PRIMARY GROWTH PARTNERSHIP FINANCIAL MANAGEMENT: ASSURANCE ON BALLANCE S USE OF PGP FUNDING

Transcription

1 Assurance and Evaluatin Office f the Directr-General PRIMARY GROWTH PARTNERSHIP FINANCIAL MANAGEMENT: ASSURANCE ON BALLANCE S USE OF PGP FUNDING Final reprt issued: 19 December

2 Cntents SECTION 1: EXECUTIVE SUMMARY 3 SECTION 2: INTRODUCTION 4 Objectives f wrk 4 Cntext fr wrk 4 What we did and hw we did it 5 SECTION 3: FINDINGS & RECOMMENDATIONS 5 SECTION 4: Actin Plan 11 2

3 SECTION 1: EXECUTIVE SUMMARY OBJECTIVE OF WORK 1. The key bjectives f ur wrk were t prvide assurance that Ballance Agri-Nutrients Limited (Ballance s) financial management systems fr PGP funding and c-funding f the Clearview prgramme are suitably rbust and effective and t ensure that Ballance can demnstrate that they have sufficient, relevant and reliable recrds t supprt the use f the funding and c-funding claims made t the Ministry. OBSERVATIONS Overall cnclusins 2. Our cnclusins are that Ballance s financial management systems (including systems fr budgeting and frecasting, financial management reprting and mnitring, cst allcatin and payment prcesses) fr PGP funding and c-funding are suitably rbust and effective. 3. We als cnclude that the funding being prvided by the Ministry fr Primary Industries (MPI) and c-investrs is being used t meet the csts f the Clearview prgramme. We cnclude that: Amunts being claimed frm the Ministry are supprted by dcumentary evidence. Amunts being claimed are relevant and apprpriate csts t be brne by the partnership prgramme. An adequate prcess exists t value Ballance cntributins t the prgramme. The main areas r themes frm ur wrk Annual Planning and Budgeting (paragraph 24-28) 4. Develping an annual plan and budget fr the prgramme (which is required by the end f May 2013 under the terms f the funding agreement) prir t the Annual Science Winter Wrkshp (which takes place in August/September each year) pses challenges. It is nly after 3 this meeting that a clearer idea f the actual csts and cmmitments fr the next year emerges. Given these challenges it might be beneficial fr the Prgramme Steering Grup/Ministry t cnsider whether it wuld be wrthwhile frmalising and acknwledging that a meaningful annual plan budget can nly be frmulated and apprved by, fr example, September each year. Lng term financial planning (paragraph 29-30) 5. Nw that the prgramme is int its third year it will be timely t reevaluate the funding cashflws fr the remainder f the life f the prgramme. The Ballance Research and Develpment Manager has acknwledged this and it is intended that this exercise will frm part f the planning prcess. Prvisin f financial infrmatin (paragraphs 31-34) 6. We were asked by the Ministry t cnsider the practicality and need fr financial infrmatin n budgets and spending at a prject level t be prvided t the Prgramme Steering Grup r the Ministry currently infrmatin is nt prvided at this level f detail. 7. In ur view it shuld nt be t nerus fr Ballance t prvide this infrmatin. A simple way f prviding infrmatin n csts by prject wuld be t include additinal clumns in the funding invice spreadsheet which Ballance prvides t the Ministry each quarter. This wuld indicate which prject each transactin relates t and indicate the running ttal f spending fr each prject. It shuld als be relatively easy fr Ballance t prvide details f their prject budgets. RECOMMENDATIONS There are three recmmendatins, ne fr Ministry t cnsider and tw fr Ballance t actin/cnsider: Annual Planning and Budgeting [RECOMMENDATION 1 fr Ministry]: Cnsider the practicality and ptential fr frmally agreeing

4 a change in the deadline fr frmulating and apprving annual plans and budgets. Lng term financial planning [RECOMMENDATION 2 fr Ballance]: refrecast cashflws fr remaining life f prgramme as part f planning. Prvisin f financial infrmatin [RECOMMENDATION 3 fr Ballance]: revise the spreadsheet prvided t the Ministry as part f the quarterly funding invice t prvide details f which prject each transactin relates t and t prvide a running ttal f csts fr each prject. Ballance management cmment: In summary we are happy with the reprt and are in agreement with the recmmendatins. SECTION 2: INTRODUCTION OBJECTIVES OF WORK 8. This reprt sets ut the main findings and bservatins frm the MPI Assurance and Evaluatin team s recent wrk t assess Ballance s financial management f the Clearview Primary Grwth Partnership prgramme. 9. The key bjectives f this wrk were t prvide assurance that key elements f Ballance s financial management systems fr PGP funding and c-funding are suitably rbust and wrking effectively and t ensure that Ballance culd demnstrate that they have sufficient, relevant and reliable recrds t supprt the use f the funding and c-funding claims made t the Ministry. 4 CONTEXT FOR WORK 10. The Primary Grwth Partnership is a gvernment-industry partnership that invests in significant prgrammes f research and innvatin t bst the ecnmic grwth and sustainability f New Zealand s primary and fd sectrs. 11. The Ministry prvides funding t the partners fr the prgrammes. The partners are required t prvide c-funding at least equivalent t the Ministry s funding. C-funding can be in the frm f cash cntributins and in kind cntributins. 12. Each cntract between the Ministry and the partners prvides rights f access t recrds t carry ut an audit f the partner s use f the funds. 13. The Ministry s Assurance and Evaluatin team help prvide additinal cmfrt t the Ministry and the Minister n a PGP partner s management f funding and claims fr funding thrugh a prgramme f wrk t prvide assurance n the partner s financial management f the prgramme. This wrk lks at the fllwing elements f financial management Financial management reprting prcesses Budgeting, cash flw and frecasting prcesses Cst allcatin prcesses Payments prcesses [This wrk als includes a review f dcumentatin t substantiate sme f the csts incurred by the Ministry and the partner.] 14. The Ballance Clearview innvatins prgramme is a partnership between the Ministry and Ballance. The ttal funding fr this prgramme is $19.5m ($9.75m frm gvernment and $9.75m frm Ballance) and the prgramme was cntracted and started in Octber The funding is

5 split between tw intermediate utcmes acrss fur discrete areas (intermediate utcme 1 cmprises three areas -Nitrgen, Phsphrus, Bilgicals- with a ttal f eight bjectives acrss these three areas; intermediate utcme 2 cmprises ne area -Effective extensin and farmer adptin activities- with three bjectives (currently under review). 15. T the end f September 2013, $9.1m has been spent n the prgramme. Table 1 sets ut the split f the funding f this spending t date. Mst f this spending cmprises the csts f research and develpment mainly undertaken by AgResearch. Table 1: Split f funding f spending t date Perid MPI Ballance Ttal ,985,403 1,985,403 3,970, ,431,981 2,210,720 4,643,939 Q1/ , , ,260 Ttal t date 4,677,366 4,379,420 9,056,786 WHAT WE DID AND HOW WE DID IT 16. In rder t assess the financial management systems being perated bv Ballance we spke t the persns in the Ministry and partner rganisatins wh managed the prgramme f wrk t understand the systems and prcesses being used t manage the funding/c-funding and make claims fr funding including the Ballance Clearview Prgramme Lead and Research Assciate. 17. This included the Ballance Research and Develpment Manager, Research Assciate, Financial Accunting Manager and Senir Systems Accuntant. payment advices and ther dcuments. The recrds that were reviewed cvered the perid January September 2013 relating t $0.9m f the $3.3m f expenditure n the prgramme during the perid. 19. We als reviewed dcumentatin related t budgeting, frecasting and mnitring fr a range f the utcmes and prjects being cnducted as part f the verarching prgramme. 20. Sme cmfrt and assurance abut the effectiveness f Ballance financial management systems can als be taken frm the annual audit f the financial statements undertaken by KPMG. The annual accunts fr 31 May 2013 were audited and signed ff in July SECTION 3: FINDINGS & RECOMMENDATIONS OUR CONCLUSIONS 21. Our cnclusins are that Ballance s financial management systems (including systems fr budgeting and frecasting, financial management reprting and mnitring, cst allcatin and payment prcesses) fr PGP funding and c-funding are suitably rbust and effective. 22. We als cnclude that the funding being prvided by MPI and cinvestrs is being used t meet the csts f the Ballance Clearview prgramme (we base this cnclusin n ur review f the dcumentatin and infrmatin supplied by Ballance t supprt the transactins we sampled as part f ur audit testing). We cnclude that: Amunts being claimed frm the Ministry are supprted by dcumentary evidence. Amunts being claimed are relevant and apprpriate csts t be brne by the partnership prgramme. 18. We als checked dcumentatin and ther underlying evidence which supprts the Ballance claims fr funding including invices, cntracts, 5

6 An adequate prcess exists t value Ballance cntributins t the prgramme cntributins are supprted by sufficient evidence t supprt them. 23. Appendix One prvides details f the basis n which ur assessment f the main elements f the financial management prcess has been made. Paragraphs 24 t 34 prvide sme additinal cmmentary n three specific areas: annual financial planning and budgeting prcesses, lng term budgeting prcesses and prvisin f financial infrmatin t the Ministry SPECIFIC OBSERVATIONS Annual financial planning and budgeting prcesses 24. The PGP agreement between Ballance and the Ministry states that the Parties agree that the Prgramme Steering Grup must, by 31 May in each Funding Year, frmulate and apprve an Annual Plan that applies t the fllwing Funding Year. 25. We reviewed the prcess fr develping the annual plan and budget as part f the audit this included cstings fr sme existing prjects that were already in prgress and due t cntinue in and estimates f where the remainder f the budget wuld be spent acrss the fur discrete areas f activity. 26. The riginal budget submitted as part f the planning prcess has since been subject t sme revisin. We were tld that the Annual Science Winter Wrkshp which is held in August r September each year is a key cntributr t planning and budgeting. These meetings are held by Ballance with their research prviders (AgResearch etc) t review the prgress f prjects twards achieving their bjectives and t see what is required t cmplete prjects in terms f budget and resurce. These meetings are held arund this time t enable the participants t review the results f the research mst f which is carried ut during the spring and summer perids f each year 27. We were tld that it was nly after this meeting that a clearer idea f the actual csts and cmmitments fr the next year emerges. We were prvided with evidence t supprt this the minutes f the recent winter meeting and the fllw up Prgramme Steering Grup cnfirm that varius prjects had reached a stp/g decisin pint and a number f prjects had been stpped (we were prvided with cstings and qutes which satisfactrily supprt the revised and current budget/frecast fr the remainder f ). 28. We understand that the Ministry and Ballance have discussed the practicalities f prducing an annual plan budget prir t the Annual Science Winter Wrkshp and recgnise the challenges this pses. Given these challenges it might be wrth the Ministry cnsidering whether it culd frmalise and acknwledge that a meaningful annual plan and budget can nly be frmulated and apprved by 30 September each year. Lng term financial planning 29. When the riginal seven year funding budget was develped in 2011 an estimate f the detailed csts was develped fr the first tw years f the prgramme. 30. Nw that the prgramme is int its third year it wuld be timely t reevaluate the funding cashflws fr the remainder f the life f the prgramme. The Ballance Research and Develpment Manager has acknwledged this and it is intended that this exercise will frm part f the planning prcess. 6

7 Recmmendatin Ref Recmmendatin Agreed/nt agreed? (cmments) 1 Fr Ministry: Cnsider the practicality f frmally agreeing a change in the deadline fr frmulating and apprving annual plan and budges. Ministry cmment: agreed Ballance cmment: agreed t be discussed at January Prgramme Steering Grup 34. Hwever given that at the time f ur wrk, there were nly 9 prjects with fairly clearly defined csts it wuld nt be t nerus t prvide this infrmatin. We wuld suggest that ne f the simplest ways f prviding infrmatin n csts by prject wuld be t include additinal clumns in the funding invice spreadsheet which is prvided t the Ministry t indicate which prject each transactin relates t and indicate the running ttal f spending fr each prject. It wuld be simple t prvide details f the budget fr each prject. 2 Fr Ballance: refrecast cashflws fr remaining life f prgramme as part f planning. Ballance cmment: agreed cmplete by Quarter 4 f Recmmendatin Ref Recmmendatin Agreed/nt agreed? (cmments) Prvisin f financial infrmatin t the Ministry 31. Financial reprts are created by Ballance fr the Prgramme Steering Grup each quarter. The Ministry is prvided with a funding invice each quarter which includes a spreadsheet which lists each f the transactins which make up the amunt being funded. 32. This infrmatin is prvided at the utcme and bjective level i.e. it shws spending n the fur areas f activity Nitrgen, Phsphrus, Bichemicals and Extensin. Each f these fur activities cmprises a number f prjects (fr example currently in there are 4, 2 and 3 prjects respectively acrss the Nitrgen, Phsphrus and Bichemicals activities). 33. We were asked by the Ministry t cnsider the practicality and need fr financial infrmatin n budgets and spending t be prvided t the Prgramme Steering Grup r the Ministry at a prject level. The funding cntract sets ut requirements fr financial management t allw the tracing f funding and c-funding at an bjective and milestne level nt an individual prject level. 3 Fr Ballance: revise the spreadsheet prvided t the Ministry as part f the quarterly funding invice t prvide details f which prject each transactin relates t and detail f the running ttal f csts fr each prject. Ballance cmment: agreed refer t example prvided as frmat fr this 7

8 Appendix One: Overall Assessment f Ballance PGP financial management prcesses Prcess Budgeting, cash flw and frecasting prcesses Cnclusins and bservatins Overall cnclusin: Budgeting and frecasting prcesses are sufficiently rbust and are cmmensurate with the size and cmplexity f the Ballance prgramme. As part f ur wrk we lked at hw sme f the budgets had been set fr a range f milestnes prjects and elements f prgrammes against supprting evidence. There is sufficient rigur arund budget setting and sufficient evidence t supprt budget assumptins. Budgets are set fr each f the three utcmes at a sufficient level f detail (milestne and individual prject) with the input f the Ballance Gating Grup, the Research and Develpment Manager and Research Assciate. Budgets are recrded in spreadsheets which clearly and cncisely set ut the prpsed spending these are als reprted fr quarterly reprting f financial perfrmance. Frecasting is dne frmally as a minimum three times a year at the end f the secnd, third and furth quarters - as part f ur wrk we lked at the prcesses used t frecast and refrecast csts fr the same prjects and elements assessed as part f the checks n budgeting. Financial management reprting prcesses Observatins Annual planning and budgeting: ne f the key pints in time when the budget is reviewed is as part f the Annual Science Winter Wrkshp which is held in August r September each year. These meetings are held by Ballance with their research prviders (AgResearch etc) t review the prgress f prjects twards achieving their bjectives and t see what is required t cmplete prjects in terms f budget and resurce. It is nly after this meeting that a clearer idea f the actual csts and cmmitments fr the next year emerges. We were prvided with evidence t supprt this. Lng term financial planning: nw that the prgramme is int its third year it wuld be timely t re-evaluate the funding cashflws fr the remainder f the life f the prgramme. The Ballance Research and Develpment Manager has acknwledged this and it is intended that this exercise will frm part f the planning prcess. RECOMMENDATION 1 FOR MINISTRY: Cnsider timing f cmpletin f annual plans and budgets. RECOMMENDATION 2 FOR BALLANCE: refrecast cashflws fr remaining life f prgramme as part f planning. Overall cnclusin: Financial management reprting and mnitring prcesses are sufficiently rbust and cmmensurate with the size and cmplexity f the Ballance sub prgramme. 8

9 Prcess Cst allcatin prcesses Prcessing f payments Cnclusins and bservatins Reprting is dne frmally each quarter - as part f ur wrk we lked at mnitring and reprting fr a range f prjects and elements f prgrammes against supprting evidence. There is sufficient rigur arund this mnitring and reprting. Reprts are develped with the input f the research prviders and research leads wh prvide cmmentary n any delays and variances against milestnes and deliverables. The quality and level f this detail is cmmensurate with the scale and cmplexity f the spending. The financial reprts fr the Prgramme Steering Grup include sme milestne cmmentary and a table which prvides sme financial infrmatin n each f the 3 utcmes. Effective systems and prcesses fr financial management are in place which include recnciliatin cntrls t check amunts psted t general ledger cdes against transactins and claimed frm MPI: these perate as an effective cntrl fr checking cmpleteness. Observatins Financial infrmatin fr the Ministry n prjects: we were asked t cnsider the practicality and need fr financial infrmatin n budgets and spending t be prvided t the Prgramme Steering Grup r the Ministry at a prject level. The funding cntract sets ut requirements fr financial management t allw the tracing f funding and c-funding at a milestne level nt an individual prject level. Given that there are nly 9 prjects with fairly clearly defined csts it wuld nt be t nerus t prvide this infrmatin. We wuld suggest that ne f the simplest ways f prviding infrmatin n csts by prject wuld be t include additinal clumns in the funding invice spreadsheet which is prvided t the Ministry t indicate which prject each transactin relates t and indicate the running ttal f spending fr each prject. It wuld be simple t prvide details f the budget fr each prject. RECOMMENDATION 3 FOR BALLANCE: revise the spreadsheet prvided t the Ministry as part f the quarterly funding invice t prvide details f which prject each transactin relates t and detail f the running ttal f csts fr each prject Overall cnclusin There are satisfactry prcesses fr allcating, splitting and attributing csts between csts brne by Ballance and thse claimed frm the Ministry. Csts attributed between the Ministry and Ballance n a 50:50 basis claims and reprts checked t ensure this calculatin was crrect Ballance internal csts are attributed and charged n the basis f actual csts f staff time f the Research Assciate, sme travel and IP csts. We assessed the verarching methdlgy used t calculate this cst at a high level the calculatins lk reasnable althugh the exact quantum f future csts t be recvered has still t be determined and agreed with MPI. Csts f research prviders and ther suppliers are calculated n the basis f the prviders agreed prices fr the wrk. It was nt part f the remit f this wrk t lk at whether these cntracts represent best value fr mney. Overall cnclusin There are satisfactry prcesses fr making and recrding payments and these include: 9

10 Prcess Review f dcumentatin and infrmatin Cnclusins and bservatins Sufficient checking, versight and apprval f payments Effective separatin and segregatin f duties between prcurers f services and accunts payable prcessing functin and ther accunting functins Cntrls ver access t the accunts payable prcessing system Effective wrkflw prcesses embedded within the accunting sftware system SAP Overall cnclusin: The amunts being claimed frm Ministry fr actual cash csts are supprted by sufficient, relevant and reliable recrds and the criteria fr the funding are being met. This is based n: A review f 20 transactins selected fr testing which accunted fr $0.9m f the apprximately $3.3m f PGP csts expenses incurred during the nine mnth perid i.e. apprximately 25% f csts althugh nte that many f the transactins related t research prjects which had payments fr ther milestnes in the perid and earlier perids. Sighting f signed cntracts, payment invices and supprting dcuments such as prgress reprts n deliverables, fr calculatins f csts, ther evidence t supprt deliverables f the prgramme fr each f the transactins selected. Review f files f invices fr all ther transactins since Octber 2011 t identify any ther ptential transactins f interest i.e. ther research rganisatins r suppliers prviding services nt reviewed as part f main sample r ther types f csts/methd f payment nt tested. 10

11 SECTION 4: Actin Plan N Recmmendatins Actin Descriptin Due Date Respnsibility Discuss recmmendatin and further actin at January Prgramme January PSG Fr Ministry: Cnsider the practicality and ptential fr frmally agreeing a change in the deadline fr frmulating and apprving annual plan and budgets. 2 Fr Ballance: refrecast cashflws fr remaining life f prgramme as part f planning 3 Fr Ballance: revise the spreadsheet prvided t the Ministry as part f the quarterly funding invice t prvide details f which prject each transactin relates t and detail f the running ttal f csts fr each prject. Steering Grup Meeting Ministry t cnsider as part f a planned explratin acrss PGP prgrammes f spreading annual plan timings acrss the year Ballance t refrecast cashflws fr remaining life f prgramme by end Q as part f the planning prcess Financials spreadsheet prvided t Ministry as part f the Quarterly reprt t have prjects listed as a separate clumn as agreed with MPI auditr. June 2014 By Q4/ January 2014 Directr PGP, MPI Ballance Prgramme Manager Ballance Research Assciate 11