Wednesday, May 22, 2024

PGF reset may not be value for money, Auditor-General finds

The Office of the Auditor-General has found that the repurposing of more than $600 million from the Government’s Provincial Growth Fund may not represent good value for money.

The Office wrote to the Economic Development, Science and Innovation Committee after reviewing how Kānoa – Regional Economic Development and Investment Unit (Kānoa-RDU) managed the repurposing of the funds.

The Provincial Growth Fund was launched in 2018 with $3 billion to be spent over three years to increase growth and development in regional New Zealand.

The repurposing of the Provincial Growth Fund (the PGF reset) occurred in 2020 and was designed to help regional New Zealand recover from the economic impact of the Covid-19 pandemic. The reset introduced additional objectives that prioritised funding to projects that created jobs immediately, could be under way within six months, and would be visible to communities.

“The PGF reset was designed and implemented at speed in an uncertain environment, at a time when Kānoa-RDU was experiencing significant staff resourcing challenges. Given these factors, we did not expect to find a perfect process, but we did expect to see one that was fit for purpose,” said Deputy Controller and Auditor-General, Andrew McConnell.

“We found that parts of Kānoa-RDU’s management of the PGF reset went well and largely met our expectations. However, other key elements needed to be in place to help ensure its success. For these reasons, we are not yet certain that Parliament or the public can have confidence that the investments made through the PGF reset will ultimately represent good value for money.”

Mr McConnell said the Office’s recent work examining Covid-related spending has often shown that not enough attention is being paid to ensuring that criteria are clear for funding applications, decision-making is transparent and appropriately documented, and the public can see how significant investments are achieving the intended outcomes and represent value for money.

“There is a general expectation that public organisations spending public money will demonstrate what is being achieved with it,” he said.

“Significant investments should be appropriately monitored and have their overall outcomes periodically measured and publicly reported. This is not an unreasonable expectation, even in a pandemic.”

The Office has published the following findings in relation to the PGF reset:

Kānoa-RDU rapidly developed advice for Ministers about what funds could be repurposed

‘For the PGF reset, $640 million of public money was rapidly repurposed to address the expected economic impact of the Covid-19 pandemic on regional New Zealand. Kānoa-RDU worked well in challenging circumstances to identify funds that could be repurposed for the PGF reset, as it had been directed by Ministers to do. The work to engage with those potentially affected, and to develop and provide advice to Ministers, was completed in about six weeks. In our view, this was managed effectively’.

Kānoa-RDU’s performance of its due diligence of applicants has improved

‘Kānoa-RDU’s due diligence checks on applicants included Companies Office checks, insolvency register checks, and Serious Fraud Office checks. For the projects we looked at, we found these to be carried out appropriately and documented well. Where issues were identified, it was clear how these were to be managed. This was an improvement on what we found in our 2020 report’.

We expected to see more attention to risk identification and management

‘Although we saw some risk management for projects newly funded through the PGF reset, we did not see enough evidence of proactive identification, assessment, and management of risks that could affect the achievement of the PGF reset’s objectives. When the PGF reset objectives were introduced, the potential for new or emerging risks should have been identified more proactively so that potential consequences, such as waste or delay, could have been better understood and planned for. This might have included, for example, considering the potential for supply chain risks that could affect a project starting within six months of the PGF reset. It is unclear to us the extent to which Ministers were made aware of potential risks to objectives such as this’.

We cannot be confident that project applications were adequately assessed against objectives

‘There was a complex framework for assessing project applications. We found that applications for PGF reset funding were assessed inconsistently against this framework. We also did not see enough evidence of how Kānoa-RDU appropriately scrutinised applicants’ claims of their projects’ benefits, such as the number of jobs that would be created. These assessments were not well documented for the projects we looked at.

‘This does not give us confidence that assessors adequately considered whether projects would deliver against the PGF reset’s objectives, or if they appropriately factored this into their advice to decision-makers. Given funding was repurposed from previously approved projects, we would have expected to see sufficient assurance provided to decision-makers that new projects would meet the objectives of the PGF reset’. 

More attention to monitoring and evaluation of the PGF is required

‘We saw no evidence of clear reporting or regular monitoring of how well the PGF reset was achieving its objectives or how its overall success or value for money could be determined. We also did not see evidence of planning for, or commitment to, an evaluation of the outcomes of the PGF reset. In our view, it should be clearer to the public how this significant amount of taxpayer’s money has been spent. The need to demonstrate the achievement of objectives should have been anticipated and built into the design of the PGF reset.

‘Although we acknowledge that the full impacts of projects funded by the PGF reset might not emerge for some years, in our view the PGF reset should be included in any future evaluation of the PGF’.

Demonstration of important processes and record-keeping was incomplete

‘There was a lack of documentary evidence, including the clear demonstration of processes we expected to see for some parts of Kānoa-RDU’s work that we looked at. We were able to fill some gaps by using information gained in interviews. However, some time has passed since PGF reset decisions were made and people were less likely to remember certain details. Creating appropriate records at the time would have provided clear evidence about how processes were carried out’.

As part of its wider observations from recent work undertaken by the Office of the Auditor-General, it was found that public servants had worked in new and innovative ways to meet the challenges caused by the COVID-19 pandemic.

“The Government made many urgent decisions in response to the Covid-19 pandemic, including to address the anticipated economic impact. These decisions included establishing the Wage Subsidy Scheme and the Strategic Tourism Assets Protection Programme, both of which we have reported on to Parliament,” said Mr McConnell.

“In these cases, we acknowledge the extraordinary circumstances, pressures, and uncertainty in which decisions were made.

“However, our recent work has often shown that not enough attention is being paid to ensuring that criteria are clear for funding applications, decision-making is transparent and appropriately documented, and the public is able to see how significant investments are achieving the intended outcomes and represent value for money.”

He said there was a general expectation that public organisations spending public money will demonstrate what is being achieved with it.

“Significant investment of public money should be appropriately monitored and have its overall outcomes periodically measured and publicly reported,” the Deputy Auditor-General said.

“This is not an unreasonable expectation, even in a pandemic. Given the rapid and significant expenditure in response to the Covid-19 pandemic, and the intergenerational impacts of this spending, it is essential that what has been achieved with public spending is well understood and that lessons can be learned.”

Mr McConnell thanked Kānoa-RDU and the Ministry of Business, Innovation and Employment for assisting with the review work.

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