What are the key features that providers consider essential in building a rational and transparent system for distributing available resources?
Invest in Sustainability
The first key feature essential to a rational and transparent distribution of resources is the development of costing methodology that ensures the full cost of service delivery is met both initially and over the long-term. Services that are under-resourced threaten the effectiveness of the service system overall as they divert resources and energy away from other goals.
Another important feature would be processes for allocating funding that support rather than inhibit collaboration. FRSA believes that the use of competitive selection processes has had a number of significant negative impacts on relationships between organisations delivering family relationship services. Competition provides a disincentive to share intellectual property, physical resources and practice wisdom. Collaboration may be increased amongst those who form an alliance or consortia to compete for new funding but it is likely to decrease between those who compete against each other.
The competitive process also has a long-term impact on the relationship between organisations and funding bodies. Organisations are treated as though they have no history of relationship with the funding body and issues such as organisation sustainability, managing growth or relationships between organisations are not relevant. Problems arising in the implementation of services such as changing costs associated with premises or workforce shortages are seen as solely the responsibility of the service provider – they submitted a tender therefore they must deliver. Changes to the model or the target of the services are also ruled out because there has been a competitive process and it would unfair to the unsuccessful applicants to change the nature of the service once it has been awarded on the basis of a set criteria.
The development of the FSP presents an opportunity to reconceptualise the relationship between funding body and provider as a collaborative partnership. In many commercial areas the relationship between supplier and purchaser is recognised as reciprocal, particularly when suppliers are limited in number and has skills or expertise highly valued by the purchaser. An example often used is that between airlines and aircraft manufacturers – there are a small number of manufacturers, they work very closely with the airlines to design new aircraft that meet their needs, airlines invest in design and work very collaboratively with suppliers. Delivering community services is at least as complex as delivering transport services.
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Indexation
Another key element to building a more rational resource distribution system is to build in adequate indexation for funded contracts. FRSA urges the Federal Government to review the formula used to determine indexation rates for family relationship services as levels of indexation over recent years have fallen well below the level of increased costs.
For example, in 2007-08 the indexation rate applied to FRSP funding was just 2.1% and in 2006-07 it was 1.7%. Service providers are reporting increases in the order of 4% (consistent with the seasonally adjusted labour price index through the year to September 2007 which was 4.2%
2). This is the third year in a row that wage costs in the health and community services sector increased by around 4% while indexation rates hover around 2%. Wage costs account for approximately 72% of all funding provided to FRSP service providers
3, sometimes more. For example, one member organisation reports “
over the past two years SACS workers have received a pay rise of 3.5% per year. With salary and on costs at 84% of the total organisational budget it is easy to see that indexation (1.7% and 2.1% respectively) is not keeping up.” There have also been substantial cost increases in information technology and commercial rent, which are not recognised in standard indices, such as the CPI. The incapacity to match increasing costs has significant flow on effects to service delivery.
Rural and Remote Service Delivery
The cost of delivering services in regional, rural and remote areas is substantially higher and this should be recognised in funding models. FRSA is aware that in other human service sectors, including aged care and disability services, the increased cost of delivering services in rural and remote areas has been acknowledged and addressed through higher levels of funding.
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Capacity Building
Another issue for providers in managing government funds is the treatment of unexpended funding. Currently if an organisation delivers a service for less than the amount of funding received the unspent funds are required to be returned to the funding body unless approval is granted for the funds to be applied to a specific project or activity. This is a significant disincentive for achieving efficiency gains in government funded family support services. If government were to fund a for-profit entity to undertake the same work there would be no such expectation. The for-profit entity would expect to keep any surplus and indeed this would be factored into the service cost or budget prior to commencement.
Surpluses from FRSP funded services are generally small and variable from year to year as environmental factors such as levels of demand and internal factors such as stability in the staff team fluctuate. However, the opportunity to retain a surplus and use it to build capacity, purchase equipment, reward staff or fund an innovation project would be a powerful incentive in support of efficiency. Furthermore, there is inequity in the treatment of deficits and surpluses. If a service or activity costs more than anticipated resulting in a deficit, the organisation is liable for the additional cost. A surplus in one program cannot be applied against a deficit in another. Similarly a surplus in one financial year cannot be used to offset a deficit in another financial year. As a result organisations carry all of the risk in relation to service costing methodology and enjoy none of the benefits of achieving cost reductions.
Recommendation 13: Develop reasonable and consistent funding regulation based on agreed principles of transparency, value for money and risk management.