The Public Accounts Committee responsible for reviewing the Welsh government’s grants system after the Awema scandal has published its final recommendations, which include more stringent conditions for recipients and a call for an annual report into statutory funding of the sector.

A committee comprising of MPs from all of the main Welsh political parties make 18 recommendations in its Grants Management in Wales report published last week, noting that “the evidence we have received strongly suggests that the Welsh government has historically had no consistent process with which to assess the viability of grant recipients”.

Top of its recommendations is the publication of an annual report by the government detailing how individual grants were reviewed, what alternative funding options were considered and how the government evaluates the effectiveness of external organisations managing the distribution of funds.

The committee advise that the first such report should be completed before December 2013. Prior to its publication, the committee advises, an investigation of any breaches of the code of practice for funding the third sector should be investigated and included in the report.

Recommendations also include more stringent conditions for charities receiving funding, specifically that they must report any significant changes in trustees to the Welsh government, any resignation of external auditors or any significant lapse of constitutionally required meetings. Also that any breach of the organisation’s governing document regarding trustee meetings must be reported.

Awema details come to light

The recommendations are made in light of the ongoing Wales Audit Office review of the Welsh government’s relationship with the All Wales Ethnic Minority Association, which received £8.4m in public funding, but was shut down after allegations of financial irregularity were made against its CEO. The Welsh government came under fire for its funding arrangements and handling of the situation, with funding only severed after six trustees, including the vice-chair, resigned.

The committee quoted oral evidence from former Permanent Secretary of the Welsh government, who said “if you look at the history, we should have graded [Awema] as a high-risk organisation”. This reflects the findings of the Wales Audit Office, which, in a report into the situation in October 2012, recommended an overhaul of public funding to the sector, saying the Welsh government’s grant handling was “often weak”.

In particular the committee makes several recommendations relating to advance payment of grants, such as was the case for Awema, noting that a business case should be made for external organisations to receive advance payments on a grant. The committee advised that in an evidence-gathering session on grants management arrangements in Scotland it was noted that, “there was a balance to be struck between public money sitting for months in a voluntary organisation’s bank account generating interest, and being paid three months in arrears and therefore requiring voluntary sectors to divert income from other funding areas to make up the shortfall, or lose staff.”

The committee added that:

“In our interim report on grants management, we sought to draw a distinction between ‘advance payments’ and ‘payments in advance of need’. We consider that the ‘payments in advance of need’ are not acceptable, and are disappointed that the Welsh European Funding Office made an assumption that third sector organisations (including Awema) would automatically be in need of advance payment. We note that WEFO has subsequently strengthened its controls around advance payments.”

In Awema’s case, payments made in advance were not being passed on by the charity to its project partners. Welsh government officials told the PAC that it was ignorant of the fact at the time, saying:

“We were under the impression that funding was being passed on to joint sponsors. That has now become a more explicit requirement in our grant agreements, but given that more than 65 per cent of the business was being taken forward through joint sponsors, we had anticipated that Awema would be passing on that advance to the Valleys Regional Equality Council and other organisations that were involved in delivery. It materialised that it was not passing it on, or at least not in its entirety, and clearly that is a lesson that we have learned.”