Victorian Auditor-General's Report 
12 December 2012 
Management of the Provincial Victoria Growth Fund
Audit summary
Regional and rural Victoria contributes approximately $71 billion to Victoria’s economy annually. The sustainable growth of regional and rural areas of Victoria depends on strong economies, strong communities and well-developed infrastructure. 
In November 2005, the government released its $502 million, five-year economic statement for rural and regional Victoria, Moving Forward: Making Provincial Victoria the Best Place to Live, Work and Invest (Moving Forward). This was the government’s action plan for positioning provincial Victoria to respond to key challenges facing regional communities. The Provincial Victoria Growth Fund (PVGF) was established under this plan to provide increased support for regional councils, businesses and communities.
PVGF was administered by Regional Development Victoria (RDV) and delivered by RDV and other state government departments and agencies. RDV is a statutory body within the Department of Planning and Community Development (DPCD). Prior to machinery-of-government changes in 2011, RDV was a statutory body within the former Department of Innovation, Industry and Regional Development, which is now known as the Department of Business and Innovation (DBI).
PVGF funding ceased in June 2010. The $1 billion Regional Growth Fund (RGF) is part of the current government’s commitment to drive regional development and is to be delivered over eight years.
This audit assessed the effectiveness of PVGF’s management framework and achievement of its intended outcomes by examining whether:
·	funding decisions were soundly based and transparently linked to the objectives of PVGF
·	governance arrangements supported effective cross-government coordination, including oversight of PVGF and funded initiatives
·	performance reporting and evaluations demonstrated achievement of PVGF’s objectives. 
The audit included DPCD and DBI. 
Conclusions
RDV undertook a wide range of planning activities to develop and plan for implementing PVGF. However, some deficiencies meant that RDV could not demonstrate that the fund was soundly based. While there were criteria for prioritising initiatives to be funded, assessment decisions were not adequately documented and criteria were not applied consistently to all funding decisions. Also, there was no business case underpinning it.
The monitoring and reporting systems and processes for initiatives and programs under PVGF were generally sound. However, these focused on outputs rather than outcomes. RDV had effective arrangements in place to manage grant programs and to disburse funding to grant recipients. Deficiencies in planning and undertaking evaluations, particularly the lack of a final evaluation of PVGF, mean RDV is unable to demonstrate that the fund achieved its objectives and outcomes. There were weaknesses in RDV’s risk management, and its documentation and recording of all PVGF programs and activities was not complete. 
However, RDV has improved its planning and management of RGF and addressed some of the deficiencies of PVGF, particularly with regard to evaluation planning and meaningful reporting on the achievement of outcomes. 
Findings
Funding 
PVGF provided $100 million funding to a range of programs and projects designed to deliver its objectives and intended outcomes. When PVGF was announced in 2005 it included $78.36 million for specific programs and initiatives set out in the Moving Forward plan (allocated funding). A further $21.64 million was set aside to respond to emerging issues and for prospective activities not initially identified in the plan (unallocated funding).
Provincial Victoria Growth Fund objectives and outcomes
PVGF’s key objectives were to increase support to regional councils, businesses and communities to market and promote provincial Victoria, identify and capture new business and investment opportunities, tackle skills shortages, manage change and plan for growth. The objectives are aligned with the broader policy framework established for the Moving Forward plan. 
The expected outcomes were that economic activity would be stimulated and more people, jobs and investment would be attracted to provincial Victoria. However, relevant and appropriate performance measures were not established to enable the achievement of outcomes or the effectiveness of the fund as a whole to be assessed. 
Selection and prioritisation of Provincial Victoria Growth Fund initiatives and programs
A long list of initiatives and programs were initially considered for inclusion in the Moving Forward plan (allocated funding). Prioritisation criteria were developed to support this process and, while the objectives of PVGF and the Moving Forward plan are reflected in the prioritisation criteria, assessment decisions are not documented. As a result, the rationale for funding proposed initiatives is not clear. 
There is little supporting evidence to substantiate how the $21.64 million unallocated portion of the funding was distributed. DBI advised that initiatives were assessed, prioritised and approved by the fund’s interdepartmental committee (IDC) as required before seeking ministerial approval. However, DBI does not have documentation to verify how the assessment and prioritisation of initiatives occurred. As a result, RDV cannot demonstrate that the selection of projects was soundly based, particularly as a significant number of initiatives included in the fund did not have adequately developed business cases. 
Business cases
There was no business case developed for PVGF. In addition, the departments of Premier and Cabinet, and Treasury and Finance advised government that they did not support a third of the 26 proposals in the Moving Forward submission. This is because they did not have fully developed business cases and could not be adequately assessed against other Budget priorities. Nevertheless, all of the proposals in question were approved by government and included in the starting initiatives when PVGF was announced. There is no evidence that business cases were developed for these proposals to confirm their merit following the decision to commit to them. 
Consequently, it was not demonstrated that there was adequate consideration of the need, options, costs, time frames, risks and expected benefits normally canvassed in a business case to allow decision-makers to assess whether a preferred option best met the need. The limited evidence means there was not a reliable basis to review whether funding decisions were adequately informed, consistent and soundly based. It is also not clear how achievement of the outcomes could be adequately assessed for these initiatives in the absence of expected benefits.
Implementation and evaluation plans
Implementation and evaluation plans (IEP) were developed for each initiative under PVGF. These were intended to identify high-level risks and risk management strategies, an evaluation framework, and performance measures and targets to measure the outcomes of the initiatives. 
The IEP for PVGF itself was inadequate. It did not identify a risk management strategy, contain adequate measures and targets to allow for meaningful reporting, nor include an evaluation framework at the time it was endorsed. However, a risk management plan and evaluation framework for PVGF were subsequently developed.
Similarly, half of the 26 IEPs for the initial initiatives funded under PVGF did not adequately identify high-level risks, and 18 (or 69 per cent) did not include an evaluation framework. None of the 26 IEPs outlined the basis for the targets adopted. Consequently, performance measures set in the plans were not sufficient to understand or demonstrate the impacts on PVGF’s intended outcomes. 
Performance measures and targets
The capacity of PVGF’s performance management framework to provide meaningful information on the fund’s intended outcomes or impacts was limited. Performance measures focused on activities over outcomes, and established targets were inconsistent and unclear. It was also unclear how individual initiative and program objectives were expected to contribute to the achievement of PVGF objectives and outcomes. 
Governance
There is no documented evidence that the IDC established to oversee PVGF adequately carried out its assessment, prioritisation and evaluation responsibilities. This limited the effectiveness of its monitoring and review roles. DBI advised that the IDC did carry out its functions as required, but is unable to provide any documentation verifying this.
Monitoring and reporting 
RDV established a sound monitoring and reporting framework for PVGF and effective arrangements were in place to manage grant programs and the disbursement of funds. 
There is no single, comprehensive source of public information on overall PVGF expenditure disaggregated by funding recipient, initiative, program and project. RDV’s annual report describes the initiatives funded within PVGF and provides details of the grant payments made from the fund. However, it does not identify initiatives and programs for which grants were provided. This lack of transparency limits the ability to scrutinise PVGF’s performance.  
Six-monthly reporting under IEPs was the main mechanism for reporting and monitoring implementation of initiatives under PVGF. This reporting focused mainly on the achievement of milestones and expenditure, and did not adequately report on impacts and outcomes. Progress reports did not include information on the performance measures identified in the IEPs. 
RDV used the information from individual progress reports to compile collated information on PVGF initiatives for reporting to the government covering progress against milestones, budgets and outputs. However, these reports provided limited information on progress towards the achievement of outcomes.
Evaluation 
RDV developed a ‘global’ evaluation framework for the Moving Forward plan which was endorsed by PVGF’s IDC as its applicable evaluation standard. Nevertheless, in the early stage of implementing PVGF, RDV did not adequately prepare to evaluate PVGF and did not apply a structured and integrated approach to evaluation. Together with the output-focused performance reporting, RDV never assessed PVGF’s overall effectiveness by completing a final evaluation. As a consequence, it cannot demonstrate that the fund fully achieved its intended objectives and outcomes. 
Part way through the life of PVGF, RDV engaged consultants to undertake an interim evaluation of the Moving Forward plan. Published in 2009, this review provided only limited information on PVGF’s performance because of issues with the number of complete and operational projects, and limitations in data and performance measures. 
RDV and two other agencies evaluated four PVGF initiatives during the life of the fund. Collectively, these initiatives accounted for $10.5 million or 11 per cent of PVGF’s expenditure of $92.4 million as at 30 June 2011. These evaluations provided some understanding of outcomes and the achievement of objectives for the programs themselves, but they did not demonstrate how they had contributed towards achieving PVGF’s overall outcomes or how the available results were incorporated into the Moving Forward interim evaluation. 
Risk management
RDV’s risk management framework for PVGF included elements required to effectively manage PVGF’s risks, but it was not adequately developed or applied, and there was little evidence that all risks were purposefully managed.
The risk register was reviewed biannually to coincide with progress reporting, however, the reports did not adequately document action taken to address identified and emerging risks. Progress reports did not contain sufficient information to provide assurance that risks were being managed. The basis for reducing some risk ratings is unclear. 
There were instances where the risk management framework failed either to detect materialising risks or mitigate their impact. Indeed, the risk identified relating to not being able to determine the benefit/value-add of initiatives was confirmed by the Moving Forward plan interim evaluation. 
Records management
The Public Records Act 1973 requires public sector entities to keep full and accurate records. Neither DBI nor DPCD has been able to locate the final PVGF progress reports within their document management systems. As a result, the final status of PVGF and its component initiatives and programs cannot be readily verified. Other record and document management issues identified during the audit include missing project information and data which appear to have been destroyed as part of Cabinet processes or lost in the transfer of RDV from DBI to DPCD. 
In the later stages of this audit, DBI provided evidence relating to activities that occurred when it was responsible for managing PVGF. This included some new information which had not been provided by DPCD. 
The Regional Growth Fund
RDV has improved planning with respect to RGF. In particular, it has considered the deficiencies of PVGF with regard to evaluation planning and the capability to meaningfully report on the achievement of outcomes. An RGF Policy Context and Operational Model has been developed which provides the policy and operational framework to guide implementation of the fund. This includes a strategic framework for RGF, objectives (outcomes), principles, and operational structures and governance arrangements. A high-level risk analysis indicates that a risk management strategy will be developed. A framework for reporting and evaluation has also been developed based on RGF’s strategic framework, the intent of the Regional Growth Fund Act 2011, and an evaluation program logic model.
RGF’s evaluation framework clarifies the relationship between its objectives, strategic action areas, program activities and expected outputs. RDV has engaged a consultant to undertake formative and mid-term evaluations between 2012 and 2014 to understand and document RGF’s outcomes and opportunities for improvement. A final evaluation of RGF is also planned, and program-level implementation action plans and individual evaluation plans are expected to be developed.
Recommendations
Number	Recommendation	Page	
1.	When developing future programs and initiatives, the Department of Planning and Community Development should:
·	develop robust business cases and processes to assess proposals to inform funding decisions, in line with Department of Treasury and Finance guidance
·	develop clear and measurable outcomes that are supported by relevant and appropriate performance measures and targets.	17	
2.	The departments of Planning and Community Development, and Business and Innovation, should act to assure compliance with the requirements of the Public Records Act 1973 and associated standards and policies, and implement changes as appropriate. 	27	
3.	The departments of Planning and Community Development, and Business and Innovation, should make sure key records relating to the Provincial Victoria Growth Fund, including key project documentation, are complete.	27	
4.	The Department of Planning and Community Development should apply the lessons learnt from the Provincial Victoria Growth Fund in implementing the Regional Growth Fund to:
·	provide assurance that the fund and its major components are soundly based
·	develop a comprehensive evaluation framework supported by relevant and appropriate performance measures and targets
·	implement robust monitoring and reporting systems and processes
·	undertake mid- and end-term evaluations with a focus on demonstrating the achievement of objectives and outcomes
·	develop and apply a sound risk management framework
·	implement appropriate record keeping and document management systems.	27	

Submissions and comments received
In addition to progressive engagement during the course of the audit, in accordance with section 16(3) of the Audit Act 1994, a copy of this report was provided to the Department of Planning and Community Development and the Department of Business and Innovation with a request for submissions or comments.
Agency views have been considered in reaching our audit conclusions and are represented to the extent relevant and warranted in preparing this report. Their full section 16(3) submissions and comments are included in Appendix C.