Managing the Municipal and Industrial Landfill Levy

Tabled: 25 July 2018

3 Sustainability Fund management

The public's trust in government depends on transparency and accountability. The fund's governance and transparency issues identified by the 2013 MAC report eroded this trust and undermined public and industry confidence. It is important therefore, that the current operating arrangements address past governance issues. The committee, which replaced the independent statutory committee, has a significant role to play in this regard as, under the Guidelines it should:

  • oversee fund management to support fund transparency and accountability
  • provide impartial, strategic advice regarding allocations from the fund.

The committee's advice to the minister is important to ensure proposals meet legislative and eligibility requirements and that sufficient information is provided to ensure proposals with the greatest merit are prioritised.

In this part of the report, we examine how proposals seeking money from the fund are selected and the role of the committee and the team in supporting the minister prior to, and after, government deliberations about the merits of these proposals.

3.1 Conclusion

The committee has identified and made attempts to address a range of procedural, structural and governance issues. However, more needs to be done to enable it to effectively fulfil its role:

  • The committee should support its advice to the minister with clearer, and more definitive, comprehensive information. This information should provide sufficient detail to enable merit based decisions that prioritise proposals seeking funding and clearly describe the degree to which proposals comply with the legislation.
  • The committee should improve its record keeping to ensure it has complete and reliable records of its deliberations, to improve transparency and accountability.
  • DELWP should put in place a formal process for the committee to review and comment on the final version of all proposals considered by the Premier and minister before their approval to stop proposals being approved that bypass the committee, in contravention of the Guidelines.
  • The inherent conflicts of interest that result from the administrator also being a major beneficiary of funding must be addressed.

The Guidelines are unclear on how to deal with requests that seek a component of ongoing funding, or move programs from annual appropriations. There is also lack of clarity about what constitutes 'core administrative costs', which are ineligible for funding. These ambiguities are particularly sensitive in the context of a hypothecated fund, where a levy is collected for a particular purpose with the public therefore reasonably expecting that fund expenditure should meet that purpose.

While there is no evidence that any program that received funding from the fund does not align with its legislative objectives, there is a potential risk this may be the case. This is because the committee has not considered and provided advice on all approved programs. In addition, some of those that it has considered were approved despite concerns about legislative alignment.

3.2 Evaluation criteria

The Guidelines state that the committee will provide impartial strategic advice to the minister and Premier regarding allocations from the fund, based in the first instance on:

  • alignment of the objectives with the legal objectives under the Act
  • alignment of the expected outcomes of the proposal against the defined priorities of the fund as included in the Priority Statement
  • the value for money and funding requirements of the project in light of the immediate and long-term environmental benefits that will be achieved
  • the availability of funding to the applicant from other funding sources.
Ineligibility criteria

The Guidelines include six ineligibility criteria:

  • proposals that seek retrospective funding for projects or programs that have already started or that have been completed
  • applications for funding to supplement the core administrative costs of an existing organisation
  • projects that duplicate programs already operating with respect to a specific environmental priority
  • projects that are considered inconsistent with government policy objectives
  • projects not meeting state and national legislative requirements, and other relevant statutory approvals and permits
  • applications not made in accordance with the guidelines.

DELWP advised that the team considers the eligibility of a proposal prior to providing advice to the committee. They only bring eligible proposals to the committee for consideration. However, the team does not document its eligibility assessment. This diminishes accountability and is inconsistent with the record keeping requirements that apply to decision-making.

Application of evaluation criteria

The team and the committee assess proposals according to their:

  • Impact—does the proposal address the problem it aims to fix and deliver social outcomes?
  • Quality—does it have clearly stated objectives, outcomes and deliverables, a well-developed budget and plans to complete a project evaluation?
  • Policy alignment—is there alignment with legislative objectives and priorities?
  • Value for money (new for 2018–19, previously included in the Impact criterion)—what is the potential return on investment? Is the proposal 'shovel-ready'? Is it scalable? Is there potential for the project to leverage additional or new investment?
  • Outstanding issues—this deals with any concerns that the committee might have about the project. It includes questions raised that the policy area has not responded to or concerns about the project based on the experience of similar projects or proposals.

When we compared the evaluation criteria in the Priority Statement and Guidelines with the criteria the team and the committee use to assess funding proposals we found that the committee's assessment process is not fully aligned with these two overarching foundation documents. The team and the committee use the evaluation criteria identified in the Guidelines to determine their recommendations and advice to the minister. However, the application of the value for money assessment lacks sufficient depth and the documentation of any analysis of options for alternative funding sought is inconsistent.

Figure 3A shows our analysis of the alignment of the criteria used by the team and committee in their 2017–18 and 2018–19 assessments.

Figure 3A
Evaluation criteria

Evaluation criteria included in the Guidelines

Team or committee criteria

Alignment of criteria

Compliance with legislative objectives

Assessment table clearly notes alignment with climate change, waste or both

Yes

Merit relative to the Priority Statement

Assessment table clearly notes alignment with Priority Statement

Yes

Proposed value for money in light of the immediate and long-term environmental benefits that will be achieved

Included as criteria but not well assessed

Yes

Options to fund from alternative funding sources

Alternative funding sources are documented inconsistently in committee advice

Partly

Source: VAGO.

As shown in Figure 3A, the team and the committee only fully use three of the four evaluation criteria referenced in the Guidelines to assess proposals. In 2017–18 and 2018–19 the committee provided advice that five proposals should seek funding from appropriations. However, it does not consistently document its assessment against this criteria for each proposal. To be consistent with the Guidelines the committee should clearly document its assessment of options to fund from alternative funding sources for each proposal. Without this assessment and subsequent advice, the minister will not be fully informed about the most appropriate funding source for each proposal.

Value for money assessment

Value for money is the achievement of a desired outcome at the best possible price, not necessarily the lowest price, based on a balanced judgement of financial and non-financial factors relevant to the procurement. In the context of the fund it is expected that the committee considers these factors in light of the immediate and long-term environmental benefits that a program will achieve.

In 2017–18, the team and committee included value for money in their impact evaluation criteria but did not separately document and provide advice on these. For 2018–19, the committee established a value for money criterion and separately listed it in the evaluation documentation.

We reviewed all assessments for 2017–18 and 2018–19 and found that they did not include a clear analysis of value for money. There was also no indication of which projects provided the best value for money considering the immediate and long-term environmental benefits that will be achieved. The committee does not consider factors such as costs and resources, fitness for purpose, time lines and risk. DELWP advised that the committee discusses these as part of its deliberations but does not document this assessment.

Although the nature of some funding proposals evaluated present challenges for value for money assessments, there is a need for greater rigour in how this criterion is applied. The extent of this assessment should reflect, at a minimum, program risk and value. The committee has reviewed proposals ranging in value from $5 million to $196 million with no substantive variation in the approach used.

DELWP advised that each funding proposal includes an analysis of value for money in its business case. However, the committee does not consistently complete a value for money assessment that contains sufficient evidence to enable the minister to determine which proposals are most cost-effective. In addition, a clear evaluation of how each proposal performs against this criterion is not included in the advice provided to the minister in 2017–18 and 2018–19.

Other considerations

The committee should document its consideration of other relevant factors included in the Priority Statement and Guidelines as part of their assessment of proposals.

The Priority Statement includes that preference should be given to initiatives that foster employment, new technology and innovation, resource efficiency or ongoing behaviour change.

Of the 24 proposals assessed by the committee between 2017–18 and 2018–19, 15 (63 per cent) considered these issues. In the remaining nine there is no evidence the committee assessed how well proposals demonstrated they address these criteria. Twelve of these cases (80 per cent) noted that the project fosters innovation and the remaining three noted resource efficiency and ongoing behaviour change. However, without definitions to inform the assessment of these impacts, it is difficult to determine whether and to what extent the committee has or should consider these matters.

The Guidelines also state 'The purpose of the Fund is to support projects, programs, services or technologies that will benefit Victoria environmentally, socially and economically'. While the committee's 'impact' criteria requires an assessment of the extent to which proposals address or deliver social outcomes it does not consider other impacts. The committee should consider expanding this assessment to include an assessment of environmental and economic impacts of proposals. There is a risk that eligible programs that have a strong economic or environmental impact may be overlooked for funding.

3.3 Application of the Guidelines

Core administrative costs

As noted above, the Guidelines specify that applications for funding to supplement core administrative costs are ineligible. Our discussions with DELWP staff revealed that there is no common understanding or consistently applied definition of what constitutes core administrative costs. We found seven examples where the committee recommended proposals that may conflict with this guidance. Due to definitional ambiguities, there is a risk that the committee recommended proposals that may contain core administrative costs and were therefore ineligible.

We identified one instance in 2017–18 where the committee highly recommended funding for ongoing staff for a component of a proposal that appeared to be administrative in nature. DELWP advised that the ongoing component of this bid was removed before it was submitted to ERSC.

The January 2018 committee meeting papers noted a number of funding requests for core government work and departmental staffing. The 2018–19 submissions seek funding for ongoing staff, which may be an example of core administration costs, equating to 16 per cent of the value of the submission total. The committee recommended or highly recommended all but one of these proposals, which may be in contravention of the above ineligibility criterion.

DELWP has advised that these examples related to proposals based on expanding service provision into new areas and therefore did not cover core administrative costs. However, in the committee's December 2017 letter to the minister, it noted the above costs were for a 'high level of core government work and departmental staffing'. This highlights the need for an agreed definition of what constitutes 'core administrative cost' and which component(s) of staffing costs are and are not eligible for funding.

The minister has recently approved an update of the Guidelines, as part of DELWP's response to the audit, to provide better clarity about the advisory function of the committee and definition of core administrative costs.

Ongoing funding

The Guidelines do not specify how to deal with proposals seeking ongoing funding. The committee recognises that this is an emerging issue for 2018–19 proposals due to the cumulative size of requests for 2018–19. It has raised this issue in advice provided to the minister.

DELWP advised that $20 million in ongoing funding that was not part of the original bid was approved in 2017–18. Funding agreements for these projects have been established for a four-year period. This gives the team and committee the opportunity to reassess and provide advice to the minister on programs that have received ongoing funding and the appropriateness of using the fund for this purpose.

DELWP then requested a total of over $80 million in ongoing funding as part of eight of its proposals in the 2018–19 Budget process. However, no ongoing funding was approved in the 2018–19 Budget.

The committee discussed this issue in a number of the meetings we attended. We observed that there was robust discussion about the merit and risk to government of using the fund for ongoing funding.

The committee's advice to the minister for 2018–19 recommended the ongoing funding but noted its use may curtail innovation and the ability of government to ensure effective alignment between funded work, statutory objectives and government's priorities for the fund.

It advised 'If proposals continue to seek ongoing funding at the current quantum, the committee may need to consider reviewing its alignment criteria and recommend caps be applied for ongoing commitments to maintain capacity to fund new programs.'

To ensure that the committee can reassess these funding streams, it advised the minister that the team should build a requirement for a four-yearly evaluation in the funding agreements to ensure continuing alignment with the objectives and priorities of the fund. On the review of each evaluation, the committee would provide advice to the minister if alignment concerns arise. The committee's letter to the minister reflects the risks of using the fund for ongoing funding.

Despite this, there is currently no documented or formal requirement for this to occur for the program that received ongoing funding in 2017–18.

Programs previously funded from appropriations

The Guidelines also do not specify how to deal with programs that are looking to shift their funding from appropriations to the fund. An increasing number of proposals attempt to transfer funding of existing DELWP programs to the fund, where there is alignment with the fund's legislative objectives.

For example, DELWP's biodiversity, threatened species, land remediation and beach renourishment programs, previously funded through appropriations, are now funded from the fund. Figure 3B is an example of a program that was previously funded through appropriations.

Figure 3B
Biodiversity

During the 2017–18 budget cycle, DELWP sought funding for a biodiversity program from the fund rather than through appropriations.

The committee felt that the proposal should continue to be funded from appropriations rather than the fund. In their advice to the minister, the program was marked as needing 'More Information', showing the committee had insufficient information to assess the proposal's alignment with the fund's legislative objectives.

In the end a decision was made to fund the $86.3 million program Protecting Victoria's Environment—Biodiversity 2037 from the fund.

Source: VAGO.

The committee's terms of reference state that it should provide input into the revision of the fund's Priority Statement and Guidelines. It should drive the revision of the Guidelines so that there is clarity about the appropriate short‑ and long-term application of monies from the fund and what should be taken into consideration when programs look to shift their funding from appropriations.

3.4 Alternative approval pathways

DELWP took responsibility for fund management on 1 July 2015. Until it had finalised the formal governance structures for its new role, it was not able to provide recommendations to the minister about which proposals to support in the 2016–17 budget process. During this time, the team did, however, conduct preliminary assessments of funding proposals for that year and shared these with DTF and DPC to inform their budget deliberations.

DELWP established the committee in May 2016 but not all members were appointed until December 2016. As a result, the committee was also not able to provide any advice directly to the minister on proposals for funding from the fund during the 2016–17 mid-cycle budget review. The team did not provide advice in the committee's absence. DELWP advised that this was due to significant time constraints associated with the preparation of the mid-year submission.

The total value of the proposals approved for funding from the fund in the 2016–17 mid-year budget was significant. ERSC endorsed five proposals for approval, at a total value of $118.8 million without advice from the committee.

For the 2017–18 budget cycle, the committee advised it assessed and provided advice to the minister on all DELWP proposals seeking funding from the fund. However, there is no documented assessment by the team or the committee of two DELWP programs approved. They also did not provide advice to the minister on proposals from other departments. This makes it difficult to assess if they completed their work transparently or if it is merit-based.

In the 2018–19 budget process, the team assessed and documented all DELWP funding proposals against the evaluation criteria and provided this to the committee for discussion. The committee then advised the minister on the funding proposals. ERSC endorsed four proposals for funding from the fund and these were announced in the 2018–19 Budget. One of these proposals was not supported by the committee. The committee reassessed the proposal but did not change its position. It is now not included in the proposed programs to be funded from the fund, and the committee has provided advice on the remaining proposals. DELWP will refer them back to the minister and Premier for approval. These proposals followed the regular pathway.

However, all programs proposed for funding in 2018–19 are DELWP programs. Funding proposals from other agencies in 2017–18 bypassed a significant part of the assessment process. The committee only became aware of these proposals once ERSC considered them. As a result, it did not formally assess these proposals against the evaluation criteria before ERSC considered them.

In 2018–19, DELWP sought advice directly from other departments on potential funding proposals they submitted. Despite this, the team was aware of two potential proposals from other departments that it was not able to assess or provide advice on before ERSC consideration. This is a risk because it means the committee was not able to inform the minister about the alignment and merit of these bids to the objectives of the fund before ERSC discussed them. Ultimately these proposals were not funded from the fund.

DELWP took action to identify proposals from other departments seeking funding from the fund prior to their submission to ERSC. This included working with DTF to amend the 2018–19 State Budget Bid Template to include a nominated source of funding category and directly approaching departments prior to their submission to ERSC.

However, the nature of the budget process and its time constraints makes it challenging for the committee to get access to all other departmental funding proposals.

To address this issue DELWP advised it is seeking approval from the minister and Premier for a process to ensure the committee provides advice on any proposals that bypass the regular pathway before they are approved by the minister and Premier.

Figure 3C shows the alternative approval pathways that proposals can take.

Figure 3C
Alternative approval pathways

Figure 3C shows alternative approval pathways

(a) The ministerial briefing for the Timber Plantation Establishment program noted that the program will be subject to an assessment by the committee against legislative objectives.

Source: VAGO.

Section 70A(1) of the Act requires that the Premier and minister must not consent to the application of any money from the fund unless there are in force [emphasis added] guidelines as to how they will exercise their powers.

The Guidelines state:

Projects may be funded based on direct recommendation of the Committee. For any other proposals, the Premier and the Minister will seek advice from the Sustainability Fund Manager directly or via the committee before allocating Fund monies to a project, so that they are informed about compliance of the proposal with legislated obligations, its consistency with the priority statement and other considerations such as value for money.

In 2017–18, five funding proposals did not comply with this requirement. The minister and Premier did not always seek advice from the committee before allocating fund monies to a project and the Sustainability Fund Manager did not act as an alternative advice source from the committee. It is unclear therefore how they were informed about compliance and consistency with legislated obligations. In 2018–19 the committee provided advice on all programs proposed for approval.

The committee advised that it is aware of the need to have a stronger process to test proposals that other agencies put forward. Its ability to fulfil its role varies depending on the point along this alternative process at which it becomes aware of the proposal. As Figure 3C illustrates, the committee is sometimes not aware of them until after ERSC considers them, as a result there is a risk that some requests receive more scrutiny than others. As noted above, plans are in progress to establish new processes to address this issue.

Figure 3D describes the one case where the committee has successfully challenged a proposal that ERSC endorsed.

Figure 3D
Water efficiency program

As part of the 2015–16 Budget, the government announced the creation of the Water Sector Productivity Inter-Departmental Committee (WS PIDC) as a mechanism to drive water sector efficiency and productivity. The WS PIDC was to be funded from the fund, at a cost of $250 000.

When DELWP assumed responsibility for fund management, the team identified that the WS PIDC may not align with the legislative objectives of the fund. The team discussed the project with staff within the Water Division to see whether they could reshape the funding proposal to provide better alignment.

The team formed the view that, rather than being a catalyst for improvements in waste management, the proposal's focus was on industry productivity. Cost reduction rather than investment in wastewater innovation and development was the clear aim of the project.

As a result, DELWP's executive team agreed that it would be more appropriate to fund the program from internal reprioritisation rather than from the fund.

Source: VAGO.

Figure 3E provides an overview of the approval pathways for programs approved in 2017–18. It shows whether the committee assessed funding proposals and provided advice on the programs that were approved.

Figure 3E
Approval processes 2017–18

Figure 3E shows approval processes 2017–18

Note: The total in this figure includes $320.1 million approved budget plus $37.5 million in mid-budget approvals consistent with the information provided in Figure 1H. This figure includes an additional $2 million of reprioritised funding.

Source: VAGO based on program values from the Victorian Government's Budget Paper No. 3, Service Delivery 2017–18 and DELWP information.

Only eight programs or 53 per cent of the value of approved programs went through the 'regular' pathway, which means the committee reviewed and provided advice to the minister prior to consideration by ERSC. Within this category the advice provided was at varying levels of completeness with the committee not assessing at least one program against evaluation criteria or giving it a rating. The remaining six programs went through one of three possible alternative approval pathways.

The committee assessed nine of the 14 programs that received funding for 2017–18, provided advice on eight of these, but did not include a rating against evaluation criteria for one approved program and one component of another approved program.

Of the eight programs that went through the regular process the committee rated one whole program and a component of one program as needing 'more information' and did not rate one program. It did not rate but provided advice to the minister on one part of another program which lacked links to the legislative objectives and recommended that it should be funded from appropriations. This means the committee only assessed against evaluation criteria, rated and provided advice to the minister on four out of the 14 programs approved for funding in 2017–18.

DELWP advised that in 2017–18 the committee informally assessed the alignment of any bids it had not already seen before the minister and Premier approved them. However, we have not seen documented evidence to support this. The 2017–18 ministerial briefing does not contain information about the alignment of the additional proposals before requesting the minister's sign off. The 2017–18 process exposed the minister and Premier to the risk that proposals may have been approved that did not align with the fund's legislative objectives.

During 2017–18, a DPC bid bypassed the committee. ERSC endorsed it without the committee considering its alignment with the fund's legislative obligations or Priority Statement. Furthermore, it was the highest value bid approved from the fund that year, and represents the highest value bid ever approved from the fund. Figure 3F summarises this bid.

Figure 3F
Timber plantation establishment

In the 2017–18 Budget, government announced a $110 million project to establish a timber plantation using money from the fund. This was a DPC initiative.

DPC advised that the bid was in line with the fund's objectives and Priority Statement owing to its links to biodiversity. The project aims to provide funding to establish a timber plantation in the Latrobe Valley, to support the long-term sustainability of Victoria's timber-harvesting industry. The description of this project does not include any biodiversity benefits. DPC advised that there was not a formal business case considered by ERSC, however, it used a consultant's report to inform its budget decision. There is no documented assessment of how the project meets the fund's objectives or Priority Statement and provides the best value for money to achieve these objectives.

Funding for this project is being held in contingency until DPC meets milestones set by the Treasurer. On their achievement, the Treasurer will release the funding for the minister and Premier to approve. DELWP advised that it will not make payments for this project until an agreement is in place. DELWP has advised that during the development of the funding agreements consideration will be given to the alignment of this proposal with the legislated objectives.

The committee requested documentation to enable it to conduct an assessment of the project's alignment with the fund's legislative objectives and Priority Statement. Almost a year later, DPC has not provided the committee with this documentation.

In the absence of a clearly documented rationale informing its selection, it is not possible to determine whether the project is consistent with the purposes of the fund.

Source: VAGO.

In 2017–18, there was not a process to ensure the committee assessed all funding proposals prior to submission to ERSC or following ERSC endorsement. This meant its advice was incomplete to the extent that not all submissions were assessed. Consequently, it does not fully inform the minister and Premier about the merit, risks and value for money of funding proposals before they make funding decisions.

For 2018–19, the committee provided advice on all four programs that have been proposed to receive $32.7 million of fund money. These proposals went through the regular pathway and the committee assessed and provided advice on them before they went to ERSC. However, it did not document its assessment of one proposal against the evaluation criteria as required by the Guidelines.

Reprioritisation of funding

Reprioritisation occurs when departments cancel programs or have unspent funds that they earmark for redirection to other initiatives. Only one reprioritisation has occurred since the committee was established. This request went directly to the minister and the Premier for assessment and approval, bypassing the committee.

In 2016–17, unspent funds of $325 941 from the Advance Organics program were requested to be redirected to another program—'Waste to Energy'. The minister approved this. While we recognise that the latter program had already been through the approval processes, there was no assessment of whether this was the best use of this money. Without committee assessment against the objectives, the minister does not have complete advice to determine whether this, or for example a previously unsuccessful proposal, is more worthy of funding.

3.5 Effectiveness of the committee

Committee advice

The committee uses a rating system to assess funding proposals based on alignment with legislative objectives, quality, value for money and outstanding issues. However, within each rating category, there is not sufficient detail to enable the merits of each proposal to be ranked.

In the 2017–18 budget process, the committee recommended each proposal to the minister using one of the following ratings:

  • Highly Recommended—strong legislative and priority alignment, quality, value for money and no outstanding issues
  • Recommended—moderate legislative and priority alignment, quality, value for money and no significant outstanding issues
  • More Information—more information or improvements required to achieve a recommended rating.

The committee did not use a 'do not recommend' rating during that year. This decreases the value and clarity of the advice provided to the minister. The committee's recommendations are equivocal and open to interpretation. Greater detail would provide the minister with better information on which to base decisions on the best use of fund monies.

Figure 3G shows the committee identified four of the 2017–18 funding proposals as requiring more information or as not rated. The minister and Premier approved all for funding.

Figure 3G
Committee advice on 2017–18 funding proposals

Committee rating

Number of proposals committee rated

Number of programs approved

More Information

2

2

No rating

2(a)(b)

2

Total

4

4

(a) The committee advised that one program not rated in 2017–18 should seek funding from appropriations.

(b) Committee advice to the minister on the other program states there is alignment with legislative objectives but provides no rating.

Source: VAGO.

The committee determined that it needed more information before it could provide a recommendation on one proposal and for one part of another proposal. However, it is not clear whether it actually required more information or whether the proposal did not adequately align with the legislative objectives of the fund. This is because for that year there was no 'do not recommend' option in the assessment process.

The committee's letter to the minister states that one of the funding proposals that was not rated by the committee 'lacks links to Sustainability Fund and should seek appropriation'. The minister approved the program.

Although the minister and Premier approve programs at their discretion the committee needs to provide the most clear, comprehensive and definitive advice possible to fully inform them when they make this decision.

The committee addressed this, in part, in the 2018–19 budget process when it included a new rating—Not Currently Supported (NCS).

The committee 'Recommended' or 'Highly recommended' 91 per cent of DELWP's proposals or their parts. It did not support part of one proposal and 'Recommended with comment for additional consideration' for two others. It is not clear how the latter rating differs from the 'More Information' rating as there is no documented definition.

There was only one instance where the committee felt more information was required. Where proposals do not align with objectives or priorities, the committee advises agencies how to fix these, before finalising its assessment of how well proposals meet the legislative objectives of the fund.

In the 2018–19 Budget it was announced that the Protecting Port Phillip Bay and its Beaches program will be funded from the fund. This program is made up of two components. The committee rated the Beach Renourishment component of this program 'NCS' because it did not align with the legislative objectives of the fund. The committee discussed this program at its meeting in May 2018 following ERSC endorsement of this proposal and its announcement in the Budget. There was no change to the proposal or additional evidence provided and as a result the committee did not change its position on this program. As a result, DELWP does not intend to include this program in its list of those proposed to receive fund money.

This year, for the first time, the value of proposals seeking funding totalled more than the amount of money in the fund. To provide better advice to the minister on the best use of the fund the committee should consider how it can further improve its ratings system and the advice it provides. The committee should increase the level of detail included in its advice, to allow the minister to differentiate the merits of one proposal compared with another.

Alignment to legislative objectives

The committee assesses funding proposals for alignment of their objectives with the fund's legislative objectives. Figure 3H shows the distributions from the fund by legislative objective. Following revision of the Priority Statement in 2016, there was a considerable increase in funds allocated to climate change initiatives.

Figure 3H
Fund distributions by legislative objective

Figure 3H shows fund distributions by legislative objective

Source: VAGO based on DELWP data.

Challenging poor alignment

Where the committee has questions about alignment with the fund's legislative objectives, the team works with the policy areas within the relevant department to, where possible, more clearly align the project with the objectives. If this is not possible, or doubts remain, the committee seeks legal advice on the matter.

DELWP sought legal advice on four occasions to provide guidance in relation to expenditure from the fund. This advice was relevant to seven initiatives endorsed for funding by ERSC.

Figure 3I provides three examples of where it used legal advice to help it assess whether endorsed initiatives align with the fund's legislative objectives.

Figure 3I
Legal advice on fund programs

Threatened Species Protection Initiative

In 2015, the government approved funding the $6 million Threatened Species Protection Initiative from the fund. It included several programs designed to assist in the protection of Victoria's most threatened flora and fauna. In 2015, during program development, the DELWP sought advice from the Victorian Government Solicitor's Office (VGSO). The advice concluded that the initiative was consistent with one of the legislative objectives of the fund. To more clearly align with the fund's legislative objectives, the advice suggested that DELWP make this clearer by editing the associated program plan to better describe elements of adaptation, efforts to address climate change and fostering innovation. DELWP explained that it did not provide the committee with this advice when it was considering other related proposals because it obtained the advice before the committee was established.

Critical Coastal Protection Assets

DELWP also sought advice on projects related to coastal risk management and general coastal management. VGSO formed the view that these were unlikely to satisfy fund criteria. Only those projects that had a purpose linked to climate change adaptation in Victoria would be likely to qualify for funding. The 2016–17 Budget allocated $15 million to the Critical Coastal Protection Assets project from the fund. Although this was not one of the projects assessed by VGSO, there is no evidence that the committee considered whether previous advice on this issue was applicable despite its similarities to other coastal management projects.

Greener Government Buildings

The Greener Government Buildings program aims to provide energy-efficient lighting, solar energy and battery storage to government buildings in Victoria. In November 2015, VGSO advised the committee that this program did not align with the legislated objectives of the fund. DELWP was concerned that VGSO based its advice on a particularly narrow view of the legislation. As a result, it sought independent legal advice in December 2015. This advice took a broader view of the legislation and concluded that the program did align with fund objectives. The committee decided that more information was required but did not provide this advice to the minister. Its assessment made reference to the VGSO advice obtained but not the independent advice. In 2017–18, $20 million was allocated from the fund for the program.

Source: VAGO.

These examples show that DELWP and the committee have used legal advice to help interpret and understand the extent to which the fund can be used to support various government programs and initiatives. However, DELWP has not consistently shared this advice with the committee to inform its deliberations, rather it decides when it is relevant to do so. Therefore, the committee has not been able to consider whether it was relevant and adequately acquitted before providing advice to the minister about the alignment of proposals with the fund's legislative purposes. This means the minister does not necessarily have all the relevant information when deciding which programs to invest in from the fund.

Conflict of interest

The 2013 MAC report on Waste and Resource Recovery Governance Reform found there was a perceived conflict of interest because SV was both the administrator of the fund and one of the primary recipients. It recommended that the government transfer responsibility for fund management to DELWP.

The Act was changed and the requirement for an Independent Advisory Panel to exist was also removed from the Act. To assist it with its new role, DELWP, in May 2016, established its own fund committee.

Since taking over administration of the fund, DELWP has become the primary recipient of program funding. Consequently, this creates a mix of actual and perceived conflicts of interest for the committee to manage as it has to assess and provide advice on funding proposals that are put forward by DELWP. Figure 3J shows the breakdown of fund recipients for programs active at December 2017, which refers to those with established funding agreements.

Figure 3J
Funding recipients—percentage of total amount contracted December 2017

Figure 3J shos Funding recipients —percentage of total amount contracted December 2017

Note: DELWP advised that a proportion of the money it receives passes through to other agencies or organisations but was unable to quantify this amount.

Source: VAGO based on DELWP's GEMS data.

Active program funding reflects approved program allocations that have established funding agreements and are currently drawing down on the fund.

DELWP receives $354.13 million or 79 per cent of active program funding from the fund. The next highest recipient is SV, which receives $59.22 million or 13 per cent.

A further issue exists with the membership of the committee. Of the five members, two are subject matter experts from DELWP—the Executive Director, Energy Policy and Programs and the Executive Director, Climate Change. This creates an inherent conflict of interest within the committee particularly when proposals considered by the committee come from one of their policy areas within DELWP.

The committee has attempted to address this with its conflict of interest policy and standing agenda item. This gives members the opportunity to raise any conflicts of interest and the committee the opportunity to agree on how it will manage these. The committee's meeting minutes clearly note potential conflicts of interest.

DELWP advised that there are instances where a conflicted committee member will step outside the room while it is discussing a bid. However, in the three meetings we observed involving assessment of the 2018–19 funding proposals and from our review of committee minutes since May 2016, we did not observe this occurring. As a result, these members were involved in the deliberations of their own funding proposals.

DELWP considers these subject matter experts make valuable contributions to discussions and deliberations of the committee. This could be achieved by getting independent and DELWP subject matter experts to share their knowledge and expertise as attendees instead of being members of the committee. This would resolve the inherent conflicts of interest created by the current arrangements.

The vacancy of one committee position from July 2017 to March 2018 further complicated this, requiring all four members to be present for a quorum. The DELWP Secretary has recently appointed an independent governance member, resolving this issue. In addition, the minister has recently approved an update of the Guidelines as part of DELWP's response to the audit to change the membership of the committee to make it fully independent.

Decision-making process

The committee's terms of reference do not include rules for decision-making. There is a risk that it may not be clear how committee decisions are finalised. DELWP should review the terms of reference to provide clear guidance on the committee decision-making processes.

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