Audit of the award of the grant to the Great Barrier Reef Foundation
This chapter outlines the main findings of the very detailed and
comprehensive audit by the Australian National Audit Office (ANAO) of the award
of the grant to the Great Barrier Reef Foundation (the Foundation), which was
presented to Parliament on 16 January 2019.
The ANAO's report largely confirms this committee's own findings: that
the process by which the Foundation was selected for, and awarded, a
Partnership by the Government was seriously flawed, including in the adequacy
of the work that the Department of the Environment and Energy (the department)
undertook as part of this process.
The ANAO stated that all decisions in awarding and paying the grant were
'informed by departmental advice'. Further, that advice 'clearly recognised
that funds needed to be paid and accounted for in 2017–18'. However, the report
went on to comment:
There were shortcomings in aspects of the department's
advice, partly as a result of non-compliance with elements of the grants
The ANAO noted the following:
the 'compressed timeframe needed to meet the objective of
spending the funds in 2017–18' of only 11 business days;
a lack of consideration of any other partner for a tied fund
partnership, apart from the Queensland Government which is already a partner of
the Commonwealth in the Reef 2050 Plan and the Reef Trust;
a lack of evidence and record keeping, which means decisions were
poorly documented, if at all; and
a lack of consideration given to 'opportunities to introduce some
competition into the grant giving process', even though the Commonwealth's
grant framework 'seeks to encourage competitive, merit-based selection processes'.
The ANAO also noted that the department, while it identified some of the
benefits of paying the grant in full in 2017–18, it did not estimate or bring
to the Government's attention the costs of doing so.
The ANAO noted:
...no consideration was given to the financial cost to the
Commonwealth (in terms of additional public debt interest) of paying the full
grant amount in 2017─18. This upfront payment was more likely to have
resulted in greater public debt interest expense than periodic payments over
six years reflecting the cash flow needs of the foundation in delivering the
partnership (or to specific delivery milestones).
The ANAO noted that the 'development of program guidelines is an
important element of the Government's administrative framework' as they 'play a
central role in the conduct of effective, efficient and accountable grants
administration'. The Commonwealth Grant Rules and Guidelines (CGRGs) set out
the requirements for grants. When measured against the CGRGs, the Partnership
programs were found to contain inadequate detail, namely:
there was insufficient detail provided regarding the desired
program outcomes, and that 'there would have been benefits in guidelines
setting out clear targets for what was expected to be achieved (such as how
much funding the Australian Government expected to be leveraged from the
private sector using the grant funding)'; and
'clear assessment criteria were not included', which 'did not
enable an appropriate assessment of whether a partnership proposal represented
value for money'. In relation to the latter matter, the audit noted that the
reasons provided to the minister that the Partnership did represent value for
money 'differ in important respects from the matters the program guidelines
required that the proposal address'.
The ANAO made two recommendations in relation to the program guidelines:
that the department include performance targets in program
guidelines for Reef Trust grants to assist it to decide whether funding
proposals represent value for money having regard to the quantum of funding
that is being sought; and
that the department include clear assessment criteria in program
guidelines for any grant proposals that are being considered through
These recommendations were noted by the department.
Approval of grant funding
The ANAO found that the department had provided detailed and clear
written advice to the minister as required by the content requirements of the
CGRGs. However, while the minister was advised that the Foundation's proposal
fully met the criteria in the program guidelines, the guidelines did not
contain clear assessment criteria. Instead, the ANAO stated, the department
cited six reasons as to why it supported the Foundation's proposal as
representing value with money and a proper use of Commonwealth resources, but
'not all the reasons cited by the department can be adequately traced back to
the program guidelines'.
Evaluation of the Foundation's proposal by the department
In relation to evaluation of the proposal, the ANAO noted that the
department had assisted the Foundation to develop its funding proposal, at the
same time that the program guidelines were being developed and the evaluation
of the proposal was taking place. While a risk management strategy was adopted,
the ANAO found that the department may not have sufficiently addressed
potential conflict of interest issues in its assessment of the grant. Even if
it ensured that the 'senior level review of evaluation' of the Foundation's
proposal was not conducted by officers who had assisted in its development, it
was perceived that the department failed to address the risk that its work
assisting the funding proposal 'presented to an objective evaluation of that
proposal, and conflict of interest risks were not adequately addressed'.
The ANAO recommended that the department develop a probity framework to
manage the risks when it assists potential grant recipients to develop their
funding proposals and applications in the future. The department agreed to this
The ANAO also noted deficiencies in the proposal evaluation in the
following three key areas examined by the ANAO, namely the:
'capacity and capability of the foundation's delivery partners to
scale-up their activities';
'foundation's past fundraising performance'; and
'total administration costs of the partnership model' as the
department focussed only on the Foundation's costs, 'with no evaluation
attention given to the administration costs of the foundation's delivery
Foundation's ability to scale-up
The ANAO found that the department applied adequate scrutiny to matters
related to the Foundation's ability to scale-up its governance structures and
resourcing level. It was noted that the department had identified that there
was a low risk in relation to the Foundation's ability to scale-up 'on the
basis that the grant agreement would set out clear early milestones relating to
scaling up activities and plans'.
However, the audit report commented, in relation to the likely effectiveness of
the Grant Agreement requirements, that the department:
does not have any approval rights
over the plans and strategies the foundation is required to prepare. Rather,
the foundation is required under the grant agreement to give the department
drafts of each of the plans and strategies and take into account any comments
of the department in finalising the plans and strategies; and
is not able to withhold the
payment of any grant funding in the event it is not satisfied with the content
of the plans and strategies. Legal advice to the department was that the
up-front payment of all of the grant funding carried with it a higher risk that
the grant would not achieve its intended outcomes than a grant made available
progressively on the achievement of specified milestones.
The ANAO found that there was insufficient scrutiny applied in the
evaluation of the proposal as to whether the Foundation's delivery partners,
including subcontractors, will be able to scale up their capacity and
capability. The department has advised the ANAO that the risks associated with
subcontractors will be managed through the Grant Agreement and across the grant
lifecycle by the Foundation.
The Auditor-General recommended:
The Department of the Environment and Energy obtain assurance
over the achievement of value for money in the foundation's use of delivery
partners by requesting the foundation benchmark prices being offered against
rates charged prior to the announcement of the $443.3 million in grant funding.
This benchmarking will be particularly important in circumstances where open
competition has not been employed by the foundation when selecting delivery
The department agreed to this recommendation.
Past fundraising performance and
The ANAO concluded that the department's assessment applied inadequate
scrutiny to the Foundation's past performance and future plans to attract
private and philanthropic investment. One matter highlighted was that the
department's written assessment 'repeated statements made by the foundation in
In addition, deficiencies were identified in the department's analysis
of the Foundation's performance in attracting co-investment. It was observed
that the Foundation's financial statements were not considered next to claims
it made in the proposal and, while 10 years of financial statements were
publicly available, the department only obtained the two most recent sets
of financial statements. The ANAO described this as an 'inadequate'
In relation to future plans, the ANAO noted:
The decision to approach the foundation about entering into a
partnership was informed by advice that a large, upfront grant would strengthen
the foundation's capacity to leverage philanthropic and business funding.
The audit report noted that the program guidelines stated that the
Foundation's proposal should demonstrate how it planned to attract private and
philanthropic co-investment to enhance delivery of the partnership. While the Foundation's
proposal included three paragraphs directly related to this requirement, the audit
report stated that the proposal did not demonstrate how the Foundation planned
to attract co-investment.
The ANAO concluded that 'insufficient information was obtained and
analysed to assess past performance and future plans'.
The ANAO commented that the Grant Agreement does not include specific
co-investment targets. Instead, the Foundation is required to develop a co‑financing
strategy which, in combination with annual work plans, 'is expected to set out
how the foundation will use the grant to raise contributions from other sectors'.
While the Foundation is required to consult on those plans, the department does
not have approval rights over the plans.
It was noted that the Collaborative Investment Strategy, provided to the
department in September 2018, includes targets totalling $300 million to $400 million
over the next six years. The feasibility of these targets has not yet been
assessed, so may require adjustment. Adjustment of the targets may occur, once
the Foundation has undertaken feasibility testing.
Regarding administration costs, the ANAO commented that the Foundation's
proposal did not address the administration costs of its subcontractors.
Similarly, the department's evaluation, including material provided to the
minister, did not address subcontractor administration costs.
The ANAO found:
The department applied insufficient scrutiny to the likely
administration costs of the partnership. In particular, the assessment work and
resulting advice to the Minister focused on the foundation's administration
costs (capped in the grant agreement at $44.33 million), notwithstanding that
it was evident that the foundation would be relying heavily on subcontractors
for program delivery.
The department agreed to the ANAO's recommendation that it develop
strategies to allow it to be assured about the rigor of the Foundation's
Entity response and implications for the department
As part of the audit of the award of the Partnership grant to the
Foundation, the department was given the opportunity to respond. The department's
response is available in the audit report.
Mr Finn Pratt AO PSM, Secretary of the department, welcomed the findings
that the department had provided detailed and clear advice to the minister and
that the Partnership was informed by comprehensive policy development work
spanning several year. He noted that the department agreed with the report's
findings that relate to process improvements. However, Mr Pratt went on to
Findings in the report relating to the Department's scrutiny
of the proposal and value-for-money assessment, the use of assessment criteria,
and the level of detail on outcomes and performance targets are incorrect or
based on an incomplete assessment of the evidence.
Mr Pratt provided further comment on these three matters including that 'Given
the available timeframes, and consistent with Cabinet's decisions, the approach
taken to establish the partnership was sensible and thorough'. Additionally, it
was stated that the Partnership represented value for money for public
resources, that the guidelines did include assessment criteria (while conceding
these could have been more clearly labelled), and that Program outcomes 'were
appropriately specified in the grant guidelines, in line with the outcomes of
the Reef 2050 Plan'. The Foundation is required to more detailed performance
measures along with appropriate reporting and evaluation process to ensure
performance targets are 'further detailed, refined and reported against' over
The committee notes that the Auditor-General's report responded to the
concerns raised by Mr Pratt.
The Foundation was also given the opportunity to respond to the proposed
audit report. The Foundation addressed the following issues:
progress against the Reef Trust Partnership Agreement;
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