2013 Welsh GovernmentAnnual Report onGrants Management

Digital ISBN 978 1 4734 0632 2 Crown copyright 2013WG20414

2013 Welsh Government Annual Report on Grants ManagementContentsPageForeword by Sir Derek Jones, Permanent SecretaryiiSection 1: Introduction & Background1Section 2: Funding from the Welsh Government3i.ii.iiiiv.v.The Overall PicturePublic SectorPrivate SectorThird SectorStructural Funds3591013Section 3: Grants Management for Grant ionIT system14141718202122Section 4: Next Steps for Grants Management24Section 5: Key Themes in the WAO and PAC Reports25ANNEX 1WAO Report – Grants Management in Wales –Recommendations and Progress – November 201128ANNEX 2PAC– Grants Management in Wales - InterimReport – Recommendations and Progress –August 201231ANNEX 3PAC– Grants Management in Wales – FinalReport -Recommendations and Progress –June 201337i

2013 Welsh Government Annual Report on Grants ManagementForeword from the Permanent SecretaryThe Welsh Government uses grants as a key means by which to achieve its policyobjectives and a significant proportion of our total budget supports grant funding.Having good grants management arrangements is therefore extremely important tothe Welsh Government.In the past, there have been a few high-profile instances where our grants have notbeen managed properly and we have rightly come under considerable scrutiny. Wehave introduced measures to ensure that past mistakes are not repeated and thisfirst annual grants management report sets out the action we have taken. The reportis a public statement of our commitment to continue to improve grant fundingarrangements in Wales.The challenges associated with administering grant funding are significant andcomplex. We currently administer approximately 435 separate funding programmes,which vary from a few hundred to millions of pounds. Funding programmes, activitiesand receiving bodies vary and no two grants are the same. Consequently, we needto have measures in place that are proportionate to the risks involved yet maintainconsistency in our approach.Whilst it is universally understood that the Welsh Government is accountable for thepublic purse, we must also consider the needs of those seeking funding. Grantapplicants must be assured that the information they are asked to provide is relevantand necessary to the decision-making process and have confidence that theirapplications will be appraised in a fair and consistent manner. I believe the steps wehave put in place will help provide these assurances.I am grateful to the Public Accounts Committee for its continued interest in improvinggrants management. With its help we have been able to focus on the detail of ourgrants improvement programme and develop our relationships with stakeholders andpartners. I am pleased with the progress that has been made towards addressingissues identified previously by the Wales Audit Office and the Public AccountsCommittee, but I know that there is still some work to do to embed these principlesand practice across the Welsh Government.This first annual report provides details of the current grants administered by theWelsh Government and sets out what has been achieved over the past 18 months tohelp improve standards of administration. The improvement work undertakenprovides us with a strong foundation on which to build and details of the actions weare undertaking next are also included in this report. Our approach is to respondpositively to changing policy needs and to support Ministers in delivering theirprogramme for Government. Looking forward, future work will include considerationof the outcome of the work of the Commission on Public Service Governance andDelivery. In all this work, I am determined that our grants management should be asconsistent, robust and well managed as possible.Sir Derek JonesPermanent Secretary to the Welsh Governmentii

2013 Welsh Government Annual Report on Grants ManagementSECTION 1: INTRODUCTION AND BACKGROUNDIntroduction1.0The Annual Grants Management Report provides an overview of the currentgrant funding provided by the Welsh Government and gives an update on what hasbeen achieved since the introduction of a programme to improve standards of ourmanagement of grants.1.1This report is a direct consequence of the Public Accounts Committee (PAC)recommendation for a comprehensive report on Welsh Government grant activities1.In Section 5, key themes are covered that have been identified by Wales Audit Office(WAO), in the PAC sessions and its interim and final reports on grants management.Progress against specific recommendations by the WAO and PAC is provided in theannexes.1.2In September 2010, the Grants Management Project (GMP) was establishedto implement improvements to grants management across the Welsh Government.The decision to initiate the project was as a result of Welsh Government recognisingthat grants management was not undertaken proportionately and consistently acrossthe organisation. The project was also established to review and address issues thathad been highlighted in some high profile cases where grants had been provided toorganisations where questions about their management or viability had been broughtto the attention of the Welsh Government.1.3The aim of the project was to provide a robust system for managing andmonitoring grants that was fit for purpose, but also to support officials involved in thedelivery of grants by providing guidance, training and sharing best practice. Theinitial step was the creation of the Grants Centre of Excellence, an internally facingteam set up to standardise procedures and provide guidance, expertise andknowledge to support the grant processes.1.4The Grants Centre of Excellence is currently working with officials from seniormanagement through to grant practitioners by providing awareness sessions andonline training. As the project proceeds and improvements are implemented, therole of the Grants Centre of Excellence will evolve from a guiding hand to one ofmonitoring and ensuring compliance.1.5In the four years that the project has been in place, there have been notableimprovements in the systems and processes:establishment of the Grants Centre of Excellence to provide advice, expertsupport and guidance for all non-procured funding;minimum standards for the management of grant funding;improved training for grant officials;spot checks of grants to ensure compliance with minimum standards;improved sharing of corporate intelligence via the existing IT system; and,1Public Accounts Committee Report – Grant Management in Wales - Interim Report – August 20121

2013 Welsh Government Annual Report on Grants Managementstandardisation of the Award Letter.1.6Welsh Government’s assessment of the risk associated with hypothecatedgrant administration has decreased from ‘high risk’ to ‘medium risk’, following theintroduction of improvements. Whilst there will always be a level of risk associatedwith the provision of grant funding, the Welsh Government aims to reduce riskfurther, by undertaking the activities highlighted in this report.Background1.7Grants are an important vehicle to deliver Welsh Government’s priorities aslaid out in the Programme for Government. They enable funded organisations toprovide specific services to the people of Wales. Grants both initiate and sustainsignificant levels of economic and social activity. They also represent a significantinvestment of taxpayers’ money, with some 13.2bn being invested in this wayannually.1.8The Welsh Government has adopted the following high-level definition of‘grant’ to accommodate the breadth of different payment types made: all nonprocured payments to an external organisation or individual for activities, which arelinked to delivering Welsh Government policy objectives and the discharge of itsstatutory obligations.1.9Grants can be sub-divided into hypothecated and unhypothecated grants.Hypothecated grants are for a specific purpose and are awarded to organisations todeliver specific policy objectives. Unhypothecated grants are mainly provided by theWelsh Government to deliver statutory obligations; largely to Local Authorities andthe NHS. Unhypothecated grants can be used by the recipient organisation inwhatever manner it wishes to meet local objectives and services, subject to thedelivery of its statutory responsibilities.2

2013 Welsh Government Annual Report on Grants ManagementSECTION 2: FUNDING FROM THE WELSH GOVERNMENT2.0This section provides an overview of Welsh Government grant fundingincluding an overall perspective on grants, a breakdown of grants to the sectors andinformation on Structural Funds provided by the Welsh European Funding Office(WEFO).i.The Overall Picture2.1The Welsh Government currently operates around 435 separate schemeswhich have provided around 39.9bn of funding over the 3 years to March 2013 (seeFigure 1). Due to the dynamic nature of grants, the number of schemes operating atany point in time can vary considerably. The schemes currently in operation provideapproximately 20,000 individual offers of grant per annum.2.2The figures within this report are derived from a combination of data providedby the Welsh Government’s e-Grants (the grant payment system), departmental andfinancial systems. The financial figures are the total level of grant funding providedby the Welsh Government departments, including European funding. No distinctionis made between revenue and capital expenditure.Figure 1: Total Welsh Government Grant Funding by Financial YearLevel of grantprovided ( bn)No. of grantoffers per yearApprox. no. ofschemes 4320,172517456435Source: Welsh Government Finance System based on nominal codes and e-Grants system2.3Included in Figure 1, and throughout this report, is the funding passed on tothird parties by the Welsh Government, which originates from grant funding fromWEFO. Direct funding from WEFO to external grant recipients is, however, excludedfrom this report. These Structural Funds are worth over 1.8bn for the seven yearEuropean Union (EU) funding period from 2007 to 2013 inclusive and areadministered through WEFO.2.4With the difficult economic climate that has been evident over recent years,the trend shown in Figure 1 indicates the continued Ministerial commitment to grantsas an important vehicle to deliver Welsh Government’s priorities as laid out in theProgramme for Government. However, Figure 1 demonstrates significant reductionsin the number of schemes (15.9%) and the number of grant offers (32.2%) over thelast three years. This is due to the commitment from the Welsh Government toreduce the number of grants provided. This reduction has come about due to anincrease in collaborative working between Local Authorities resulting in schemesissuing 4 or 5 award letters instead of 22 and through the duration of grant funding3

2013 Welsh Government Annual Report on Grants Managementbeing increased rather than offered on an annual basis. This trend is important inthe context of the Welsh Government’s objective to reduce grant administrationcosts.2.5The Welsh Government provides grants to three main sectors, which arepublic (local government, the National Health Service (NHS), GovernmentDepartments and sponsored bodies), private and Third Sector (voluntaryorganisations, social enterprises, community organisations etc.).Figure 2: Total Welsh Government Grants for 2012/13 by Sector127m289mLocal Authorities1,456mNHS650m4,752mSponsored BodiesUK GovernmentDepartmentPrivate Funding5,907mThird SectorThese figures exclude grant funding of 17m to the National ParksSource: Welsh Government Finance System based on nominal codes2.6The majority of public-sector grant funding is through unhypothecated grantsto both local government and the NHS. Hypothecated grants are also provided tothese bodies, as well as to UK Government Departments to support specific UKobjectives. In addition, funding is provided for organisations collectively known asWelsh Government Sponsored Bodies (WGSB), which are non-departmental publicsector bodies directly funded by the Welsh Government to deliver policy, servicesand statutory requirements.2.7The private sector funding category includes both funding to business and toHigher and Further Educational Institutions (HEI & FEI). Further grant funding foreducation is included in the public sector, sponsored body category, where theHigher Education Funding Council for Wales (HEFCW) provides a significantproportion of funding to HEIs. Funding for schools is included under LocalAuthorities. Further details on funding education are provided in paragraphs 2.33 to2.36.2.8The Third Sector is defined as independent, non-governmental bodies,established voluntarily by citizens, who are motivated by the desire to further social,cultural or environmental objectives and are committed to reinvesting their surplusesinto their objectives. The sector includes not-for-profit organisations, voluntaryorganisations, charities and housing associations. Funding to the Third Sector is4

2013 Welsh Government Annual Report on Grants Managementusually hypothecated grant for specific activities.paragraphs 2.37 to 2.51.ii.Further detail is provided inPublic Sector2.9Overall public sector grant funding includes Local Authorities, the NHS, UKGovernment Departments, WGSBs and National Parks. The grants provided to thissector are approximately 90% of the total grant spent by the Welsh Government.The majority of this is unhypothecated grant used by Local Authorities and the NHSto provide services; this accounted for 8.4bn in 2012/13. The remaining 3.7bn in2012/13 was provided under hypothecated schemes to deliver specific projects andactivities associated with the delivery of ministerial policies. Of the hypothecatedgrants to Local Authorities and NHS, a proportion of the funding was passed on tothird party organisations (including the Third Sector).Figure 3: Welsh Government Total Grant Funding to the Public Sector byFinancial YearLevel of grant provided( bn)Level of grant to LocalAuthorities ( bn)Level of grant to NHS ( bn)% of total grant funding .64.86.089%5.989%5.988%Source: Welsh Government Finance System2.10 Whilst the level of funding to the public sector has decreased slightly over thethree year period, the percentage of total grant funding remains relatively constant.Local Authorities2.11 A large proportion of grant funding in Wales is given to Local Authorities asunhypothecated grant under a combination of Revenue Support Grant (RSG),general capital grant and redistributed non-domestic rates. Around 4.8bn wasdistributed in this way in 2012/13.2.12 In 2012/13, Local Authorities had access to more than 735m provided bymore than 50 hypothecated grants. Examples include 21 st Century Schools grant,the Better Schools Fund, Learning Disability Strategy, grants to promote jointworking in schools and funding to support pupils from ethnic minority backgrounds.2.13 The Welsh Government is committed to reducing the number of hypothecatedgrant schemes provided to Local Authorities. Wherever possible the funding forspecific activities is transferred into the RSG which enables Local Authorities todetermine local priorities and to use the funding as appropriate. This also eliminatesthe administration costs associated with specific grants for both the Local Authorityand the Welsh Government. However, specific grants are still required where the5

2013 Welsh Government Annual Report on Grants Managementimplementation and delivery of specific Ministerial priorities need to be undertakenby Local Authorities. This enables outcomes to be measured against the specificpolicies.Figure 4: Welsh Government Grant Funding to Local Authorities by FinancialYearLevel of grantprovided ( m)Level ofunhypothecatedgrant ( m)Level ofhypothecatedgrant ( m)% 7524,0514,0084,01784861973517%13%15%Source: Welsh Government Finance System based on nominal codes and the Unitary Authority element of the RevenueSupport Grant settlement.2.14 The percentage of hypothecated grants increased slightly in 2012/13 incomparison with the previous year due largely to an increase in specific projects foreducational activities, where priority was given to funding for raising educationalstandards in schools. Hypothecated grants include the Pupil Deprivation Grant andSchool Effectiveness Grant. These are the Welsh Government’s principal means ofproviding support for measures to achieve its three national priorities for schools:improving standards in literacy; improving standards in numeracy; and reducing theimpact of poverty on educational attainment.2.15 Concerns were raised by the PAC at its evidence session on 8 May 2012about the audit certifications and qualifications associated with specific grantschemes providing funding to Local Authorities. The WAO report of November 2011provided a breakdown of qualification by Local Authority. Following the release of thereport, the Welsh Government has worked closely with the WAO to ensure theeffectiveness of the audit certification work undertaken by the WAO. Copies of auditcertificates are provided to the Welsh Government in order to ensure thatappropriate consideration of the detail of qualifications has been made andappropriate action taken where required.2.16 The importance of audit certification has been highlighted within the WelshGovernment via an awareness session held by the WAO in March 2013. Grantmanagers providing hypothecated grants to Local Authorities and the NHS wereasked to attend. The session highlighted the importance of audit certification, whyqualifications might be made on the certificate and what actions should beconsidered.2.17 Officials from the Welsh Government have also worked with the Welsh LocalGovernment Association (WLGA) to provide support to Local Authorities to improvegrants management. The Welsh Government has helped the WLGA to continue topromote and disseminate good practice on its dedicated grants management6

2013 Welsh Government Annual Report on Grants Managementwebpage. In parallel, the WLGA is working with the WAO on its good practiceevents and other public service partners such as the Welsh Council for VoluntaryAction (WCVA) on the appropriateness of grant funding compared with othermechanisms.2.18 Whilst the programme to improve Local Authorities’ grants management isongoing, the Welsh Government will continue to track the incidence of qualified oradjusted grant claims. Working with the WAO, Welsh Government will ensure thatappropriate corrective action is taken. This includes consideration of suspension orrecovery of grants where the Welsh Government does not consider that theresponses of individual Local Authorities is adequate.NHS2. 19 The Welsh Government’s Department for Health and Social Services isresponsible for exercising strategic leadership for, and management of, the NHS inWales and is responsible for the overall stewardship of NHS funds. Direct delivery ofservices is provided via seven Local Health Boards and three NHS Trusts. The keyresponsibilities of the department are to promote, protect and improve the health andwell-being of everyone in Wales, ensuring high standards of safety and quality, andpaying particular attention to reducing health inequalities.2.20 Funding the NHS in Wales covers the running costs for staff, services andaccommodation, together with the capital funding for individual projects. Fundingalso covers payments to independent contractors such as doctors, dentists,pharmacists and optometrists.2.21 Revenue funding is primarily issued as unhypothecated expenditure and isagreed at the start of the financial year and drawn down as required each month byNHS organisations. The majority of capital funding is agreed as part of the All-WalesCapital Programme, which is also unhypothecated, however an element is alsoissued as discretionary, hypothecated funding.Figure 5: Welsh Government Grant Funding of NHS by Financial YearLevel of grantprovided ( m)Level ofunhypothecatedgrant ( m)Level ofhypothecatedgrant ( m)% 9075,4115,5355,5755503793329.2%6.4%5.6%Source: Welsh Government Finance System based on nominal codes and the NHS Settlement.7

2013 Welsh Government Annual Report on Grants Management2.22 Whilst grant funding to the NHS has remained level over the three yearperiod, there has been a reduction in hypothecated grants to the NHS. This hasresulted in decreased administration costs.UK Government Departments2.23 Where Welsh Government Ministerial priorities are aligned with wider UKGovernment priorities, then the Welsh Government provides hypothecated grants toUK Government departments. This funding is then utilised to ensure increasedvalue for money in delivery of key policies.2.24 For example, as part of the International Education Programme the WelshGovernment has a Memorandum of Understanding with the Department forBusiness, Innovation and Skills and the other devolved administrations on deliveringthe UK China Partnerships in Education Programme (UKCPIE) and another fordelivering the UK India Education Research Initiative (UKIERI). Whilst the level ofgrant provided to the Department for Business, Innovation and Skills is negotiated forthe UKCPIE programme, the UKIERI programme is paid on a Barnett formula basisdirectly to the British Council in India. Figure 6 shows a decrease of fundingprovided over the three year period due to increased pressure on budgets.Figure 6: Welsh Government Grant Funding of UK Government Departmentsby Financial YearLevel of grantprovided ( m)2010/20114662011/20124522012/2013289Source: Welsh Government Finance System based on nominal codesWelsh Government Sponsored Bodies (WGSBs)2.25 The Welsh Government provides funding for various bodies collectivelyknown as WGSBs. Each has its own constitution, governance and managementstructure including a Principal Accounting Officer, and is funded to deliver theobjectives for the particular year as set out in the body’s annual remit letter providedby the Welsh Government. These include Sport Wales, Arts Council for Wales,Natural Resources Wales, National Library of Wales, National Museum Wales andRoyal Commission on the Ancient and Historical Monuments of Wales. Figure 7provides details of the funding provided by year. Some 2,076m has been providedto these bodies over the period 2010/11 to 2012/13. An increase in the value ofhypothecated grants during the period is a consequence of Welsh Government beingfocused on specific deliverables associated with Programme for Government whereWGSB’s are taking the lead. A decrease in funding is due to increased pressure onbudgets.8

2013 Welsh Government Annual Report on Grants ManagementFigure 7: Welsh Government Grant Funding to WGSBs by Financial YearLevel of grantprovided ( m)‘Grant in aid’ coregrant ( m)Hypothecatedgrants ( 12121Source: Welsh Government Finance System based on nominal codesiii.Private Sector2.26 The private sector consists of funding to businesses and direct funding fromthe Welsh Government to FEIs and HEIs.Funding to Business2.27 Grant funding to business covers a wide range of activities including businessfunding, training, tourism, business start-ups and research, development andinnovation. This type of funding is used for developing the economy of Wales byenabling businesses to undertake projects that create or safeguard jobs. Grants canalso be used to attract businesses into Wales. A few examples of some of theschemes that are offered are highlighted in the following paragraphs.2.28 Business funding is currently provided through the Welsh Government sectorteams via the Wales Economic Growth Fund (WEGF). The first tranche of WEGF,issued in 2012, has provided 31.5m of grants. The second tranche of this schemeis currently in operation.2.29 Through the Tourism Investment Support Scheme some 10.4m has beeninvested in tourism upgrading and new capacity projects, over the three years to2012/2013.2.30 Research, Development and Innovation Grants (part European funded seeparagraph 2.3) totalling over 20m have been paid over the last three years,specifically to businesses looking to innovate on the world stage.2.31 The Redundancy Action Scheme (ReAct) (part European funded seeparagraph 2.3) helps people affected by redundancy gain new skills and encouragesrecruiting employers to employ a redundant worker. Funding of 18.9m has beenprovided via this scheme to employers over the three years to 2012/2013.Figure 8: Welsh Government Grant Funding to Businesses by Financial YearLevel of grantprovided ( m)2010/114342011/12431Source: Welsh Government Finance System and e-Grants payment system92012/13582

2013 Welsh Government Annual Report on Grants Management2.32 There has been a significant increase in funding to businesses in 2012/13;this is mainly due to the Welsh Government’s priority to increase economicdevelopment and jobs within Wales.Educational Institutions2.33 Funding to support the education sector is complex. The majority of fundingto the education sector, particularly schools, is distributed through RSG which is paiddirectly to Local Authorities. Hypothecated funding for schools is also provided toLocal Authorities. Meanwhile, the majority of the grant funding for the highereducation sector is paid to the Higher Education Funding Council for Wales(HEFCW). The funding provided to schools and HEFCW is included in the publicsector category detailed previously.2.34 Whilst there is considerable grant funding for education via the public sector,as detailed above, all additional hypothecated funding for HEIs and FEIs is classifiedas funding to the private sector. The core funding to FEI has been set for threeyears and uses a formula calculation based on a number of variables.2.35 The demand-led statutory student support funding for Higher & FurtherEducation learners is delivered by the Student Loans Company (SLC). The SLC isfunded by the Welsh Government by payment of a monthly claim, which is based onpart actuals/part forecasts, to ensure SLC has sufficient available funds to administergovernment funded fee-related loans and grants directly to students, universities andcolleges for Welsh students.2.36 Additional hypothecated grants are also provided to FEIs and HEIs to deliverspecific projects or activities. These grants include Sêr Cymru which is a 50mscheme to enhance and build on the research capacity in Wales, to attract worldleading scientists and their teams, and to support the establishment of three NationalResearch Networks.Figure 9: Welsh Government Direct Grant Funding to Further and HigherEducation by Financial YearLevel of grant provided( m)2010/20119142011/20128652012/2013874Source: Welsh Government e-Grants payment systemiv.Third Sector2.37 The Welsh Government recognises that the Third Sector (voluntaryorganisations, social enterprises, community organisations etc.) has a very importantpart to play in helping it achieve its objectives under its Programme for Government.Grants awarded to this sector must comply with the Code of Practice for Funding theThird Sector (January 2009). That document, and the way in which the sector isfunded, is currently under review. An updated version of the Code of Practice and anew strategy directed at matching the strategic key priorities of the Government willbe released in early 2014.10

2013 Welsh Government Annual Report on Grants Management2.38 The Welsh Government provides four types of grant funding to the ThirdSector:strategic core funding of national organisations;specific programme funding at national levels;support to partnerships or national (all-Wales) intermediary bodies inorder for them to support specific projects at a local level; and,start-up funding for national organisations or networks or throughintermediaries, for local organisations.2.39 The initial assessment of grant funding to the Third Sector indicated that 127m was provided in 2012/13 (Figure 2). These figures were based on thefinance codes (nominal codes) associated with grants provided to the Third Sectorthrough the payment system. However, following further analysis by the ThirdSector Unit and the finance team, the way that Third Sector organisations areidentified in the finance system has been reviewed and revised. Organisations suchas charitable schools and some not-for-profit companies have been re-categorisedfrom private sector to Third Sector. The categorisation of the organisations has beenagreed with the WCVA. Funding can be tracked more accurately through this revisedsystem and therefore these changes have resulted in a more detailed breakdown ofgrant funding to the Third Sector. Reports recently made available indicate that theactual level of grant funding following the re-categorisation for the last three financialyears to the Third Sector is as shown in Figure 10.Figure 10: Welsh Government Grant Funding to the Third Sector by FinancialYear2010/11Level of grant provided 350( m)2011/123032012/13265Source: Welsh Government Finance System based on organisation name2.40 The reported reduction in funding reflects a wide range of issues andcircumstances across many Welsh Government departments due to the overalleconomic situation rather than any concerted policy or process. The reduction in UKGovernment funding for Wales has inevitably impacted on Welsh Governmentfunding across the board to public, private and the Third Sector. Changes includeproject funding coming to a natural end; agreed reductions in continuing funding (forexample, core funding for Third Sector infrastructure bodies was reduced by

2013 Welsh Government Annual Report on Grants Management ii Foreword from the Permanent Secretary The Welsh Government uses grants as a key means by which to achieve its policy objectives and a significant proportion of our total budget supports grant funding. Having good grants management