An important focus of the Coalition Government is reducing red tape. The Government's Policy to boost productivity and reduce regulation, which was released in July 2013 prior to the 2013 federal election, established a platform for boosting productivity and reducing regulatory burden via the reduction of red tape, with consequent estimated savings of at least $1 billion per year. The premise underlying the Government's policy is that Australia is burdened by over-regulation, which hampers productivity and that reducing costly and unnecessary regulation is the pathway to increased investment and jobs.
Pursuant to the Government's policy, on 19 March 2014, the Productivity Commission (Commission) issued the "Regulator Audit Framework" (Framework), which establishes a framework for regulators to evaluate their performance, particularly in relation to the compliance costs imposed on regulated entities. The Commission explains that:
The need for an additional process to audit regulator performance reflects ongoing concerns that it is the way some regulators interact and engage with businesses and other regulated entities on a day to day basis that is responsible for much of the unnecessary cost imposed by regulation.
The broader context for the Framework is the implementation of the Public Governance, Performance and Accountability Act 2013, which establishes a system for governance and accountability for Commonwealth regulators and departments. The Framework complements the framework developed by the Australian National Audit Office (ANAO), entitled the Better Practice Guide: Administering Regulation, which focuses on the performance of regulators in relation to administrative efficiency and achieving regulatory objectives.
Key elements of the Framework
The core of the Framework is a set of five high-level principles against which regulator performance should be assessed, namely:
- clear and effective communication (Principle 1)
- risk-based requirements and proportionate actions (Principle 2)
- consistency in decision-making, the application of rules, and engagement with clients or stakeholders (Principle 3)
- accountability and transparency in actions (Principle 4)
- a commitment to continuous improvement, including acting on findings in regard to the need for and effectiveness of the regulation (Principle 5).
Indicators of good practice
The high-level principles are complemented by "indicators of good practice", which are divided into:
- overarching indicators used to assess overall performance
- good practice indicators, which are linked to specific actions undertaken by the regulator to deliver on one or more of the high-level principles
Application to types of regulatory activities
Pursuant to the Framework, the relative role and importance of the high-level principles will depend upon the type of regulatory activity being undertaken. In addition, the type of regulatory activity will dictate the indicator(s) of good practice. A summary of how the Framework will apply to particular types of regulatory activities is set out in the table below.
Click here to view table.
Development of an Audit Plan
Using the above elements of the Framework as the foundation, the Commission identifies the following key steps that should be taken, which comprise the main elements of the regulator's Audit Plan:
- establishment of an agreed set of indicators of good performance that are appropriate to each regulator:
- not all practices and indicators are relevant for all regulators. The Audit Plan should identify those that are most relevant
- collection of information and data on the chosen indicators:
- given that the primary goal of the Framework is to establish the extent to which regulators are interacting effectively and efficiently with business, the Commission has stated that business feedback will be an important source of data (e.g. through business surveys)
- conduct an audit:
- auditors have the option of collecting evidence beyond the chosen indicator
- relevant Departments may undertake audits. Regulator self-assessment may also be possible in some cases.
The Commission has stressed that key stakeholders – including the regulator, the relevant policy department and businesses or business representatives – should be involved in development of the Audit Plan.
Risk-based approaches for regulators
The Framework indicates that risk-based approaches are relevant for most regulatory activities undertaken by regulators, although the precise form that a risk-based approach may take and its manner of application will vary depending upon the particular regulatory activity.
The Commission identifies some of the main elements of a risk-based approach for regulators, including:
- harm versus illegality: rather than focusing on technical, legal breaches, regulators should focus more on what is harmful based on the consequences of regulatory breaches
- focusing on areas of greatest harm: regulators should focus on areas of non-compliance that impose the greatest harm and greatest overall risk. Least-cost solutions should be sought
- matching regulatory tools with risk: regulators should ensure that the use of 'hard' tools (e.g. fines and cease and desist orders) and "soft" tools (such as educative approaches) is matched to the task being performed
- understanding risks that pose special challenges:regulators may need to consider special approaches for:
- high level harms – low probability catastrophes
- slow acting harms – where the effects are cumulative
- invisible harms – unreported and/or unreportable
- subordination of risk by business – where business can pass on the risk or ignore the risk.
Measuring the success of audits
The Commission has stated that the success of audits will be measured by the following three main parameters:
- the extent to which the process reduces unnecessary compliance costs on business without compromising regulatory objectives
- the extent to which regulators that are not achieving sufficiently high standards of behaviour are publicly identified and making improvements
- the contribution that the audits make to identifying regulations in need of reform.
What will the Framework mean for regulators?
While the Framework is couched as guidance to assist regulators in improving their performance, the Framework is likely to become an important part of Commonwealth regulators' operations in light of the governance and accountability obligations contained in the Public Governance, Performance and Accountability Act 2013.
The core of the Framework – namely the high-level principles, are rational and desirable elements of regulatory best practice. Most – if not all – of the high-level principles are likely to be applied by the vast majority of regulatory agencies already in some manner or form.
The main challenge for regulators will be to ensure that these high-level principles have been effectively implemented. This challenge is all the more significant given that the Framework effectively introduces requirements to measure how these principles are being applied in practice and whether they are effective in reducing compliance costs.