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Auditor-General ramps up scrutiny of the PGF

The government's auditor will increase its scrutiny of the $3 billion Provincial Growth Fund, citing risks of unappropriated spending occurring because its activities span several agencies and because it wants to examine the fund's systems of governance, management, monitoring and evaluation of outcomes.

A prize wrangled by New Zealand First for going into coalition government with the Labour Party in 2017, the PGF has become a lightning rod for controversy because of the conduct of its lead minister, Regional Economic Development Minister Shane Jones, and question-marks over how some funding has been allocated.

PGF funding has been announced for a large number of projects in the economically depressed Far North, where Jones hails from, prompting accusations by National Party MPs of pork-barreling.

Other deals, such as a loan for nearly $10 million to the Westland Milk dairy cooperative, have courted controversy because they appeared to be assisting commercial activities that a bank or shareholders might normally have expected to fund. The loan offer was subsequently withdrawn when a foreign buyer emerged for the commercially challenged West Coast firm.

More recently, Jones was criticised for attending a meeting at which funding of $4.6 million was allocated to a Northland cultural centre that Jones had identified as representing a conflict of interest for him. He did not participate in the decision, but gave assurances to other ministers about the plan's bona fides.

"The speed with which the fund was established and continues to be developed, the nature of the many funding proposals, and the high level of public interest have meant that the processes and types of funding provided might be different from traditional public sector arrangements," said the controller and auditor-general, John Ryan, in a statement.

"The fund also requires appropriations to be managed by multiple government departments and organisations, which increases the risk of unappropriated expenditure."

Allocation of government funds is known as appropriation.

Ryan said his office had already made preliminary recommendations to improve overall management of the fund last year and it would "continue to be a focus for my office in 2018/19 and beyond".

Two separate, related projects would examine how projects were being treated for accounting purposes, risk management, control systems, contract management and "the outcomes achieved".

"Auditors of public organisations receiving money from the fund will also be alert to any matters that might arise from the use of that funding."

There would also be "a more specific in-depth review" into how the Ministry of Business, Innovation and Employment's Provincial Development Unit manages, monitors and evaluates the fund's projects across the three departments most involved in handling PGF projects: MBIE, the Ministry for Primary Industries and the Ministry of Transport.

Some $3 billion has been allocated for commitment by the PGF over the three years of the current parliamentary term.

However, the expectation that it would assist NZ First's political standing has proven mistaken to date. In this week's TVNZ Colmar-Brunton poll, NZ First was at 4 percent, below the level of national support necessary to be assured of a return to Parliament at the next general election.

While the fund has been flooded with applications, ministers have been finding that small-scale provincial projects can be difficult to make judgements about and often carry political as well as commercial risk. They are being increasingly tempted to use the PGF to fund substantial infrastructure projects, such as rejuvenation and expansion of the national rail system.

A ministerial committee has the capacity to sign off projects valued at less than $20 million, with larger projects escalating to Cabinet committees or the full Cabinet.

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