Nicola White, Assistant Auditor-General, Legal

Public entities increasingly work with non-government organisations (NGOs) across a wide range of areas. NGO relationships are now widespread in government activity on economic development, social services, health, education, recreation, sport, culture, and the environment. Often those relationships involve providing some funding to an NGO, either to purchase services or as a grant of some kind.

Audit New Zealand does not directly audit NGOs, but we do have a responsibility to assess the use of public money and the public sector’s performance, both in managing that money and in achieving the outcomes they are working towards. We increasingly find that we need to consider the funding relationships between public entities and NGOs.

This work has created new challenges, not least because the special characteristics of NGOs need to be recognised and respected. NGOs are usually not-for-profit organisations – often with charitable purposes. They are self-governing and generally rely heavily on voluntary contributions of time and money. They are increasingly recognised as a valuable part of society and the economy, and are sometimes referred to as the "third sector".

Funding relationships with NGOs can take a variety of forms and may have a number of objectives. Often the overall relationship with an NGO may be more like a mutual long-term partnership than a simple transaction for an immediate and particular purpose. Or there may be elements of both.

The Office of the Auditor-General’s (OAG) 2006 good practice guide, Principles to underpin management by public entities of funding to non-government organisations describes a funding continuum to show that arrangements can range from grants with very few conditions attached, to long-term relational arrangements, to highly specified contracts with detailed requirements and milestones.

The same idea is also often captured by describing funding arrangements as:

• buying – where the public sector is purchasing goods or services from the NGO;
• investing – where the public sector is providing funds to develop an NGO’s capability, to achieve the longer-term benefit of a stronger third sector; or
• donating – where the public sector is effectively giving public money to an NGO, either for general use or for a particular purpose.

Wherever in that continuum a particular arrangement sits, the same general principles will be relevant. The 2006 good practice guide sets out an expectation that all funding arrangements will be managed consistently with the principles of:

• lawfulness
• accountability
• openness
• value for money
• fairness and integrity.

Although that 2006 report was focused on NGOs, in fact these principles apply to any situation where a public entity is spending or allocating public money. Another useful source of advice is the Treasury publication, Guidelines for Contracting with Non-Government Organisations for Services Sought by the Crown.

The guidelines set out in these documents are now providing the basis for a range of audit work, including work under the auspices of the annual audit, special assurance projects, and OAG performance audits. In particular, Audit New Zealand has developed an audit methodology which it will be applying to some government departments and Crown entities over the next year. It examines the management controls that public entities have in place to cover their relationship with NGOs, and looks at how these controls are being applied in practice.

The OAG has carried out performance audits on the allocation of grant funding in specific entities, including Te Puni Kokiri, the Foundation for Research, Science and Technology, and New Zealand Trade and Enterprise. It is working on two performance audits on the funding relationship with NGOs in the health sector.

The issues presented by these projects are challenging and interesting; the methodologies and questions are new, and will be developed further as we gain more experience. Internationally, there is growing recognition that tackling society’s difficult problems cannot be done by governments alone; they need to work with other sectors, including the community and voluntary sector. Working out how those relationships are best managed, so that public accountability needs are met in a way that recognises the capacity limits and independence of voluntary organisations, is a challenge everywhere and the subject of much active debate. It is a debate in which we are actively involved.

Special thanks to Martin Richardson, Associate Director, Specialist Assurance Services, for contributing to this article.

Page last updated: 5 November 2007