The former manager of what was one of the Northern Territory's most successful Indigenous art centres says she does not regret her decision to set up a Darwin art gallery, despite the centre now being investigated by the Prime Minister's department.

Key points: The Prime Minister's Department is probing a Territory art centre's financial management

The Prime Minister's Department is probing a Territory art centre's financial management The art centre's former manager had anticipated more NT Government support

The art centre's former manager had anticipated more NT Government support But the NT Government rejects any blame for Injalak's financial woes

The Federal Government's Indigenous corporations watchdog ORIC has placed Injalak Arts in the remote Western Arnhem Land community of Gunbalanya into special administration, at the request of the organisation's management committee, because it is now carrying more than $1 million in debt which it cannot repay.

Injalak Arts has been running for 30 years, and has run at a profit, selling screen-printed cloth, weavings and paintings for three out of the past five years.

But this year it is facing a financial crisis, primarily because of cost overruns on two major projects, a new screen-printing workshop in Gunbalanya, and a Darwin art gallery, Provenance Arts, that it was trying to develop at the same time.

The centre has 200 Indigenous artists working for it in and around Gunbalanya.

Injalak Arts' former manager Felicity Wright has resigned, blaming stress and a lack of support from the Northern Territory Government.

Felicity Wright believes the NT Government should have stumped up more funding for the centre. ( ABC Radio Darwin: Jesse Thompson )

'Perfect opportunity'

Ms Wright, who has managed Injalak Arts on and off for two decades, said when an opportunity suddenly became available to rent and renovate a prominent art gallery on Darwin's main Stuart Highway, she jumped at it.

It was an opportunity to expand the market for the Gunbalanya art works, as well as art works from 28 other remote art centres, into the city market, she said.

"The gallery owners were retiring, and they needed a decision, and it seemed like the perfect opportunity," she told the ABC.

"And there was also the groundswell of the realisation of the importance of authentic Aboriginal art."

Ms Wright said that at the same time the Territory Government announced it would spend $10 million on a tourist art trail promoting works from Arnhem Land and she expected Provenance Arts would perfectly fit the bill for support funding.

"We had been anticipating support from Arts NT and Tourism NT for Provenance because it seemed to fit perfectly with the Indigenous Arts Trail, but we were unsuccessful in our grants," she said.

Ms Wright said that although Injalak Arts had increased its turnover to $1.5 million in 2018 and Provenance Arts was also trading well, neither business was making enough money to pay for a blowout in the costs of renovating the Darwin gallery.

"The costings from 2017 overlooked compliance for toilets and carparks, there were some structural issues that hadn't been picked up, including the replacement of an electricity main, so the costs more than doubled," she said.

The result, Ms Wright said, was that even though Provenance Arts sold $440,000 worth of art in its first five months, and returned $200,000 to remote art centres in that time, it wasn't enough.

So Provenance Arts was provided $609,000 from Injalak Arts' working capital budget.

"Injalak had a very good year last year, traded extremely well, and had some reserves, but unfortunately when Provenance wasn't able to attract any kind of funding from Government, all those reserves ended up going to support Provenance," Ms Wright said.

Injalak Arts' finances were strained as it undertook two major projects. ( ABC News: Jane Bardon )

Funding indications dismissed

Northern Territory Culture Minister Lauren Moss dismissed Ms Wright's impression that she had been assured Provenance Arts would attract Arts Trail funding.

"We've been in discussions obviously with a whole range of art centres around the Arts Trail initiative," Ms Moss told the ABC.

"The project Injalak is having financial difficulties over is tied to the Federal Government."

The Federal Government-funded screen-printing workshop upgrade in Gunbalanya has caused Injalak Arts' other major financial problem.

Ms Wright said although the Federal Government provided a total of $1.2 million for that in 2015 and 2016, the initial builder was dismissed after delays, and the second builder engaged to complete the project has now estimated the costs to be $2.3 million.

She said that although the building had been progressing, Injalak has now run out of money to pay $1.1 million already owed to the builder, or to complete the project.

"Injalak was trading insolvent because of this bill to the builder," she said.

She said she had also been given the impression by both the Northern Territory and Federal Governments that there could be financial support for that project to be completed, so she had continued to progress the work.

Future funding possible

But Ms Moss said her Government had made clear that the infrastructure project would not be bailed out.

Ms Moss said, however, that if special administration by the Federal Government leads to a clear plan for Injalak's financial recovery, the art centre could later become eligible for Arts Trail funding support.

"First and foremost our concern has been around making sure that they do get back on track around their governance and their financial position," she said.

"We've made it very clear to Injalak and the Federal Government that we're prepared to provide support when they need that.

"Absolutely, we'd be considering supporting them through the Arts Trail."

It could cost up to $250,000 to keep Provenance Arts running for another year. ( ABC News: Jane Bardon )

Financial management investigation

The Territory and Federal governments are considering financial estimates about Injalak's financial viability prepared by a consultant.

That has found that as well as the $1.1 million owed to the screen-printing workshop builder, $800,000 may be needed to complete the project, and a further $300,000 to keep the art centre running.

It could cost up to $250,000 to keep Provenance Arts running for another year.

A spokesman for the Federal Department of the Prime Minister and Cabinet, which provided the $1.2 million Aboriginals Benefits Account grant for the screen-printing workshop, said the funding to Injalak Arts "has not been acquitted".

"There are a number of financial management and governance issues associated with this project," he said.

"The Department is working closely with a number of stakeholders to investigate these issues."

Ms Wright has criticised the Injalak Arts management committee decision to ask to be put into special administration.

"It was a kind of sledgehammer approach to a problem that shouldn't have arisen," she said.

Selwyn Button, the ORIC registrar of Indigenous corporations, said Injalak had traded strongly and increased growth, "and the forecast indicates it will continue to do so".

He said even the most experienced and successful organisations could experience financial difficulty.

"The members and directors of Injalak have made a move to do what's best for their organisation and their broader community," he said.

"I applaud the directors for recognising their predicament and showing courage to ask for help to recover from it.

"A special administrator can provide professional assistance to reset Injalak's financial position and review governance structures to reduce risk of a similar financial crisis arising in the future."

Injalak Arts' management committee chairwoman Donna Nadjamerrek told the ABC that she could not currently comment on anything to do with Injalak.