Audit finds Commercialisation Australia self-granted $500,000

Although defunded in this year's federal budget and awaiting dismantling later on in the year, an audit (PDF) by the Australian National Audit Office (ANAO) into operations of Commercialisation Australia has concluded that while the majority of the agency's programs were "generally effective", the agency fell down in measuring and reporting on its outcomes, and in deciding to award itself AU$500,000 from its Pilot Program, in breach of government funding rules.

Over the course of its five-year life, Commercialisation Australia (CA) received 6,084 applications for funding, of which 616 were approved and gained a total of AU$208 million in funding to bring ideas to market. The 2009-10 commonwealth budget allocated AU$196.1 million over four years to the agency, with AU$82 million flagged for each year thereafter.

During the course of the audit conducted by ANAO, Commercialisation Australia ended its Pilot Program begun in 2011 to fund up to AU$2 million in total each financial year to support the commercialisation of ideas by Australian researchers and entrepreneurs.

For the duration of the Pilot Program, CA approved almost AU$885,000 in funding, of which the largest slice went to itself in a $500,000 grant to fund an ecosystem mapping strategy project.

"The Ecosystem Mapping Strategy was an approach aimed at addressing two issues: Australia's capacity to attract talent and capital to build intellectual property (IP) rich businesses; and Australia's need for a holistic platform for strategic policy development and performance measurement," said documentation provided to the audit by Commercialisation Australia.

"The EMS project included a trial to map a single industry sector, the Australian medical technology industry, to enable the department to assess the effectiveness of the mapping strategy as a policy development tool and to determine its potential scalability to other sectors."

Even though the Pilot Program guidelines allowed for CA to apply for its own money, ANAO determined that the program was a breach of the federal Financial Management and Accountability Regulations.

"The definition of a grant as an arrangement for the provision of financial assistance by the Commonwealth to a recipient 'other than the Commonwealth' precluded the Department of Industry from providing a grant of public money to its own CA Branch," the report said.

ANAO said that the decision by CA to grant itself public money "demonstrated a lack of understanding" of the commonwealth's financial management framework, and gave rise to conflicts of interest.

Responding in February 2014 to ANAO's concern about conflicts of interest, the Department of Industry, the department responsible for overseeing CA, said it is did not accept that a conflict of interest existed "in the ordinary sense in which the word is used", but rather that a "conflict of roles" existed that created a "perception of bias".

The audit also found that the allocation of Pilot Program money to CA was a breach of a requirement that applying bodies be incorporated.

"As a department of state with the legal personality of the Commonwealth, the department did not satisfy this threshold criterion but nonetheless advised the CA Board on an alternative interpretation of the guidelines, which the Board accepted notwithstanding its reservations documented in the course of considering the department’s funding application," the audit said.

In August 2013, ANAO said it discussed its potential audit findings with senior department representatives, and after consulting with the Department of Finace, suspended the Pilot Program that month.

Despite its Pilot Program shortcomings, ANAO found that CA's other program were "generally effective" and over its lifetime, CA had dispensed AU$185 million to proof-of-concept and early stage startups, with private investors matching the public funding.

"Program participants indicated satisfaction with the wider program, including unsuccessful applicants who considered that their company was better positioned for commercialisation following the application process, due to the quality of support and feedback provided by departmental case managers as part of the application assessment phase," ANAO said.

In response to the audit, the Department of Industry acknowledged the "contribution" the audit had made to CA's program administration, and highlighted the impact of CA's grants.

"The funding resulted in the creation of new high‐tech, high‐growth businesses in key sectors such as innovative manufacturing, agribusiness, mining technology, medical technology, ICT and advanced services," it said.

As part of this year's federal budget, both Commercialisation Australia and the Innovation Investment Fund were replaced with an Entrepreneurs' Infrastructure Program, which has been allocated AU$484.2 million over five years.

Commercialisation Australia will cease its activities at the end of the 2014 calendar year.