We recently hosted an Export Market Development Grant (EMDG) forum, which included EMDG Consultants and representatives from Austrade.

During these discussions, Austrade shared a number of interesting insights into the wash up from the 2015 claim program and highlighted a number of recent developments.

The EMDG program assists small to medium sized Australian businesses by reimbursing 50% of eligible costs, up to a maximum grant of $150,000, associated with the development of export opportunities.

Austrade introduced the Quality Incentive Program (QIP) in the 2012/13 grant year. This program allows Austrade accredited EMDG consultants to submit applications three months beyond the usual 30 November deadline (with EMDG submissions able to be lodged up until 28 February). In order to become an Austrade accredited EMDG consultant, the consultant must achieve and maintain a very high standard of EMDG application, which Austrade measures via its ‘slip’ percentage (i.e. the percentage of expenses disallowed). For the 2016 year, Austrade has set the maximum ‘slip’ rate at 5% for EMDG consultants to achieve in order to maintain accreditation (i.e. less than 5% of expenses claimed are disallowed).

Why should you be interested in whether your consultant is Austrade accredited?

Data provided by Austrade indicates that Austrade accredited EMDG consultants consistently delivered a higher EMDG claim, compared to self-lodged EMDG claims.

Diagram 1 shows a year to year comparison of the average claim value achieved by QIP-prepared applications vs self-prepared applications, across all applicants.

Diagram 1 – Average value of EMDG claims

Click here to view the image.

This data, provided by Austrade, reinforces the fact that applicants who use a QIP accredited EMDG consultant receive a result that is almost 14% higher than claimants who self lodge. This trend is even more pronounced for first year applicants, where lodging a QIP-prepared application (compared to a self-prepared application) delivered first time applicants a 72% increase in refunds received, according to the data provided by Austrade in Diagram 2.

Diagram 2 – Average value of EMDG claims for first time applicants

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Key points:

  1. Austrade data indicates that EMDG claims that are prepared by QIP consultants, on average, deliver up to 14% more in terms of claim value, compared to self-prepared claims.
  2. There is a dramatic increase in claim values for first year consultants when their claim is prepared and lodged through a QIP consultant

Audit trends for the 2013/14 grant year

While audit data for the 2014/15 grant year is not yet available (as audits are still being completed by Austrade), data from the 2013/14 year indicated a significant divergence from audit trends in the previous 2012/13 financial year. These included:

  • The median time taken from submission to finalisation of an application in the 2013/14 year was 13 weeks
  • After an applicant’s initial claim, the chances of receiving an in-person audit in subsequent years dropped significantly, from 13% in the 2013 grant year to 3% in the 2014 year.
  • The number of ‘file check’ audits (i.e. audits in which no queries were asked of the applicant) conducted increased by 12%, from 16% in the 2013 year to 28% in the 2014 year.
  • The number of phone/email audits increased by 18%, from 26% in the 2013 year to 44% in the 2014 year.

We believe that a key contributor to this adverse movement in audit trends in the 2013/14 year was due to the reduced funding available to administer the program. Austrade’s administrative resourcing of the EMDG program cannot exceed 5% of the total EMDG funding. A reduction in EMDG funding in the 2013/14 year, led to reduced Austrade resources and in turn reduced audit resources. This resulted in the above change in audit trends. Given that there was an increase in EMDG funding for the 2014/15 year, we believe these audit trends should improve for the 2014/15 year.

  1. Decrease in EMDG funding for 2013/14 grant year saw reduced Austrade resources, which potentially contributed to longer lead times for audits and less in‑person audits
  2. We expect this trend to improve for the 2014/15 grant year, due to the increase in overall funding for the EMDG program

Diagram 3 – Number of Applications Lodged

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In recent years there has been an upward trend in the number of claimants lodging an EMDG claim, with the most significant increase occurring between the 2012/13 and 2013/14 grant years. Analysis of the potential reasons for this sharp increase indicates the rise in applicants was likely due to two changes to the 2013/14 EMDG program, being:

  1. a reduction in the minimum expenditure threshold from $20,000 to $15,000 (which opened the program up to smaller claimants); and
  2. the reintroduction of the 8th grant year (which enabled larger exporters to make an additional EMDG claim).

In addition to placing increased strain on Austrade resources, one of the less positive outcomes of the significant increase in applicant numbers in 2013/14 was that applicants with claims over $60,000 received a reduced grant payment. This is due to the fact that the EMDG program is allocated a finite level of funding each year, which is not able to be increased to accommodate an increase in demand for the program. Given this funding limit, to ensure equitable payouts across all applicants, Austrade pays out the grant in 2 stages. An initial payment ($60,000 in the 2014 year) is made on completion of the audit, with a balance payment made at the end of the year on an apportionment basis (i.e. the funding left after the initial $60,000 payment is allocated proportionally to applicants, in accordance with the size of their grant). Due to the increased number of claimants in to 2013/14 year, and the drop in EMDG funding, claimants above $60,000 only received 65% of their total claim, compared to 100% in previous years.

In an effort to address this disappointing outcome, as part of the 2015 budget process, Austrade significantly increased the EMDG budget to $137.8 million – an increase of $21.7 million. Accordingly, despite the increase in EMDG applicants as part of the 2014/15 EMDG claim process, we do not expect there to be such a significant adjustment to balance payments made with respect to the 2015 grant year.

  1. There was a significant increase in claimant numbers in 2013/14 due to changes to the EMDG program
  2. The increase in claimant numbers reduced the grants paid to claimants in the 2013/14 year, with a payout rate of 65% for the second tranche payment
  3. EMDG budget has now increased by $21.7 million and, as such, we expect lower adjustments to balance payments this year

The EMDG program has been in existence for 40 years and continues to receive bipartisan support from the Government, the Opposition and industry groups.

The EMDG program is the Government’s flagship export related program and support for the EMDG program is strong, as evidenced by this year’s budget increase of $21.7 million for the program. This increased funding should result in lower adjustments for EMDG claimants who are entitled to a balance payment. We expect the budget increase will also result in more resources becoming available to Austrade to administer the program. This should result in a reduced grant assessment timeframe.

The QIP consultant accreditation program, introduced in the 2012/13 grant year, continues to be supported by Austrade, as the program has produced a higher quality of application, capable of being reviewed by Austrade in a shorter period of time. It is clear from recent data provided by Austrade that applicants who lodge through a QIP consultant will have a higher claim, particularly for first year claimants where the average claim value was almost $18,000 more when a QIP consultant was engaged.