This audit assessed the effectiveness of the establishment, implementation and operation of the Early Years Quality Fund against the requirements of the Early Years Quality Fund Special Account Act 2013 and the Commonwealth grants administration framework.
Audit objective, criteria and scope
The audit objective was to assess the effectiveness of the establishment, implementation and operation of the EYQF against the requirements of the Early Years Quality Fund Special Account Act 2013 and the Commonwealth grants administration framework.
To conclude against the audit objective, the high level criteria included whether the program planning and implementation complied with the legal framework, appropriately considered risks and was consistent with the EYQF policy intent, and the grant selection processes were undertaken in an equitable and transparent way consistent with relevant legislation and the Commonwealth Grant Guidelines.
The EYQF was implemented by the Department of Education, Employment and Workplace Relations (DEEWR) and, following the 2013 Federal election, the Department of Education. For ease of reading, this report refers to DEEWR, unless otherwise noted. Under the Administrative Arrangements Order promulgated on 23 December 2014, the Department of Education became the Department of Education and Training, and early childhood programs were transferred to the Department of Social Services (DSS). The Department of the Prime Minister and Cabinet (PM&C) and the Department of Finance were involved in the development of the EYQF and were also included in the audit.
The Early Years Quality Fund (EYQF) was created to assist in the attraction and retention of skilled and professional child care educators. In particular, the EYQF was intended to allow for increased wage rates for child care workers without these costs flowing on to families. The level of funding available, which was estimated to only cover around 30 per cent of all long day care workers, meant that there would be significant competition for available grants and the program would most likely be oversubscribed. In the event, the $300 million funding cap was reached less than 13 hours after the application process commenced.
Successful implementation of policy initiatives requires early, informed and systematic consideration of implementation issues. The design of the EYQF policy contained inherent risks and it was foreseeable that these risks—particularly the funding constraints, the first-in first-served approach and the short timeframe—would affect access to the program and its ultimate success. While decisions on policy are a matter for government, departments are expected to provide frank, comprehensive and timely advice to Ministers on both policy design and implementation risks as part of the policy development process. This role was made somewhat more challenging for this program because many of the key elements of the EYQF policy were developed by advisers in the offices of the Prime Minister and Finance Minister in negotiation with the key stakeholder representing child care workers. The elements of the program were then settled through correspondence by key Ministers, rather than through the more conventional Cabinet processes. Advice was given to government at various stages in the design of the policy measure from several different departments. However, the development of the measure had some momentum and the advice provided by departments gained little traction. Nevertheless, there were gaps in departmental advice on a number of significant matters at different times. These included the inherent risk in the use of a demand‑driven grants application process and, at later stages, the accuracy of the proposed wage schedule and the potential impact on smaller child care providers of several of the advisory board recommendations.
Following the then government’s decision to adopt the EYQF policy, DEEWR became responsible for the implementation of the program. The department was experienced in program implementation and promptly established arrangements to manage the grant process to meet the short timeframe set by the government for the commencement of the program. To some extent the development of key policy elements prior to any significant involvement of the department presented challenges to successful implementation, although in the event, key risks evident in the design of the policy were compounded by inadequacies in the department’s subsequent administration of the EYQF.
Facilitating equitable access to the program by applicants was a significant risk to be managed throughout the program’s implementation, given the funds allocated by government were substantially less than required to cover the whole long day care sector. For the estimated 6000 long day care providers that were potential program applicants, accessibility to EYQF grants was also affected by limited consultation and public information about the EYQF grant process. While communication with the sector was initially intended to be managed by the EYQF advisory board, in practice the board’s ability to inform the sector was constrained by delays in its establishment. The board also resolved to amend its charter to emphasise its advisory role rather than its representation role. In this context it considered that it would have a limited role in communicating with the sector, although it agreed to publish post meeting communiques to provide a broad description of the decisions made at board meetings. The department’s own advice to the sector was very limited. Combined with the short timeframe set by the then government—two working days between the guidelines being released and the program applications opening—communication was not conducive to a first-in first‑served environment, where applicants needed to be poised to make business decisions and act quickly when applications opened.
The department’s system for processing applications needed particular attention to preserve equity of access in the management of the first-in first‑served process. The email based system adopted by the department was not fit for purpose and did not fully maintain the first-in order of applications. Complexity and inconsistency within the grant guidelines also presented difficulties; applicants did not always follow the instructions in the guidelines and did not always submit complete applications. After identifying problems with the applications, the department varied the assessment process at several points while it was underway and also repeated a large number of assessments.
Overall, while the department set about to achieve the timeframes expected by the then government, it did not demonstrate a disciplined approach to implementation that satisfied the requirements of the program and the Commonwealth Grant Guidelines (CGGs). As a result, EYQF processes and procedures were not as well developed as they should have been and there were risks that could have been better managed in the registration, application and approval processes, in the development of funding agreements, and in the management of stakeholder expectations. Further, significant decisions—made during the grant assessment process—were not fully considered or documented, which reduced transparency in relation to key assessment and funding decisions.
At the completion of the grant assessment process, 453 grants (contained within approximately 580 submissions) were approved covering approximately 1309 child care services, and almost 24 000 employees. This represented around 30 per cent of long day care staff and 20 per cent of services. There were approximately 590 submissions not approved for grant funding. Noting that 554 submissions were received from small providers after the funding cap was reached. By close of business 6 September 2013, the day prior to the Federal election, funding agreements had been sent to 1 large provider, Goodstart Early Learning (for $132 million), and 15 small providers (for a total of $5 million) covering 11 710 employees. Subsequently, program changes have resulted in the 16 agreements being either varied or terminated. As at 30 June 2014, $62.5 million had been paid under EYQF.
This audit report draws attention to the risks departments face in implementing grant programs, particularly in circumstances where requirements are largely determined by Ministers and their offices, and short timeframes are provided in which to develop and implement arrangements. Nevertheless, departments still have an important role in clearly drawing the attention of Ministers to implementation risks so as to reduce the likelihood of downstream problems affecting service delivery or equity of access to programs. Such advice is particularly important in programs like EYQF where funding was capped and risks of oversubscription were recognised. Key lessons arising from the implementation of the EYQF program include the importance of providing: frank, comprehensive and timely advice to Ministers in relation to implementation risks and opportunities for mitigating these risks where possible; keeping stakeholders informed of developments, including when programs reach full capacity; and ensuring that in demand‑driven grant programs, the program guidelines are followed to ensure, as far as possible, equity of access by applicants to available funds. A key step to achieving success in implementing policy on time, budget and to government’s expectations is to give consideration to implementation as a fundamental part of all stages of policy development.
The audit has made one recommendation, observing that the EYQF program has been terminated and replaced with an alternative professional development program for child care educators. That said, the matters discussed in paragraph 24, together with the recommendation, are of relevance to other Commonwealth entities and are intended to inform the design and implementation of future programs.