Ending regulation’s one-size-fits-all

These regulatory contact areas range from health and safety to environmental protection, from construction standards to fair trading, from employment conditions to competition, from taxation to superannuation. It can add up to quite a burden: Australian studies have found that small businesses spend, on average, up to five hours per week on compliance with government regulatory requirements. Overseas studies have found that small businesses sometimes bear per-employee compliance costs that are many orders of magnitude higher than for larger businesses.

How regulation reaches small business has suddenly become a hot topic in government, with no less than three studies in the 10 months to September 2013. The most recent is the Productivity Commission’s report on Regulator Engagement with Small Business, which underlines just how much importance the nation’s small business sector places on regulatory advice from accountants.

The Commission found, for instance, that while regulators want to communicate through methods such as websites, help desks and seminars, small businesses place more weight on what their main advisers say – their accountant or solicitor.

And when it comes to effective communication on regulatory requirements, professional associations and industry groups rank very highly – they’re seen as the most effective communication avenue by small businesses and seen by the regulatory sector as its third most-effective means of communication, behind on-site visits and regulators’ own websites.

This finding backed that of DesignGov (the Australian Centre for Excellence in Public Sector Design) in its August 2013 report Lost in Translation: Shared striving and mutual misunderstanding in business and government, which found that industry and professional associations assist their members to navigate through contact with government because they “know how to ask and what to ask” of government.

And there’s also the December 2012 Report to the Council of Australian Governments (COAG), titled Identifying unnecessary and ineffective regulations, which recommended that regulators should, as far as possible, “draw on the networks of industry, professional and business associations to communicate regulatory requirements and to ensure that advice is specific and readily implementable in different business environments”.

Rosalyn Bell, assistant commissioner at the Productivity Commission, says accountants are “still front of mind” for small business for regulatory advice and to “interpret” what regulators such as the Australian Taxation Office (ATO) and the Australian Securities and Investments Commission (ASIC) actually require of them.

Further out in the regulatory spectrum, in areas such as occupational health and safety and human resources, Bell says the “employing” small and medium businesses tend to rely on external consultants for those needs, while the owner-operator segment of small business is often not receiving advice and can fall out of compliance without necessarily knowing it.

This can increase the “disproportionately heavy” burden of regulation on small business, adds Bell. “They don’t have the structures in place to deal with regulators, and they’re not dealing with them with the same frequency and magnitude that a larger business would.

“It’s important overall that a lot of regulators actually know what they should be doing to ease this burden, and we would say the larger regulators are pretty much doing this. They’re not actually that bad; it’s the smaller regulators that can be the problem.”

Some of these smaller state or local government regulators, she says, can be “one person sitting in an office”.

“Often these are the ones that small businesses are dealing with the most – and having the

most problems with. They will all have a website, but it may not be very intuitive to use or obvious as to where to find the important information.”

The Productivity Commission recommends that regulators – particularly the smaller ones – adopt a “business-focused culture”, and, where possible, use a “risk-based” approach. A good example of the former, says Bell, is the way in which Energy Safe Victoria employs retired electricians as inspectors. “They’re people who are inspecting businesses, but who have worked in the industry. And there are a lot of other examples of regulators employing ex-industry people.”

A risk-based approach recognises that different businesses have different risks entailed in a compliance shortfall, and that these can be treated differently to how the regulator would treat a lower-risk business, which might not be dealing with catastrophic outcomes of non-compliance, such as those in food or public safety.

“An effective regulator will tailor its approach to enforcing regulation,” explains Bell, “whether it be checking compliance more often for a higher-risk business, or maybe requiring more paperwork or more evidence, from the higher-risk business. It’s a common-sense approach. Recognising that it’s not one-size-fits-all is an important part of monitoring the impact of the regulator’s engagement with businesses on the businesses themselves.”

From the perspective of small business’s advisers, that would be a welcome change, says Shan Gupta, principal of Monash Tax & Accounting Services in Melbourne. “Compliance is always on the minds of small business operators because there are financial penalties, but there are so many regulators and the relationship is one-way traffic,” says Gupta.

“Every delay is a penalty, but if the government department doesn’t supply you with information or holds something up, you can’t do anything.”

Small business’ external advisers – whether accountant, bookkeeper or solicitor – can only help so much, says Gupta. “At the end of the day,” he says, “all these professionals can only assist the business person with certain kinds of regulation, and the main load of the burden is taken by the business person.

“So, it is certainly critical how well the various regulators – particularly the smaller ones – engage with small business operators.”