clarifying
the nature of the department’s activities in liaising with states and
territories on the projects proposed—and not proposed—for funding.
The response received from the department did little to ease concerns
about the level of transparency in HHF funding. Most of the department’s answers
to the Committee’s questions lacked detail and clarity, and questions about
communications between the Commonwealth and states were left almost completely
unanswered. Overall, DoHA’s response was unhelpful and demonstrated a lack of
respect for the Committee’s important role in scrutinising, on behalf of the
Parliament, the Government‘s use of public money. This was particularly unacceptable
given the department took almost two months to respond to the questions.
DoHA’s initial response to the audit report indicated that it supported
the ANAO’s recommendations, but in the context of a ‘constrained resource
environment and other competing priorities’. The department’s response to the
Committee’s questions seemed to confirm that the department did not view
implementing the ANAO’s recommendations as a high priority, and that a lack of
resources may prevent full implementation.
The Committee was particularly concerned to hear that this caveat placed
on the department’s support extended to ANAO Recommendation 1—on providing more
detail in funding guidelines and in its advice to the Minister—for which the
additional resource effort would presumably be small. Insufficient advice being
provided to Ministers responsible for approving grants is a recurring issue
that has been raised in previous JCPAA reviews.
DoHA’s response to the Committee’s specific question on the
implementation of ANAO Recommendation 1 stated only that the department would
‘give consideration’ to the implementation of the recommendation—should the
Government announce a further HHF funding round.
The importance of providing comprehensive information in funding
guidelines and delivering advice to decision makers on the relative merits of
proposals cannot be understated. The fact that the department would only ‘give
consideration’ to these concepts seems a poor approach to public
Although the audit under review was limited specifically to the HHF,
which does not currently have another round planned, the Committee considers a more
comprehensive response to its question and to the ANAO’s recommendation was
warranted. For example, the department had the chance to inform the Committee
of how Recommendation 1 would be applied to other similar grants programs managed
by DoHA, or whether DoHA’s internal guidance was being updated in light of the
recommendation. Given the absence of this information, the Committee assumes
that this is not currently occurring, and an opportunity for the department to
improve its grants program framework is being missed. The Committee therefore recommends:
That the Department of Health and Ageing identify and action
ways to apply the lessons of ANAO Recommendation 1 to its standard practices
and procedures for all current and future grants programs.
The Committee similarly found the department’s response to its question
on ANAO Recommendation 3—on improving the HHF evaluation strategy—to be
lacking. The response provided some basic timeline information, but no
information on how an assessment of the program’s overall contribution to
improving health outcomes would be included in the evaluation strategy.
The Committee acknowledges that assessing a single program’s
contribution to a goal as large as improving national health outcomes is a
complex task. Such an evaluation will unlikely be able to use a simple numeric
performance indicator, and instead with rely on partial information and
significant judgement. However, if such large goals are to be included in the
objectives of a program an attempt to evaluate progress must be made.
At a minimum, the department’s response to the Committee’s questioning could
have outlined the approach being taken to developing the evaluation framework;
the basic features expected to be included; and how the ANAO’s recommendation was
likely to be incorporated. The Committee was left with inadequate information
on what progress, if any, had been made to date in implementing the
recommendation. The Committee therefore recommends:
That, within 6 months, the Department of Health and Ageing provide
the Committee with an update on the progress of its evaluation of the Health
and Hospitals Fund. The update should include how the department’s evaluation
framework has incorporated ANAO Recommendation 3, and any preliminary
findings of the evaluation.
DoHA’s response to questions on the Commonwealth’s communications with
states could have done more to assist the Committee with its inquiry. The
Committee accepts that providing a detailed account of every instance of
communication between the Commonwealth and states would have been burdensome;
however, the department could at a minimum have provided a high-level overview
of the communications, or types of communications, that took place.
The Committee notes the ANAO’s finding that DoHA, due to a lack of time
to develop a clear internal strategy to inform funding priorities, relied on
states to identify infrastructure gaps and needs in HHF Rounds 1 and 3.
The Committee was interested to learn more about the process by which the
Commonwealth liaised with states in identifying suitable projects for funding,
but as it was, the response shed no light on these legitimate questions.
The transparency of funding arrangements between the Commonwealth and
states will continue to be an area of interest to the Committee in its future
Finally, the Committee notes the Auditor-General’s finding that, in the
context of the HHF funding round being fast-tracked:
… with extra time and resources devoted to the administration
of the HHF the department could have utilised a more formal ‘top down’
strategic planning approach, including independently assessing health
infrastructure needs and gaps against government priorities.
The Committee considers that the fast-tracking of programs may undermine
their integrity and that if more time was available and a more strategic
approach undertaken, better value for money may have been achieved.