Cost recovery audit: APS still getting the hang of putting industry on the hook

By Stephen Easton

Thursday May 23, 2019

Setting prices for government services is not always a simple task but three federal agencies could still do a much better job of it, according to a recent audit.

Auditor-general Grant Hehir found examples of Commonwealth regulators charging too much in some cases and not enough in others. None of three he audited could provide assurance they have netted the right amount of coin in total to recover the “efficient costs” of their regulatory activities from the industries being regulated.

The audit considered the effectiveness of cost recovery efforts against the three principles of the federal cost-recovery framework: transparency and accountability; effectiveness and efficiency; and stakeholder engagement.

Hehir reports the implementation of these has only been “partially effective” on the parts of the Australian Maritime Safety Authority, the Department of Agriculture and Water Resources, and the Therapeutic Good Administration (part of the Department of Health).

The Australian National Audit Office says there are two main lessons here for all agencies:

All three bodies could stand to improve their transparency and accountability, mostly in terms of how they report on their own performance in Cost Recovery Implementation Statements. AMSA and DAWR have both failed to update these annually, as required.

None fully complies with all the “key requirements” of the guidelines around transparency and accountability, but the auditor-general also suggests the Department of Finance should update the guidelines to make them clearer and promote greater compliance.

“Otherwise, the governance and internal accountability arrangements of the three entities are fit for purpose.”

Effective governance in this case includes: having an internal cost-recovery management committee; guiding staff on implementation; and reporting performance outcomes to the committee and the agency’s executive board.

Despite having the right arrangements in place, the audit found the most room for improvement in the domain of effectiveness and efficiency.

“AMSA and Health have significantly over-recovered costs in recent years. Agriculture has over-recovered costs through levies and under-recovered costs through fees.

“There is no assurance that entity charges recover the efficient costs of their activities, although Agriculture has benchmarked some of its costs. Entities’ cost recovery policies and cost recovery methodologies are at varying levels of being fit for purpose, with Health’s approach for the TGA the most complete.”

Hehir thinks DAWR has recovered too little of the cost of its regulatory activities while “a significant misalignment between revenue and expenses” has seen AMSA and Health consistently go in both directions, over-charging for some activities and under-charging for others.

“AMSA and Health need to be more proactive in addressing structural over- and under-recovery of the costs of their activities.

“AMSA and Agriculture have reviewed their cost recovery legislated charges every four to five years. While this provides certainty to industry and the entities, charges should be reviewed and adjusted more frequently where there are structural misalignments in expenses and revenues for cost-recovered activities.”

The auditor-general is critical of the way all three agencies have set up arrangements to variously balance out fees that are too low with other levies, or over-charge for some services to subsidise the cost of others. The details of such arrangements need to be approved by the government and comply with the guidelines.

“There is scope for all three entities to improve their costing practices,” according to the report, which details their different approaches and how they could be improved.

“None of the three entities have incorporated efficient costs in their cost recovery models and only Agriculture has sought to benchmark the costs of its regulatory activities with those of other entities.

“There is an opportunity for the Department of Finance to examine how benchmarking can be further encouraged and facilitated.”

Each agency runs regular industry consultations on cost recovery and have responded to feedback, but none had the specific documented stakeholder engagement strategies Hehir was looking for.

The audited agencies agreed to all the auditor-general’s recommendations – one each addressing their agency-specific issues and two more that apply to all three – while adding further context to the findings in their individual responses.

The Department of Finance also agreed to make three changes: it will remind agencies to update their CRIS at the start of each budgetary year; review the guidelines in several areas where the audit found they could be improved; and consider other ways to encourage compliance, making use of a biennial charging survey.

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