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Following the auditor-general’s damning report on the sports grants scheme, questions are being raised about other programs. By Karen Middleton.

Sports grants expose broken system

Ten months ago, the then federal MP for the Victorian seat of Indi, independent Cathy McGowan, asked the auditor-general to investigate what she alleged was the politicisation of an $800 million federal grants scheme, known as Building Better Regions.

In the weeks leading up to the May federal election, McGowan complained the Regional Services minister, accompanied by Coalition candidates, had been announcing grants to local organisations for which McGowan had advocated as their MP, without notifying either her or the unsuccessful applicants.

The auditor-general undertook to consider including the regional grants in his audit program for the coming year but ended up prioritising a different scheme, the Community Sport Infrastructure Grant Program, after complaints during the election campaign that as-yet-unelected Coalition candidates were handing out government cheques, all on their own.

While the schemes were different, the minister responsible was the same: Nationals deputy leader Bridget McKenzie.

By late this week, McKenzie was expected to resign over her handling of the $100 million sports grants program, which she oversaw as Sport minister before shifting to Regional Services after Scott Morrison became prime minister and then, after last year’s election, to Agriculture.

Published on January 15, the Australian National Audit Office (ANAO) report on the sports grants scheme found McKenzie took over the approval process from the responsible statutory authority, Sport Australia.

It said she had no evident legal power to do so, overrode the agency’s recommendations – without reading the applications herself – and made decisions favouring the Coalition and weighted towards marginal and “targeted” seats.

She insisted she did nothing wrong and that “no rules were broken” in approving the applications.

“They were all assessed by Sport Australia and they were all eligible for funding,” she told ABC Radio National when the report was released.

The ANAO report found that more than 400 of the 684 applications she approved were not recommended by Sport Australia.

On Monday, Scott Morrison defended both the minister and the process. “The auditor-general’s report is a very serious report,” he said. “We take it seriously. We’re acting on the recommendations. And what the minister did was to actually ensure that more Labor seats actually received funding.”

He said Sport Australia “cut the cheques” and that the payments were “in accordance with the rules”.

The Labor opposition argues extra Labor seats were funded only because the Coalition was trying to win them.

Cathy McGowan says people expect a higher standard – one of the reasons she says she won Indi, the long-time Coalition-held seat in rural northern Victorian.

“They wanted better governance, they wanted much better delivery of services to rural and regional communities,” McGowan says. “… And the preoccupation that this particular instance has brought is creating just enormous discontent, I think.”

In light of the auditor-general’s report, McGowan believes McKenzie should have been stood aside pending a swift investigation. Having dug in behind the minister for days, Prime Minister Scott Morrison’s endorsement of her eased late this week.

On Monday, he asked Attorney-General Christian Porter to clarify the program’s legal status but was still defending her strenuously. On Wednesday evening, he revealed that five days earlier he had commissioned the secretary of his own department, Phil Gaetjens, to investigate McKenzie’s behaviour under the ministerial code of conduct.

The move was only made public when Morrison extended the inquiry to also examine the newly emerged fact that McKenzie had approved a $36,000 grant to a gun club of which she was an undisclosed member. He called that “new information” and defended the delay in revealing the Gaetjens inquiry.

Despite mounting speculation late on Thursday that McKenzie was set to resign, her spokesperson released a statement insisting she would not. “The minister isn’t resigning. She is actively engaging in the process and is confident there hasn’t been a breach in standards.”

Morrison may yet be further caught up in the controversy. His electorate received three grants and the auditor-general’s report says his office was among those, including senators and MPs, that advocated for applicants.

Cathy McGowan believes the events highlight the need for a federal independent commission against corruption. She says there have been numerous times that MPs could have referred matters to an ICAC. “But sadly we’ve got no process for doing that at the moment.”

In 2018, McGowan produced a private member’s bill designed to introduce a federal anti-corruption commission along with a code of conduct for federal MPs. The government refused to back it but promised a commission of its own – details of which are still yet to be unveiled.

“There does exist a code of conduct for ministers but there is no codified ruling on how members of parliament should behave and no process for calling them to account,” McGowan says.

It is against the provisions of the ministerial code for the prime minister to have Gaetjens assess McKenzie’s actions.

The Coalition agreement between the Liberals and Nationals restricts Morrison’s capacity to sack Bridget McKenzie. Being a National, she can only formally be removed from the ministry by her own party.

Morrison had dinner with Nationals leader and deputy prime minister Michael McCormack and deputy Liberal leader and treasurer Josh Frydenberg at The Lodge on Wednesday night, an event he later dismissed as routine.

But as the week drew to a close, the prime minister’s defence of McKenzie had weakened noticeably. Asked on Thursday if she should resign, he neither endorsed nor rejected the proposition. “It’s the right thing to do for me to seek advice on those matters,” he said. “I’m awaiting that advice.”

He declined to say whether the minister had declared her membership of the Wangaratta Clay Target Club on the ministerial register held in the prime minister’s office.

McKenzie has insisted she did not need to include it on the separate parliamentary register of senators’ interests because it was valued at less than the threshold of $300. However, the register also requires the disclosure of “any other interests where a conflict of interest with a senator’s public duties could foreseeably arise or be seen to arise”.

The opposition queried Gaetjens’ impartiality in examining the minister’s conduct, having served as Morrison’s chief of staff. It also argued there was already enough evidence of wrongdoing to justify McKenzie’s resignation.

The Saturday Paper spoke to an expert in public-sector law, who asked not to be named, who described McKenzie’s actions as a clear breach of the Australian Sports Commission Act, which governs the body now renamed Sport Australia.

Under that legislation, the agency is authorised to make grant decisions, with ministers not among those to whom the power can be delegated.

While there is scope for the minister to make a written direction that she intended to take a greater role in the decision-making, Bridget McKenzie did not do so in this case.

Separately, there are general guidelines for making Commonwealth grants. They are not applicable to statutory or corporate entities, including Sport Australia and its officers, but they are applicable to ministers.

Those guidelines say ministers must take advice from officials before making grant decisions and, where they override officials’ recommendations, must provide written reasons on each to the Finance minister by March 31 of the following calendar year.

Two months out from that deadline, a spokesperson for Finance Minister Mathias Cormann has confirmed neither the minister nor her portfolio successor has done so. The spokesperson insisted that because the guidelines do not apply to officers of Sport Australia, they also exempt the minister – but declined to say whether the government had legal advice to support that argument.

The public-sector law expert disputed that view, saying the guidelines should apply to the minister’s conduct, regardless.

In theory at least, the recent sports grants program involved an open and competitive application process. But many other federal grants programs do not.

Increasingly, the government is opting to run closed, non-competitive or restricted grants programs in which it reserves the right to make decisions based on more than just merit. A growing number of those programs require applicants to be recommended by their federal MP before they can lodge an application.

The schemes provide $66,000 to $200,000 to each federal electorate. While the relevant government department formally makes the final decision, the MP recommends the recipients.

McGowan describes it as “a very shoddy way to do business”. She says the system allows the richest and best-resourced electorates in Australia to receive the same funding as the poorest.

“It just beggars belief,” she says. “I mean, I understand why the government does it… It gives a local member of parliament a photo opportunity and the way to support their supporters. But it’s not good governance.”

The condition applies to the $100 million Stronger Communities scheme, within the Infrastructure Department. That was used as a template for the subsequent $23 million Communities Environment Program and the Local Schools Community Fund, among others.

It has also been newly applied to the current round of volunteer grants within the Department of Social Services. The government says that is because so many people were applying that it provided a way to filter applications.

In most cases, the federal MP is required to establish a consultative committee to consider the applicants before recommending them to government. But there are few further instructions issued, beyond each program’s broad published guidelines.

The sports grants did not involve local MPs but rather required Sport Australia to rank each application out of 100 and recommend which the government should support.

The program’s guidelines specified that Sport Australia could not accept late applications or changes to submissions after the closing date. Yet the minister’s office instructed it to accept five new applications and amend a further four.

Some legal experts now say that unsuccessful applicants may have a case against the government.

The Wangaratta Clay Target Club built a new toilet block with its money. The facility is in McGowan’s old seat of Indi – where McKenzie now has her senatorial office – which was bombarded with Coalition promises at last year’s election worth more than $100 million.

Now, Cathy McGowan is concerned about the government’s handling of the fire recovery grants. “It just already is setting itself up to pit neighbour against neighbour,” she says. “And it’s a direct result because we don’t have good governance, because we don’t have the clear rules in place, because we haven’t involved the public service with their great skill and knowledge about grant processes and really listened to them about how we do the roll-out.”

Which minister is responsible for rural grants? Bridget McKenzie. That may just have sealed her political fate.

This article was first published in the print edition of The Saturday Paper on Jan 25, 2020 as "Sports grants expose broken system".

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Karen Middleton is The Saturday Paper’s chief political correspondent.