Accounting trick frames reef grant
Picture the scene: three men in a room, two of them offering the third the deal of a lifetime.
The pair say they will give the man’s little outfit – which has assets of only about $3 million, turnover of less than $8 million and just a handful of staff – a $444 million contract, under terms yet to be negotiated. The offer comes out of a clear blue sky, totally unsolicited by the lucky recipient. For this little organisation, it is like winning the lottery, except they didn’t even buy a ticket.
Such a deal would be exceptional, even in the corporate world. It would have been exceptional even if the pair making the offer had been, say, investment bankers, and the third man the head of a tech start-up.
But they weren’t. Two of them were the prime minister of Australia and his environment minister, and the third was the chairman of a charitable organisation called the Great Barrier Reef Foundation. All three do have backgrounds as bankers, however: Malcolm Turnbull, Josh Frydenberg and the foundation’s John Schubert worked with Goldman Sachs, Deutsche Bank and Commonwealth Bank respectively.
The question is why it was done this way. Why solicit this little organisation, of which most people would never have heard, to be the recipient of the biggest such grant ever made in Australia? Why was the money given without tender and without any prior grant proposal? Why, instead of providing the money a bit at a time, subject to satisfactory performance as assessed on an annual or biannual basis, was six years’ worth of funding provided in one lump on June 28, less than three months after that first meeting?
Geoff Cousins thinks he knows the answer.
Cousins is a former president of the Australian Conservation Foundation. Perhaps more importantly, he is a corporate boardroom heavyweight. For 10 years, he was an adviser to John Howard.
“It’s a most cynical piece of accounting trickery,” he says of the Barrier Reef grant. “A piece of chicanery. That’s the only way I can describe it.”
To explain why, he traces back several years, to the government’s desperate attempts to persuade UNESCO, the United Nations Educational, Scientific and Cultural Organization, that it was a good steward of the Great Barrier Reef, and that the reef World Heritage area should not be declared to be “in danger”.
To that end, the government had promised, under its Reef 2050 Plan, to invest more than $700 million in measures to protect one of the world’s great natural wonders.
“They made a commitment, the Australian government, to the World Heritage listing committee, to spend $716 million on the Barrier Reef, prior to 2020,” Cousins says. “But they have spent just a fraction of that, and there is no way that in the remaining 18 months or less that they can reach that target, which raises the potential of the reef being put on the endangered list.”
In Cousins’s view, someone must have realised the trouble the government faced in meeting its spending targets on time. His guess is Frydenberg.
“Even if you started now, you couldn’t actually spend that money. There’s not a list, not a pipeline of projects approved and ready to go,” Cousins says.
“So Malcolm, then putting on … his business head, his accounting head, says ‘Well, all we’ve really got to do is make sure the money moves from the government’s accounts to the bank account of some other private or not-for-profit institution, then the money is spent.’ But the money hasn’t really been spent at all. Even the CEO of the foundation says it won’t all be spent for six years.”
If you tried that kind of dodge in the corporate world, Cousins says, “your accounting firm would say … they would have to qualify your accounts”.
Cousins makes a very strong circumstantial case. It is true the federal government has grossly underspent on its UNESCO commitment, and that the money given to the reef foundation will go much of the way to making good on that funding promise.
It is true also that UNESCO has become increasingly critical of the government’s performance protecting the reef. Last year’s meeting of the World Heritage Committee noted in particular that progress on achieving water-quality targets was too slow to meet the agreed time frame. As it happens, the largest single item on the reef foundation’s to-do list is improving water quality, with $201 million allocated to it.
Over its near five years in power, the Abbott–Turnbull government has not cultivated good relations with the charitable sector, particularly environmental groups. Just a few years ago the Liberal Party’s federal council, urged on by the right-wing Institute of Public Affairs, voted to strip all environmental groups of their charitable status. The government’s various ideologically driven efforts at inhibiting charities’ capacity to publicly advocate have been well reported, here and elsewhere.
On top of that, charities struggle with what David Crosbie, chief executive of Community Council for Australia, the peak body for charitable organisations, calls “creeping micromanagement” and inordinately complex due diligence processes.
Vast amounts of time and thousands, sometimes hundreds of thousands, of dollars are spent responding to bureaucratic demands for “more and more information, more compliance, more details about the organisation, more stipulations about expenditure, the activities permitted, even the employment contracts that can be used”.
Crosbie rubbishes claims by Turnbull and Frydenberg that the Great Barrier Reef Foundation was subject to normal due diligence processes.
“For the Department of the Environment and Energy to grant over $440 million to a small charity that didn’t even prepare an application form or ask for the grant is inconceivable!” he writes, in an email response to The Saturday Paper.
“It is totally inconsistent with any grant process from this Department or any other Department or even the behaviour of any individual philanthropist – none would be silly enough to grant such a large amount to such a small organisation. It is not just unprecedented, it is ludicrous.”
But the Great Barrier Reef Foundation is quite unlike any other charitable organisation in the country, and especially unlike any other environmental foundation. Its “chairman’s panel” is a who’s who of Australian business leaders. Schubert is a former president of the Business Council of Australia (BCA), among other roles, including chairman and managing director of Esso Australia. Elsewhere among the board’s big names are representatives of companies whose corporate interests would appear quite antithetical to the preservation of the reef. Coalminer Peabody Energy, for example, which, as with Esso’s parent company Exxon, has a history of funding anti-climate change groups.
The other big fossil fuel companies also appear: Rio Tinto, BHP, Shell, AGL and ConocoPhillips. There is also a long list of insurance companies, accountancy firms, manufacturers et cetera. Not to mention big banks, including Frydenberg’s former employer, Deutsche Bank. Next month, when a Senate inquiry convenes to examine the foundation’s funding, Stephen Fitzgerald, a former chairman of Turnbull’s old employer Goldman Sachs – and sometime guest at the Turnbulls’ Point Piper mansion – is expected to appear on behalf of the charity, along with Schubert and Grant King, current president of the BCA and former head of Origin Energy.
The foundation sponsors no in-house policy analysts critical of the government’s woeful environmental record, nor any noisy advocates complaining to the media that the fossil fuel industry is killing the reef. There are no activists likely to chain themselves to equipment or blockade infrastructure. The reef foundation is meek and uncritical, which is why most Australians have never heard of it and one big reason why the government likes it.
Another reason, endlessly emphasised by Frydenberg, is its potential, through its links to business, “to leverage off the private sector”. But to date that leverage has not moved much money. In its 2017 annual report, the foundation showed revenue of $7.7 million, a bit over half as much as the ACF brought in. The biggest single source of that revenue, almost $2 million, was listed as “government research contributions”. Only about $1.4 million came from “donations”, with another $744,000 recorded as “donations – chairman’s panel”.
This week, though, in response to news that members of the chairman’s panel were – to quote Sydney’s Daily Telegraph, “wined and dined … at a luxury island resort where private villas cost more than $2000 a night” – the foundation qualified its description of those “donations”.
“Members of the Chairman’s Panel pay around $20,000 annually to be a member of the Panel which is comprised of a $15,000 donation to Reef projects, with the remainder covering the cost of membership including the Chairman’s Panel meeting at Hamilton Island in 2018,” it said in a statement.
The costs of the retreat on Hamilton Island, it said, were “fully paid for via their membership fees and no taxpayer dollars, grants or other donations received by the GBRF are used. The purpose of this event is to provide a forum for business leaders to directly engage with scientists, and researchers.”
Perhaps you have to spend a buck to make a buck. But so far, the numbers show the foundation has extracted only comparatively small change from its corporate backers.
What else does the foundation do with its money? It lists its principal activities as “the funding and provision of research, information and education”. Basically, it gives money away.
Oddly, as Cousins correctly notes, last year “five of its seven biggest grants went to government institutions”. One might wonder why the government did not just fund them directly, and save the cost of the double handling of the money. The foundation’s administration costs eat up close to 20 per cent of revenue – down from almost a third in years past.
Some of the projects funded by the foundation are well out on the scientific fringe. Last year, for example, it gave $30,000 to research on polymers that might be sprayed onto the water to reduce sun damage to corals.
That is not to say all the projects funded are unworthy. Given the failure of governments to address climate change, it is necessary to put money into research that might produce corals able to survive hotter and more acidic water.
Hence $100 million of the $444 million grant is earmarked for reef restoration and the funding of science supporting reef resilience and adaptation. Likewise, $48 million is committed to controlling the plague of coral-eating crown of thorns starfish, which has been welcomed by the scientific community.
As noted previously, the largest part of the government’s grant is allocated to improving water quality on the reef. As well it might be, given that pollution from agricultural chemicals and sediment from grazing and rampant land clearing pose the biggest threat, other than climate change, to the reef.
And past government efforts at addressing the problem have been singularly unsuccessful, notes Australia’s foremost expert on reef water quality, Jon Brodie, professorial fellow at the ARC Centre of Excellence for Coral Reef Studies at James Cook University.
Despite government spending of some $100 million a year since 2008, Brodie says, the major agricultural industries in the reef catchment, cane growing and cattle grazing, still managed their land using methods “well below best practice for water quality”.
He points to detailed statistics from the joint federal–state report cards that come out every year. And they are tragic. The 2017 report reveals, for example, that just 18 per cent of land under sugar cane is subject to best practice for fertiliser use, 39 per cent for pesticide use and 40 per cent for sediment.
The target is 90 per cent for this year. The report card gave the cane industry a “D”. Grazing also got a “D”. Other industries did a little better, but the overall picture remains grim.
Brodie worries, too, about whether the money committed to water quality under the Great Barrier Reef Foundation grant will be additional to existing funding for water quality, a rebadging of some existing funding, or a decrease.
“The federal government’s already putting in $100 million a year, or they were, into water quality,” he says. “This grant amounts to less than $40 million a year, over six years, and this is the only money we know about, going forward.”
He has other concerns, too. The reef foundation has no experience in environmental management, only in funding research.
“I’m not totally pessimistic here,” Brodie says. “The foundation’s already talking about bringing in expertise, trying to get the best people involved and directed to the right priorities, so that’s good. It’s possible that the foundation can spend it better than the Department of Environment and Energy.”
But Brodie questions how much a charitable organisation can achieve by friendly persuasion, where previous government efforts have failed.
“If all you’ve got is money, and you are relying on the goodwill of farmers to use that money to improve practices, and there’s no big stick if they don’t … Without legislation, it makes it much harder.”
Brodie notes the federal government has failed to use its existing legislative powers to stop rampant land clearing.
And that goes to the fundamental question here. Is the government’s extraordinary outsourcing of responsibility a genuine attempt at doing things differently and better? Or is it rushed scheme to meet an arbitrary obligation?
The scientists are hopeful, but Geoff Cousins is cynical.
“This is Malcolm, in his usual way, thinking that if we have a big announcement, the biggest ever donation to the reef, no one will notice that it’s an accounting trick,” he says.
The evidence suggests he’s probably right. The rest of us can only hope that he’s wrong.
This article was first published in the print edition of The Saturday Paper on Aug 18, 2018 as "Accounting trick frames reef grant". Subscribe here.