Creative New Zealand Grants Review Report, July 2004

Report to the Ministry for Culture and Heritage on the review of Creative New Zealand's policies and procedures for assessing and allocating grants.

In response to a request from the Ministry for Culture and Heritage, this is a report on the findings and recommendations arising from the review of Creative New Zealand's policies and procedures for assessing and allocating grants.

The scope of the review

The scope of this review is to provide the Ministry with:

An analysis and assessment of Creative New Zealand's policies and procedures for assessing grant applications, distributing grants, and ensuring appropriate accountability by grant recipients; and
An assessment of a sample of past grants against established funding criteria, policies and processes.

The review considered the procedures for grant applications and distribution of funding by the decision-making bodies - the Arts Board, Te Waka Toi, and the Pacific Arts Committee. This included both project funding and funding for Recurrently Funded Organisations.

The review does not consider the specific criteria in place for the assessment of grants. Its focus is on the effectiveness of policies and procedures in place to ensure that those criteria are consistently and rigorously applied.

The scope of this review is limited and is not intended to be a financial review or audit of Creative New Zealand's financial reports or systems but rather a ‘high level' review of its management procedures. The review should not be relied upon to disclose any instances of irregularities by those receiving Creative New Zealand grants.

The methodology

The methodology used was to:

Document Creative New Zealand's procedures and controls based on discussions with Creative New Zealand management and relevant staff. This is described in Appendix 1.
Test that these procedures and controls are applied by Creative New Zealand by randomly selecting for testing: two Arts Board grants; two Te Waka Toi grants; one Pacific Arts Committee grant and one grant to a Recurrently Funded Organisation. The results of this testing is given in Appendix 2.

Summary of findings

In determining the effectiveness of Creative New Zealand's policies and procedures for assessing and allocating grants, four key control areas were expected to be evident. They were:

Published funding criteria and guidelines are available for applicants;
Only those applications that comply with funding criteria are considered for grants;
Robust administrative decision making processes exist; and
Recipients are required to account for the grants they receive.

The review found that this was the case.

Creative New Zealand has effective procedures and controls in place to ensure its grants comply with the funding criteria. While it has procedures and controls for ensuring recipients are accountable for the use of the grants these are not always effective for project grants. There is room to tighten up on the acquittal process. The acquittal reminder letters are not always effective in making the recipients comply with the reporting requirements. More effective measures need to be introduced. This is commented on in more detail below and recommendations are made for Creative New Zealand to consider.

Creative New Zealand has a comprehensive computer system called Darta. This system tracks projects from the receipt of the application through to the final acquittal when the project is completed and the final report is delivered by the recipient and accepted by Creative New Zealand.

Darta can also report on those projects for which no satisfactory project completion report has been received. There are two default stages. The first stage is referred to as unsatisfactory where no report has been received after two written reminders. The second stage is referred to as write-offs where no report has been received two years after the expected completion date of the project.

A Darta report provided by Creative New Zealand shows that 253 (or 12%) of the 2148 project grants made since 1999 (since Darta was introduced) fall into one or other of these

categories. The unsatisfactory category accounts for 5% and the write-offs account for the remaining 7%. This is higher than the reviewer would have expected.

It is acknowledged that this is a difficult area to enforce especially when grants have to be paid at the commencement, rather than at the completion, of the project. Many of the project grant payments are small (averaging $13,000) and many of the individuals receiving Creative New Zealand grants are probably not familiar with the necessity of accountability for the use of public funding. Creative New Zealand does advise defaulters that it will not consider any further applications for grants from any recipient of a grant who has not satisfactorily completed a project completion report. This does not seem to be working as a deterrent to non-compliance with this requirement.

Recommendations

The following are some further measures that Creative New Zealand could introduce to encourage recipients of project grants to comply with the reporting requirements:

A provision could be added to the document Standard Conditions of Grant stipulating that where a recipient fails to provide the required report within 3 months from the agreed completion-end date of the project then Creative New Zealand would demand immediate full repayment of the grant. Where practical Creative New Zealand should enforce this provision without undue delay.
For the larger grants Creative New Zealand could retain part of the grant (say 10%) which would be payable upon completion of the project and receipt of the report. This may not be practical for all grants, especially small grants of under $5,000 for such purposes as travel costs.
Creative New Zealand could also include in the Standard Conditions of Grant a provision that would allow Creative New Zealand to audit the financial records of the recipient of the grant to check that the grant has been correctly spent. Creative New Zealand could conduct a number of random audits each year.

Monitoring the completion of projects

The Darta system has the means to record a summary of the recipients' completion reports and comments by the arts advisors on the success of the projects. This is being further developed at the moment and this is to be encouraged. This could be a useful report for the assessors and the decision-making bodies to review the success of the various projects that Creative New Zealand is supporting.

Prior to finalising this report the reviewer has been advised by Creative New Zealand that in the future the decision-making bodies will receive a bi-annual report summarising the individual project reports for those that have been completed. There will also be a report listing those projects which are in default.

Conclusion

The reviewer's assessment of the procedures and control systems applied by Creative New Zealand is as follows:

The published funding criteria and guidelines are good .
Processes for ensuring eligibility for grants are good .
The assessment and decision making processes are good .
The procedures for requiring recipients to provide reports and account for the use of the grants are generally good. It is recommended, however, that CNZ introduce additional procedures for project grants to enhance compliance by grant recipients with acquittal reporting requirements. The recommendations above should be considered as options for addressing this.

If you require any further comment then I would be pleased to do so.

Finally I would like to record my thanks to Creative New Zealand for their co-operation and assistance during the course of this review.

Yours sincerely

Chris Prowse
Prowse & Co

Appendix 1: Funding procedures and control points

INTRODUCTION

By way of an indication of the number and dollar value of grants for projects and Recurrently Funded Organisations below is a break down extracted from Creative New Zealand's annual report for the year 30 June 2003 .

	# of grants	Total $ approved
The Arts Board - projects	362	$4.9 million
Te Waka Toi - projects	97	$1.3 million
Pacific Arts Committee – projects	52	$0.3 million
Recurrently Funded Organizations	38	$11.5 million

PROJECT GRANTS

Funding criteria

The funding criteria and how to apply for funding is contained in the Creative New Zealand's publication The Funding Guide. This guide applies to each of the decision-making bodies –Te Waka Toi, the Pacific Arts Committee and the Arts Board. The information provided is comprehensive and sets out in detail the various funding programmes administered by each of the bodies and who is eligible to apply. Application forms and an application workbook are also provided so applicants can provide the required information.

Reviewer's comment - The guidelines provide an important check for the arts advisors, assessors and decision-making bodies to ensure applications meet Creative New Zealand's funding criteria and applicants are eligible to apply for funding.

Processing applications

Applications are considered twice yearly, although there is the flexibility to consider applications outside of this cycle in certain circumstances. The two bi-annual closing dates are 30 July and 25 February. Three months from the closing dates, applicants are advised by letter if their application has been successful.

The first step is for the arts advisors (Creative New Zealand staff) to check that the applications are eligible for funding and that all the required information has been provided.

If the application does not comply with the funding eligibility criteria then the application is rejected and the applicant is advised in writing of the reasons why it is not eligible. If the application does not supply all the required information or there are parts of the application that do not met the criteria (for example: budget items for purchase of equipment) then the arts advisor discusses any changes to the application or additional information that may be required with the applicant.

Applications are entered into the database system called Darta and a cover sheet is prepared by the arts advisor confirming eligibility, and advising of a suitable amount of funding if this is different from that which was requested by the applicant. The arts advisors do not make recommendations about which applications should be funded.

In the case of applications to the Arts Board and Te Waka Toi, the applications are then considered by assessment committees made up of five peers from the particular art forms. Assessors are appointed by the chair of the decision-making body from recommendations made by staff drawn from the nominations register which is open to the public.

The assessment committees are chaired by a member from one of the respective decision-making bodies. The chair does not vote and provides a report to the respective body. In the case of applications to the Pacific Arts Committee these are assessed by two external assessors and then discussed by the whole Pacific Arts Committee. The Pacific Arts Committee reports its funding decisions to the Arts Board.

The assessment committees make recommendations to the Arts Board or Te Waka Toi. The reports received by the decision-making bodies provide an overview of the type and quality of applications and a ranking of the application. There is an A list for those applications that are recommended for funding, a B list for those that are recommended for support if additional funds were available, and a Z list for those applications that are not recommended for funding. The decision-making bodies then make the final decisions which usually are in line with the recommendations received from the assessment process. It should be noted that the decision-making bodies have the prerogative to fund Z list projects on the basis of their strategic contribution and merit in accordance with the published funding criteria.

All the assessment committee and decision-making body meetings are minuted. There are processes in place to manage any direct or indirect conflicts of interest that may arise. The reviewer noted evidence that the management of conflicts of interest is recorded in the minutes.

As a final part of the process the individual chairs of Te Waka Toi, and The Arts Board, are accountable to the Council of Creative New Zealand for the work of the decision-making bodies. The Council is the governance body of Creative New Zealand. The process of accountability is based on the decision-making bodies working within their allocated budgets and providing copies of their minutes to the Council. The chairs of the decision-making bodies attend the Council meetings and provide verbal reports. Specific reports can be requested by the Council.

Reviewer's comment - The decision making processes are well documented and transparent. The Funding Guide and the handbook that is available to the decision-making bodies and assessment committee members sets out the processes and what is expected of the members. All decisions to grant monies are published giving information about who have received grants, the amount granted and what the grant is for. The decisions are available for scrutiny by those interested in the performance of Creative New Zealand .

A major strength of the system is the use of independent arts practitioners to assess the applications and then make recommendations to the three decision-making bodies. The assessors consider each application and mark it between 1 and 10 (10 the highest mark) based on an assessment of artistic merit and the criteria for the particular funding programme. In turn the three bodies provide an arms length check that the applications are fairly and consistently assessed and meet the funding criteria. They receive reports from each of the assessment committees and recommendations for each application. Decisions are based not only on the recommendations from the assessment committees but on strategic considerations that the decision-making bodies may want to apply. An example of this is an emphasis on the support of New Zealand's senior artists.

Terms and conditions of payment

Funding decisions are advised to applicants by letter. The letter is an offer of a grant and applicants are required to agree to the terms and conditions of the grant before the grant is awarded.

Standard formats are used and modified where appropriate. Where the amount granted is less than that requested the applicant is asked to submit a revised budget to demonstrate that the project is still feasible.

Successful applicants are also sent an acceptance form and standard terms and conditions applying to the grant. Grants are not paid until Creative New Zealand has received the signed acceptance form. The acceptance form confirms the start date for the project, the completion date and the reporting date, three months after completion of the project, and the acceptance of the conditions of the grant. In some instances the grants are paid in installments and, in the case of literature publishing subsidies, the grants are paid on completion of the publication.

The Standard Conditions of Grant form covers the conditions for uplifting the grant, acknowledgements of Creative New Zealand funding, use of the grant and reporting requirements. There is a stipulation that the grant can only be used for the purposes it was given. Any variations must be agreed in writing and Creative New Zealand has the right to terminate the grant or seek repayments if the conditions of the grant have been seriously breached.

Reviewer's comments – The acceptance process is adequate to record the recipient's agreement to the terms and conditions of the grants. Payments are not made until the terms and conditions have been accepted by the recipient.

Accountability of recipients and Creative New Zealand's monitoring of grants

A project completion report is required from all grant recipients within three months of completion of the project. There is a project completion report form available for recipients to use as a guide to the type of information that Creative New Zealand expects to see in the report. This is supplied to all recipients. This form covers an artistic assessment, a financial statement comparing actual income and expenditure with the budget, attendance/audience/publication figures, assessment of the extent to which the original expectations were met, touring details, an assessment of the effectiveness of marketing strategies, details of acknowledgement of Creative New Zealand support, and copies of supporting or evaluation material (for example copies of programmes, scripts, and CDs). Not all this information is applicable to all types of grants. Creative New Zealand is developing a range of reporting guidelines for the different types of grants.

The Darta system tracks the progress of the projects and signals when the completion reports are overdue. If reports are not received then a letter of reminder is first sent at the end of the month following the date on which the project-completion report was due. This is approximately 14 weeks after the project-end date. This letter advises that failure to report will mean that there will be no future payments if part of the grant has yet to be drawn down and that the recipient of the grant will become ineligible to apply for further grants until the report is received and the grant acquitted. If after 26 weeks following the original project-end date there is still no response then a further letter is sent advising the recipient that there is a breach to the conditions of the grant and reaffirming that outstanding grant monies can not be paid and the recipient is ineligible to apply for further grants.

Reviewer's comment – An acquittal status report produced from Darta shows that 253 (or 12%) of the 2148 project grants made since 1999 (since Darta was introduced) are classified as either Unsatisfactory (no satisfactory report after the two reminder letters) or as Write-offs (changes from unsatisfactory after two years from the project end date or in small number of cases if the recipient goes into liquidation or dies). This is higher than the reviewer would have expected. There is a recommendation in the front part of this report which suggests more vigorous methods to discourage defaulters.

The Project Acquittal Status report dated 2002/03 for those recipients with an ‘unsatisfactory' status was perused by the reviewer. This report indicates that there are often delays in sending reminder letters. There were several instances of the first reminder letter being sent 6 months or more after the project end date. Creative New Zealand advises that the delays in sending out the reminder letters are often due to Creative New Zealand extending the reporting date after discussions with grant recipients.

GRANTS FOR RECURRENTLY FUNDED ORGANISATIONS

Grants for Recurrently Funded Organisations can be either on an annual basis, or for a smaller number of organisations, as a three year funding commitment. The organisations receiving this type of funding are established arts organisations usually with a history of receiving Creative New Zealand funding. Examples of such organisations are Auckland Philharmonia, NBR New Zealand Opera, Fortune Theatre and Taki Rua Productions.

The funding for these organisations is, in the main, the responsibility of the Arts Board, with only a couple of organisations applying to Te Waka Toi. The procedures and control factors are different from those applied to project grants. The nature of the grants is also different. Whereas project grants are numerous and small, and require controls to ensure non-recurring applicants comply with the conditions of funding, the critical factors for many of the Recurrently Funded Organisations are more to do with the role they play in their particular art forms and their ongoing financial viability, given the high risks often associated with artistic based businesses.

For those organisations that are funded on an annual basis, applications are considered annually in July and funding contracts are normally finalised by September. Those receiving multi-year funding negotiate a contract with Creative New Zealand at a fixed dollar level for a three year period.

There is a comprehensive set of application forms which require the organisations to prioritise their programmes into the areas of: developing new work; providing creative development opportunities; providing professional development opportunities; and providing presentation, promotion and audience development opportunities. Other required information covers governance and management structures, and a detailed business plan.

The funding arrangements provide for quarterly reports. Funding is paid by monthly installments for annual recipients and on a quarterly basis for multi-year recipients. There are twice yearly meetings with the organisations and usually one member of the Arts Board or Te Waka Toi will engage with each organisation through meetings and events.

The main control factors applied by Creative New Zealand hinge on the adequacy of the organisation's governance and management, the effectiveness of organisation's relationship with its particular arts community, regular reporting and meetings, and annual audited financial statements. There is a lengthy lead up process before an organisation can be accepted for annual or multi year funding. Organisations that are not performing are put on notice and if necessary Creative New Zealand will terminate the grants.

Reviewer's comments – There are good processes in place to ensure applicants meet Creative New Zealand's funding criteria and also to ensure the organisations are capable of providing the required outcomes on a continuing basis. The reporting and monitoring processes are also sound. Creative New Zealand's management is well aware of the risk areas associated with these organisations.

The reviewer commends Creative New Zealand for the design and information provided in the Organisation's Summary and Funding Recommendations paper prepared by management for presenting recommendations to the decision-making bodies. The example looked at provided a good summary of what the organisation plans to do, its strengths and weaknesses, and its fit with Creative New Zealand's own strategies.

Appendix 2: Testing procedures and controls

A random selection of two Arts Board grants, two Te Waka Toi grants, one Pacific Arts Committee grant and one grant to a Recurrently Funded Organisation was made to test that the procedures and control outlined in Appendix 1 are being applied by Creative New Zealand. The random selection was tailored to cover a range of art forms and different types of projects. The selection was made from the 2002/03 funding rounds.

Project applications selected were:

Applicant	Programme	Art Form	Grant	Description
For the Arts Board
1/2002/03*	New Work	Multi-disciplinary	$30,000	Developing a new work
2/2002/03*	New Work	Theatre	$16,900	New out door theatre
For Te Waka Toi
1/2002/03*	Heritage Arts	Multi-disciplinary	$10,000	Interior of wharenui
2/2002/03*	Indigenous links	Oral arts	$5,000	*
For Pacific Arts Committee
2/2002/03*	Arts promotion	Music	$10,000	Explore new overseas markets

The following was checked for each application:

The application complied with a specific programme eligible for funding in the funding guide. Result: This applied to all selections.
Evidence that the assessment and decision making processes had applied. Result: This applied to all selections.
Sighted the signed acceptance of the grant and the attached standard conditions of grant. Result: This applied to all selections.
The acquittal process had been completed and a completion report received from the recipient. Result: There was one exception. The report from [*] due on 1 December 2003 had not been received. Two follow up letters had been sent by Creative New Zealand but no response had been received to date.

The Recurrently Funded Organisation selected was [*]. For the financial year 2003 this organization received $104,000 as a joint grant from Te Waka Toi and the Arts Board. The file for this grant was reviewed. The purpose of the funding was to support traditional Maori arts. The main priority of the applicant was to provide a facility where artists can develop their crafts. There was evidence of a signed agreement and supply of quarterly reports. The overall evidence was that the procedures and controls outlined above for Recurrently Funded Organisations were being applied. The grant also appeared to comply with Creative New Zealand's funding criteria.

Report by
Prowse and
Co. Ltd:

* refers to information that has been withheld under Clause 9(2)(a) of the Official Information Act 1982. The Ministry's decision to withhold this information may be reviewed by the Ombudsmen in accordance with Part V of the Official Information Act 1982.