Integrity of grant program administration

Report highlights

What the report is about

This report assessed the integrity of the assessment and approval processes for two grant programs:

  • Stronger Communities Fund Round 2 (tied grants round), which was administered by the former Office of Local Government (OLG) and provided $252 million to newly amalgamated councils and other councils that had been subject to a merger proposal during 2017–18 and 2018–19.
  • Regional Cultural Fund, which was administered by Create NSW (now within the Department of Premier and Cabinet) and awarded $100 million for cultural projects in regional NSW.

What we found

The assessment and approval process for Round 2 of the Stronger Communities Fund lacked integrity. The government decided to prioritise funds for councils that had worked constructively with the government through the 2016 merger process. 

However, this information was not included in the program guidelines. The program guidelines were not published and did not contain details of selection and assessment processes. Councils and projects were instead identified by the former Premier, Deputy Premier and Minister for Local Government and communicated to OLG with little or no information about the basis for the council or project selection. There was no merit assessment of identified projects. This process resulted in 96 per cent of funds allocated to coalition state seats.

The assessment process that Create NSW used for the Regional Cultural Fund was robust and produced transparent and defensible recommendations to the minister. However, the former Minister for the Arts, in consultation with the former Deputy Premier, did not follow the recommendations of the independent assessment panel in 22 per cent of cases. Reasons for these changes were not documented by Create NSW.

What we recommended

The Department of Premier and Cabinet should develop a model for grant administration that must be used for all grant programs administered in NSW that:

  • is based on ethical principles such as impartiality, equity and transparency 
  • ensures assessments and decisions can be made against clear eligibility criteria
  • ensures accountability for decisions and actions of all those who are involved in the program 
  • includes minimum mandatory administration and documentation standards
  • requires any ministerial override of recommendations to be documented. 

The Department of Planning and Environment should ensure that guidelines prepared for all grant programs are published and include a governance framework that includes accountabilities and key assessment steps.

Fast facts    

Stronger Communities Fund Round 2

  • $252m allocated to 24 councils    
  • 96% allocated to council projects in coalition state seats
  • 36% of the funding ($90m) was allocated to a single council
  • $8m in projects identified before the program guidelines were finalised

Regional Cultural Fund

  • 405 applications received across three funding rounds
  • $99m awarded for 147 cultural projects in regional NSW 
  • 22% panel recommendations not followed by ministers  
  • $9.3m awarded to projects not recommended by panel

Executive summary

Grants are frequently used by the state government to deliver funds to councils and community organisations to provide infrastructure and services important to their local communities. Grant programs are administered by NSW Government agencies in line with priorities and objectives set by the government.

Guidance for agencies administering grant programs is available in the Good Practice Guide to Grants Administration (the 'DPC Guide') which is maintained by the Department of Premier and Cabinet (DPC). In addition to this guide, some agencies maintain their own grant program policies and guidelines. More broadly, public servants are required to comply with financial legislation and the Government Sector Employment Act 2013 which include requirements to be transparent, fiscally responsible and focus on the efficient, effective and prudent use of resources.

The objective of this performance audit is to assess the integrity of the assessment and approval processes for NSW Government grant programs.

The audit focuses on two grant programs, both administered during the 2017–18 and 2018–19 financial years. The Stronger Communities Fund (round two tied grants round) was administered by the former Office of Local Government (OLG), now referred to as the Local Government Group within the Department of Planning and Environment (DPE). The fund awarded $252 million to 24 councils that had amalgamated in 2016 or which had been the subject of a merger proposal. The Regional Cultural Fund was administered by Create NSW, now within the Department of Premier and Cabinet (DPC). The fund awarded $100 million to organisations in regional New South Wales to support the development of cultural infrastructure in regional areas.

The audit comments upon the role played by the then Premier, Deputy Premier, ministers and their staff in the audited grant programs to provide context. The Audit Office of NSW cannot compel those individuals to participate in the audit or provide documents. In all cases, reference to the Premier, Deputy Premier, ministers, MPs and their staff refers to the individuals who were in those roles at the time the grant programs were administered unless otherwise noted.

Conclusion

Stronger Communities Fund

The assessment and approval processes for round two of the Stronger Communities Fund (SCF) lacked integrity. The program guidelines developed by the Office of Local Government (OLG) were deficient in a number of aspects and were not used to guide the selection of councils or projects for funding. Of the 55 councils that met the eligibility criteria in the guidelines, 24 received funding. Ninety-six per cent of available SCF funding was allocated to projects in coalition-held state government electorates. Funding for councils was determined by the then Premier, Deputy Premier and Minister for Local Government and communicated by their staff through emails to OLG with little or no information about the basis for the council or project selection. OLG administered payment of these funds without questioning or recording the basis for selection. For the 22 councils where funding allocations were determined by the former Premier and Deputy Premier, the only record of their approval is a series of emails from their staff. The exclusion of key information from the program guidelines and the lack of formality in approving 22 of the 24 funding allocations prevent accountability and transparency over the government's approach to selecting councils for funding.

In July 2017, the NSW Government established priorities for how the remaining SCF funds should be used. The funds were to be used to cover costs associated with councils' legal action relating to amalgamation, to reimburse costs incurred by councils that were unable to merge but had participated constructively in the merger process, and to fund community initiatives in council areas that had amalgamated in 2016.

OLG developed the initial grant program guidelines between July 2017 and September 2017 in consultation with the then Premier, Deputy Premier and Minister for Local Government and their staff. These were then revised in June 2018. Neither version of the guidelines made reference to the type of projects that were to be prioritised and did not set out how the funds should be administered in accordance with these priorities. The guidelines also did not include information about how councils and projects would be selected and made no provision for an assessment of identified projects against the criteria for eligible projects in the guidelines. OLG did not publish the guidelines and the process adopted by the Premier, Deputy Premier and Minister for Local Government to select projects did not reference the criteria for eligible projects in the guidelines. The selection of councils and funded projects resulted in 96 per cent of available funding being allocated to projects in coalition-held state government electorates.

The Minister for Local Government was responsible for distributing the SCF funds but only approved funding for projects at two of 24 councils, both paid in November 2017. Projects at the other 22 councils were identified by the former Premier and Deputy Premier between June 2018 and June 2019 in consultation with other coalition Members of Parliament and communicated to OLG through emails from Premier and Deputy Premier's staff. When making payments in response to email instructions from staff in the offices of the Premier, Deputy Premier and Minister for Local Government, OLG did not seek to ensure that identified projects were consistent with the guidelines and made payments to selected councils with little or no information to justify them. With the exception of the two funding allocations approved by the then Minister for Local Government, OLG also did not ensure that formal records were in place to document approval for the remaining 22 funding allocations.

Regional Cultural Fund

The assessment process that Create NSW used for the Regional Cultural Fund was robust and produced transparent and defensible recommendations to the then Minister for the Arts. However, the integrity of the approval process for funding allocations was compromised because the minister, in consultation with the then Deputy Premier, did not follow the recommendations of the independent assessment panel in multiple cases and the reasons for making changes were not documented by the minister's office or Create NSW.

All projects that received funding were assessed by Create NSW as eligible for funding under the program. An independent assessment panel assessed applications against the program objective and criteria. This process was designed in line with good practice in grants administration and was implemented consistently. The then Minister for the Arts, in consultation with the former Deputy Premier, did not follow the panel's recommendations for 22 per cent, or more than one in five, of the applications assessed for funding. Thirty-four applications that were recommended by the independent panel did not receive any funding. In the second funding round, seven of the top ten ranked applications were not funded.

The Minister for the Arts approved funding for 22 applications that were not recommended by the independent panel. This resulted in around $9.3 million being awarded to applicants that were not rated highest by the independent panel, including six applicants that received grants of $500,000 or more. Most did not meet one or more assessment criteria and received low ratings.

The then minister did not provide reasons for not approving funding in line with the recommendations of the panel. This did not breach any legislation or guidelines in New South Wales, but it compromised Create NSW's ability to demonstrate integrity and value for money in the RCF approval process. It creates a clear perception that factors other than the merits of the projects influenced funding decisions.

Create NSW's administration of the Regional Cultural Fund was based on relevant legislative requirements and good practice guidance. The objectives of the program were defined clearly and the guidelines and criteria were consistent with the program objectives. The governance and probity framework was appropriate for the size and nature of the program.

1. Recommendations

The Department of Premier and Cabinet should:

1. develop a model for grant administration that must be used for all grant programs administered in NSW that:

  • is based on ethical principles outlined in the Government Sector Employee Act (2013) such as impartiality, equity and transparency
  • ensures assessments and decisions can be made against clear eligibility criteria, and limits politically-biased outcomes
  • ensures accountability for decisions and actions of all those who are involved in the program including public servants, elected representatives and political staff
  • includes minimum mandatory administration and documentation standards including for interactions between ministers, ministerial staff and public servants
  • requires any ministerial override of recommendations to be documented, with transparent consideration of probity and conflict of interest.

The Department of Planning and Environment should:

2. ensure that guidelines prepared for all grant programs are published and include a governance framework that includes accountabilities and key assessment steps.

1. Introduction

1.1 Grant administration in New South Wales

Grants are frequently used by the state government to deliver funds to councils and community organisations to provide infrastructure and services important to their local communities.

Some grant programs are contestable, meaning that applicants compete for an allocation of available funds and some applicants may be unsuccessful. Other grant programs are non-contestable, meaning that all eligible applicants receive funding. A number of grant programs are discretionary, meaning that some ministers have discretion to award grants up to a certain amount with no involvement of public sector staff in assessing the merits of the applicant or the funded project.

Regulatory framework for grant administration

Grant funds are appropriated to state agencies so that the grant programs can be administered in line with priorities and objectives set by the government.

Grant funds are administered by state agencies with reference to the following legislation:

  • Government Sector Finance Act 2018 (GSF Act) includes values and associated principles to guide government officers exercising functions in connection with financial management (section 3.7). It also sets out delegation requirements for the expenditure of money by government officers (section 5.5).
  • Public Finance and Audit Act 1983 (PF&A Act) was the predecessor to the GSF Act and was in force for most of the period that will be covered by this audit. It also included delegation requirements for government officers (section 12).
  • Government Sector Employment Act 2013 (GSE Act) sets out the ethical framework for government sector employees. This includes requirements to be fiscally responsible, to focus on efficient, effective, and prudent use of resources, and to provide transparency to enable public scrutiny (section 7).
  • State Records Act 1998 provides for the creation, management and protection of the records of public offices, and public access to those records.

Some grant programs are administered under specific legislation pertaining to the grant fund or the responsible agency.

Guidance for agencies administering grant programs is available in the Good Practice Guide to Grants Administration (the ‘DPC Guide’) which is maintained by the Department of Premier and Cabinet (DPC) and which was last updated following a 2009 performance audit report. In addition to this guide, some agencies maintain their own grant program policies and guidelines.

Risks in grant administration

Recent media attention in NSW and other jurisdictions (including the Commonwealth) has raised public awareness of grant programs with:

  • opaque eligibility criteria
  • subjective assessment criteria
  • assessment outcomes that appear politically biased
  • ministerial discretion that overrides an objective assessment process.

Recent audit reports from other Australian jurisdictions raised concerns about probity, conflicts of interest, record-keeping and lack of transparency about ministerial involvement in decision making.

A NSW Parliamentary Inquiry is currently underway into Integrity, efficiency and value for money of NSW Government grant programs ('the Parliamentary Inquiry'). This inquiry, established in July 2020, has heard evidence of grant programs with limited transparency and inconsistent assessment criteria, among other issues. The first report from this inquiry was tabled in Parliament in March 2021. The government is yet to respond to this report but in early November 2021 the Premier announced a review into grant administration in NSW.

1.2 About the audit

The objective of this performance audit is to assess the integrity of the assessment and approval processes for NSW Government grant programs. The grant programs that are the focus of this audit are:

  • Stronger Communities Fund (round two tied grants round) administered by the former Office of Local Government (OLG), now known as the Local Government Group within the Department of Planning and Environment
  • Regional Cultural Fund which was administered by Create NSW within DPC, and previously administered by the former Department of Planning and Environment.

Both of these programs were administered during the 2017–18 and 2018–19 financial years. At that time, OLG was a stand-alone government agency but is now part of the Department of Planning and Environment. Create NSW is a division of DPC that now has oversight of the Regional Cultural Fund. DPC also has responsibility for the NSW Government Good Practice Guide to Grants Administration. The two audited agencies are DPE and DPC.

The agencies' performance is assessed against the following audit criteria:

  • grant assessment and approval processes were consistent with relevant legislative requirements
  • grant applications were assessed and approved in line with program objectives.

1.3 Limitations of the audit

The Auditor-General's legislative mandate allows the Audit Office to compel state and local government agencies to provide relevant evidence during the conduct of an audit. This mandate does not extend to Members of Parliament and their offices. Where this has limited our ability to provide complete assurance in this report, we note it in the relevant places.

2. Stronger Communities Fund

2.1 Overview of the Stronger Communities Fund

The Stronger Communities Fund was established in 2016 when 44 councils were amalgamated into 20 new councils. As part of the $665 million Fit for the Future reforms, the state government provided non-contestable grants to each amalgamated council to assist the new councils to deliver projects to their communities such as local roads, parks playgrounds and footpaths. Grants of $10 million were given to amalgamated councils where two councils had merged and grants of $15 million were given where three councils had merged.

Councils were required to administer at least $1 million as a contestable community grant program to which incorporated not-for-profit community groups could apply for grants of up to $50,000. The balance could be used for larger scale priority infrastructure and services identified through community consultation. The state government established criteria against which both community grants and major projects must be assessed.

At the same time, each amalgamated council was granted $10 million (metro councils and Central Coast Council) or $5 million (regional councils) from the New Council Implementation Fund to assist councils to cover the up-front costs of implementing the new council.

In July 2017, the government abandoned further and pending council amalgamations. The government decided to use the remaining Stronger Communities Fund and New Council Implementation Fund allocations to provide further support to amalgamated councils and those impacted by merger proposals. This round of funding is known as round two or the tied grant round and is the focus of this audit. Round two distributed $233 million in Stronger Communities Funds and $19 million in New Council Implementation Funds to 24 councils between November 2017 and June 2019. This included $202 million in residual funds from the merger process and $50 million appropriated from the consolidated fund that the former Office of Local Government (OLG) administered as part of a Stronger Communities Fund grant to one of the councils.

2.2 Selection of councils and program guidelines

Round 2 of the Stronger Communities Fund did not have an open application process

In July 2017, the government decided to abandon pending council amalgamations and use the remaining Stronger Communities Funds to provide support to amalgamated councils and those impacted by merger proposals. The funds were to cover court-ordered costs associated with councils' legal action relating to amalgamation, to reimburse costs incurred by councils that were unable to merge but had participated constructively in the merger process, and to fund selected community initiatives in amalgamated councils.

There is no mandatory requirement in New South Wales for the government to use an open and competitive application process for grants, nor to make grant funds available to all that wish to access them. In this case, the government chose to select councils to receive the funds using criteria that related to their support for the 2016 council merger process.

OLG facilitated the government's decision by preparing program guidelines and making payments to selected councils based on instructions from the staff of the then Premier, Deputy Premier and Minister for Local Government.

The program guidelines were deficient and did not include key information about the purpose and administration of the program

The DPC Guide states that agencies administering grant programs should manage risk to ensure accountability and value for money and that grant assessment processes should be as transparent as possible.

In September 2017, OLG prepared program guidelines which indicated that further Stronger Communities Fund grants would be available to amalgamated councils. These guidelines were deficient as they did not reflect the government's decision to also use the funds to reimburse merger-related costs for councils impacted by a merger proposal, nor to pay court costs relating to amalgamation legal action. In June 2018, OLG prepared a revised set of guidelines that extended the eligibility criteria to include councils that had been subject to a merger proposal. These revised guidelines also made no mention of the government's decision to reimburse merger-related costs for councils impacted by a merger proposal and pay court costs for amalgamation legal action. Both sets of guidelines were approved by the then Premier, Deputy Premier and Minister for Local Government.

The program guidelines were prepared by OLG in consultation with staff from the offices of the then Premier, Deputy Premier and Minister for Local Government. The guidelines did not include key information, such as:

  • the method used to select councils and projects
  • the type of projects the government wanted to prioritise
  • that councils that had engaged constructively during the amalgamation process and had worked collaboratively with the government were to be prioritised
  • details about accountabilities and governance relating to decision making.

The guidelines were also not published. OLG provided no advice to the government about the risks of preparing program guidelines that did not transparently reflect how the program would be administered.

The program guidelines did not reflect the government's priorities for which councils should receive funding

The revised round two guidelines indicated that funding would be available to amalgamated councils and councils that had been subject to a merger proposal. The guidelines did not set out any exceptions to this. There are 55 councils that meet these criteria, which did not align with the government's decision to target funding towards amalgamated councils that were considered to have worked collaboratively with the government and non-amalgamated councils that had participated constructively in the merger process. The government's decision was reflected in statements included in a briefing note to the former Premier prepared by her staff dated 18 May 2018 titled 'Allocation of remaining local council merger funds':

We propose not to compensate Councils that were subject to a merger proposal, and then sued us.

This also avoids us having to justify why we are not going to provide funds to unfriendly merged councils.

The outcome of this approach to selecting councils to receive funding was that, of the 55 councils that met the criteria in the program guidelines, 24 received funds.

The program guidelines did not include key information about the government's priorities for the allocation of funds

The guidelines stated that the funding should be allocated based on priorities identified by the government but did not include any information about the government's decision to use funds to reimburse court costs and reimburse non-merged councils for merger-related costs.

Instead, both sets of round two guidelines describe the purpose of the fund as providing 'new councils with funding for the delivery of projects that improve community infrastructure and services'. The revised round two guidelines also refer to project funding available for councils previously subject to a merger proposal.

The guidelines also did not include any detail about the types of initiatives that the government intended to fund, only details of initiatives that were ineligible for funding.

Projects were identified at selected councils by Members of Parliament (MPs), at least some of whom consulted with council general managers. With so many individuals involved in identifying projects, it was important that the guidelines provided clear direction and criteria to assist. The guidelines did not provide this direction and were incomplete about the types of initiatives that the government had decided to fund. Moreover, some MPs were identifying projects as early as June 2017, three months before the first set of program guidelines were approved. This introduces the risk that the guidelines were not intended to guide the selection of projects or councils, and that there was a pre-existing process underway for the then Premier, Deputy Premier, Minister for Local Government and MPs to select projects for funding at specified councils without reference to any guidelines.

The program guidelines lacked the necessary information to safeguard against biased or subjective assessment

The DPC Guide states that grant program guidelines should include ‘a description of the assessment, approval and notification procedure and the timeframes involved’.

Both sets of round two guidelines included broad criteria that the projects were to meet. These included to:

  • demonstrate social and/or economic benefits to the community
  • give consideration to the processes and procedures outlined in the capital expenditure review guidelines issued by OLG. These processes and procedures include requirements for councils to:
    • justify the need of the project by demonstrating a clear relationship between the community's strategic plan, delivery program and operational plan
    • assess the capacity of the council to deliver
    • determine the priority of the project in relation to existing and future capital works.

In addition, projects funded under the New Council Implementation Fund were to be consistent with the councils' implementation plans for establishing the new council.

Neither set of guidelines included information about how projects would be assessed against these criteria, nor who would be responsible for that assessment.

Even where the government is not running an open application process, it is important to assess projects against the program criteria to ensure that the objectives of the program are achieved. Responsibility for and processes related to that assessment should have been identified in the program guidelines. Given the findings outlined above, we cannot rule out that deficiencies in the guidelines were an attempt to avoid accountability for and transparency over the government's decision to use round two of the Stronger Communities Fund to assist councils that supported the merger process rather than to achieve the objectives of the program.

2.3 Grant assessment and approval

Projects were not assessed against criteria described in the program guidelines

The Minister for Local Government was responsible for distributing the funds although this detail was not included in the program guidelines.

In September 2017, the then Minister for Local Government approved an initial 21 projects to fund across Dubbo Regional Council and Northern Beaches Council with a total value of almost $49 million. There is no evidence of a merit assessment or documented rationale for why particular projects at those councils were chosen for funding.

Between June 2018 and June 2019, the former Premier identified 41 projects to be funded across 11 councils (ten metropolitan and one regional), valued at $142 million and the former Deputy Premier identified 188 projects to be funded across 11 regional councils valued at $61 million. Staff in the offices of the former Premier and Deputy Premier communicated these identified projects and associated funding allocations directly to OLG and the Chief Executive of OLG paid these funds under delegation from the then Minister for Local Government. OLG suggested this process for administering and documenting the funding allocations.

One project identified for an amalgamated regional council, conversion of a sports club into a council administration facility, was assessed by OLG as being outside the guidelines for the Stronger Communities Fund and was not funded. Other than this one example, there is no evidence that any of the 250 funded projects were assessed against the criteria in the program guidelines by MPs, staff in the offices of the then Premier, Deputy Premier and Minister for Local Government or OLG staff at any point between being identified and the funds being paid. Nine projects at four councils were identified and communicated to OLG before the revised program guidelines were even approved. The value of these projects was just over $8 million.

It is difficult to understand the merit of project funding decisions and it is troubling that OLG did not seek justification to support projects put forward with limited documentation by the staff of the then Premier, Deputy Premier and Minister for Local Government.

Staff in the offices of the former Premier and Deputy Premier appeared not to expect that OLG would conduct a merit-based assessment as in some cases they were asking for media releases at the same time as informing OLG about which projects should be funded. In four cases, the former Premier's and Deputy Premier's staff requested that OLG prepare a media release on the same day that it was informed about the projects.

The allocation of funding to councils that did not merge was inconsistent with the government's decision

The government decided that round two should be used in part to reimburse verified costs incurred by councils unable to merge following the decision to abandon further amalgamations. These funds were intended for councils that participated constructively in the reform process, which was interpreted by the former Premier's staff in a briefing note to the Premier as councils that 'did not take legal action against us'. The former Premier's staff provided briefing notes to the then Premier that stated that such councils would receive up to $1 million from the Stronger Communities Fund based on verified costs.

Metropolitan councils subject to mergers that were ultimately abandoned, and which had not taken the government to court, were Waverley Council, Burwood Council, City of Canada Bay Council, Hornsby Shire Council and City of Ryde Council. With the exception of Hornsby Shire Council, these councils received grants of between $2.4 million and $2.6 million for community projects. There is no documented rationale for the level of funding awarded to these councils and there is no evidence that the amount of funding made reference to verified costs incurred by the councils. The grant allocation for Hornsby Shire Council is addressed separately in this report.

Metropolitan councils subject to mergers that were ultimately abandoned and which were not funded are shown in Exhibit 1. All but one of these councils had taken legal action against the government.

Exhibit 1: Metropolitan councils subject to merger proposals that were abandoned, and which did not receive Stronger Communities Fund grants
Council To merge with Court action Type of state electorate
Ku-ring-gai Council Hornsby Shire Council Yes Coalition
Mosman Council North Sydney Council and Willoughby City Council Yes Coalition
North Sydney Council Mosman Council and Willoughby City Council Yes Coalition
Strathfield Council City of Canada Bay and Burwood Council Yes Non-coalition
Willoughby City Council North Sydney Council and Mosman Council No Coalition
Woollahra Council Waverley Council and Randwick Council Yes Non-coalition

Source: Audit Office research.

Regional councils where mergers were abandoned did not receive any funding. This was a decision of the former Deputy Premier.

The government also decided that the Stronger Communities Fund would be used to reimburse council court costs relating to amalgamation legal action. DPE advised that no council court costs were reimbursed from the Stronger Communities Fund and these were instead reimbursed from a different fund administered by the former Attorney General's Department. Lane Cove and Hunters Hill Councils were reimbursed costs awarded by the court and also received funding allocations from the Stronger Communities Fund for community projects.

Exhibit 2: Councils that were awarded costs by the court and also received round two Stronger Communities Fund grants
Council Costs awarded by the court ($) Grant allocation ($)
Lane Cove Council 255,000 937,000
Hunters Hill Council 320,000 1,000,000

Source: Department of Planning and Environment.

Decisions about the amount of funding awarded to each council, and the merits of specific projects are not transparent

OLG did not publish information about funding awarded to councils, and there is no documented rationale for why particular projects were funded, nor in relation to the level of funding received. Exhibit 3 provides a summary of grant allocations to the 24 councils. Further details are included in Appendix two.  

Exhibit 3: Summary of grant allocations for both merged and non-merged councils
Council Funding basis Funding allocation ($) Rationale for allocation Type of state electorate
Armidale Regional Council Merged 5,950,000 Undocumented Coalition
Central Coast Council Merged 5,500,520 Undocumented Both coalition and non-coalition
Cootamundra-Gundagai Regional Council** Merged 5,950,000 Undocumented Coalition
Dubbo Regional Council Merged 27,760,000 Undocumented Coalition
Edward River Council Merged 4,990,000 Undocumented Coalition
Federation Council Merged 5,590,000 Undocumented Coalition
George's River Council Merged 9,500,000 Undocumented Both coalition and non-coalition
Hilltops Council Merged 5,950,000 Undocumented Coalition
Mid-Coast Council Merged 12,500,000 Undocumented Coalition
Murray River Council Merged 4,095,000 Undocumented Coalition
Murrumbidgee Council Merged 5,590,000 Undocumented Coalition
Northern Beaches Council Merged 21,100,000 Undocumented Coalition
City of Parramatta Council Merged 16,000,000 Negotiated* settlement Coalition
Queanbeyan-Palerang Regional Council Merged 5,589,560 Undocumented Coalition
Snowy Monaro Regional Council Merged 5,589,793 Undocumented Coalition
Snowy Valleys Council Merged 5,950,000 Undocumented Both coalition and non-coalition
Burwood Council Merger abandoned 2,600,000 Undocumented Non-coalition
City of Canada Bay Council Merger abandoned 2,370,000 Undocumented Coalition
Hornsby Shire Council Merger abandoned 90,000,000 Negotiated* settlement Coalition
Hunters Hill Council Legal costs awarded 1,000,000 Undocumented Coalition
Lane Cove Council Legal costs awarded 937,000 Undocumented Coalition
Randwick City Council** Merger abandoned 2,580,000 Undocumented Coalition
City of Ryde Council Merger abandoned 2,350,000 Undocumented Coalition
Waverley Council Merger abandoned 2,000,000 Undocumented Coalition

* Funding for Hornsby Shire Council and the City of Parramatta were treated as special cases when distributing funds. Hornsby Shire Council had claimed compensation for losses due to the combination of a boundary change and an abandoned merger and the funding allocated to Hornsby Shire Council was for specific projects negotiated between the council management and MPs. The City of Parramatta was taking legal action against Hornsby Shire Council relating to developer contributions and the grant to the City of Parramatta represented a settlement to persuade The City of Parramatta to withdraw its legal action.
** Randwick City Council and the former Gundagai Council were involved in court action relating to amalgamations.
Source: Audit Office research.

The largest grant awarded in round two of the Stronger Communities Fund was $90 million to Hornsby Shire Council, which was expected to merge with Ku-ring-gai Council. Prior to the government's decision to abandon mergers, a boundary change had transferred part of the Hornsby Shire Council area to the City of Parramatta. Ku-ring-gai Council initiated a successful court action to prevent amalgamation with the remainder of the Hornsby Council area. This left Hornsby Council with a smaller geographic area and rate base than was the case prior to the boundary change.

Hornsby Shire Council claimed compensation from the NSW Government in the order of $200 million based on an initial calculation of lost revenue, assets and developer contributions over a period of ten years. Based in part on analysis by TCorp that examined the financial sustainability of Hornsby Shire Council, Treasury determined that the council's financial losses were in the order of $19–$24 million, compensation was not justified, and any compensation should be limited to $19 million.

The government agreed to pay $90 million from the Stronger Communities Fund to Hornsby Shire Council in the form of a grant for two open space projects. This included an appropriation of $50 million from the consolidated fund, approved by the former Premier and Treasurer, which was paid into the Stronger Communities Fund to facilitate the grant to Hornsby Shire Council. The $90 million grant represents 36 per cent of the entire funding allocated in round two of the Stronger Communities Fund.

As with grants awarded to other councils in this round, there is no documented rationale for why these two projects in the Hornsby local government area received such a large proportion of the allocated funds, nor any transparency over the rationale for awarding $90 million to Hornsby Shire Council when Treasury had assessed that compensation should be limited to $19 million. OLG did not question the rationale for the selected projects or the size of the grant prior to paying the funds to Hornsby Shire Council.

A full list of funded projects is included at Appendix two. We note that up to $20 million was used to upgrade state-owned assets. These projects included upgrades to public school facilities. There is no evidence that the Stronger Communities Fund was intended to be used to upgrade state-owned infrastructure.

The Minister for Local Government was assigned responsibility for making funding decisions but only approved two of the proposed allocations

The Minister for Local Government was responsible for decisions about the redistribution of unspent Stronger Communities Funds. The final allocation of funds was to be determined by the Expenditure Review Committee (ERC).

However, the Minister for Local Government only approved the first two funding allocations which were for Dubbo Regional Council and Northern Beaches Council. Formal approval for these allocations was recorded in briefing notes prepared by OLG and signed by the then Minister for Local Government.

The audit has seen no evidence that either the Premier or Deputy Premier had been assigned a formal role in decisions about how funds should be allocated. The audit has also seen no evidence that the Minister for Local Government was consulted about the funding allocations determined by the former Premier and Deputy Premier, nor the succeeding Minister for Local Government who was appointed during the final three months of the program.

The Expenditure Review Committee did not review the final allocation of funds.

Poor records have resulted in opaque accountability and responsibility for decisions about grant allocations

Between June 2018 and June 2019, information about funding allocations and projects for 22 councils was communicated to OLG through a series of emails from staff in the offices of the former Premier and Deputy Premier.

The first grant allocation initiated from the former Premier's office was a $90 million grant for Hornsby Shire Council. Prior to paying this grant, the then Chief Executive of OLG asked one of the former Premier's staff to provide a statement to the effect that the grant allocation had been determined by the Premier. The former Premier's staff member provided this statement. This request from the Chief Executive of OLG and the response by the Premier's staff member indicate that they both understood the then Premier was accountable for the decision to allocate $90 million to Hornsby Council.

The language used by the staff in the offices of the former Premier and Deputy Premier to instruct OLG to pay most grant allocations implied that the former Premier and Deputy Premier had approved projects for funding. These instructions included the following phrases:

  • 'The Premier has approved'
  • 'The Premier has signed off'
  • 'DP approval' (shorthand for 'Deputy Premier approval')
  • 'DP agreement'.

By the time the final grant allocations were made, the then Chief Executive of OLG accepted instructions to pay grants from the staff of the former Premier and Deputy Premier with informal language such as 'everyone is comfortable'. One grant to a metropolitan council was paid following a series of communications about what funding the council would receive, but with no specific instruction from the former Premier's office to pay the council. The former Chief Executive of OLG created and signed briefing notes based on these email instructions from the staff of the former Premier and Deputy Premier.

It is not clear why OLG did not create briefing notes for the former Premier and Deputy Premier to sign for each of their grant allocations, as had been done for earlier grant allocations determined by the then Minister for Local Government. We cannot rule out that the lack of information about accountabilities in the program guidelines, coupled with a lack of formal documented approval from the former Premier and Deputy Premier, was a purposeful attempt to avoid transparency and accountability over the involvement of the former Premier and Deputy Premier in approving grant allocations. Deficient record-keeping and program guidelines have meant in practice that no person involved in the grant allocation process is specifically accountable for decisions about the grant allocations.

2.4 Program outcomes

The process used to identify projects for funding resulted in 96 per cent of available funding awarded to projects located in coalition-held state government electorates

Funded projects were initially identified by coalition MPs, some of whom consulted with council general managers.

Almost all funding was allocated to projects in coalition-held state government electorates through grants to the local councils. The value of funded projects located in coalition-held state government electorates is $241.7 million, representing 96 per cent of the total funding for round two of the Stronger Communities Fund.

The following statement to the former Premier in a briefing note prepared by her staff dated 18 May 2018 titled 'Allocation of remaining local council merger funds' indicates that this was likely to have been deliberate:

We have continued to work on how we allocate this funding to get the cash out the door in the most politically advantageous way.

Projects located in non-coalition held state government electorates received $7.3 million (three per cent) of available funding and projects located in council areas that include parts of both coalition and non-coalition state electorates received $3 million (one per cent). Further detail is included in Appendix two.

Although this allocation of funding is in line with the government's decision to fund councils that had supported the merger process, it does not reflect the make-up of all councils that met the eligibility criteria in the round two guidelines. These included councils that were amalgamated in 2016 or had been subject to a merger proposal. Of the 55 councils that met the eligibility criteria in the guidelines, 36 (66 per cent) are in coalition-held state electorates, ten (18 per cent) are in non-coalition held state electorates and nine (16 per cent) include areas of both coalition and non-coalition sections of state electorates. Of the 24 councils that received funding, 20 (83 per cent) are in coalition-held state electorates, one council (four per cent) is in a non-coalition-held state electorate and three councils (13 per cent) include areas of both coalition and non-coalition state electorates.

Of the 31 councils that met the eligibility criteria in the guidelines and did not receive funding, 16 (52 per cent) are in coalition-held state electorates, ten (32 per cent) are in non-coalition held state electorates and are five councils (16 per cent) include areas of both coalition and non-coalition state electorates.

set of pie charts relating to council funding
Exhibit 4: Funding decisions by council and electorate for councils that met the criteria in the program guidelines

Inadequate records were retained of approval for funding allocations

Under Section 12 of the State Records Act, OLG was required to keep full and accurate records of the activities of the office.

When making payments to councils, OLG acted under the instruction of staff of the Premier, Deputy Premier and Minister for Local Government, who sent emails to the former Chief Executive of OLG asking for specified sums to be paid for identified projects.

screenshot of an email
Exhibit 5: Example of email from the former Deputy Premier's office
Source: Department of Planning and Environment.

When preparing funding agreements for the councils, staff from OLG assumed that these emails accurately reflected decisions made by the Premier, Deputy Premier and Minister for Local Government. OLG staff sent funding agreements and briefing notes to the Minister for Local Government's office to confirm and approve two funding allocations, but did not do the same to confirm and approve 31 funding allocations at 22 councils determined by the former Premier and Deputy Premier. Funding allocations identified by the former Premier and Deputy Premier were paid by OLG based solely on information in emails from their staff, and briefing notes signed by the former Chief Executive of OLG. This means that for 31 of the 33 funding agreements, there is no formal record or confirmation that the funding agreements reflect the decisions of the former Premier and Deputy Premier.

In addition, and in breach of the State Records Act, key documents relating to the Stronger Communities Fund round two were destroyed by staff in the former Premier's Office. This has been addressed separately in a report by NSW State Archives & Records in January 2021.

3. Regional Cultural Fund

3.1 Overview of the Regional Cultural Fund

In 2017, the NSW Government established the $100 million Regional Cultural Fund (RCF) to support the development of cultural infrastructure in regional areas of New South Wales. This aimed to provide social, cultural and economic benefits in regional areas. The RCF was a part of the Regional Growth Fund, which provided funding for a broader range of infrastructure projects in regional areas across New South Wales. RCF funding was available to local councils and cultural organisations that were outside Sydney, Newcastle and Wollongong. The type of projects eligible for funding under the RCF included: building or upgrading performing arts spaces, museums and libraries; digitising cultural collections; and creating and installing public art.

The funding was distributed across two main rounds between mid-2017 and early 2019, with a small additional round assessing applications for digitisation projects conducted in late 2020 and finalised in 2021. The first round involved an initial expression of interest followed by a full assessment process, while the second round was conducted in a single stage, as shown in Exhibit 6.

grant program timeline
Exhibit 6: Timeline for the Regional Cultural Fund
Source: Audit Office summary of information provided by Create NSW.

Create NSW appointed an independent panel comprised of people with expertise in the creative industries, infrastructure, and government that assessed applications against the program objective and criteria. The panel’s assessment process involved a structured individual assessment of each application followed by a panel meeting. This produced scoring which was used to rank applicants and make recommendations to the Minister for the Arts.

The minister considered the recommendations and consulted with the former Deputy Premier before making decisions about which applications should be funded. This process was outlined in the assessment guidelines for the RCF.

infographic - Assessment and approval process for the Regional Cultural Fund
Exhibit 7: Assessment and approval process for the Regional Cultural Fund
Source: Audit Office summary of information provided by Create NSW.

The program received a total of 405 applications across all rounds and 147 applications received funding, as shown in Exhibit 8 below. All projects that received funding were assessed by Create NSW as eligible for program funding. There were 28 grants of $1 million or more. The average size of grants awarded was around $675,000, with individual grants ranging from less than $2,000 to $8.6 million. A total of $99 million was awarded to applicants across all rounds of the RCF.

Exhibit 8: Applications and grant funding by round
  Round one Round two Digitisation rounds Total
Number of applications received 226 159 20# 405
Number of applications funded 68 56 23 147
Value of grants approved $48 million $47 million $4 million $99 million

# For the 'Digitisation' rounds, the number of applications received is lower than the number funded because six projects received funding without making an initial application. Create NSW approached these organisations as a part of its strategic approach to using 'digitisation' funding. Four of these were for Aboriginal organisations and two were a cultural sector peak body.
Source: Data provided by Create NSW (unpublished).

 

3.2 Assessment and approval of applications

An independent assessment panel assessed applications against the program objective and criteria

Create NSW established an assessment panel that included people with expertise in relevant fields including the arts industry, infrastructure, and government administration. Panel members were identified by Create NSW. The panel provided funding recommendations to the then Minister for the Arts based on its assessment of the applications against the RCF assessment criteria. The panel scored each application against four selection criteria:

  1. Case for change
  2. Capacity to deliver
  3. Value for money
  4. Engagement and reach.

The panel's assessment guidelines stated that to be recommended for funding, an application must receive a minimum of five out of ten against each criteria and receive a total score of at least 20 out of 40.

The use of an independent panel of experts to conduct the assessment of applications supported the integrity of Create NSW's administration of the program. Probity reviews commissioned by Create NSW indicated the panel assessment process was conducted in line with the assessment guidelines, with several minor instances of inaccuracies that were corrected and were not judged to have an impact on the integrity of the assessment process.

Six projects received funding without going through the assessment panel process. This was done as a part of a strategic approach to using surplus funds from the 'digitisation' funding round, which was approved by the then minister.

Most applications were from organisations in electorates held by the National Party and most funding was provided to applicants in electorates held by the National and Liberal Parties

Eighty-six per cent of all applications for the RCF came from organisations in electorates held by the National Party or Liberal Party. Sixty-eight per cent came from National-held electorates and 18 per cent from Liberal-held electorates, as shown in Exhibit 9 below. This was higher than the proportion of electorates that the respective parties held in areas eligible for the RCF; the National and Liberal parties held 63 per cent of the electorates that were eligible to apply for the RCF. The four electorates with the largest numbers of applications were all held by the National Party. Each of these had more than 20 applications and together they accounted for 31 per cent of all applications for the RCF. Four per cent of applications came from organisations in electorates held by the Labor Party. The Labor Party held 29 per cent of the electorates that were eligible for the RCF.

Create NSW promoted the RCF in eligible areas across NSW through a series of regional visits to showcase the program and ongoing online communications. This program of promotions covered all areas eligible for the program. The then minister also conducted events to promote the commencement of the RCF. Information provided by Create NSW indicates the minister conducted six of these events in July and August 2017. Five of these were in towns within electorates that were held by the National Party or the Liberal Party.

chart showing applications received and funding approved, by electorate of applicant
Exhibit 9: Applications received and funding approved, by electorate of applicant
Note: The analysis presented in this chart and the surrounding text does not include the six projects that received funding through Create NSW's strategic approach to using 'digitisation' funding, described in the note to Exhibit 8 above.
Source: Data provided by Create NSW (unpublished).

Applications from organisations in electorates held by the National and Liberal parties received a total of $85.5 million in grants. This was 87 per cent of the total funding provided through the RCF, as shown in Exhibit 9 above. Applications from organisations in electorates held by the Labor Party received a total of $602,970, which was less than one per cent of the total funding provided through the RCF.

Seventeen of the 20 largest grants were awarded to organisations in electorates held by the National Party or Liberal Party. The three grants that were given to organisations that were not in Nationals or Liberal-held electorates were to organisations located in marginal electorates held by the Shooters, Fishers and Farmers Party (two grants) and The Greens (one grant).

The Minister for the Arts did not follow the recommendations of the independent panel on multiple occasions after consulting with the Deputy Premier

The then minister diverged from the funding recommendations of the independent panel on 56 occasions across the two main funding rounds of the RCF. This represents 22 per cent of the applications that were assessed in these funding rounds. The minister did not approve 34 applications that were recommended for funding and approved 22 applications that were not recommended by the panel, as shown in Exhibit 10 below. The majority of the occasions in which the minister did not follow the panel recommendations were in the second funding round. The results of this round were announced one month prior to the 2019 NSW State Government Election.

Exhibit 10: Applications in which the minister's decision differed from panel recommendation, funding rounds one and two
  Round one Round two Total
Recommended by panel but not approved by the minister 1 33 34
Not recommended by the panel but approved by the minister 13 9 22
Total approvals differing from recommendations 14 42 56

Note: The 'Digitisation' funding round is not included in this table because this round was conducted using a different assessment and approval process.
Source: Data provided by Create NSW (unpublished).

Of the 34 applications that were not approved by the minister after being recommended for funding by the independent panel, 30 were from organisations in National or Liberal electorates. This reflects the fact that the majority of all applications assessed were received from organisations in electorates held by these parties. Many of the applications that did not receive funding were ranked highly by the independent panel. For example, in the second funding round, seven of the top ten ranked applications were not approved for funding by the minister, and two recommended applications from electorates held by the Labor Party that were ranked in the top 20 were not approved.

Several applicants received large grants after not being recommended by the independent panel

Twenty-two of the 141 applications that received funding had not been recommended by the independent panel. Each of these applications met the basic eligibility criteria for the program, but all had been ranked relatively low compared to other applications. For example:

  • none of the 22 had been ranked in the top 50 applications for their funding round by the independent panel
  • ten failed to meet at least one of the assessment criteria
  • three did not meet any of the assessment criteria.

The then minister's decisions to diverge from the recommendations of the independent panel resulted in a total of $9.3 million being awarded to applicants that were not recommended by the panel. This was almost ten per cent of the total funding available through the program. Eighteen of the 22 applications that received funding after not being recommended by the panel were from organisations in electorates held by the National or Liberal parties.

Six of the applications received grants of $500,000 or more. Three of these six applications came from organisations in electorates held by the National Party. The others were from organisations in electorates held by the Greens and the Shooters, Fishers and Farmers Party, as shown in Exhibit 11 below.

Exhibit 11: Applications approved by the minister that were not recommended by the assessment panel, funding over $500,000
Electorate application was received from Party holding electorate Amount of funding received $(million) Independent panel rating against the assessment criteria
Coffs Harbour National Party 2.7
  • Ranked 139 out of 152 applications assessed in round two.
  • Did not meet any of the four assessment criteria.
Ballina The Greens 1.8
  • Ranked 150 out of 152 applications assessed in round two.
  • Did not meet any of the four assessment criteria.
Myall Lakes National Party 1.6
  • Ranked 75 out of 81 applications assessed in round one.
  • Met three of the four selection criteria but received a lower score than others that were recommended.
Monaro National Party 1
  • Ranked 65 out of 81 applications assessed in round one.
  • Met all four selection criteria but received a lower score than others that were recommended.
Ballina The Greens 0.6
  • Ranked 146 out of 152 applications assessed in round two.
  • Did not meet three of the four selection criteria.
Orange Shooters, Fishers and Farmers Party 0.5
  • Ranked 138 out of 152 applications assessed in round two.
  • Did not meet any of the four selection criteria.

Source: Data provided by Create NSW (unpublished).

The application from the electorate of Monaro was added by the former Deputy Premier to the list of projects approved for funding in the first round. Monaro was the former Deputy Premier's electorate and it received a grant of $999,000. The application from the electorate of Coffs Harbour, which received $2.7 million, was also added after a request from the former Deputy Premier during consultation on the second funding round. This application did not meet any of the four assessment criteria but received one of the largest grants given to any organisation.

The other three applications that received $500,000 or more after not being recommended by the panel were from organisations in electorates held with small margins by minor parties. Two were organisations in the electorate of Ballina, which was a marginal electorate held by The Greens. The application that received $1.8 million did not meet any of the four assessment criteria and received one of the lowest scores of any application assessed. The application in Orange, an electorate held by the Shooters, Fishers and Farmers Party, also failed to meet any of the selection criteria but was awarded a grant of $500,000. Of the 22 applications that were approved after not being recommended by the panel, one was from an organisation in an electorate held by the Labor Party. This received a grant of $4,000.

The minister did not document reasons for not following the recommendations of the independent panel

The minister made the final decisions about which applications would be funded, after considering the panel recommendations and consulting with the Deputy Premier. This process was set out in documents establishing the policy framework for the RCF. Neither the then minister nor the former Deputy Premier provided written reasons to Create NSW for giving funding to applications that were not recommended by the independent panel. Create NSW advised that it was not involved in these decisions and did not seek documentation of the reasons from the minister or the former Deputy Premier. Create NSW initially planned to seek written reasons for any changes. It described this process in an internal policy document but subsequently decided not to follow the process.

There is no legal requirement in New South Wales for a minister to follow agency recommendations or document reasons for variations. However, making changes to grant funding recommendations without providing documented reasons introduces the risk of unchecked political bias and undermines perceptions of the integrity of the program. This is particularly the case when ministers are involved in funding decisions relating to their own electorate or their own party. It also reduced Create NSW's ability to demonstrate that the integrity of the process was maintained and that value for money was achieved.

Ministers in some other comparable jurisdictions have less involvement in funding decisions for cultural grant programs

In New Zealand, applications for cultural grant funding are assessed in regular rounds by an independent expert panel, similar to the arrangements used for the RCF. However, a senior public servant makes the final decision about which applications will receive funding, rather than a minister. This removes the potential perception of political bias in decision making and increases transparency, because the reasons for decisions made by public servants must be documented and can be accessed through the Official Information Act request process.

The UK Government uses 'arms-length bodies' to administer most of its cultural grant funding. Ministers have a role in setting the objectives and criteria for the programs, but decisions about how funding is distributed are often delegated to the independent body.

There are also examples within NSW and in other Australian jurisdictions where different approaches to administering grant funding are used. The NSW Environment Trust uses a Board that includes the minister. The Australian Government grants administration guidelines require ministers to document certain aspects of their involvement in decision making for grant funding, including explaining reasons for diverging from department recommendations and noting any examples in which a minister approved funding for an application in their own electorate.

3.3 Governance framework for the RCF

The administration of the Regional Cultural Fund complied with the requirements of relevant financial management and record keeping legislation

Create NSW created and followed policies and procedures that supported compliance with relevant financial management legislation. The RCF policy framework specified the roles and responsibilities for staff to ensure they complied with relevant financial legislation. These requirements were followed in the administration of the program and Create NSW commissioned several reviews to provide assurance that key processes were well designed and were being followed. The delegation required for the agency to spend the funding was provided by the minister for Planning, who was the minister responsible for the funding at the time.

Create NSW used an online grants management system for the application and assessment process. This system collected and stored relevant information on the administration of the grants program. The RCF policy framework specified the roles and responsibilities for assessment and approval of applications for funding and described the responsibilities of department staff to ensure all information relating to the program was documented.

The governance and probity framework for the administration of the RCF was based on relevant legislative requirements and good practice guidance

The design of the governance arrangements for the RCF aligned with good practice principles and incorporated key elements of the ethical framework for the government sector. The key elements of the governance framework for the RCF included:

  • a policy framework for the program specified the roles and responsibilities of ministers, department staff and assessment panel members
  • probity plans outlined probity requirements for department staff and assessment panel members
  • an external probity advisor provided advice on the design and implementation of the RCF assessment process.

Create NSW produced an RCF probity plan that included five principles for project administration, shown in Exhibit 12. These principles are consistent with the relevant departmental Code of Ethics and Conduct, which is based on and gives effect to the ethical framework for the public sector set out in the GSE Act. They are also aligned with guidance on probity from the Independent Commission Against Corruption and good practice guides to grants administration from the NSW Government and Commonwealth Government.
The external probity advisor's role included observing the assessment process for all rounds of the program. The advisor also reviewed program governance documents and materials provided to applicants.

infographic - Principles for the administration of the Regional Cultural Fund
Exhibit 12: Principles for the administration of the Regional Cultural Fund
Source: RCF Probity Plans, 2017 and 2018 (unpublished).

The objectives of the program were defined clearly

The purpose and objectives of the RCF were reasonably clear and specific and aligned with the strategic goals of the agency. The program guidelines stated that the RCF was established to support the development of cultural infrastructure in regional NSW. The objectives of the RCF related to improving cultural infrastructure and promoting increased access to creative and cultural activities. The guidelines were developed in consultation with the then Minister for the Arts, the former Deputy Premier and DPC and were approved by the minister.

There were some differences in the way the program objectives were described in the program guidelines for the first and second rounds. For example, the program ‘objectives’ listed in the round one guidelines were described as 'aims' in the round two guidelines, and the round two guidelines included an additional four points described as 'objectives' that were not included in round one.

This could have been confusing for applicants or people assessing applications. However, the additional objectives in the round two guidelines were still consistent with the description of the program in the earlier guidelines.

The RCF guidelines and criteria were aligned with the program objectives except for the inclusion of an operational category in the round one guidelines

The RCF had program guidelines and assessment criteria that were consistent with the purpose and objectives of the program. The program guidelines described the purpose and objectives of the program and explained the categories of funding available. The guidelines also provided examples of the types of project that may be supported and listed types of project that would not be supported.

The first funding round for the RCF included a category for operational funding. This was not consistent with the purpose or objectives of the program, which focused on developing cultural infrastructure. This was acknowledged by Create NSW in a briefing seeking approval to remove this category from the second funding round, but the reasons for its original inclusion were not explained. Seven applicants received grant funding for operational projects.

Parts of the approach to program administration changed after the program had commenced

The main governance documents for the program, including the policy framework, probity plan and assessment guidelines, were produced after the program commenced. These documents were completed and approved before the formal assessment of applications began, but some details of the assessment process for the first funding round were being adjusted while the initial assessment process was underway. This increased the risk of late implementation of processes and inconsistency with key probity principles, particularly relating to perceptions of fairness and impartiality.

Several changes were made to the timing of the funding rounds and the amount allocated in each round. The initial plan announced in July 2017 stated that $100 million would be distributed over four years. This subsequently changed so that around $97 million of the funding was allocated in two rounds within two years.

Create NSW advised these changes were made to respond to higher than expected demand for funding in the first round and the high quality of applications received, which meant some applications that met the assessment criteria were not funded. Distributing the funding sooner than initially planned may have reduced the administrative burden on applicants that would have otherwise needed to reapply for funding. However, changing the timing of the allocation of funding also meant that almost all RCF funding was allocated by February 2019, which was one month before the 2019 NSW state election was held. Departmental documents indicate the then minister’s office requested advice on options to change the approach to distributing funding and approved the option of distributing most of the funding in two rounds.

Create NSW gave some applicants extra support to complete their applications

Create NSW gave extra support to a selected group of applicants from the first stage of round one that were judged to have strong proposals but had gaps in their applications. Create NSW’s goal was to enable them to be competitive in future rounds. Department staff we interviewed further explained that these applicants may have lacked experience in writing applications for grant funding and the additional support was intended to address this.

Create NSW's decision to provide additional support to only some applicants raised probity risks for the program. Advice from the probity adviser for the program highlighted this, noting that it could affect the fairness of the process by giving some applicants an advantage over others. Six applications that had received additional support during the first funding round ultimately received funding. These received funding from the same source as applicants who did not receive additional support. Create NSW followed the advice provided by its probity adviser to manage these issues, but the problem could have been avoided had it not made the initial decision to provide additional support to selected applicants.

Funds were earmarked in the second funding round for library projects without a documented reason

The round two guidelines specified that $5 million of the $47 million available would be given to public libraries. Create NSW added this to the guidelines in response to a written request from the Minister’s Chief of Staff. Libraries had previously been specified as an eligible type of project, but funding had not been set aside specifically for them. The reasons for earmarking funds for libraries were not explained in the guidelines or other Departmental documents.

Nine public library applications were approved with a total value over $7.2 million. This included two applications that were not recommended for funding by the assessment panel because they failed to meet at least one of the assessment criteria.

Setting aside a portion of the total funding for specific types of projects has the potential to undermine the merit-based assessment process, so it is important for agencies to document the reasons for such decisions. The reasons for setting aside $5 million for funding digitisation projects in the first funding round were documented in a ministerial briefing note. This provided transparency about the reasons for allocating funding in this way.

Appendices

Appendix one – Response from agencies

Appendix two – List of funded projects - Stronger Communities Fund Round 2

Appendix three – List of funded projects - Regional Cultural Fund

Appendix four – About the audit

Appendix five – Performance auditing

 

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Parliamentary reference - Report number #361 - released 8 February 2022.