Grants play an important and positive role in the Australian policy landscape. They are a proven method for governments – often in partnership with businesses or community organisations – to allocate funds to projects and activities that improve people’s lives. Whether to fill a gap in the market, provide short-term stimulus or deliver sustained support over time, grants rely on carefully calibrated decision making to ensure appropriate use of taxpayers’ money.
Despite its increasing popularity as a policy tool, grant making in government remains under-recognised as a professional skillset. A series of parliamentary inquiries, audit reviews and anti-corruption investigations have highlighted successful grants programs along with examples of waste, maladministration and partisan use of funds. In response, Commonwealth and state jurisdictions in Australia are moving to strengthen probity and administrative requirements.
Drawing on decades of professional experience, OCM’s specialist grant management practice assists agencies to develop their grant-making capacity and hone best practices. Our experts also provide valuable, independent advice throughout the entire grants lifecycle – from designing grant programs to achieve optimal outcomes to allocating funding, conducting due diligence activities and managing acquittals to ensure that the money is spent appropriately. This means we are ideally placed to review recent developments in grants administration and discuss key principles that can help policymakers design better grants programs.
An era of unprecedented scrutiny
It is a reality of public life that, although most grant recipients are deserving and almost all funding initiatives receive a clean bill of health, the occasional negative example can overshadow the positive impact of grants.
Notable examples include the so-called Commonwealth “sports rorts”, where grants were allocated disproportionately to marginal seats, and in one case, involved a ministerial conflict of interest. More recently, an audit by the Australian National Audit Office (ANAO) found that the Department of Health and Aged Care’s administration of the $2 billion Community Health and Hospitals Program was ineffective and fell short of ethical requirements. The audit also found that the governance and administration of the program’s funding arrangements were ineffective.
In another case, the ANAO found that applications for the Department of Infrastructure, Transport, Regional Development, Communications and the Arts’ Growing Regions Program were only partly assessed in accordance with the program guidelines. The ANAO’s report recommended that the department identify in the guidelines how ineligible project types and expenditure are assessed to ensure that successful projects reflect the program’s policy intent and objectives. The ANAO also recommended that the department applies the processes set out in the guidelines or updates them if significant changes to process are required during the application period.
In NSW, a performance audit into the $5 billion WestInvest program identified some areas where it lacked integrity and could be strengthened. In a February 2024 report, the NSW Auditor General found that the program lacked robust research or analysis to justify the scale of public expenditure. Program guidelines were also silent on the equitable or needs-based treatment of local government areas, resulting in significant geographical imbalances in the distribution of funds.
Common features of grant programs singled out for scrutiny in recent years include ministers not following departmental advice, a lack of documentation on decision making, inconsistencies between stated objectives and program outcomes, and cutting corners in the rush to get stimulus dollars out the door. Another risk is the potential for grant recipients failing to meet program milestones, to the extent they require contract variations. This is particularly relevant given ongoing skills shortages, supply chain disruptions and rising construction costs. Crucially, the number of schemes allocating government money through a grant program is significantly outpacing the number of staff assigned to managing these processes.
Stronger guidelines
Grant guidelines and regulatory frameworks are being strengthened around Australia to improve transparency and mitigate risks. For example, the new Commonwealth Grants Rules and Principles, introduced in October 2024, establish mandatory requirements for both ministers and agency officials to disclose and record material personal interests in relation to grants administration. Where ministers are the ultimate decision-makers, agency officials must advise which applications meet program selection criteria. Ministers must also record in writing any basis for not acting in accordance with departmental recommendations.
In a noteworthy development at state level, NSW passed the Government Sector Finance Amendment (Grants) Act 2023, which legislates the new Grants Administration Guide. This includes a requirement for agencies to engage a probity advisor for complex, high risk and high-profile grant programs. Agencies must also conduct due diligence in relation to proposed grant recipients where programs are complex, high value and high risk. This could involve a financial viability assessment, examining corporate scorecards and conducting a credit check to ensure grant recipients can meet contractual project delivery obligations.
NSW has also toughened requirements for ministers, political staffers and agency officials, stipulating that they must not knowingly breach a mandatory requirement in the guide. Ministers cannot approve grants unless satisfied they represent an efficient, effective, economical and ethical use of funds. They must also give reasons for overriding agency decisions. This approach should be adopted as a minimum to uphold the integrity of the allocation and decision-making process.
End-to-end grants governance
Above all, Australia’s changing grants policy environment necessitates a holistic approach to grants governance. In the case of a competitive, open, merit-based grants program, planners must craft the initial design phase carefully. Among other things, this involves setting clear written criteria for awarding funding. Next, grant applications must be assessed against these criteria, contracts awarded, and funds disbursed. The acquittal stage is where agencies conduct an audit to ensure public money has been spent correctly. Finally, programs are evaluated to provide lessons for the future.
In OCM’s experience, governance in grants programs cannot simply be overseen in relation to one stage of the process. The entire scheme must be designed to ensure that the program objectives can be achieved, that the process for allocating grant funds is fair and transparent, and that government agencies know how, where and when the public money is being spent. Bringing in a trusted, independent set of eyes early can help agencies set expectations through crisp, clear program documentation. It can also assist them to design a grant program and means for allocating funding that is proportionate to its objectives and risk profile. External expertise also enables experienced oversight of the assessment process, including advice to ministers. Robust frameworks can be established to prepare for worst-case scenarios and to manage issues such as conflicts of interest.
In short, governments that take governance and risk management in grants seriously gain an additional level of assurance that can protect the interests of both agencies and the executive.
Principle of proportionality
Grant programs are not one-size-fits-all. Rather, they should be designed with maximum agility to meet policy objectives. Complex schemes involving high-value grants necessitate more extensive scrutiny and governance. However, it is also crucial for agencies to ensure that administrative rules are proportionate to the actual risks. Imposing too many compliance or due diligence requirements on applicants can be counterproductive. A pitfall of overcomplicated schemes is that funds may go to the groups with the best grant application writers, and not where they are needed most.
Applying the principle of proportionality to best advantage involves developing a strategic understanding of risk and working to reduce this risk to an acceptable level.
OCM has extensive experience in applying proportionality to improve schemes both large and small. A good example is the support we provided to a government department on a small grant program, where the cost in labour to participate in the program far exceeded the value of the grant available. By working with the department to design a grant program that met the program’s objectives while making it easier for applicants to apply for funding, we successfully transformed the program from undersubscribed to oversubscribed in a short period of time. In other words, we applied the proportionality principle to design a simple process with appropriate governance, ensuring that more of the Government funding reached the parties who would benefit the most.
There may have been temptation over the years for government agencies to “wing” grant-making, viewing it as a simple administrative task compared to other processes such as procurements and requests for proposals. While the potential for grants to achieve good in the community is unlimited, any complacency should have long since been shattered.
Instead of waiting to be singled out by an audit office inquiry or critical parliamentary report, agencies now have every incentive to be as proactive as possible in designing robust, effective grant programs. That means engaging the right advice early and investing public funds in ways that honour society’s trust in them.
