What we know

  • How public sector agencies fund Indigenous organisations, known internationally as funding ‘modalities’ (see Terminology for definition), can enhance or corrode the capabilities of Indigenous people to govern themselves.
  • The modality used to fund Indigenous organisations is only one factor involved in the governance and service delivery performance of an Indigenous organisation. Other factors involved include skills, capabilities, material resources, legislative provisions and the complexity of their operating environment.
  • The impact that funding modalities have on the governance and performance of Indigenous organisations is under-researched in Australia compared with generically similar international modalities.
  • The situation for remote Indigenous organisations differs in 3 ways from the international case studies examined in this paper. In Australia: (1) performance indicators are imposed, rather than negotiated; (2) few existing public funding modalities reward performance or provide incentives; and (3) funding arrangements do not generally require receiving organisations to be accountable to their constituents.
  • Although the rules of public finance management are uniform across the Australian Public Service, Indigenous authorities and organisations are funded through a wide variety of modalities. These range from completely untied general-purpose grants with minimal or no reporting requirements, to tightly prescribed specific-purpose grants with cumbersome reporting requirements.
  • During the past decade, the 3 lead Commonwealth agencies demonstrated the diverse ways in which financing guidelines can be interpreted. These included contested contractualism; a multitude of small special-purpose grants, and decentralised funding of community-controlled health organisations.
  • Strong path dependencies and interests exist in some parts the system, influencing how public sector agencies fund Indigenous organisations and constrain innovation.
  • Governments tend to over-emphasise ‘risk and uncertainty’ and respond by measures that reduce local discretion, centralising decision-making authority and accountability.
  • Due in part to the application of contestability principles, public finances in remote Indigenous contexts have generally become fragmented and unstable, leading at times to considerable duplication and administrative burden. This can divert limited resources and talents available to Indigenous organisations away from delivery of outcomes to their constituency.
  • There are examples of remote Indigenous organisations that have been funded through a block grant system (see Terminology for definition) for their core functions. There is potential to expand this approach and trial other innovations that have been tested internationally. This paper considers the circumstances under which block funding could be adapted to the unique context of remote Indigenous communities in Australia.
  • While it is not possible to claim that block funding will necessarily result in organisations becoming more capable and accountable, the international experience is that the block-funding modality can result in heightened public engagement in local politics, including downward accountability, as occurs in democracies generally.
  • Block funding is no panacea. Given the diversity of context, capabilities and the difficulties of backing innovative grant systems, it is reasonable to expect some failure. But seeing such contexts only through the lens of risk, deficit and chronic governance failure undermines the prospect of local capability or accountability developing.

What works

  • Public financing of Indigenous organisations has been successful when the organising node is the organisation, rather than the program. Funding can be organised either around the totality of the organisation’s functions, or restricted to its core functions.
  • Stable, ongoing funding (generally over a 3–5 year timeline) can lead to improved governance capabilities.
  • Governance capabilities can be enhanced when discretion is devolved locally, including the powers to budget, plan and make operational decisions, allowing the organisation to respond to locally identified priorities. This is particularly effective when the devolved functions are within the general capability of the funded organisation, the rules have been negotiated, and the decisions can be contested by the people they serve.
  • Where block funding has occurred, organisational-level accountability arrangements have been in place. This includes stipulation of minimum governance standards being in place (for example, budget, plans, key staff) before qualifying for the block grant.
  • Supporting culturally and contextually appropriate governing structures is likely to have a positive effect on governance capabilities.
  • Indigenous organisations have tended to benefit from general-purpose and more expansive and flexible funding arrangements in cases where they have a recognisable jurisdictional boundary or a well-defined service delivery catchment area.
  • Legislating the performance-management framework and reporting requirement into clearly defined jurisdictions can both increase local autonomy and decrease the duplication and quantity of reporting requirements.
  • Funding arrangements based on citizen entitlements for social security or health care have been successfully adapted to provide core governance funding, partly because they can limit departmental discretion to impose conditions.

When different departments are able to pool their funding, even on a modest scale, there can be a reduction in the transaction and reporting costs for Indigenous organisations and government departments. Departmental discretion is however still limited by the different ways that the funds have been appropriated by Parliament.

  • Single parliamentary appropriations to clearly defined jurisdictions can increase local autonomy and decrease the volume and duplication of reporting requirements.

What doesn’t work

  • Imposing financing frameworks and performance measures that have not been jointly negotiated.
  • Expecting capacity to develop and performance to improve in the absence of government support.
  • Cobbling together funding for core governance from multiple special-purpose grants.
  • Building performance frameworks around outcome and impact measures that are beyond the influence or capability of the Indigenous organisation.

What we don’t know

  • Because block funding has not been explicitly trialled in remote Indigenous contexts, evaluations and other evidence are lacking. More research and evaluation is required to explore how different block funding modalities affect capabilities and performance.
  • It is not yet known if there is government and stakeholder support to trial block funding. It should at least be practically possible to operate a combination of an untied general-purpose grant—that funds the core mandate of the organisation—and tied special-purpose grants to fund additional outcomes desired by governments and agreed upon by local organisations. As governance capacity is demonstrated, it should be possible to roll more of the special-purpose grants into the general-purpose grant, thereby increasing the size of the pool of block funding and decreasing the number of grants and associated administrative burden.
  • Little has been documented about the realpolitik of actual expenditure behaviours and about the conditions under which innovation occurs in Indigenous organisations.
  • Earlier attempts at finance reform have generally led to increased fragmentation and reporting. Indigenous participation is likely to be conditional on the reforms leading to longer-term commitments to stable and predictable funding, reduced and more flexible funding conditions, increased local discretion, reduced reporting requirements, and negotiated agreements on outcomes.
  • It is unclear if Indigenous organisations would be in favour of enhanced performance-management systems and incentive-based funding, though anecdotal evidence suggests that they could be if the systems are built around their actual practice (rather than around the grant) and they can better demonstrate effectiveness to constituents and stakeholders.
  • Further work is required to develop new accountability frameworks that satisfy 3 different sets of accountability requirements:
    • upward to the funding agency
    • downward to the organisation’s constituents and/or clients
    • operationally to the Indigenous organisation’s capabilities.
  • These frameworks need to be developed around the organisation or project, rather than a multitude of different departmental grants.