The objective of Stage 4 is to monitor and evaluate the activity, while ensuring appropriate transparency, accountability and performance.
Review of the charging model
As a default, regulatory cost elements are to be reviewed on an annual basis. Costs must be set to confirm the current efficient costs as evidenced by a process assessment and actual costs from the previous year before changes are indexed. This process ensures charges reflect the ongoing actual costs of delivering the activity.
The indexation process should consider review of individual cost elements to ensure correct cost elements are being indexed instead of applying indexation to the entire cost. Prices are only exempted from an annual increase if policy outcomes are significantly adversely impacted and this determination may require the Government decision.
The treatment of changes to regulatory charges also depends on the risk assessment (complexity, materiality and sensitivity of the charge to the user or Government) and the total costs and revenues to the Government.
When reviewing a charging model, Accountable Authorities should ensure that appropriate mechanisms are in place that allow the entity to:
- review and validate business processes, outputs and activities
- review and validate direct and indirect costs elements, including proxies and applying appropriate annual indexation
- review and validate cost attribution to business processes, outputs and activities
- respond to variation in demand
- benchmark the business processes, outputs or activities.
Accountable Authorities must ensure risk mitigation strategies when designing performance and monitoring for charges, which if triggered, result in a review of the charging model, demand assumptions and/or the level of the price.
Changes to existing charges and the charging model (costs/prices)
When reviewing existing charging, Accountable Authorities must consider whether the policy intent of the activity is being met, and how the charging (price level) effects the policy objectives.
Over time, a charge may no longer be consistent with government policy priorities or may become inefficient. In such circumstances, Accountable Authorities should consider whether the activity of charging or the charge should be reviewed to determine how efficiencies will improve costs and charges to benefit individuals or organisations – if this is the case appropriate budget authority is required. Accountable Authorities may align yearly reviews with preparation of the Financial Statements for Annual Reports and Corporate Plans
Accountable Authorities may need to advice on changes to charging as a result of changes in cost inputs, stakeholder feedback, policy changes or internal monitoring and evaluation. The nature of the changes will determine how they should be approved and implemented. Accountable Authorities may need to seek advice on the potential policy or legal implications of expected or potential changes to the charging, but must bring forward the outcome in the budget process
There are two broad types of changes to charging:
- operational or administrative changes – relate to the day-to-day management of the activity within the boundaries of the existing policy approval from the Government. Examples are increases or decreases in regulatory charges and forward estimates due to changes in costs or business processes, that ensures the Government decision for charge level is being delivered (full cost recovery or partial cost recovery). Changes to the legislation imposing regulatory charges may be required. If entity staff are unsure whether the change is within the existing policy approval, they should consult the Department of Finance and the Department of the Prime Minister and Cabinet.
- policy changes – involve variations to the approach to charging that are beyond the original policy approval for charging for the activity. Examples are moving from partial to full cost recovery, the provision of waivers and exemptions from regulatory charges, or structural change in the activity, such as the adoption of a risk-based approach to regulation. These changes are likely to require new policy approval from the Government and amendments to the relevant legislation.
The treatment of changes also depends on their complexity, materiality and sensitivity. A risk assessment (using the CRA template for existing charging) can assist in assessment the likely impact of expected changes and to determine the approvals that may be required. For non-regulatory charges the template can offer areas of consideration when assessing the changed charges risk. Generally, where the risk rating is ‘high’, the changes are likely to be considered to be policy changes; where the rating is ‘low’ or 'medium', the changes are likely to be operational.
For operational changes to charges, relevant approvals should be provided by accountable authorities of entities and/or responsible Ministers for both regulatory and non-regulatory charges. Where required, legislation and internal processes should be amended.
Policy changes to charges will most likely require policy approval by the Government in accordance with the Budget Process Operational Rules. Entity staff should consult Finance and the Department of the Prime Minister and Cabinet about the processes and timeframes for submitting proposals to the Australian Government.
Regulatory activities RCS must be kept up to date, so entity staff must amend it accordingly once the change is approved and make it publicly available before the change to regulatory charges takes effect.
For further information regarding risk assessment, refer to: Risk engagement for regulatory activities, or Risk engagement for non-regulatory activities.
Financial and non-financial reporting requirements
Financial reporting differs depending on whether the activity is regulatory or non-regulatory.
Regulatory activities
Accountable Authorities delivering regulatory charges have number of reporting requirements, under the Charging Policy and under the Commonwealth Resource Management requirements (requirements under the PGPA Act and Rules).
An annual update of Regulatory Charging Statement:
Entity staff must update its RCS on annual basis. Among other requirements for RCS, the changes to financial outcomes for the regulatory charging in the RCS needs to be updated each year. Financial outcomes include the actual and forecasted expenses and revenue for the activity. Accountable Authorities should ensure any material variance between actual expenses and revenue in any one year (e.g. a variance may be due to over or under estimating demand, unforeseen impacts or difficulty in recruiting staff) are explained.
Ideally, the expenses, revenue and appropriations for regulatory activity should be aligned on a yearly basis. In some instances, the best advice may want a longer time period (e.g. the business cycle of the activity), including where capital invested by the Government needs to be recovered over the operating life of the asset (Note: this business cycle may not align to the budget and forward estimate years used in the Budget process. Accountable Authorities should ensure consultation with the respective Agency Advice Unit (AAU) at Finance to ensure the Budget Processes and associated documents appropriately reflect the costs and revenues of the activity).
For regulatory activities priced to recover part of the costs of the activity, the degree of alignment is agreed by the Government. Accountable Authorities must ensure mechanisms (e.g. internal control systems) to manage any under - or over - recovery are developed and explain the variation in the RCS.
For more information on RCS reporting requirements refer to the Regulatory Activities.
Financial reporting
A Commonwealth entity must report on an aggregate level the financial information of regulatory charging in the entity’s annual financial statements, in accordance with the Public Governance, Performance and Accountability (Financial Reporting) Rule 2015 (FRR).
For more information on financial performance requirement for regulatory activities please refer to Regulatory Activities.
Non-financial reporting
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.
As part of measuring performance, Accountable Authorities must ensure:
- identification of performance variances for the activity and charging
- explanation of performance variances and analyse implications to support decision-making
- the monitoring of business processes and identify opportunities to make them more efficient
- ensure that the costing methodology remains relevant and any relevant documentation is up to date, including assessing whether cost drivers, cost allocation methods and other assumptions are still relevant
- undertake ongoing and open stakeholder engagement
- identify the need for operational or policy changes, and implement them in a timely manner in accordance with the appropriate approval procedure, such as through the Budget process.
To support measuring performance of a charge, the Accountable Authorities should have a performance framework that is linked to government policy outcomes. The Accountable Authorities should also ensure the consideration of operational outputs related to charging that may be used to measure progress in achieving activity policy outcomes. Reporting non-financial performance is also a requirement of RCS.
For more information on non-financial performance requirement for regulatory activities please refer to Regulatory Activities.
Non-regulatory activities
Accountable Authorities responsible for delivering non-regulatory charges have number of reporting requirements, under the Charging Policy and under the Commonwealth Resource Management requirements (requirements under the PGPA Act and Rules).
For more information on the Portfolio Charging Review please refer to Portfolio Charging Review.
Financial reporting
An Accountable Authorities of a Commonwealth entity must report at aggregate level the financial information of regulatory charging in the entity’s annual financial statements, in accordance with the Public Governance, Performance and Accountability (Financial Reporting) Rule 2015 (FRR).
Non-financial reporting
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.
For more information on non-financial performance requirement for non-regulatory activities please refer to Non-regulatory Activities.
Benchmarking
Benchmarking is one method that may support Accountable Authorities to ensure the measurement of performance of a charging. For both regulatory and non-regulatory activity, Accountable Authorities must consider:
- the business processes and costs of the activity over time
- similar activities within the entity
- similar activities across government
- similar activities in Australia, or
- similar activities overseas.
Benchmarking can cover either the whole activity and its charging or, where there is no directly comparable activity, cover the business processes within the activity and the associated costs.
Benchmarking against the private sector may be limited or may not be appropriate, as government entities have a range of legislative accountabilities to the public and the Parliament that the private sector is not subject to.
Stakeholder engagement
Accountable Authorities should ensure that there is ongoing stakeholder engagement strategies, including mechanisms or avenues of contact where appropriate, for all charging.
Stakeholder feedback is a valuable source of information about the performance of charging. When an entity regularly engage with stakeholders, it will develop a good understanding of the common issues their stakeholders might raise.
For more information on stakeholder engagement, refer to Regulatory Activities and Non-regulatory Activities Stakeholder engagement sections.
Portfolio Charging Reviews
Accountable Authorities of a Portfolio Department must conduct reviews of all existing and potential charging within the portfolios at least every three years. This means reviewing the decision and outcomes from decision to charge and not charge.
Entities should look at current and potential charging arrangements. It is an opportunity to:
- assess the extent of in scope activities currently charged for and currently not charged for across the portfolio
- compare and analyse the activity outcomes and charging outcomes
- evaluate the performance of charging
- identify potential for new and existing charging
- identify opportunities to amend or discontinue specific charging
- identify where charging models exist, how changes in cost (such as indexation) are accounted for within the cost
- identify whether benchmarking for specific charging, or components of activities can be undertaken and support options for improvements to improve efficiency or price levels
- assess the effectiveness of stakeholder engagement strategies and opportunities for improvement.
Finance will engage with the Portfolio Department for each portfolio who will coordinate the review.
For more information refer to Portfolio Charging Review.
