Pearls and Irritations

The latest Audit Office report documenting mismanagement by the Morrison government of a grants program – in this case the Community Health and Hospitals Program – has generated outrage. At a time when the health system is under great pressure, over a billion dollars in grants were allocated on the basis of a dodgy process. What can be done to prevent a recurrence?

After the ANAO report was released, I was asked if I was surprised by its findings. I had to say that I wasn’t. Following reports demonstrating political interference in sports grants, car park grants, and public safety grants, why would anybody think that a health grants program announced in the shadows of an election would be immune?

This interference flourished because of a culture that saw the political executive as omnipotent. It was clearly articulated by Scott Morrison after the 2019 election when he told the public service that its job was simply to implement the decisions that Ministers took.

In the Department of Health, Morrison’s position was well entrenched before the election. The Department was already operating on the basis that submissions to the Minister should identify options, but not recommend any of them. Presumably that would allow the Minister to declare that he was not acting against departmental advice in any decision he took.

The Department developed a culture of responsiveness and service to the Minister, rather than responsibility and service to the public. Against this background it is hardly surprising that the Department acted to implement grants announced by the Minister (or the Prime Minister) without providing any independent advice or quality control. Grant programs conducted by the Commonwealth are supposed to comply with the Commonwealth Grants Rules and Guidelines 2017 (CGRG). These are intended to support expenditure of Commonwealth funds in accordance with the Public Governance, Performance and Accountability Act (PGPA Act), which requires the use of public resources to be “proper” – efficient, effective, economical and ethical.The CGRG envisage an orderly process under which the government identified the need for a grants program, decided on the parameters, issued grant opportunity guidelines, invited applications, evaluated responses, and award grants to successful applicants. However, the CGRG still require grant opportunity guidelines to be prepared even where Ministers decide on grant recipients outside the process – or absent any process, other than direct lobbying of a Minister or their office.

As then Secretary Glenys Beauchamp PSM observed in her response to the ANAO report on the Community Health and Hospitals Program:

“there was not a typical grant program design stage… as the projects and proponents that were to receive grant funding… were selected and announced by the Government as part of the budget processes and election commitments… The Department was required to develop the grant opportunity guidelines after the recipients of the grants had already been determined”.

From the compliance perspective, the Department failed in that it did not prepare a number of grant opportunity guidelines until after grant agreements had been signed, and that in a number of cases it did not prepare them at all. It presented grants for formal Ministerial approval even though legal advice had indicated that there was no lawful basis for them.

From the far more important governance and integrity perspective, the system failed because it allowed Ministers to hand out grants without any competitive process or any public service advice.

How can this be fixed?

I think it is a waste of time trying to corral Ministers into only approving grants on public service advice following a defined process. Firstly, there will always be exceptional circumstances under which a very deserving applicant may not fit within a given set of grants guidelines. And secondly, it will be hard to disabuse some Ministers of the idea that as members of the government they ought to have some power to allocate funding in some cases without going through a complex process.

I propose that the PGPA Act should be amended to establish two sorts of grant programs.

The first would be independent grants, in which Ministers’ roles would be limited to approving the grant program objectives, criteria, selection process, and quantum of funding. To maintain Ministerial accountability, Ministers would be required to approve all successful grants recommended by their department, and could veto a recommended grant (with reasons to be tabled in the Parliament). Any attempt by a Minister or their staff to interfere in the selection process would prima facie constitute corrupt conduct under the National Anti-Corruption Commission Act.

The second category would be Ministerial ex gratia grants. Under this arrangement Ministers could award grants as they saw fit, subject to parliamentary appropriation. This is essentially the same idea as that advanced by Minister Mark Butler – a mechanism to “support timely delivery of published and explicit decisions of government”.

However, under my proposal Ministers would be required to certify that the grants were a proper use of resources under the PGPA Act, and that the expenditure would be efficient, effective, economical and ethical. If a subsequent ANAO audit found that the expenditure was not efficient, effective, economical and ethical, the Minister would be personally liable to repay the grant.

If Ministers were required to treat public money as if it might be their own, they are likely to be a lot more discriminating in their decisions to award grants.

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