How do government agencies give out money?

What’s the issue?

To do its job, a government agency often has to give out money: buying goods and services or providing funding for some other purpose.

It’s fairly straightforward to buy everyday goods and services, like stationery or furniture or capability training. The agency just needs to be sure it’s getting a good deal, potentially using a procurement process. Bigger purchases can be more complex. You can’t just buy a bridge build, or an IT system like you can a box of pens or a chair, and a more intense procurement process is needed.

And sometimes agencies give grants, with or without conditions attached. Grants are different again. They’re intended to support another organisation to do something, like holding a kapa haka festival or conducting research.

Why does it matter?

If you’re a policy professional – especially in operational policy – then at some point you’ll be involved in giving out money. There are a few things to consider. Being careful with public money is really important, but so is avoiding excessive paperwork for everyone involved. That means different ways of giving out money have different accountabilities attached, so using the right way matters.

For example, buying pens is just buying pens: once it’s done, the buyer and seller part ways. Procuring a bridge build involves a long-term contractual arrangement that sets out how the parties work together on all sorts of things, from progress reporting to quality standards to managing risk.

A grant – say to a group holding a kapa haka festival – is somewhere in between. The group will probably be required to report on how they’ve spent the grant, so the agency knows it was used for the purpose intended. But the amount of money is probably small, and it wouldn’t be fair to make the group jump through too many hoops for it. After all, they’ve got a festival to organise.

What’s the solution?

The Office of the Auditor-General has some great guidance, The seven categories of funding arrangements. To help you figure out what category a type of funding might fall into, the guidance asks you prompt questions. For example, what’s your objective? What type of organisation will you likely be working with? Are they part of a market with lots of players – or only a few, meaning you have to think more carefully about issues like efficiency and competitiveness? Are there risks to consider?

Whether or not your job involves giving out money, this guidance offers a useful intro to the important ideas behind careful government spending.