Racing Industry: Grants Management

Tabled: 28 November 2013

3 Managing funding agreements and projects

At a glance

Background

Understanding whether program objectives have been achieved is a key part of grants administration. Accountability for the success or failure of the activity and the value obtained from the grant ultimately lies with the funder. The funder needs to monitor the grant to ensure that conditions are being met and benefits are being achieved.

Conclusion

Department of Justice (DOJ) has not demonstrated adequate accountability in managing public funds committed to the Regional Racing Infrastructure Fund (RRIF) and Victorian Racing Industry Fund (VRIF) programs. While there is no evidence of funds being mismanaged, DOJ has not effectively managed funding agreements or adequately held controlling bodies to account for their use of grant funds. While this has improved under VRIF, the absence of any program evaluations or assessments of the outcomes achieved means there is little assurance that program expenditure is delivering sufficient benefit.

Findings

  • DOJ has not consistently applied conditions of funding agreements that would assure it that project management is effective.
  • Timely completion of VRIF projects is substantially better than for RRIF.
  • DOJ has not sought to establish the outcomes of RRIF and VRIF, nor publish comprehensive information on RRIF and VRIF projects.
  • Although 20 per cent of VRIF Raceday Attraction Program agreements are executed on or after the funded event, DOJ has improved execution of funding agreements.
  • Greyhound Racing Victoria and Harness Racing Victoria are improving capital procurement and project management practices following identified weaknesses.

Recommendations

That the Department of Justice:

  • establish and report the outcomes of RRIF and VRIF
  • establish processes to ensure that all VRIF Raceday Attraction Program funding agreements are executed before the funded event.

3.1 Introduction

Understanding whether program objectives have been achieved is a key part of grants administration. Accountability for the success or failure of the activity and the value obtained from the grant ultimately lies with the funder. The funder needs to monitor the grant to gain assurance that conditions are being met and benefits are being achieved.

For the Regional Racing Infrastructure Fund (RRIF) and Victorian Racing Industry Fund (VRIF) grant recipients are responsible for delivering funded projects. The Department of Justice (DOJ) is accountable for ensuring recipients deliver projects consistent with funding agreements, and for the overall outcomes of RRIF and VRIF.

3.2 Conclusion

DOJ has not shown adequate accountability in managing the public funds committed to the RRIF and VRIF programs. While there is no evidence of funds being mismanaged, DOJ has not effectively managed funding agreements or adequately held controlling bodies to account for their use of grant funds. Although this has improved under VRIF, the absence of any program evaluations or assessment of outcome achievement means there is little assurance that program expenditure is achieving sufficient benefit.

3.3 Managing funding agreements

The making of grants should be supported by effective funding agreements that are enforceable and that limit risks to funds and grant program outcomes. Agreements should establish clear roles and responsibilities, and give the funder rights to monitor projects and recipients, withhold funds, and require recipients to report on projects' contributions to program objectives.

All RRIF and VRIF grants were covered by funding agreements that gave DOJ the right to monitor projects and recipients. While DOJ has improved how it manages funding agreements over the course of RRIF and VRIF, it has not routinely required recipients to report progress. Nor has it consistently sought assurance of recipients' management of funds and projects through statutory declarations and audits of project finances.

3.3.1 Developing funding agreements

DOJ used its own funding agreements for all grants made under RRIF and VRIF until September 2012, when the whole-of-government Common Funding Agreement was adopted. Prior to September 2012, DOJ did not assure itself of the suitability of its funding agreement before using it. It also did not satisfy itself that the agreement could be fully enforced, and that there were no consequential risks to the state. Specifically, it did not conduct a risk review to inform development of the funding agreement, or obtain legal advice.

VAGO's assessment of the terms of the RRIF and VRIF funding agreements indicate that they:

  • limited the state's financial obligation in respect of individual projects, and fixed the proportion of grant funds in the event of projects being completed under budget
  • allocated responsibility for project management and risk for completion of projects to the funding recipient
  • gave the state the right to withhold funds in the event of noncompliance
  • gave the state the right to review the recipient's finances and activities associated with funded projects
  • obliged the recipient to produce:
    • monthly project reports
    • a final project audit report
    • evidence of project expenditure
    • statutory declaration of final project cost, completion of the project and finalisation of all supplier obligations.

The agreements also gave DOJ the ability to monitor projects and recipients. Additionally, they gave DOJ rights to require reasonable compliance with recipients' nominated project completion dates, assurance that projects were completed as planned, and validation of the accuracy of recipients' project spending and funding claims.

3.3.2 Executing funding agreements

DOJ established agreements with funding recipients in accordance with the decisions of the Minister for Racing. However, the execution of funding agreements was not always timely. Delays in finalising funding agreements create the risk that applicants start projects without formally accepting the terms of funding. Particularly for VRIF Raceday Attraction Program grants, agreed activities have often occurred without a funding agreement in place—around 20 per cent had agreements executed on or after the funded event. This practice places the ability of DOJ to enforce the terms of its agreements at risk.

Figure 3A shows the average time taken to execute RRIF and VRIF Racing Infrastructure funding agreements after the Minister for Racing's approval. DOJ's performance in finalising agreements has varied substantially and appears unrelated to the number of applications received. Its performance improved from 2009 to 2010, before declining in 2011 when DOJ required up to 57 business days on average, or nearly three months, to finalise agreements. Since January 2012, DOJ has again steadily reduced the time required.

Figure 3A

Time required to execute RRIF and VRIF Racing Infrastructure funding agreements

   

RRIF

VRIF Racing Infrastructure

Period in which application received

Applications received

Average time to execute funding agreement (business days)

Applications received

Average time to execute funding agreement (business days)

2009

Jan–June

12

16

   
 

July–Dec

15

38

   

2010

Jan–June

13

17

   
 

July–Dec

21

16

   

2011

Jan–June

12

54

   
 

July–Dec

12

52

14

57

2012

Jan–June

30

21

22

44

 

July–Dec

1

16

27

31

2013

Jan–June

   

20

17

Note: Analysis of all RRIF and VRIF Racing Infrastructure grants approved before 30 June 2013. Time to execute funding agreement is the time between minister's approval and finalisation of the funding agreement.

Source: Victorian Auditor-General's Office based on DOJ data.

Figure 3B shows the proportion of VRIF Raceday Attraction Program funding agreements executed on or after the date of the funded event between July 2011 and June 2013. DOJ has substantially improved the management of these funding agreements, although 20 per cent of funding agreements for January to June 2013 were still finalised on the day of, or after, the funded event.

Figure 3B

VRIF Raceday Attraction Program funding agreements executed after the funded event

Period in which application received

Applications received

Number of funding agreements executed late

Proportion of funding agreements executed late (per cent)

Late agreements average business days late

2011

July–Dec

11

9

82

30

2012

Jan–June

16

6

38

27

 

July–Dec

45

18

40

17

2013

Jan–June

20

4

20

3

Note: Analysis of all Raceday Attraction Program applications received between July 2011 and June 2013. Late agreements are those signed on the day or after the funded event.

Source: Victorian Auditor-General's Office based on DOJ data.

3.3.3 Monitoring funding agreements and recipients

DOJ has not exercised all rights under the funding agreements to monitor projects and assure itself of recipients' management of RRIF and VRIF funds. It did not adequately hold controlling bodies to account for project completion dates. Nor did it adequately monitor funded projects or enforce accountability requirements for the expenditure of public funds. Consequently, a large number of projects were delivered later than the agreements stipulated, and few projects had audited project finances as required.

Project reports

DOJ has not consistently applied terms of the funding agreements that require recipients to provide regular project reports. Only 20 per cent of RRIF files VAGO reviewed contained project reports, compared to 41 per cent of VRIF Racing Infrastructure files. Without project reports, DOJ has little oversight of the progress of projects it funded, and little oversight of the expenditure of public funds.

Project finances

DOJ has not used the terms of the funding agreements open to it to review recipients' project finances and activities, in either the RRIF or VRIF programs. During the RRIF program, such a review would have been justified by the poor quality of many applications, the late completion of projects, and controlling bodies' failure to consistently produce project reports.

A review would have informed DOJ of whether funding recipients adequately considered projects' net benefit during their planning, as DOJ was not able to adequately assess this based on funding applications. A review would also have identified risks associated with controlling bodies' procurement and project management. During the RRIF program there were weaknesses in procurement and contract management at Greyhound Racing Victoria (GRV) and Harness Racing Victoria (HRV), and weaknesses in GRV's project financial monitoring.

Until September 2012, funding agreements required recipients of grants over $20 000 to include a report of audit with their final funding claim. However, DOJ did not enforce this requirement and it did not obtain any project audit reports.

DOJ also requires recipients to provide it with a statutory declaration of final project costs. The total project cost determines whether the final payment should be reduced to maintain the agreed balance of grant and contribution when projects are completed under budget. Without a statutory declaration, DOJ does not have assurance of whether a recipient should receive the full final grant payment.

Figure 3C shows that only 77 per cent of RRIF files contained statutory declarations. However, DOJ is now more consistently applying terms of funding agreements—VAGO found all of the 20 completed VRIF Racing Infrastructure files contained statutory declarations.

Figure 3C

Completion of RRIF and VRIF Racing Infrastructure projects at 30 June 2013

Factor

RRIF

VRIF Racing Infrastructure

Completion date

Projects late to complete

93 per cent

70 per cent

Average number of business days late

121 business days

39 business days

Projects more than 60 business days late to complete

55 per cent

20 per cent

Average time late beyond 60 business days

124 business days

24 business days

Assurance

Report of audit of project finances for projects of $20 000 and over in value(a)

0 per cent

0 per cent

Statutory declaration included with final funding claim(b)

77 per cent

100 per cent

Budget

Completed projects within 5 per cent of planned budget(c)

79 per cent

75 per cent

(a) Not required under new funding agreement introduced in September 2012.

(b) Statutory declarations on file and provided at the time of final funding claim.

(c) GRV projects not included in analysis, as GRV's final project accounting information was not available for all projects.

Source: VAGO's assessment of 40 of DOJ's RRIF grant files: GRV—seven, HRV—13 and Racing Victoria Limited (RVL)—20, and 20 of DOJ's VRIF Racing Infrastructure files for completed projects of clubs and controlling bodies.

Despite these weaknesses in financial monitoring, RRIF and VRIF projects were generally completed within their budgets. Of 28 RRIF projects for which final cost information was available, only six were outside 5 per cent of planned budget. Of 20 finalised VRIF Racing Infrastructure projects, 75 per cent were within 5 per cent of planned budget.

Project timeliness

Projects funded through RRIF and VRIF have generally not been delivered according to agreed time frames. The dates for finalising RRIF projects, nominated by funding recipients and included in funding agreements, were not accurately planned. Nor did DOJ take action to require funding recipients to improve their planning of these dates.

DOJ did not enforce completion dates in RRIF funding agreements, despite the then Minister for Racing's expectation that funds would be substantially committed within two years. VAGO's review identified four projects with RRIF funding applications dated between December 2011 and February 2012 that were completed more than 150 business days late.

Figure 3C shows that 93 per cent of 39 RRIF projects reviewed had not been finalised by the expected completion date, with late projects exceeding expected completion date by approximately six months. Around 55 per cent of projects VAGO reviewed were not completed 60 business days after the expected completion date.

Timely completion has improved for VRIF Racing Infrastructure projects when compared to RRIF. Around 70 per cent of 20 completed projects VAGO reviewed were late by an average of 39 business days after the completion dates in funding agreements. The percentage of projects completed more than 60 business days late was reduced from 55 per cent for RRIF, to 20 per cent for VRIF.

3.4 Controlling bodies' grant-funding governance

Grant recipients need robust systems and processes to manage projects in accordance with funding agreements and to account for their use of public funds. To obtain value for money, grant recipients' procurement needs to be managed fairly, promote market competition, and help them effectively control supplier costs.

Procurement and project accounting

Poor procurement practices create risks, including a lack of transparency and fairness in procurement decisions, inadequate competition leading to reduced value for money, unnecessary costs arising from poorly managed processes, and failure to deliver the goods and services intended.

Greyhound Racing Victoria

Before 2012, GRV's capital procurement practices did not comply with better practice. GRV did not adequately manage tender processes, and engaged consultants without contract. GRV had limited controls over procurement, and its accounting system did not support project-based recording of costs. As a consequence, GRV was not able to supply reliable finalised accounts for all its RRIF and VRIF projects.

Since June 2012, GRV has acted to address these weaknesses. It is implementing improved procurement and financial control processes for its capital projects, including those funded through VRIF. GRV has voluntarily delayed capital project activity since June 2012 until these improvements are complete.

GRV is significantly improving its procurement and accounting arrangements. It is now introducing a procurement system that helps control commitments, goods receipt and payments, and is using service contracts for all suppliers. This will give GRV the basis to achieve value for money, and to effectively control supplier costs.

To establish these arrangements, GRV's senior executives are closely overseeing GRV's first capital project since June 2012. Even though there is currently no legal requirement for GRV to adhere to public sector procurement guidance, other than for VRIF funded projects, GRV has advised that it is voluntarily complying with the Victorian Government Purchasing Board's procurement policies.

Harness Racing Victoria

HRV adequately monitors and controls project financial records, and is able to track spending against project-specific account codes for each of HRV's racing clubs. However, HRV has identified weaknesses in its procurement and contract management, and is introducing controls to address these weaknesses.

HRV's procurement practices during RRIF and VRIF programs did not allow it to show that it always achieved value for money, or promoted open and fair competition for its capital spending:

  • HRV has used the same specialised consultants for design and other services for the past 10 years, and a single supplier of track maintenance equipment.
  • HRV has not sought assurance that it achieves value for money from its specialised suppliers. It does not regularly test market prices, or develop alternative suppliers to expand the provider market and promote competition for its capital spending.
  • HRV engages its capital works consultants on an hourly rate without contracts, on the basis that an hourly rate is more efficient than entering into fixed-rate contracts.
  • HRV's hourly-rate consultants are often involved in projects from initial assessment, to design, tendering, and project management. Without staged works contracts and price caps, HRV is not able to show that it always controls consulting costs and achieves value for use of public funds.
  • HRV could not show that tendering undertaken on its behalf is always fair and promotes market competition. There was insufficient evidence of fair handling of additional tendering information, sign-off of evaluation criteria, and recording of tender box opening.

HRV makes grants to clubs under its Development Fund Operating Guidelines, which include requirements for tenders and quotations. Between 2008 and 2012, HRV approved grants in several cases where clubs' applications did not show these requirements had been fulfilled. HRV noted that these decisions were justified because works were urgent, there were health and safety risks, it knew of only one supplier, it wished to avoid delaying a club's project, or because the club had already made the purchase. However, the Development Fund Operating Guidelines do not include acceptable grounds for granting exemptions. As a result, HRV may not adequately control clubs' spending to promote fair market competition and achieve value for money.

Racing Victoria Limited

RVL adequately recorded and monitored project progress, budgets, variations, supplier costs and funding. Its project accounting arrangements allow regular monitoring of project spending, budgets and variations.

Among the large number of providers RVL engages, it has repeatedly used a small number for their expertise. Engagement of a specialised drainage contractor for two projects in 2011 that expanded well beyond their anticipated scope was not in accordance with better practice procurement. RVL has now implemented a fixed-price investigation stage to identify the scope and cost of the required works, and procures services to undertake identified works in accordance with tendering requirements. To develop competition, RVL has progressively engaged and developed the capability of other suppliers for similar work.

RVL also repeatedly used a single design consultant between 2010 and 2012 following changes to its arrangements for managing projects. While RVL used contracts to control costs, it did not seek quotes from other consultants. RVL has recently adopted the practice of obtaining three quotes for all consultancy services. This provides assurance that RVL is seeking to identify expertise available in the market, and is achieving value for money.

RVL consistently uses contracts and works orders to confirm terms of engagement for consultants and contractors. Where the price of a task cannot be fixed, RVL policy requires that supplier contracts, including consultancy contracts, cap the total cost of the task. This allows RVL to effectively control costs and achieve the planned net benefit of its projects.

Maintaining project management records

Maintaining appropriate records enables decisions to be reviewed and decision-making processes to be improved. Record keeping also allows agencies to review and demonstrate their compliance with internal policies and relevant legislation.

Greyhound Racing Victoria

GRV is currently introducing policy and guidelines for records management, and is considering purchase of a system to manage electronic records. This action is intended to address deficiencies in its management of records, including RRIF and VRIF files.

VAGO's review of GRV's RRIF and VRIF files for projects before 2013 found the files were not in a state that would allow review or justification of management decisions or processes, particularly if staff directly responsible for the records had left the organisation. GRV's records for each project were not complete or organised into files, it had no checklist for the contents of project files, and no management processes to control the quality of project files.

Harness Racing Victoria

HRV does not have policy or controls for maintaining capital project records, including records for RRIF and VRIF projects. HRV identified the need for a standard approach to managing corporate records in May 2013, but has not yet introduced requirements for records of capital projects.

The absence of appropriate controls for project records means HRV cannot easily review compliance of capital projects with its policy and procedures, or effectively justify management decisions. HRV does not systematically recover all records of tenders undertaken by its consultants, and its project files do not show that tendering probity requirements are always met. Its business activity is also at risk as it is overly dependent on the knowledge of staff directly responsible for project management records.

Racing Victoria Limited

RVL has sound arrangements for managing project documentation. Project documentation was readily accessible, consistently filed, and generally held records showing procurement processes, including handling of probity requirements such as fair handling of tendering information, setting tender evaluation criteria, and recording tender box opening. RVL holds project records in physical and electronic form.

3.5 Outcomes and net benefit

Grants are a form of funding designed to achieve policy and/or program objectives. Understanding whether objectives have been achieved is fundamental to grants administration, and in determining whether the use of public funds is achieving intended benefits.

DOJ did not develop measures to assess the performance of the RRIF or VRIF programs against their objectives, and is unable to demonstrate the achievement of intended outcomes. DOJ has not publicly reported comprehensive information on the projects funded by RRIF and VRIF, nor whether the RRIF or VRIF grant programs are achieving intended outcomes or achieving sufficient benefits.

3.5.1 Demonstrating outcomes

The purpose of RRIF was to support controlling bodies' capital works and improvements and to stimulate industry growth. Projects eligible for RRIF funding were focused on areas where outcomes were clearly measurable. The then Minister for Racing advised the Public Accounts and Estimates Committee in May 2010 of the nature of the outcomes that RRIF projects were to achieve:

  • drought-proofing projects to reduce the reliance on town water supplies
  • better and safer facilities for all participants in the industry
  • much better quality of racing including increased race fields.

The purpose of VRIF is also to support the racing industry to improve racing and training venues, and to stimulate industry growth. Similar to RRIF, the objective of VRIF Racing Infrastructure funding is to drought-proof racetracks, improve racing and training infrastructure, and improve facilities for the public. The VRIF Raceday Attraction Program aims to achieve sustainable increases in attendance at race meetings.

VRIF requires applicants to include measures to show a successful outcome for the club, racing industry and broader community. Despite this, neither DOJ nor the controlling bodies have assessed the extent to which the measures have been met for completed projects. Neither DOJ nor the racing industry has plans to review the extent to which RRIF and VRIF Racing Infrastructure programs are achieving their purposes and producing benefits for the racing industry and wider community.

The Raceday Attraction Program has run for two years. By 30 June 2013 it had supported 92 grants worth $2.36 million. Raceday attendance information is readily available, and must be reported by grant recipients. However, DOJ has not assessed whether there are consistent increases in attendance, and whether these increases can be sustained without public funding.

A recent study of the racing industry shows its annual economic contribution has increased by 33 per cent, from $2.1 billion in 2006 to $2.8 billion in 2011–12. However, further analysis would be required to identify the net economic benefit arising from RRIF and VRIF, and whether continued funding is needed to maintain the economic contribution of the racing industry.

DOJ has noted that outcomes of the wagering re-licensing process exceeded expectations and so justify RRIF funding. However, DOJ has not indicated what these expected outcomes were or whether they could have been achieved without RRIF. DOJ itself identified in 2006 that the Victorian racing industry performed well ahead of other states' industries, because Victoria was the only state in which the racing industry received income from both gaming and wagering, and had done so since 1994.

3.5.2 Reporting outcomes

DOJ does not publish complete and consistent information on racing industry projects and the funds used to support them. This contrasts with other grants programs that DOJ administers, for which information is published on the DOJ website.

Reporting of racing industry grants has previously been the subject of a Parliamentary Accounts and Estimates Committee recommendation. In its Report on the 2006–07 Budget Estimates, the Committee recommended that DOJ should publish on its website the details of the particular projects funded from the Racing Industry Development Program. DOJ has not adopted this recommendation for RRIF and VRIF.

Recommendations

That the Department of Justice:

  1. establish and report the outcomes of the Regional Racing Infrastructure Fund, and the Racing Infrastructure and Raceday Attraction programs of the Victorian Racing Industry Fund
  2. maintain on the Department of Justice website a list of all projects, funding sources and grants from the Regional Racing Infrastructure Fund and Victorian Racing Industry Fund
  3. establish processes to ensure that all Victorian Racing Industry Fund Raceday Attraction Program funding agreements are executed before the funded event.

That Greyhound Racing Victoria:

  1. implement requirements for managing project records that are consistent with its procurement and contract management policies.

That Harness Racing Victoria:

  1. include in its procurement policy minimum requirements for market testing to confirm pricing and competition in areas of specialised supply for capital projects
  2. implement contracts for all capital project consulting services in accordance with its new contract management policy
  3. establish grounds and standards of justification for exemptions from Development Fund Operating Guidelines and procurement policy and procedures
  4. implement requirements for managing project records that are consistent with its procurement and contract management policies.

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