Scenario 4: Managing many low-value grants

Principles to underpin management by public entities of funding to non-government organisations.

Most local authorities and other public entities offer discretionary grants to local NGOs, because they recognise the public benefits that come from having a range of active community groups to complement their own activities as well as those of other agencies.

Public entities usually consider that such grants provide benefits such as:

  • stability for established groups providing valued community services (such as sports clubs, and arts, cultural, or social support agencies); and
  • support for innovative community initiatives (such as community festivals, and social or recreational programmes for disadvantaged or at-risk groups).

Most grants are small – for amounts of a few thousand dollars or less – and there are likely to be many NGOs undertaking services and providing initiatives that merit support. Likewise, the NGOs applying for the grants that public entities such as local authorities offer are likely to be smaller and locally based, or focused on sport or cultural activities, care of children (such as playgroups) or the elderly, or local church or social support activities.

Usually, there are more groups seeking funding than there are funds available. Most communities have many community groups that hope for some support with their ongoing operations, as well as many once-only community events or initiatives that seek support. The public entity needs to consider the likely affect of the funding that it has available to distribute among applicants for grants.

A public entity needs to carefully consider the accountability arrangements it requires of a group for any grant. The demands made of a group need to be balanced against the broader public need to ensure that grants are used in keeping with the principles set out in this good practice guide.

A public entity also needs to:

  • balance the interests of established and emerging groups;
  • set management and accountability expectations that reflect the size and scale of the grants involved;
  • meet public expectations for the responsible management of its public funding; and
  • consciously consider the trade offs between the principles of fairness, accountability, and value for money.

Planning for the funding arrangement

This scenario describes the approach of a fictitious local authority, the Arotake District Council (the District Council), through the life cycle of a funding arrangement, concluding with matters we consider that public entities giving low-value grants should design for and take into account. In this scenario, the District Council manages several grant programmes that are funded from different sources with different intentions.

The District Council has ensured that each programme has a clear purpose and eligibility criteria, to provide clear administrative guidance for awarding the grants. For discretionary programmes (where it chooses the purpose of the grant), the District Council has policies that link the grants to the nature of the public benefit anticipated and to its own strategic reasons for being involved in administering the grants. It also has policies that deal with its decisions to provide grants in different circumstances.

The District Council awards grants through:

  • Community Grant Funds for projects that encourage community growth and participation. Preference is given to economically or socially disadvantaged groups, and projects that sustain and support a network of community organisations in the district. Community grants aim to help non-profit groups with local initiatives that support the District Council’s strategic goals, for projects that focus on community development, health, and well-being.
  • A Youth Initiative Fund to recognise the important role young people play in the life of the district, and to support the District Council’s strategic goals about young people (as outlined in its own planning and accountability documents).
  • A Safer Community fund that supports local initiatives to make the district a safer place to live.
  • Residents' Association Grants to recognise and support the important contribution that such associations make to the district by helping them with general running costs.
  • Māori Arts Grants for projects that emphasise traditional or contemporary Māori cultural influences. The District Council makes the grants to reflect its commitment to the Treaty of Waitangi, and the unique place of Māori culture and arts as representative of tāngata whenua.

The District Council also manages the distribution of grants under the Cultural and Artistic Development Funding Programme of the fictitious Department for Cultural Capacity.

The arrangements for seeking and assessing grant applicants are critical to managing the District Council’s grant funding fairly and transparently. The District Council employs Community Advisers who are responsible for:

  • liaising with NGOs, including making sure that the NGOs know about the interests of, and funding opportunities available from, the District Council and other organisations;
  • helping (where appropriate) NGOs to establish and maintain their own organisational capacity, through which the Community Advisers build their understanding of the capability of groups for managing grant funding and for delivering planned community initiatives and services;
  • running the application process, including providing information through newspapers and websites, and specific support to NGOs in preparing service intentions and application proposals;
  • assessing applications, including how the applications match the District Council’s policies and strategy, and making recommendations to Councillors about applications;
  • managing, monitoring, and evaluating the use of grants provided and the success of the initiatives funded; and
  • taking part in reviews of policy, based on their knowledge of community needs and interests.

To promote grant funds to the widest range of NGOs (and to ensure that the District Council observes the principle of openness), the District Council also provides:

  • public information about the availability, purposes, criteria, and application process through its website, and recent funding decisions in newspapers and through other public information that it produces; and
  • information and support targeted to NGOs and community groups, such as mailing information about grant application opportunities, and seminars to help organisations considering making applications.

Selecting an NGO and negotiating the terms

The District Council is careful to ensure that its consideration of applications follows a documented process.

First, Community Advisers assess grant applications and prepare recommendations for the District Council’s grants subcommittee (a standing committee that acts under delegation from the District Council to consider and approve grants within the applicable policy, funding criteria, and application process).

The grants subcommittee assesses all the applications, both individually and relative to those currently before the District Council and recently approved, considering:

  • the extent of demand or need and benefit intended to result from the service or initiative proposed;
  • the support requested from the District Council, and how the funding requested fits with the purposes of, and criteria for, the available funding; and
  • the capability of the group applying for funding, and the other resources or support the group may need for the proposal to succeed.

For the applications that it believes merit consideration for funding support, the grants subcommittee then considers:

  • the nature and risks associated with any service or initiative proposed; and
  • the funding that should be provided, and how well this fits with the scope of the service or initiative that the group is proposing to undertake.

Finally, the grants subcommittee considers the form of the agreement, and the monitoring and accountability arrangements that will be suitable to put in place. It therefore considers:

  • the form of the agreement – contract agreement or unrestricted grant;
  • the extent of financial reporting expectations;
  • the extent of reporting on the success or achievements of the service or initiative; and
  • the risks associated with the grant, and the extent of monitoring and support required.

For smaller grants with lower identifiable benefits, the District Council is more likely to award a grant with no specific reporting requirements. For example, each year the District Council provides very small grants of a couple of hundred dollars to Residents’ Associations, to help with running costs such as stationery and postage.

The District Council does this because it wants to recognise the important contribution made by Residents’ Associations in representing and advocating for residents and ratepayers of communities within the District Council’s district. To be eligible to receive a grant, an Association must be legally constituted, be registered with the District Council, have an active membership of 10 people or more, meet at least twice a year, and keep records of its meetings. Having established that these criteria are met, the Council sets no further obligations on an Association, other than asking that financial statements and minutes be available on request.

In contrast, the District Council also provides funding of several thousand dollars to an NGO, under its Youth Initiative programme, so that the NGO can employ a part-time Youth Development Co-ordinator. This funding is provided through an agreement that requires the funding to be spent in keeping with the NGO’s application, and within one year of receiving the funding. The NGO must tell the District Council about any delays or modifications to the project. The Council asks the NGO to acknowledge the support it receives from ratepayers, and suggests some means by which the NGO can do this. The Council also requires a satisfactory report, noting that a failure to provide such a report will be considered when the NGO applies for any grant funding in the future.

Balancing accountability and value-for-money principles

The District Council must balance the level of accountability it seeks through its reporting requirements with the funding that it provides. Generally, the more established an NGO is, the more likely it is to prepare information (such as audited annual financial statements) as a matter of course. However, annually audited financial statements are not a mandatory requirement (unless the founding document for the NGO specifies an annual audit requirement).

The District Council considers financial accountability options, and requires audited financial statements for funding over a specified financial threshold. Beneath this financial threshold, it selects methods to ensure that there is accountability for the use of funds, for example:

  • a detailed account of how money is spent, showing how funding comes into and goes out of the NGO’s finances, and requires receipts to verify major expenditure; or
  • the preparation of annual financial statements that are audited, or have been reviewed and signed by an independent and suitably qualified person. The District Council specifies that a suitably qualified person could be a bank manager, accounting graduate, retired accountant, or accounting technician, rather than a member of the New Zealand Institute of Chartered Accountants.

The District Council also considers the reporting it should request about the progress with or achievement of the grant’s purposes. Because it is dealing with many smaller-value grants, it is not likely to be either effective or realistic for the District Council to expect significant and demonstrable change because of its funding. In many instances (for example, providing grants to Residents’ Associations), grants are made to reflect a benefit that the District Council believes exists, rather than a benefit that will demonstrably occur directly because of a grant.

The District Council ensures that the demands it makes about reporting achievements and benefits are in keeping with the funding provided. With the Residents’ Association grant, the District Council confirms its view that a Residents’ Association is capable of making a contribution for residents and ratepayers of an area by requiring evidence of minimum membership and activity.

For the Youth Co-ordinator, the District Council requires the NGO to report on:

  • demographic information about the beneficiaries of the project (has the project helped the people it intended to?);
  • endorsements from beneficiaries or contact details of selected beneficiaries for the District Council to contact for endorsements (have the beneficiaries of the project agreed that the project has helped them, and in what way?);
  • other groups with which the NGO has worked (has the project helped to link the beneficiaries with other groups that could help them?); and
  • media coverage (was the NGO successful in generating broadly-based community interest in the project?).

Managing the funding arrangements, and monitoring and evaluating

The District Council considers what support and monitoring might be needed to help an NGO to manage identified risks, so that a service or initiative will achieve its intended purposes. Established and stable NGOs are likely to need less support or monitoring from the District Council than emerging NGOs. Ambitious projects that need extensive co-ordination are likely to require more monitoring attention and support from the District Council.

The District Council’s Community Advisers are responsible for making such assessments, and for staying in contact with NGOs identified as likely to benefit from advisory support as the funded service or initiative is undertaken.

The District Council must ensure that it is accountable to its ratepayers and residents, or other individuals and organisations that provide funds for it to distribute. Therefore the District Council ensures that, in managing grant funding, it maintains discrete records for each identified fund. This lets the District Council demonstrate that it has used grant funds in keeping with the relevant criteria and policy.

The District Council’s staff report to the grants subcommittee regularly about:

  • the expenditure of grants;
  • an analysis of applications received, amounts of funding sought, the purposes of funding, and the amounts of funding approved;
  • reporting requirements for grants, and the action taken where the requirements are not met;
  • the reported results achieved by grants, noting the features of grants that appear to have successfully achieved the intended objectives compared to those that have not; and
  • any features that could help the grants subcommittee with its funding decisions in the future.

The District Council recognises that it is important that NGOs are accountable for their use of grant funds. However, it is aware, given the low value of most grants, that it is unrealistic to expect any individual grant to directly or substantially achieve the District Council’s outcome or strategic objectives for providing grants.

In most cases, the District Council provides grant funding to recognise the benefits it believes occurs through having active locally based NGOs. The Council therefore uses the reports it receives about individual grants, along with other social, economic, environmental, and cultural information, to assess whether its grant programmes are contributing to its intended outcomes and objectives – including having active and enthusiastic community groups in its area.

Using the grant programme and general monitoring information, the District Council maintains the relevance of its policy framework and its alignment of the use of grants with its own strategic direction and intentions by reviewing its policies every 3 years. The timing of the review coincides with the timing for the District Council’s statutory long-term planning obligations.


The important features of how a public entity administers the disbursement of many low-value grants are that the public entity:

  • establishes a clear policy for grant programmes by ensuring it has an understanding of the purpose and criteria of the grant programmes it administers, and collects information to allow it to periodically review the policies and strategies to which grants contribute. This is to ensure that the policies and strategies continue to be relevant, and that the district council is satisfied with the progress it is making in delivering on its strategies and policies;
  • ensures that it has the resources and skills to help NGOs access funds, and maintains an awareness of the capacity of groups and the demands of projects to ensure that initiatives funded are consistent with the intentions of grant fund purposes and are achievable for the NGO;
  • ensures that there is both general information and information that is targeted to NGOs to promote and encourage fair access to the available grant programmes;
  • takes a risk-based approach to considering the extent of reporting and monitoring required, to balance the reporting burden with the particulars of the funding arrangement with the NGO; and
  • ensures that it keeps suitable records to show that funds are used for their intended purpose and that, at an overall level, grants are delivering the public benefits anticipated from them.

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