Health Minister Mark Butler has ordered a departmental review of grants funded under the $2 billion Community Health and Hospitals Program (CHHP) after a scathing report by the national audit office.

The CHHP was established in 2018 to provide funding to Primary Health Networks, NGOs and state and territory governments to support patient care and reduce pressure on hospitals and community services.

A report released on Monday found that the Department of Health and Aged Care’s administration of CHHP “was ineffective and fell short of ethical requirements.”

It also found administration of funding “was undermined by deliberate breaches” of Commonwealth grants rules, and a failure to advise government of cases where grants shouldn’t be provided.

Executive oversight, fraud management and evaluation of the program was also “deficient”, the audit found.

Mr Butler said the report showed billions of dollars were announced for health projects with “no regard for proper process or good governance”.

“The Minister for Health and Aged Care will direct the Department to rigorously examine and go line-by-line over the projects to ensure that Australians get value for money from the remaining CHHP funds,” a government statement said.

There will also be a “comprehensive external review of the program’s financial controls and assurance framework to ensure it is fit for purpose and help inform the response to the ANAO’s recommendations”.

EOI process bypassed

Under the CHHP the government committed to provide, over seven years, $1.07 billion for 63 state partnerships and $923.5 million worth of grants for 108 projects run by PHNS and community organisations.

Auditor General Grant Hehir found 171 infrastructure and service delivery projects had been identified by November 2022, largely in the area of mental health and hospital services.

He found 34 of the 63 state partnerships were selected outside of the EOI process , didn’t have a supporting EOI proposal and hadn’t been assessed by the department against eligibility criteria.

Six of the 29 projects that were identified through the EOI process were described in the department’s records as being misaligned with program objectives, duplicating existing services or having access to alternative funds.

The report said states and territories, as well as the department of health, sometimes only found out which projects had been approved via public announcements.

“Health decided to begin drafting national partnership agreements on the basis of public announcements. Health monitored the media to keep track of announcements,” Mr Hehir said.

Remaining projects to be scrutinised

Mr Butler said the audit revealed that by November 2022, more than half the CHHP projects involving infrastructure were stuck in the preliminary or planning stage, and a little over half the CHHP’s $2 billion funding has been expended.

“I’ve directed my Department to run the ruler over the remaining projects that have stalled to ensure that Australians get value for money,” he said.

Health has accepted of the report’s recommendations.

“The Department has already strengthened its internal procedures and is taking additional and broader actions in response to the findings to support best practice administration,” it said.