Regulatory Activities

Transparency refers to openness and a willingness to make information available about the activity of charging. Transparency allows appropriate scrutiny of government charging decisions and processes by providing access to information.

Transparency involves reporting on performance for the charge and the activity of charging, on an ongoing basis.

When charging for regulatory activity, transparency means documenting key information about the activity of charging and the charges in a way that is accessible for those who pay charges and for other stakeholders. Key information includes policy approval, legal basis for the activity of charging and the charging model. This allows consideration of whether the activity of charging and the charges are being implemented efficiently and effectively, and demonstrates that charging itself is consistent with the policy decision/s.

Accountability refers to clear roles and responsibilities for key stakeholders throughout all stages of the charging process and having in place appropriate governance structures. Accountability involves ensuring that entities, their staff and the responsible Ministers are answerable for their actions and decisions in relation to charging.

The documentation for a specific charging activity should provide sufficient detail to allow the Parliament, those who pay the charges, and other stakeholders to analyse the activity. This includes clearly stating when, by whom, and at what level the charge is set. Entities have some discretion over the level of detail in documentation that is publicly available.

Documenting the policy decision/s and the model for calculating the charge are fundamental to accountability.

Efficiency and effectiveness in government involve making the proper use of available resources (people, money and other supplies) to achieve government policy outcomes. Government activities should meet quantity, quality and other targets, be undertaken at minimum efficient cost, and while achieving the policy objectives and complying with applicable legislative requirements.

For a regulatory activity, efficiency also relates to whether it is efficient to provide the activity on a charging basis (that is, the costs of administering charging should be proportional to the charges for and potential revenue from the activity). This requires a balance between developing a more precise, but more complex and hence more expensive costing model, and developing a simpler and less expensive, but less precise, costing model.

The effectiveness of charging relates to whether the level of the charge (the price) supports the Government’s policy objectives for both the activity and the charging. Effective charging means the appropriate price to enable the desired charging policy outcomes, while also being conscious of the other policy objectives. The effectiveness of cost recovery involves the reliability and accuracy of the cost recovery model and related processes in measuring costs and reflecting those costs in the related charges. Effective cost recovery includes appropriate revenue management.

Stakeholder engagement is particularly important for regulatory activities that are charged for, as the price of the charges have a direct impact on those who pay them.

Stakeholder involvement generally results in better design, planning and implementation of government activities. Successful stakeholder engagement involves well planned and meaningful consultation. Commonwealth entities should have open dialogue with stakeholders, consider their views and, where appropriate, take action.

Entities should engage actively with stakeholders throughout all stages of the charging process, from policy development through to implementation and review. They should develop and implement an ongoing engagement strategy for consultation with stakeholders. Finally, they should consider performance indicators when measuring the effectiveness of stakeholder engagement and revise processes to continuously improve and build trust.

Government approval to enable charging for a regulatory activity requires separate decision points. The decisions may be sought separately or concurrently with the policy approval, depending on the circumstance and the nature of the regulatory activity. Decisions are needed to provide:

• approval for the activity to be delivered to the non-government sector to achieve the policy objective
• approval to charge the non-government sector for the activity and at what level (i.e. below full cost - partial recovery, or at full cost recovery)
• approval to develop or change legislation when required.  

Entities must contact the Office of Impact Analysis prior to seeking policy approval to check whether a Policy Impact Assessment (PIA) will be required. If a PIA is required, it must accompany the policy proposal.

When assessing the potential to charge, for new or existing government activities or when making changes to the level of a charge, entity staff should conduct appropriate research and analysis, including stakeholders’ consultations. This analysis will inform the Charging Risk Assessment and help determine whether there is a policy rationale to charge or not and what the outcome of charging is likely to be.

Approval of the policy

Policy approval for an activity (for example, provision of goods, services or regulation) is sought by preparing a policy proposal and recommendations for Government consideration in accordance with the Budget Process Operational Rules.

If policy approval is sought from Cabinet, authority to bring the proposal forward for consideration is required, refer to the Budget Process Operational Rules and the Cabinet Handbook. 

Records of policy decision

Entities are expected to maintain records of the policy approval to undertake and charge for the activity, including authority for relevant legislation. This assists entities in reporting in their Portfolio Charges Review.
 

Approval to charge

A policy proposal that involves charging must seek explicit policy approval from the Government to allow charging for the activity. The proposal may relate to introducing charging for new or existing government activities or may involve changing the existing charges for activities.

The policy proposal to charge should contain information on the costs and revenues, likely outcomes from the price level for the public and industries and the risks of each option approach to charging. This allows decision-makers to consider the merits of charging, level of charging (full or partial cost recovery) or changes to charges.
 

Changes within the policy decision

From time to time, entities may need to make changes to their cost recovered activities as a result of stakeholder feedback, changes in policy or internal monitoring and evaluation. The nature of the changes will determine how they should be approved and implemented. Staff may need to seek advice on the potential policy or legal implications of expected or potential changes to the cost recovered activity.

There are 2 broad types of changes:

• operational changes - relate to the day-to-day management of the activity within the boundaries of the existing policy approval from the Government. 

• policy changes - involve variations that are beyond the policy approval for the activity.

Operational changes can be approved by the Relevant minister or Accountable Authority when:

• Relates to day-to-day management within existing policy approval (for example, increase or decrease in charges due to business processes)
• Changes to an existing charging model (for example, due to changes in costs)
• Some material, sensitive or complex operational amendments within existing policy (for example, changes to legislation required to reflect the changed charges structure)

If policy approval needs to be sought from Cabinet, authority to bring the proposal forward for consideration is required, refer to the Budget Process Operational Rules and Cabinet Handbook.

Relevant legislation may include the enabling legislation of a Commonwealth entity, legislation for the activity and/or taxation legislation. If charging is being considered, it should be provided for in the enabling legislation for the activity.

• If charging is not supported by existing legislation, new activities that involve charging may require new or amended legislation to give a legal basis to charge.

The detail in the policy approved by Government will inform the relevant legislation, and may include:

• the ability to charge for an activity
• any measures that may need to be included in the legislation
• if known, any criteria or limits to what may be charged for or the level of the charge
• any subsequent decision to charge and the level of the charge (price level).

Where there are changes to the activities covered by legislation, or there are changes to policy objectives of Government, entities should review the activities and legislation to determine whether refreshed policy approval may be required.

The type of legislation required depends on the activity, the costs involved, and whether costs can be attributed to an individual or group.  

Entities should consult with the Department of Foreign Affairs and Trade if there is a possibility that international law or other obligations (for example, treaties that govern international trade) could constrain the application of charges.

Entity should consult with the Treasury early in the policy development process when charges may fall into taxation matters.

Risk engagement involves ongoing assessment and management of risk that may adversely impact the policy intend for the charging activity. A key element of planning, designing and managing charging activities is to identify and engage with risk at each stage of the charging process.

During the development of policy, implementation and review of charging arrangements, entities should assess the risks associated with the charging arrangements. This will have an impact on who makes the decision to charge, the risk management strategy to ensure charging achieves its stated intentions, the scale and detail of the charges and the stakeholder engagement strategy.

When analysing risk, entities should consider the entity’s operating environment and factors that influence charging across 3 areas: complexity, materiality and sensitivity.

This analysis could include the following:

Charging Risk Assessment

Entities must self-assess the risks associated with materiality, complexity and sensitivity for any new or amended charging activity as part of the policy proposal process and for subsequent changes to charging arrangements. This process is called the Charging Risk Assessment (CRA) and its rating determines the processes required for release of the Cost Recovery Implementation Statement (CRIS).

The risk rating does not determine whether regulatory charging is appropriate, or whether some activities are more suitable for charging than others.

The purpose of the CRA is for responsible entities and Ministers to determine how to engage with the identified risks and to inform the risk engagement strategy adopted by the entity.

• For new regulatory charging, a risk assessment must be undertaken and incorporated in the new policy proposal (NPP). Finance agrees the risk rating for regulatory charging as part of the policy proposal process.
• For existing regulatory charging, a risk assessment informs the approval process for any proposed changes to the policy authority and/or legislation. 

Finance has developed a CRA template along with CRA Information Sheet to assist with assessment of the charging risk. These resources are available under Tools and templates in the right hand menu.

• New charging for regulatory activities - CRA New Charging Activity
• Changes to existing charging for regulatory activities - CRA Existing Charting Activity.  

If an entity chooses not to use the template, they must assess the risk of the activity using factors similar to those listed in the template. 

The entities self-assessment rating of risks associated with materiality, complexity and sensitivity for any new or amended charging activity needs to be agreed with Finance.

A charging model enables entities for an ongoing management and comparison of actual costs and revenues and expected efficient costs and revenues to:

• ensure prices remain aligned with the policy approval for the level of the price and the requirements of the Charging Framework
• manage any potential over and under-recovery of costs of the activity in line with the Government determined policy authority to charge: at full cost recovery or below costs
• measure and improve efficiency and performance, including by tracking the degree of alignment between expenses and revenue
• demonstrate how prices relate to the costs of the activity:
  • this is through appropriate attribution of outputs and subsequent business processes to charges 
  • should the legal basis or constitutional validity for the charges be challenged.

Regulatory charges should be:

• clear and easy to understand
• closely linked to the specific activity
• set to recover the full efficient costs of the specific activity
• efficient to determine, collect and enforce
• set to avoid volatility, while still being flexible enough to allow for changes based on fluctuations in demand or costs.

There must be alignment between the cost (expenses) of an activity and the price (revenue generated through charges). For activities that are partially cost recovered, the degree of alignment for expenses and revenue is agreed by Government.

Ideally, the expenses and revenue should be aligned on a yearly basis. However, where justified, they can be aligned over a longer period (for example, the business cycle could be longer to reflect peaks and troughs of the activity, or length of accreditation period).

The degree of alignment between expenses and revenue may vary for different activities, as the business cycles and cost drivers for those activities differ. Entities should develop systems to manage any under or over-recovery. These systems and processes need to prevent systemic misalignment of expenses and revenue to ensure the Government decision for full cost recovery or set part recovery is being delivered.

For a regulatory activity the level of charge (price) must not exceed the minimum efficient cost of the entity’s delivery of that particular output. As such, entity staff should consider how to develop an understanding of the costs of an output of ‘activity’.

Resetting costs and indexation

As a default, regulatory costs are to be reviewed on an annual basis. Costs must be set to confirm the current minimum efficient costs as evidenced by a process assessment and actual costs from the previous year before an updated indexation rate is applied to appropriate cost elements. This process ensures charges reflect the ongoing efficient costs of delivering the activity and the Government decision for full/partial cost recovery.

Activities are only exempted from indexation if policy outcomes are significantly adversely impacted and this determination may require the Government decision.

The entity’s charging documentation should summarise the purpose for charging for an activity and details of the authority to charge (for example,  link to legislation or Budget papers). The documentation, irrespective of the type of charge, should also provide information on how charging is implemented, managed and monitored. It should also collect information on how the activity is performing on an ongoing basis, including how the entity has addressed the charging principles and requirements.

This documentation is used in Portfolio Charging Reviews and supports the Accountable Authority in meeting their duties under the Public Governance, Performance and Accountability Act 2013.

Cost Recovery Implementation Statement

Each regulatory activity that is charged for, regardless of financial value, must be documented in a Cost Recovery Implementation Statement (CRIS). The level of information in the CRIS should be proportional to the complexity, materiality and sensitivity of the activity.

The CRIS is an explanatory document that provides key information on the entity’s charging arrangements, it should be finalised, approved and published on the entity’s website before charges commence.

After charging commences, the CRIS also becomes a continuous disclosure tool being updated at least annually. It reports how the activity is performing and provides the basis for ongoing engagement with stakeholders on various aspects of the regulatory activity.

A CRIS can document more than one activity (for example, where the activities are related or have common stakeholders). Where more than one Commonwealth entity is involved in providing a cost recovered activity, the entity that has the overall operational responsibility for the activity should prepare the CRIS with input from other relevant entities. Where cost recovery charges for an activity are collected by one entity, but the activity is provided by one or more other entities, the responsible entities may choose to prepare a combined CRIS.

Entities are encouraged to use the CRIS template developed by Finance. If the entity chooses not to use the template, the entity must still meet the CRIS content requirements listed below.

The CRIS is prepared after the Government makes a decision to charge for the specific regulatory activity. A draft CRIS may support legislative drafting, determination of pricing, and engagement with stakeholders.

CRIS Requirements

Where the Finance Minister’s agreement for release is required, entity staff should factor in enough time to allow for that involvement. Approval of the CRIS should be obtained before amending legislation or legislative instruments.

Entities should also note that the Government or the Minister for Finance may also request that any CRIS be brought forward for agreement as part of other processes.

Regulatory charges financial performance

Annual Reports and Annual Financial Statements

A Commonwealth entity must report on an aggregate level the financial information of cost recovery in the entity’s annual financial statements, in accordance with the Public Governance, Performance and Accountability (Financial Reporting) Rule 2015 (FRR). 

Non-financial performance

The accountable authority of a Commonwealth entity must measure and assess the performance of the entity in achieving its purposes. Delivery of the regulatory activities would contribute to achieving these purposes.

Performance measures and other information are key inputs used by government entities in evaluating whether outputs have been produced and outcomes have been achieved. The primary planning document outlining entities non-financial performance is the corporate plan. It provides Parliament, the public and stakeholders with an understanding of the purpose of an entity, its functions, objectives and role.

When it is appropriate to develop measures for charging activities performance, measures can be based on relevant information from a range of sources, such as:

• outcome measures that assess the extent to which the charging activity is contributing to meeting government policy outcomes. They relate to changes effected in the community and may include such things as minimised risks of exotic pests and diseases harming the Australian natural environment, food security and economy, or more timely access to safe and effective therapeutic goods for the Australian community.
• output measures that show the extent to which the charging activity’s operational targets or milestones have been achieved. They may include such things as the numbers of permit applications processed, the numbers of permit applications processed within statutory timeframes, or the numbers of compliance audits that were required over the reporting period.

When evaluating performance, Commonwealth entities should consider common traps, which include:

• assuming that the production of outputs secures the desired outcomes
• assuming that the consumption of inputs results in the desired outputs and outcomes
• framing performance measures that rely on data that cannot be validated.

Over time, a charging activity may no longer be consistent with government policy priorities or may become inefficient. In such circumstances, entity staff should consider whether the activity of charging or the charge should be reviewed.

When reviewing existing charging, entities should consider whether the policy intent of the activity is being appropriately supported by the price level of the charge.

Entities may need to make changes to their charging as a result of changes in cost inputs (increasing or decreasing), stakeholder feedback/changed in operating environment, policy changes or internal monitoring and evaluation. The nature of the changes will determine how they should be approved and implemented. Entities may need to seek advice on the potential policy or legal implications of expected or potential changes to the charging activity.

The treatment of changes to regulatory charges depends on the charging risk assessment (which includes complexity, materiality and sensitivity) of the charge to the user and the total costs and revenues to the government.

Regular review, at least yearly, of the Cost Recovery Implementation Statement (CRIS) provides the information needed to start any change process. This approach provides the assurance on how the level of the actual charge aligns to the Government decision, relevant legislation and the minimum efficient cost of the effort of the Commonwealth entity.