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1.6 Accountability for Public Money

Accountability for public money is central to contracting and funding arrangements in the public sector. This involves:

  • Being clear why and how money is to be spent.
  • Ensuring that it is spent for the purposes it was provided.
  • Having reasonable assurance that the expenditure is value for money.
  • Having a credible response where the expected services are not provided.
  • Accounting to Ministers, Parliament and the public.

NGOs have a direct interest in effective accountability arrangements. They will accept that there must be accountability for public money. An arrangement that does not provide for adequate accountability for public money is unlikely to be durable. NGOs themselves will also have to account to their stakeholders for their activities and the stewardship of their resources.

Generally any agreement between a Minister or a Government agency and a NGO will be a contract or conditional grant. The difference between a contract and a conditional grant lies in the mechanisms available for legal enforcement, not its length or specification. Whether or not a document or arrangement is a contract[5] is a matter of fact (which can be tested in court). An agreement that has the elements of a contract is likely to be enforceable as one, whether it is called a “contract”, an “agreement”, a “memorandum of understanding” or something else. A contract involves:

  • Contractual intention (offer and acceptance).
  • Consideration (something of value, usually money, given by one party to the other in return for its performance of its part of the contract).
  • Certainty of terms (it must be reasonably clear what each party has to do).
  • The legal ability of the parties to contract may also be important.

Contracts offer a number of significant advantages over conditional grants:

  • The law relating to contract is relatively well developed.
  • They provide a range of mechanisms for enforcement to each party that are not available under a grant, such as:
    • Damages (which are not limited to return of the money as with a grant).
    • Requiring performance of the contractual terms.
  • A contract may establish enforceable rights for beneficiaries who are not parties to the contract (i.e. recipients of services) as long as this was clearly intended when the contract was entered into.

As such, a contract provides a more reliable basis for ensuring accountability for public money and these guidelines operate on the basis that a contract will usually be the preferred mechanism. A conditional grant may, however, be enforceable to the extent that the recipient has to fulfil the conditions to receive or retain the grant. The conditions of a grant will provide the basis for accountability. In contrast to a contract it is not clear that there are any remedies for poor performance, if the recipient can claim to have met the conditions of the grant (if poorly).

All Government agencies work to a budget. This should be reflected in an agency’s contract management. In general it will be sensible for the NGOs to be informed of this budget constraint.

Notes

  • [5]A contract may be explicit (an explicit agreement) or implied (a court will discern a contract on the basis of the actions and intentions of the parties and the relevant context). It may be written or oral, although Government agencies should not use oral contracts for any significant transaction. A contract must be for a legal purpose (e.g. you cannot contract to rob a bank). Contracts that are otherwise binding can be avoided if they were entered into under duress or if they are based on a misrepresentation. Form may be important for some contracts (e.g. contracts involving land need to be in writing).
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