2014

Lurking in the shadows - the need to closely monitor business compliance costs

While the days of unanticipated losses and windfalls emerging from a budget speech have largely disappeared, lurking in the shadows behind every policy announcement in this year’s budget will be new, revised or continuing compliance costs.

Over the last decade, a wide variety of organisations across the country have commented on the perceived high level of red tape that surrounds dealing with the government.

While experts disagree on how much time SME owners spend on complying with the myriad of business laws and current regulations, it is clear that any decisions made to further reduce this, will appeal to many.

It’s fair to say that good progress has been made over the years to deliver better public services and reduce business compliance costs at the same time. When the government announced last year that a key target was a 25% reduction in the cost of red tape by moving more interaction with government agencies online by way of providing a “one stop shop”, there were few detractors. Coupled with this, the government also stated its intention to enable 70% of New Zealanders to undertake their most common transactions with government agencies online.

Buried deep within the Ministry of Business, Innovation and Employment website is a business cost calculator, which has been around for a few years now in various forms and guises.

It requires consideration of eight identified cost categories and a final catch all category that must be considered by every government department ahead of developing and promoting new regulations. They are worthy of some reflection and reconsideration, particularly in light of a budget. 

The cost of notification

No doubts about it, businesses do incur costs when they have to report certain events to a regulatory authority either before or after an event. 

Education

Businesses have to incur costs simply to keep up-to-date with various regulatory requirements. For example, communicating complex issues to staff such as a change to KiwiSaver, is likely to prove to be costly.

Obtaining the necessary permission

As we have seen in the much commented upon Resource Management Act, businesses sometimes face considerable costs when applying for and seeking permission to conduct certain activities.

Purchasing

When businesses have to purchase a service, usually in the form of taking independent advice, they will often incur a direct cash cost. Likewise, if there is a need for a product, in the form of materials and equipment to comply with a new regulation, cash resources will be needed. As many of SME business owners will bear testimony to, both service and product costs can mount up quickly.

Record-keeping

Digital world or not, New Zealand businesses must always keep their statutory documents up-to-date to a standard acceptable to government officials and this incurs cost.

Enforcement

Businesses always incur costs when they are obliged to undertake audits, review and other assurance-related activities.

Publication and documentation

While the costs of generating published material is generally on the decrease, when a document is required to be produced for a third party, be it for the organisation’s staff, customers, potential investors or appointed regulator, a hidden cost of compliance can lie in the amount of time it takes to draft the required publication or documentation.

Procedural activities

Often forgotten are procedural, rather than administrative, compliance costs. For example, a business needs to conduct fire safety drills several times a year. So where do the cost of these end up? 

Finally there is a catch-all: any costs that don’t fit into any one of the eight categories noted above.

Worthy of note in this identification of the various types of compliance costs is that, with the exception of purchase costs, every cost category identified above involves some labour activity based costs. So it will be interesting to see how much commentary, if any, is given to compliance cost in this week’s Budget, given that every organisation in the country is affected by them in some way, shape or form.

Further enquiries, please contact:

Mark Hucklesby
Grant Thornton New Zealand Partner and National Technical Director, Audit
T +64 (0)9 308 2534
E mark.hucklesby@nz.gt.com