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Audit of Regional Development Grants reveal shortcomings in process

Under the Regional Jobs and Investment Packages (RJIP) more than 700 applications for grant funding were received across the 10 regions, with 233 grants approved. Funding allocations were set for each region. Most regions received $20 million, with $30 million the most received by any one region.The Business Grants Hub within the Department of Industry, Innovation and Science was engaged to administer key aspects of the program. Administration of the program is the responsibility of the Department of Infrastructure, Transport, Cities and Regional Development (Infrastructure). Infrastructure engaged the Business Grants Hub within the Department of Industry, Innovation and Science (Industry) to administer key aspects of the program. This included receipt and assessment of applications, and execution and monitoring of grant agreements. The assessment process was outsourced by Industry at a cost of $3.15 million to a contractor accessed under a standing deed for contact centre services. Funding decisions were made by a panel of Ministers. Written advice was provided by Infrastructure to the Ministerial Panel on the individual and relative merits of competing applications that had been assessed as eligible. This included providing the Panel with the assessment score for each application against each criterion, the total score and where the application ranked relative to other competing applications. The Ministerial Panel did not approve 28 per cent of applications that had been recommended and instead approved 17 per cent of applications that had not been recommended.

Source: ANAO analysis of departmental records.

One of the Parliamentary requests for an audit of the RJIP program raised concerns that there was a heavy weighting in the funding awarded in the South Coast region to the Liberal Party held electorate of Gilmore compared with the Australian Labor Party held electorate of Eden-Monaro. The ANAO’s analysis of the application, assessment and decision-making for this region was that:

- the significant majority of eligible applications related to projects located in Gilmore (75 per cent of applications involving 82 per cent of grant funding requested) and the funding awarded largely reflected this distribution (73 per cent of successful applications involving 89 per cent of funding awarded was for projects located in Gilmore); - 15 per cent of Panel decisions differed from departmental recommendations. Across the program, 21 per cent of decisions differed from recommendations, with four regions having a rate lower than South Coast, and five regions a higher rate ; and there were four projects located in Eden-Monaro that had been recommended for funding approval that were not approved by the Panel and similarly three projects located in Gilmore that were recommended but not approved by the Panel. The only projects in the region that were approved for funding at odds with the departmental recommendation that they not be approved were both located in Gilmore. The Award of Funding Under the Regional Jobs and Investment Packages Audit found the assessment processes were not to the standard required by the grants administration framework. It was concluded that applications were not soundly assessed in accordance with the program guidelines. The eligibility requirements were not applied in full, and there are indications of shortcomings in the assessment of the merit criterion most directly related to the program outcomes. There were shortcomings in the assessments undertaken against the second merit criterion. This criterion was directly relevant to the program achieving its intended economic outcomes, including in relation to job creation. An assurance review contracted by Infrastructure identified that applicant claims were being taken at face value without appropriate scrutiny. In relation to this criterion and two of the three other criteria, the Panel recorded that more than 20 per cent of applications had been incorrectly scored by the assessors. The Audit found that there were 35 applications where the first merit assessment was recorded as having been completed on the same day as the eligibility assessment was recorded as having been completed, including eight applications where both merit assessments were recorded as being completed on the same day the eligibility assessment was completed. The audit also found one quarter of assessed applications were recorded as having the merit assessment completed within seven days of the eligibility assessment being recorded as completed. There were also 35 instances where the first merit assessment was recorded as having been completed before the eligibility assessment was recorded as complete and four instances where both merit assessments were recorded as completed before the eligibility assessment was finalised — an approach at odds with the documented procedures and training. The round of Regional Jobs and Investment Packages (RJIP) saw Eurobodalla Shire Council receive $2.3 million for the construction of a shellfish hatchery in Moruya along with $100,000 for a nature based tourism feasibility study. SEE THE FULL list of Regional Jobs and Investment Packages (RJIP), New South Wales, South Coast grant recipients ********************************************************************** These audit results raise alarm to the processes of a Federal panel, under the control of the Department of Infrastructure, Transport, Cities and Regional Development (Infrastructure), and their review of the $25m Federal Grant for the Mackay Park project in Batemans Bay announced just prior to a Federal election. On April 1st, 2019 Federal Member for Gilmore, Ann Sudmalis confirmed Federal funding of $25 million for the construction of the Regional Aquatic, Arts and Leisure Precinct at Mackay Park, Batemans Bay.

VIDEO: $25m in federal Funding now granted to ESC Mackay Park project . April 1st, 2019

In making the announcement Mrs Sudmalis said the funding from the Regional Growth Fund which will leave no doubt about the long awaited funding commitment. Deputy Prime Minister and Minister for Infrastructure, Transport and Regional Development Michael McCormack said of the $272.2 million Regional Growth Fund that they provide grants of $10 million or more for major transformational projects that create regional jobs and support long-term economic growth. Selection of projects, including the Mackay Park project in Batemans Bay were to be undertaken in two stages. Stage One required the submission of an Initial Application for competitive assessment. Stage Two then required the submission of a Full Business Case. Member for Gilmore Ann Sudmalis announced in October 2018 that $25M had been assigned to the Mackay Park project and invited Council to submit a full business case to the Regional Growth Fund for assessment. Did Council provide a Full Business case to Infrastructure, Transport and Regional Development and if so what did that Business Case state? In a Council response on March 26, 2019 to a question asked by Councillor Anthony Mayne staff advised: The business case prepared by Otium and adopted by Council, is based upon funds currently used to operate the BBCC and VIC, being redirected to meet operating costs of the Aquatic, Arts and Leisure Centre and to calculate the net operational cost to Council and therefore the community of that facility. HOWEVER: That Otium Business plan has the following (in part) disclaimer Readers should be aware that the preparation of this report may have necessitated projections of the future that are inherently uncertain and that our opinion is based on the underlying representations, assumptions and projections detailed in this ‘point in time’ report. There will be differences between projected and actual results, because events and circumstances frequently do not occur as expected and those differences may be material. We do not express an opinion as to whether actual results will approximate projected results, nor can we confirm, underwrite or guarantee the achievability of the projections as it is not possible to substantiate assumptions which are based on future events. The Otium Business case also clearly states : It should be noted that the financial model does not incorporate sensitivity analysis or depreciation at this stage. This will be done after the base case assumptions and preferred design option have been approved by Council. Further, once the preferred design option and financial modelling has been approved and finalised, an assessment of the economic impact of the facility should be undertaken by Council to support any applications for external funding. "to support any applications for external funding" - it is a clear recommendation by Otium that their Business Case NOT be used to support any applications for external funding


Yet Council did providing that Business case to the Infrastructure, Transport and Regional Development grants panel. To anyone reading that Business Case they would see that the projected incomes were fanciful based on fanciful visitation projections. They would have also seen immediately that the projected expenditures to maintain the facility were unaffordable. There is no doubt that the panel was fully aware of the community concerns around the ongoing affordability of this facility as these concerns were raised directly with Ms Sudmalis and she was clearly advised that the Business Plan lodged by Council was flawed and also specifically stated it was NOT be used to support any applications for external funding.

Operating Deficits

Using Otium’s estimates as put forward in the business case, i.e. excluding depreciation and borrowing costs, a deficit from operations in year 1 will be in the order of $970,000 with improvements over time to $748,000 in year 10.

The projected contribution from the aquatic area, the gym and the health and fitness programs are heavily dependent on “General Memberships” assessments – you might ask for further explanations and assurances in this area.

Depreciation

Using council’s guidelines for deprecation of different asset classes, it is expected annual depreciation costs would be between $1.39 million for Option 1 as described in the business case. Capital costs have been broken down by class from figures in the business case – this breakdown will be made available if requested.



Borrowing Costs

It is unlikely that council will be able to secure 100% grant funding requiring that some borrowing will be necessary to finance the project and in the absence of definite numbers, it is assumed in order to arrive at some “ballpark” numbers, that it will be necessary, very conservatively, to borrow an amount between $10 and $15 million with interest rates around 4% and terms between 15 and 30 years


Total Annual Costs

By adding the above operating deficits, depreciation and borrowing costs, an idea of the total annual costs might be:

Operating deficits                                between $970,000 and $748,000

Depreciation                                        between $1,393,949 and $1,617,997

Borrowing costs (conservative)          between $572,000 and $1,276,200

Total Annual Costs                          between $2,713,949 and $3,864,197 While the Audit has been most revealing the opportunity now exists for specific questions to be asked of the panel's review of the application and its review of the Business Plan.

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