… the partisan motives of politicians need to be constrained by procedures designed to protect the public interest … this is where the limits must be very firmly defended.
3.1
The sequence of events outlined in Chapter 2 point to significant governance failures in the administration of the CSIG program. This chapter examines the problems identified with the CSIG program’s design, including its constitutional basis and interaction with sports funding at the state and territory levels.
3.2
It then explores whether the minister had the necessary legal authority to make grant decisions and whether it was appropriate for her to deviate from Sport Australia's merit-based assessment process. Finally, it examines the failures of the Australian Sports Commission (ASC) board (the board) and executive, and the Department of Health, to manage risks associated with the program’s administration and the minister’s involvement.
Program design
Insufficient analysis
3.3
According to the ANAO and inquiry participants there was insufficient analysis of the need for national infrastructure funding and the likely high demand for grants when designing the CSIG program.
3.4
The Auditor-General’s report concluded that further analysis was needed to inform the design of the CSIG program in order to develop strategies to manage the high numbers of applications that Sport Australia received.
3.5
At the close of the first round of the program, Sport Australia received 2046 individual applications totalling in excess of $393 million, $363 million more than the CSIG program’s original budget of $29.7 million.
3.6
The committee heard that oversubscription to the CSIG program was not unsurprising given the push for greater sport participation nationally, in particular for women’s participation, and aging sporting facilities.
Better use of data
3.7
Witnesses suggested the use of national sport and recreation facilities data, linked with sport participation data, to inform grant programs.
3.8
Parks and Leisure Australia told the committee that objective facility and participation data should be the foundation of all decisions in relation to supporting community grants.
3.9
Witnesses also suggested that sports infrastructure grant programs need to consider the circumstances of smaller sports clubs, and regional and remote communities in their design. The East Arnhem Regional Council proposed that a proportion of funding should be ‘earmarked’ for remote communities, particularly given the high numbers of young people and limited opportunities to raise funds by other means.
3.10
Sport Australia told the committee that, in response to the recommendations in the Auditor-General’s report, it will ‘ensure alignment with similar State-based grant programs’ and use analytics from the CSIG program to inform the design of future programs.
Lack of consultation
3.11
The inquiry heard that there was insufficient consultation and coordination with states and territories in the design of the CSIG program. The ACT Government, while welcoming the investment in community sporting infrastructure, commented that:
The compressed timeline and process limited the opportunity for the Program guidelines and assessment practices to be shaped in consultation with local and state governments who had experience in sport infrastructure grant provision.
3.12
Several witnesses suggested that local councils better understand the sport and recreation needs of local communities, and therefore should be responsible for identifying priorities via the states and territories.
3.13
However, the point was also made that a large number of local councils applied for a grant under the CSIG program, and that this represented a misuse of their limited administrative resources funded by ratepayers.
Was the CSIG program unconstitutional?
3.14
Several witnesses with expertise in constitutional law and governance questioned whether the CSIG program was in fact constitutionally valid. They argued that there is no head of power in the Australian Constitution for the Commonwealth Parliament to make laws with respect to sport or local community facilities.
3.15
Constitutional and legal expert Professor Anne Twomey said the making of grants to local sporting groups is a matter for the states and territories and local government. She told the committee:
… section 51 of the Constitution does not include a head of legislative power to make laws with respect to resurfacing sporting fields, building car parks or repairing surf clubs. Those were matters to be dealt with by the states and ideally, through the states, by local government. Today the principle is described as 'subsidiarity'—that the functions should be performed by the level of government closest to the people that can efficiently do so—and this is how federal systems are supposed to work.
3.16
The committee was told that a more rational and constitutionally valid approach would be for the Commonwealth to provide funding for local community sport infrastructure projects to the states, in accordance with section 96 of the Constitution, to allocate the funds directly or indirectly through local government.
Minister’s legal authority
3.17
The minister's claim to have legal authority to be the decision-maker for the CSIG program came under scrutiny during the inquiry, raising questions about the validity of her grant decisions, and the program guidelines more broadly.
Purported sources of legal authority
3.18
Senator McKenzie submitted that exercising 'Ministerial discretion' was her prerogative and that, in the Westminister system, ministers were given the responsibility of making the final decisions in executing programs 'in their portfolios'.
3.19
According to Sport Australia, the legal basis for Sport Australia's role in each program was Sport Australia's own powers under the Australian Sports Commission Act 1989 (ASC Act) and that, in exercising its powers, it was 'open to Sport Australia to take account of the Minister's approval'.
3.20
However, several legal and public policy experts told the committee that, while the ASC Act provides for the entity to delegate any or all of its powers to specified individuals and committees, this list does not include the minister. The ASC Act also includes a process for recording that delegation, but no such record was made in relation to the minister assuming the power to make decisions.
3.21
The committee also heard that the minister has a specific and limited power under the section 11 of the ASC Act to provide directions to Sport Australia, however that power was not exercised. The power is limited to providing directions on the policies and practices followed by the Australian Sports Commission. Section 11 also requires any direction to be published within 15 days of the minister making it.
3.22
Professor Anne Twomey noted that Sport Australia is not a government department created under s 64 of the Constitution, and that its functions and powers and relationship with the minister are determined by legislation.
3.23
In addition ministerial power under section 64 of the Constitution to administer government departments does not extend to corporate entities established by statute. Professor Twomey explained:
While a Minister may have a general power to direct public servants in his or her department (subject to any statutory obligations and the requirements of administrative law), a Minister does not have the same power with respect to corporate entities established by statute. Assertions that the Minister had ‘ministerial discretion’ to act as if the Australian Sports Commission were a department are not correct.
Program guidelines and the minister’s approval right
3.24
The program guidelines were frequently cited as the basis for the minister's right to approve grant funding for the CSIG program.
3.25
The Auditor-General’s report was critical of the CSIG program guidelines, in particular, that the guidelines provided for the minister to be the grant decision-maker when there was no evidence of the necessary legal basis.
3.26
The committee heard from one legal expert that, as there was no power in Sport Australia’s governing legislation to delegate decisions to the minister, her approval rights in the program guidelines were invalid:
There was no power on the part of Sport Australia to delegate its power to the minister. She could not be the program delegate as stated in the guidelines. There's no point in constantly saying that she was the person appointed by the guidelines to approve the grants. This is because there was no power to make the guidelines in that form. They cannot be made in a way that is contrary to the act. The act prevails and the guidelines, to the extent of their inconsistency with the act, are invalid.
3.27
The evidence before the inquiry shows the Department of Health was heavily involved in the development of the program guidelines before they were approved. At no point, however, was the minister’s legal authority raised with the minister’s office as an area for clarification.
3.28
Senator McKenzie told the committee that concerns about her legal authority were not raised with her by Sport Australia or the Department of Health prior to the commencement of the CSIG program, nor during the 2018-19 Budget process when it was agreed that the CSIG program would be funded and administered through Sport Australia. She said:
I expect the Australian Public Service would resolve such legal issues, if they exist, prior to advising a Minister on how she should proceed with the expenditure of public monies’.
Legal advice regarding minister's approval role
3.29
The committee heard that the Department of Health and Sport Australia had identified that legal advice may be required on the use of section 11 of the ASC Act in order for the minister to undertake this role, but that this legal advice was not sought.
3.30
The Department of Health contended that, whilst it was involved in developing the program guidelines, it did not seek advice as to the legality of the processes as it was considered the responsibility of Sport Australia.
3.31
The committee viewed an internal departmental email where an officer within the Department of Health questioned the minister’s authority to approve expenditure of less than $500,000. The officer suggested that the ASC Act enabled the minister to give a written direction to Sport Australia to be the 'expenditure delegate' for the program, but suggested that further legal advice should be sought if the minister intended to pursue that option.
3.32
Ms Caroline Edwards, Associate Secretary Department of Health, dismissed the email as a 'one-off' discussion between relatively junior officers about 'a general policy issue'. Whilst the email sender and recipient were relatively junior officers, evidence before the committee shows that at least one senior officer was copied in.
3.33
Sport Australia told the committee that the manner in which the minister decided to exercise an approval right under the program guidelines was 'the minister's prerogative', and that it was not for Sport Australia to comment on the process that the minister went through when exercising her approval right. The Chair of the board told the committee:
The nature of our position is that we have to respect the position of the minister. It's not our decision.
3.34
The Department of Finance explained that all involved in the administration of grant programs should be fully aware of their powers and obligations:
It is about ensuring that ministers are well informed, that they act within their powers and that agencies draw attention to their powers as well.
3.35
The Auditor-General told the committee that it was the responsibility of the Department of Health and Sport Australia to inform the minister if they had concerns, and to 'not put the minister in a situation where they may not have legal authority'.
3.36
The committee was told that, after the release of the Auditor-General’s report, Sport Australia sought legal advice regarding whether the entity had acted within its powers in carrying out its role in the CSIG program. The Chair of the board stated that the opinion confirmed the entity was acting within its powers and purposes under the ASC Act.
3.37
The Prime Minister stated that, following the release of the Auditor-General's report, he also sought legal advice from the Attorney-General in relation to the minister's legal authority to award grant funding. After consulting the Australian Government Solicitor about the matter, the Attorney-General advised that the 'Auditor-General's assumption arising out of his apparent interpretation of section 11 of the ASC Act is not correct'.
3.38
The committee heard that the report prepared by Mr Gaetjens for the Prime Minister on whether the minister had breached Ministerial Standards did not explore the question of the minister’s legal authority. However, Mr Gaetjens concluded that the minister had ‘acted within the remit’ of the CSIG guidelines.
3.39
When asked by the committee whether he had a view on the minister’s legal authority, Mr Gaetjens said it was not in his ‘purview or competence’ to answer the question:
I am not a lawyer, I do not have legal qualifications, I am not a practising lawyer, so, again, I don't think it is an answer I can provide. All I do know is that the Attorney-General has reached his own view and I think the government would probably act according to what the Attorney-General thought.
3.40
The Joint Public Accounts and Audit Committee, in its report on the Auditor-General’s audit of the CSIG program, concluded that it is still not clear what was the legal basis for the minister’s decisions under the CSIG program and recommended that Sport Australia seek legal advice and amend its guidelines to clarify the authority, duty and role of the Minister for Sport.
Parliamentary appropriations
3.41
The committee considered evidence regarding whether parliamentary appropriations provided the statutory source of executive power for the CSIG program, given that the money was appropriated to the Department of Health for payment to Sport Australia for the purpose of expenditure on grants by Sport Australia.
3.42
Several legal experts told the committee that, whilst parliamentary appropriations were once considered sufficient as a statutory source of power, the High Court has made it clear that the Commonwealth executive must be authorised to spend money, beyond the day-to-day running of the government, by legislation. That is, there must be appropriation of funds and specific legislative authorisation.
Problems with decision-making
Deviation from the merit-based assessment process
3.43
As discussed in Chapter 2, although Sport Australia had applied the merit-based assessment process outlined in the published program guidelines, the minister’s office undertook its own ‘parallel assessment’ process drawing on considerations other than those identified in the program guidelines.
3.44
The Auditor-General told the committee Sport Australia’s own Grant Administration Framework outlines that departing from the published assessment criteria, and applying unpublished criteria, would be ‘detrimental to the conduct of a transparent and equitable program, and can also be detrimental to the achievement of the program objectives from which the selection criteria has been derived’.
3.45
Evidence before the committee shows that the CSIG program manager within Sport Australia had raised concerns directly with the minister’s office regarding the minister’s deviation from the published programs on several occasions. However ultimately, the board had concluded that ‘whilst this is not the ideal outcome’, the risks had been ‘comprehensively articulated’ to the minister.
3.46
The former CEO of Sport Australia, Ms Kate Palmer, told the committee that Sport Australia had undertaken its responsibility ‘very professionally', and that the organisation respected the right of ministers to make their own decisions.
3.47
Professor Stuart Kells, Adjunct Professor at La Trobe University, explained to the committee that whilst it is not unusual for a minister to deviate from a recommended funding decision, any deviation must be incremental, merit-based, and justifiable in terms of the program's objectives. In the case of the CSIG program, he noted that these were 'ad hoc deviations' from the standard process that exposed all involved to a level of 'probity risk'.
3.48
The Joint Committee of Public Accounts and Audit, in its report on the audit of the CSIG program, concluded that grant funding should be assessed against the stated eligibility criteria of a particular program. The committee stated that:
Funding decisions should be merit-based and undertaken transparently and in accordance with the directions set out by the PGPA Act, its associated Rule and guidance issued by Finance.
‘Emerging priorities’
3.49
During Round 3, and six months after applications for the CSIG program had closed, the minister’s office identified nine grant applications ‘as emerging priorities’. This included five new applications and four amended applications. Sport Australia told the committee that the minister’s office requested Sport Australia include the nine grant applications in its list of recommendations for Round 3 funding.
3.50
In response to Sport Australia’s concerns that it would be inappropriate to invite new applications or amend existing applications, the minister’s office said that the applications were all constructed according to the guidelines and were considered ‘priorities that have not been met’. The minister’s office told Sport Australia that the minister had identified ‘emerging issues since the completion of the assessment process’.
3.51
The Auditor-General’s report notes that seven of the projects were located in a Coalition held-electorate and two in ‘targeted’ electorates, one held by Labor and the other by an independent member.
3.52
According to the Auditor-General, the opportunities afforded to those applicants to amend existing applications or to submit new applications were not made available to other applicants.
Reasons for decisions and record-keeping
3.53
As discussed in Chapter 2, unsuccessful applicants told the committee that they had received no explanation of the reasons why their grant application was not approved.
3.54
Where applications assessed as less meritorious were awarded a grant, it was not clear or recorded why funding was not given to higher scoring applications – including those that had scored 90 or above.
3.55
The Auditor-General’s report concluded that the reasons for funding decisions were not clearly documented and that as a result, when informing unsuccessful applicants that they had not been awarded a grant, Sport Australia was unable to communicate the ‘full and actual reasons’ for their application being unsuccessful.
3.56
The Auditor-General’s report recommended that Sport Australia improve its record-keeping practices to ensure reasons are recorded for assessment scores that are awarded.
3.57
Sport Australia’s status as a corporate Commonwealth entity meant that certain record-keeping and reporting requirements in the Commonwealth Grant Rules and Guidelines (CGRGs) did not apply.
3.58
The Auditor-General’s report recommended that the Australian Government amend the CGRGs to require that the advising, decision-making and reporting requirements be extended to apply to corporate Commonwealth entities where the minister is the decision-maker.
3.59
In response to this recommendation, the Government amended the Public Governance, Performance and Accountability Rule 2014 to prescribe mandatory advising, decision-making and reporting requirements that apply when a minister is involved in the making of a corporate Commonwealth entity grant.
3.60
The Joint Public Accounts and Audit Committee, in its report on the audit of the CSIG program, concluded that more needs to be done to improve record-keeping practices:
Appropriately documenting administrative decisions is a key element of probity and transparency, which is particularly applicable in grants administration. Documentation also assists with transparency in any subsequent review of decisions. The Committee is of the view that stronger requirements in relation to documentation, particularly in relation to decision-making, is warranted to ensure Commonwealth entities maintain transparency and accountability.
Communicating risk to the minister
3.61
Evidence before the committee shows that the Sport Australia officer with responsibility for managing the CSIG program alerted the minister's office on several occasions to the risks associated with deviating from the CSIG program guidelines. Media reports have also indicated that staff within the minister’s office warned the minister of the risks related to her decision making.
3.62
For example, when a list of ‘approved’ Round 1 projects were provided to Sport Australia by the minister’s office, the CSIG program manager replied that:
Reasons should be recorded where a recommendation is rejected;
there would be a reputational risk where funding decisions are perceived as favouring localised projects that did not meet the assessment criteria; and
the minister may need to defend her decisions at Senate Estimates where those decisions did not follow the recommendations from the panel which followed a rigorous, transparent and defensible process.
3.63
However, when funding recommendations were ultimately made to the minister, Sport Australia complied with the directions issued by the minister's office.
3.64
When Sport Australia put forward its recommendations for Round 3 funding, it referred specifically to nine applications identified by the minister’s office to be funded. Despite previously warning the minister that the nine applications were ineligible, Sport Australia’s recommendations noted that ‘the Minister can consider these projects if she chooses’.
3.65
The Chair of the board told the inquiry that Sport Australia had exercised ‘proper stewardship and governance’ through the assessment process by recording the process, and raising the risks with the minister's office with regard to her making decisions independently of the board-endorsed list.
3.66
The Chair of the board argued that Sport Australia had fulfilled its public responsibilities in providing independent, merit-based assessments to the minister, and that the board's Finance, Audit and Risk Committee had determined that the minister’s decision making was 'consistent with the role that was afforded her as the program approver under the program guidelines’.
Role of the board
3.67
The committee heard conflicting evidence about the extent to which the board fulfilled its duties and responsibilities in the CSIG program. The Auditor-General stated that, apart from endorsing the list of 426 applications assessed as meritorious by the assessment panel, the board played no further role in the administration of the program.
3.68
The Chair of the board advised that the board did not approve the program guidelines, since the 'specifics of a set of program guidelines' is an administrative matter and does not come to the board for approval. The Chair told the committee that it was ‘ultimately the minister’s prerogative to make decisions as the minister saw fit’.
3.69
The board was advised on several occasions that the minister was taking an active role in exercising her approval rights, and they took the view that the risks had been 'appropriately raised' with the minister's office.
3.70
However, several witnesses with expertise in public policy and governance argued that the board had not fulfilled its responsibilities in relation to the CSIG program.
3.71
Professor Stuart Kells of La Trobe University Business School told the committee that, where there is a 'major integrity issue', it would be appropriate for the Chair of the board to raise it with the portfolio minister. He added that, whilst it would be normal for a board to delegate the assessment process to an internal group, ultimately the board 'has responsibility for the integrity framework that's applied within the organisation'.
3.72
Emeritus Professor Richard Mulgan of the Crawford School of Economics and Government at the Australian National University commented that, given the extent of the minister’s deviation from the board’s recommendations, the board should have done more:
This was such a serious deviation and issue for the organisation that I would think it should have been something that was discussed in depth at the board level, and then the board level had an obligation to speak out about what was occurring.
3.73
Professor Mulgan described Sport Australia's behaviour as 'deeply worrying', noting that the entity failed to defend its rights and, in doing so, allowed the minister to 'override many of the necessary constraints'.
3.74
The Department of Finance noted that corporate Commonwealth entities like Sport Australia were created by Parliament to have a legal status in their own right and to operate at ‘arm’s length’ of government.
Other governance issues
3.75
The Auditor-General’s report also highlighted concerns with Sport Australia’s management of conflicts of interest. The report recommended that Sport Australia clarify its conflict of interest policy to require employees involved in the design and administration of grants programs to declare any conflicts.
3.76
Sport Australia told the committee that the Auditor-General’s recommendations have been accepted and actioned, and that ‘additional measures over and above the ANAO recommendations’ have been adopted to further strengthen future internal processes.
Committee view
Fundamental problems with the program design
3.77
The committee considers that the foundations of the CSIG program design were deeply flawed, resulting in a series of governance failings by Sport Australia, the Department of Health, and the minister.
3.78
The role of Sport Australia in administering the CSIG program, as a statutory body intended to operate at arm’s length from the minister, was fraught from the moment the minister insisted on being the program’s decision maker. The minister applied unfettered discretion to award sports grants without clearly defined parameters in the program guidelines. Grants were awarded by the minister on grounds other than those set out in the merit-based assessment process designed by Sport Australia and outlined in the program guidelines.
3.79
It is clear from the evidence before the committee that the relationship between the minister, Sport Australia and the Department of Health operated in a zone of legal uncertainty not adequately addressed in the program design and published guidelines, whereby there was no one taking responsibility for the risks involved in the minister’s decision-making.
3.80
As discussed further below, this included the risk that the minister did not have the requisite legal authority to make grant decisions. Evidence presented by legal and constitutional experts also poses concerning questions about whether the CSIG program was constitutionally valid. This points again to a failure in the design of the CSIG program.
3.81
The committee was concerned to hear from sports clubs and councils from around the country about the significant need for funding to address inadequate and run-down sporting facilities. The committee considers that the CSIG program was poorly targeted and funded to address the range and depth of community need. The committee notes that many worthy female facilities were not funded by the CSIG program, and then appear to have been overlooked again in the Female Facilities and Water Safety Stream Grants program.
3.82
The committee is of the view that grant funding could be better streamlined through a coordinated national approach to sports grants programs, drawing on data to help identify priorities for funding based on the needs of each community sport across jurisdictions. This would provide a rational basis for allocating government resources to community sporting facilities and give greater certainty to communities than the current ad hoc processes adopted by the various jurisdictions. The committee notes that this is already a key priority in the national sport plan, Sport 2030: Strengthening Australia’s Sport Industry, and has clearly not been addressed by government.
3.83
The committee recommends the Australian Government develop and implement a coordinated national policy framework for community sport infrastructure, to facilitate:
greater collaboration between community sport agencies at Commonwealth, state and local levels for community sports infrastructure programs;
a streamlined approach to administering community sports grants schemes, including a process for notifying all community sports clubs and organisations of opportunities to apply for grants and other support; and
the sharing of information from state facility audits and other sources to underpin a coordinated, longer-term process based on an audit of needs rather than the current ad hoc approach by different jurisdictions.
The minister’s legal authority
3.84
The committee has heard compelling evidence from legal and constitutional experts that the power to allocate grants was conferred by statute to Sport Australia, not the minister, and that Sport Australia had no power to delegate its power to the minister.
3.85
Despite ongoing attempts by this committee, requests for information on the minister’s legal authority have been denied by Sport Australia, the Minister for Sport and the Attorney-General. The question of whether the minister had legal authority to award grant funding under the CSIG program was left unanswered by the Secretary to the Department of the Prime Minister and Cabinet. Indeed, the Secretary failed to consider the lawfulness of the minister's actions in his review of whether the minister breached Ministerial Standards.
3.86
The minister’s legal authority, or lack of, was clearly relevant to her actions in the context of the Ministerial Standards because the standards state that:
Ministers must ensure that they act with integrity – that is, through the lawful and disinterested exercise of the statutory and other powers available to their office; and
Ministers must not encourage or induce other public officials, including public servants, by their decisions, directions or conduct in office to breach the law, or to fail to comply with the relevant code of ethical conduct applicable to them in their official capacity.
3.87
The committee considers that the question of the minister’s legal authority to have made decisions on grants under the CSIG program remains under considerable doubt. The committee notes that the minister's actions have exposed the Commonwealth to legal challenges by unsuccessful applicants seeking a review of the funding decisions made under the CSIG program.
3.88
The committee recommends that the Australian Sports Commission Act 1989 be reviewed to clarify the authority of the minister in relation to grant approvals. The committee also recommends the Australian Government consider a broader review of other relevant statutory bodies and agencies with the power to grant funds.
Poor governance within Sport Australia
3.89
The evidence received by the committee clearly demonstrates that Sport Australia and its board were effectively muted in the decision-making process. Recommendations made to the minister were ignored in favour of applicants that the minister selected.
3.90
Attempts by Sport Australia staff to raise concerns with the minister’s office were disregarded and lists of approved projects identified by the minister’s office were subsequently adopted in briefing and approval documentation. Responsibility for raising risks with the minister’s office was seemingly left to program staff, and there was no attempt by the Sport Australia executives or the board to communicate issues directly with the minister.
3.91
The committee is concerned about the evidence showing Sport Australia’s inability to withstand pressure from the minister’s office, particularly on issues where program staff had identified clear risks with the minister’s decision-making.
3.92
The committee considers that Sport Australia’s failure to manage the grant process in accordance with its own published guidelines, and to effectively manage the risks involved in the program with the minister’s office, indicates a broad lack of understanding of their own powers and responsibilities under legislation.
3.93
The committee is also concerned that Sport Australia failed to perform due diligence in relation to the design of the program and in particular whether the minister had the requisite legal authority to make grant decisions.
3.94
The committee recommends the Australian Sports Commission (ASC) make governance training mandatory for the ASC Board and all officers involved in grant administration within Sport Australia to ensure they are cognisant of their powers, responsibilities and duties under law.
Role of the Department of Health
3.95
It is clear to the committee that the Department of Health failed in its role to support Sport Australia as one of its portfolio agencies.
3.96
The committee notes that the department was involved early in the design of the program guidelines and had an ongoing role providing policy advice and assistance in liaison with the minister’s office.
3.97
The committee considers that the department was exposed to information about the risks of the minister’s involvement in the CSIG program and despite their active involvement and resources, it provided limited practical assistance to Sport Australia to manage those risks. It also appeared that the department failed to adequately raise questions about the minister’s legal authority with respect to the program.