Reviewing compliance obligations
Agood practice approach

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© State of Western Australia 2015

There is no objection to this publication being copied in whole or part, provided there is due acknowledgement of any material quoted or reproduced from the publication.

Published by the Public Sector Commission (Western Australia), June 2015.

Copies of this report are available on the Public Sector Commission website at

Disclaimer

The Western Australian Government is committed to quality service to its customers and makes every attempt to ensure accuracy, currency and reliability of the data contained in these documents. However, changes in circumstances after time of publication may impact the quality of this information.

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Contents

Commissioner’s foreword

Executive summary

Background

‘Red tape’ reduction

Purpose of this report

Compliance obligations

What is the purpose of compliance obligations?

What form do they take?

Application of an obligation

Assessing compliance

Non-compliance

Review of compliance obligations

Methodology

Working group and consultation

Review against good practice principles

Key findings

Recommendations

A good practice approach

Cost and utility

Good practice principles

Purpose

Implementation

A good practice approach- responsible agencies

1.Identify public interest outcome

2.Develop compliance approach

3.Implement a compliance obligation

4.Monitor compliance

5.Regularly review compliance obligations

A good practice approach- complying agencies

1.Prepare systems and staff

2.Implement programs, collect data and information

3.Report

4.Utilise information

5.Review system and process

Glossary

Appendix A

Review of compliance obligations

Appendix B

Good practice principles – evaluation questions

Purpose

Implementation

Appendix C

Resources and further reading

Reviewing compliance obligationsContents1

Commissioner’s foreword

The resources required to meet internal administrative complianceobligations within the public sector are significant.While acknowledging the importance of effective oversight from an accountability and governance perspective, this review has been undertaken in response to chief executive officer (CEO) perceptions of ever increasing public sector wide compliance burdens. CEOs have expressedconcern about the impact on agency operations, in particular the compliance burden placed on smaller agencies with limited resources.

My firm view is that the most effective and efficient compliance programs are a joint responsibility of the agencies administering the program(responsible agencies) and those agencies which must comply (complying agencies).The design and delivery of regulatory programs require regular scrutiny and adjustment to ensure that theymeet identifiable public interest objectives and that their costs do not outweigh these benefits. They should appropriately address,rather than seek to eliminate risk, and should not unnecessarily add to the overall compliance burden for agencies.

The review has highlighted good practice in responsible and complying agencies. Examples are the regular review of obligations by responsible agencies as part of a process of continuous improvement, and complyingagencieswhich proactively use information generatedthrough compliance activities to inform their own planning and operations. The review showsthat there is scope for these good practices to be more comprehensively adopted across the WA public sector. Organisational and employee capability and commitment to good governance are key elements which can be better harnessed to add value to compliance activities, resulting inreduced costs of compliance.

Thank you to all agencies who contributedto this review, includingthe cross sector reference group andother responsible and complying agencies who were consulted.

I hope that the initiatives described in this report will serve as a catalyst for further reform and ongoing attention to efficiency and effectiveness in administrative compliance programs.

MC Wauchope

PUBLIC SECTOR COMMISSIONER

Executive summary

Effective compliance and regulatory programs, systems and processes are essential to good governance and contribute to the achievement of broad public sector and individual agency goals and outcomes. Compliance requirements have increased over the last decade, as a response to greater expectations around accountability and transparency in the use of public resources and measurement of outcomes.

It is increasingly important that the public sector reconsiders its approach to internal regulation to ensure that compliance burden appropriately addresses risk while contributing to accountability, productivity and performance goals.

With this in mind, and prompted by concerns fromsome CEOs of smaller agencies at the perceived undue compliance burden, the Public Sector Commission in 2014 undertook a review of administrative compliance obligations within the WA public sector. The review was conducted in partnership with a range of agencies thatinstitute and manage compliance obligations (called ‘responsible agencies’ in the report) and those that are required to comply with the obligations (called ‘complying agencies’ in the report).

The review sought to:

  • achieve better awareness of the issues regarding costs and burden of internal compliance and reporting
  • identify whether responsible agencies were already taking action to ensure efficiency in compliance obligations
  • stimulate further action and progress in this area through providing good practice principles and information
  • achieve better scrutiny of proposals to introduce any additional compliance obligations.

The review resulted in the development of good practice principles for reviewing compliance obligations. They may also be applied to assessing proposed compliance obligations. The principles consider the purpose and implementation for the compliance obligation.

Purpose

  • Need-is there a public interest need for the obligation and the information derived from it?
  • Cost - what are the costs (time, systems, employees, opportunity costs) to complying agencies and the responsible agency?
  • Benefit - what ultimate benefit is derived and does this outweigh the cost?

Implementation

  • Technology - is the best use made of technology in complying, analysing and reporting?
  • Approach - are there alternative approaches to instituting a compliance obligation, based on consideration of risk, that may be more beneficial?
  • Use of the information - how widely is the information used; can it be used without significant re-working?

The report includes examples of initiatives and programs being run by responsible agencies, current and proposed initiatives to review obligations and good practice observed in complying agencies.

The review found that:

  • Responsible agencies are aware of the burden which administrative compliance places on agencies, especially small agencies.
  • Many responsible agencies provide ongoing assistance to complying agencies by way of standardised templates, enquiry and assistance hotlines, facilitating networks for information sharing.
  • Some responsible agencies are proactive in reviewing systems and processes for compliance and considering alternative approaches to compliance and have recently reviewed and streamlined some obligations.
  • There is further scope for responsible agencies to review some compliance obligations, with a view to streamlining or minimising them.
  • The review highlighted a number of opportunities, such as better definition of obligations and assistance material from responsible agencies; improvements in the timeliness of reporting by responsible agencies; improved data collection systems and analysis; broader analysis and use of compliance information for sector-wide and organisational performance and planning purposes; and greater ‘return on investment’ for complying agencies by information being made available and suitable for their own management activities.

To improve efficiency, effectiveness and accountability in relation to administrative compliance, the Public Sector Commissioner recommends that:

  • responsible agencies regularly review, and make improvements where possible to, the compliance obligations they administer, using the good practice principles contained in the report
  • before instituting new compliance obligations, responsible agencies fully consider any alternative approaches. If a compliance obligation is proposed, it should be assessed against the good practice principles outlined in thereport.
  • to better harness opportunities for improving efficiency and adding value to compliance activities, the good practice approaches outlined in this report should be considered by responsible agencies and complying agencies.

Background

Effective compliance and regulatory programs, systems and processes are essential components of good governance and contribute to the achievement of broad public sector and individual agency goals and outcomes. Agencies which institute compliance and reporting requirements(referred to in this report as ‘responsible agencies’) or comply with them (referred to in this report as ‘complying agencies’) expend significant public funds in doing so. All agencies have specific roles in the shared responsibility for compliance.

Public sector compliance requirements have been increasing over the last decade, as a response to greater expectations of the public sector and government for accountability and transparency in the use of public resources and measurement of outcomes. Sometimes an obligation is introduced as a response toa specific risk event. Simply increasing compliance obligations, however,without considering the resource burden or whether it appropriately addresses risks may not necessarily contribute to accountability and can have a negative impact on productivity.

It is increasingly important that the public sector reconsiders its approach to internal regulation and where possible reduces the level of compliance burden on agencies without impeding essential measures to ensure accountability for performance. This requires:

  • reviewing compliance obligations, eliminating and streamlining any requirements or elements that over time have become non-productive or have a low return
  • continuing to develop more efficient reporting methods for agencies to be able to meet the requirements that are necessary
  • ensuring that any proposals for introducing new requirements are carefully considered in terms of costs, benefits and risks
  • consideringalternative methods to reporting or compliance approaches, such as audits or reviews; or approaches which build organisational capability, such as education and awareness raising programs.

This will ensure the best use of available resources,while still maintaining confidence that compliance obligations provide transparency and accountability and support good management and administration.

‘Red tape’ reduction

The growth of ‘red tape’ has been considered as reflective of a general attitude of risk aversion in regulatory and administrative decision-making, both in Australia and overseas.[1]As a response to increasing levels of regulation, ‘red tape’ reduction and regulatory reform programs have been in place for some time in governments nationally and internationally to reduce the administrative burden on business, thereby improving productivity and profitability.

Recent Western Australian government initiatives to reduce ‘red tape’ for business commenced with the 2009 ‘Reducing the Burden Report.[2]’ The Minister for Finance recently launched the ‘Plan to Reinvigorate Regulatory Reform’, of which a key element is the reduction of ‘red tape’. Compliance requirementswithin government (‘government to government red tape’), whether administrative processes or reporting obligations to central agencies,have also received attention as part of efforts to reduce unnecessary overheads, improve efficiency and increase innovation. A recent example of this is the Western Australian Auditor General’s recommendation in the Audit ResultsReport: Annual 2013-14 Financial AuditsAuditor General’s Report 18 of November 2014that ‘(S)trong consideration should be given to reducing the financial reporting requirements of small agencies.’[3]

Purpose of this report

This report provides information about a Public Sector Commission (Commission) review conducted in partnership with a number of agencies to review and enhance practice in relation to compliance obligations in public sector administration and management.The report is intended to stimulate debate and encourage good practice among both responsible and complying agencies.The issues raised here also challenge responsible agencies to consider how much compliance is required and what those requirements should entail.

The reviewwas conducted in accordance with the Public Sector Commissioner’s general functions under s.21A of the Public Sector Management Act 1994 (PSM Act) to promote the overall efficiency and effectiveness of the public sector, having regard to the public sector principles for public administration and management.

The review sought to:

  • achieve better awareness of the issues regarding costs and burden of internal compliance and reporting
  • identify whether responsible agencies were already taking action to ensure efficiency in compliance obligations
  • stimulate further action and progress in this area through providing good practice principles and information
  • achieve better scrutiny of proposals to introduce any additional compliance obligations.

Compliance obligations

What is the purpose of compliance obligations?

The purposes of public sector compliance obligations are manifold:

  • to ensure transparency and accountability
  • to provide information for planning and management purposes
  • to ensure public policy outcomes are met
  • toemphasise a strong commitment to an issue by highlighting its importance.

What form do they take?

They can take a number of forms, including:

  • Acts of Parliament and subsidiary legislation
  • Premier’s Circulars
  • Public Sector Wages Policy
  • Commissioner’s Instructions
  • Public Sector Commissioner’sCirculars
  • Treasurer’s Instructions
  • other sector wide policies
  • other sector wide guidelines

These are described in the ‘Glossary’.

Some compliance obligations are mandatory while others are recommended (although it is generally expected that these will also be complied with).

Many compliance obligations include a reporting component to a responsible agency or to Parliament. The nature of this reporting obligation varies: from annual reporting of information (e.g. employment or financial outcomes) readily available within the agency, to complex or detailed reporting requiring input and monitoring of large numbers of transactions and monthly reporting of information, or reporting on the progress of ongoing activity within the context of a whole of agency operational plan.

Application of an obligation

Some obligations apply generally across the public sector, while others only apply to an agency because of their business context.

When compliance obligations are set, it is important to determine the scope of the application of the obligation, i.e. to which agencies it applies. This can either be determined by virtue of using a specific instrument which automatically applies to a particular group of agencies or employees, or be specifically defined in the legislation or instrument which establishes the obligation.

Assessing compliance

Because of the diverse nature of compliance obligations, an assessment of whether or not an agency has complied can be simple, such as whether an agency has provided the required information or statistics, for examplethe cost of a discrete activity;or the number of public interest disclosures an agency has received.

In many other cases a compliance obligationcan involve meeting a broad public interest outcome, involving the collation and reporting on activities and data. Evaluation of compliance will involve an assessment of whether sufficient and appropriate activities have been undertaken by the complying agency. This can sometimes be complex, will require judgment and may result in a ‘maturity’ rating, rather than a yes/no evaluation. For example a low (but not the lowest) maturity rating would signify that the activities undertaken by the complying agency, while meeting a minimum threshold, are at the lower end of engagement that would be expected to achieve good practice outcomes.

In all circumstances, the criteria set by the responsible agency for assessingcompliance should be clear and unambiguous, in order that they can be clearly understood by complying agencies.

Non-compliance

Unlike many regulatory functions attached to the business sector, there is generally no specific penalty provision attached to non-compliance with administrative obligations. This is because the public sector works within a broad legislative and accountability framework and is structured towards meeting comprehensive good administration and management standards where failure can have performance and disciplinary outcomes.

Nevertheless, a failure to comply can have a range of consequences and resultant actions. The responsible agency will consider what action to take. In some cases the most appropriate response may be to build the capacity of the complying agency to more fully comply in the future, for example through awareness raising, training and building systems within the agency. Cases of non-compliancemay be published in compliance-related reports. Where there is continued non-compliance, this may be the subject of attention in a report to Parliament. Reports of non-compliance may identify agencies by name or simply refer to numbers or proportions of agencies.

Review of compliance obligations

In 2014in response to concerns from some CEOs about the level of compliance burden, the Commission undertook a review to document and consider the compliance obligations with which all Western Australian public sector authorities must comply. The additional obligations with which individual authorities must also comply, because of their business context or obligations to the Commonwealth government, and those obligations which relate only to Schedule 1 PSM Act entities[4],were not a specific focus of the review. It is, however, acknowledged that these also constitute part of the total compliance obligations for other state government bodies.

Methodology

The review involved the following steps:

  • preparation of a consolidated list of all compliance obligations
  • research into national and international public sector administrative compliance approaches
  • research into and development of good practice models:
  • for efficiency and effectiveness in the approach to compliance
  • for systems and processes within responsible and complying agencies
  • establishment of a cross sector working group
  • research and analysis of the background and scope of the perceived ‘most onerous’ and ‘limited value’ obligations
  • broader consultation with other complying agencies about these obligations
  • consultation with responsible agencies with regard to:
  • good practice within responsible agencies to ensure efficiency in setting and maintaining compliance systems and processes, especially the perceived most onerous and limited value obligations
  • any recent or proposed initiatives to reduce the compliance burden on complying agencies
  • good practice observed within complying agencies
  • finalisation of conclusions regarding good practice for responsible and complying agencies.

Working group and consultation

A cross sector working group comprising representatives from a range of WA public sector organisations, including local government and the university sector, provided input to the review. The working group: