4. Preparing a BCCS: Process and Content
Principles Underpinning the Business Compliance Cost Statement
The following principles underpin the requirement for a Business Compliance Cost Statement and the achievement of a compliance cost reduction objective:
- Compliance cost assessment and reduction should be an integral part of the policy development process.
- The reduction of compliance costs is a dynamic process which includes ongoing monitoring of existing legislation, regulation, and rules, as well as assessment of the impact of any substantive change to them.
- Recognition that compliance costs are a charge against the scarce resources of the private sector.
- Compliance requirements need to be critically assessed to ensure only requirements that are absolutely necessary to achieve the objectives of the policy are imposed.
- Compliance cost assessment is recognised as a clear departmental responsibility and as such should be an integral part of departmental management accountability.
When Is a BCCS Required?
Any Cabinet paper requiring an RIS will also require a BCCS. This means any paper seeking Cabinet's agreement to legislative or regulatory change should be accompanied by a RIS and BCCS.
BCCS Process
The compliance cost process has three important elements:
- Consultation.
- Early consideration of compliance costs and ways to reduce them.
- Quality assurance of Business Compliance Cost Statement.
Consultation
A well designed and implemented consultation programme can contribute to higher quality regulations, identification of more effective compliance alternatives, lower administration costs, better compliance rates, and faster regulatory responses to changing conditions. Just as important, consultation can improve the credibility and legitimacy of government action, with the support of groups involved in the decision process, and increased acceptance by those affected.
Consultation is a process that permits and promotes the two-way flow of ideas and information among all sectors of society and between them and the government. Effective consultation is based on principles of openness, transparency, integrity, and mutual respect. It requires that:
- key information be provided to those being consulted;
- those being consulted are in a position to influence policy formulation;
- sufficient time is allowed for a considered response to be compiled by those being consulted;
- the agency undertaking the consultation has the capability to use the information derived correctly; and
- The information gained is considered in good faith. That is, the advice obtained can not be discounted without good reason, and must be sought prior to final decisions being taken.
The value of consultation in formulating the least cost compliance process should not be underestimated. Even small design features such as due dates can have a significant effect on business formalities and processes.
Costs and Risks of Consultation
At the same time, effective consultation can be difficult to carry out and can be costly in terms of time and resources for the Government as well as those consulted. Less well organised, diffuse, or smaller interests can easily be left out. Furthermore, information received from stakeholders on compliance costs may be one-sided, of poor quality, or irrelevant to the issues at stake. Consultation can also occur too late to allow affected groups develop a view on the nature and level compliance impacts arising from a particular policy measure.
It is therefore important to design consultation programmes to avoid unnecessary costs, and at a stage in the policy development process that best allows the results of consultation to inform policy development.
Forms of Consultation
There is currently a wide range of different consultative approaches used in policy development. These include departmental advisory bodies, secondment of personnel from the private sector, public discussion papers, multi-stakeholder negotiations, focus (consultative) groups, targeted briefings, workshops, questionnaires, public notice and comment, hearings and Select Committees. The appropriateness of each approach will depend on the issues under consideration, the nature of the group being consulted, and the resources (including time) available for undertaking the consultation.
Consider Compliance Costs Early in Policy Process
Compliance costs are often difficult to determine when high level policy papers are being developed, especially those seeking agreement to a broad direction for government policy (the "strategic phase" of the policy development process). Nevertheless, some attention should be given to the likely sources of compliance costs associated with those high level options, in consultation with affected parties. This may just be the identification of those stakeholders affected (e.g., a specific industry sector, all employers, all exporters/importers) or the nature of the compliance cost (e.g., form filling, additional equipment purchases, buying legal advice)
At each stage of the policy development the question "can compliance costs be reduced without compromising the policy objective?" needs to be asked and answered.
Quality Assurance of BCCS
Departments should ensure the internal departmental peer review processes adequately focus on the quality of the BCCS. This could involve separate consideration in departmental quality assurance processes - such as report sign-off procedures or internal management QA groups. This will help ensure lessons are learned for improving BCCS and best-practices are developed. Quality assurance should also be provided by the external consultation process as where the BCCS is subject to wider scrutiny from key stakeholders.
Content of Business Compliance Cost Statement
The business compliance cost statement should identify:
The Source of Any Compliance Cost
This will usually involve a description of the nature of the compliance process and can usually be divided into two broad categories:
- One-off costs, such as acquiring sufficient knowledge to meet the regulatory obligations, retooling production processes, purchasing or leasing additional equipment and buildings, legal/consultancy fees and training expenses; and
- Recurring and ongoing costs, such as staff costs or time, consumable materials, inspection fees/licences, costs imposed by enforcement processes, form filing (that is, costs arising from the need to devote additional time and resources to satisfying regulatory requirements)
See Annex 1 for an example of practical steps necessary in identifying compliance costs.
The Parties Likely to Be Affected, by Sector and Size of Firm
The parties affected should be easily identified from the compliance process described above. The size of each affected group should be indicated, if possible. Although it is often not possible when policy is being developed to accurately identify the number of parties affected. In some situations business statistics from Statistics New Zealand may help here. Identifying the size of affected parties is also important as compliance impacts can be quite different. Larger firms have specialists in the finance, human resources, purchasing, facilities management, etc. In contrast, the entrepreneur in SMEs is often a "jack of all trades".
Quantitative (if Possible) or Qualitative Estimates of Compliance Costs (Both in Aggregate and upon Individual Firms, Persons);
The level of quantification required will vary according to the importance of the proposal being analysed, the availability of the necessary data, and the resource constraints. Compliance cost impacts should be expressed in constant dollars as a common unit of measure. It is also appropriate to set out any underlying assumptions underpinning estimates.1There will often be difficulties in converting some compliance impacts into dollar terms and in many circumstances quantification will not be feasible. In other situations, it may be more feasible (and meaningful) to express compliance impacts in qualitative terms. See Annex 2 for a worked example estimating compliance costs.
The Longer Term Implications of the Compliance Costs for Business - Are They One-Off Costs? Will They Be Reducing over Time?
Normally a new regulatory obligation will impose transitional costs as businesses gain familiarity with an obligation (i.e. a one-off cost). However, these may reduce over time as familiarity increases. The speed at which this happens depends largely on the uniqueness of the new regulation (is it similar to obligations already in place?) and the amount of guidance or promotion during its introduction. Often the cost involved in adjustment to new obligations is difficult to quantify, although estimates from previously introduced policy may help here.
An Assessment of the Risks Associated with Any Estimates and the Level of Confidence That Can Be Placed on the Compliance Cost Assessment
It is important to be explicit about any uncertainty regarding the estimates used and the assumptions made, if not previously discussed in the relevant section.
The Key Issues Relating to Compliance Costs Identified in Consultation
This provides a check to ensure that compliance cost issues raised in consultation are addressed. Where suggestions are not able to be implemented or are disputed by officials, departments should be able to indicate reasons.
Any Overlapping Compliance Requirements with Other Agencies
The purpose of this requirement is to identify other obligations and associated compliance processes. It may be possible to design compliance processes so that information is shared between two related compliance processes.
The Steps That Were Taken to Ensure that Compliance Costs Were Minimised
This could identify, for example, what implementation strategies are proposed: such as an education campaign, the use of electronic technology, form design, advisory services, test panels (see below), etc.
Format and Length of the BCCS
The BCCS should be included in the RIS accompanying any Cabinet paper proposing legislative or regulatory change. The Cabinet Office circular CO (01) 2 states that the BCCS should be no more than a page long. It is recognised that a full compliance cost assessment can be detailed and lengthy. The BCCS to accompany Cabinet papers should be a concise summary of the compliance cost assessment, rather than providing detailed information. The aim is to highlight the key compliance cost impacts, and provide only sufficient information for Ministers to make an informed decision. A more detailed assessment should lie behind the BCCS, and further information should be available from the relevant Department if required.
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