How do I work out my compliance spend?

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In the just released final report of the Australian Competition & Consumer Commission (ACCC) retail electricity pricing inquiry[1], energy retailers identified the rising cost of regulatory compliance as a major concern.[2] Furthermore, rising compliance costs are not just a challenge for the energy sector.

In 2014 Deloitte estimated that the total cost of compliance for Australian businesses was $250 billion every year.[3] This raises the question; what kinds of things must I consider when calculating my compliance spend as an energy business in Australia?

By Dr Drew Donnelly, Compliance Quarter.

Compliance Costs in General

Unfortunately, there are no publicised benchmarks for compliance spend for individual energy businesses. This is likely because, in part, compliance spend is often not captured by a distinct line in the budget. Even when a business does set aside distinct funds for compliance, due to the integration of compliance activities within a business, this will often not capture the total spend.

While there are no benchmarks per se, there is some interesting international survey data available which aggregates the amounts that organisations claim to spend. The Deloitte/Compliance Week 2016 Compliance Trends Survey was a worldwide survey with over 700 respondents across a range of industries (around 8 per cent from the energy sector). 59% of respondents reported having a total annual compliance budget of less than $5 million, while a third of respondents got by on less than $500,000. 60 per cent of respondents expected their compliance budget to increase over the next year.[4]

The Society of Corporate Compliance and Ethics Benchmarking Guidance Survey: June 2016 analysed responses of 647 compliance professionals, that survey found:

  • For organisations with revenues up to $15 million, 50 % spent less than 100,000 on their compliance budgets;
  • For organisation with revenues of a billion or more, around 12 per cent spent 100,000 or less, with 42% spending a million or more. [5]

One problem with this general survey data is that, as some sectors, including energy and financial services, are much more heavily regulated than others, their compliance costs are likely to be higher than aggregated figures.

Determining Compliance Spend for Energy Businesses

While there is no benchmarking data available for energy businesses in Australia, what we can identify are some of the matters that you should take into account when calculating compliance spend for yourself. Some key considerations are:

  • Integration of compliance. Under the Australian Standard AS ISO 19600: 2015, compliance should be embedded into the operations of the business. In practical terms, this means that the organisation needs to put compliance on the agenda at all levels of the business, including at executive management and governance levels. It is not possible to ‘hive off’ compliance completely to a distinct compliance unit. Insuring integrated compliance could end up being cheaper for the business in the long-run;
  • Use of RegTech, LegalTech, ComplianceTech. Automating aspects of your compliance program can significantly reduce the time and money spent on compliance and can focus your efforts on those areas where you can add value;
  • Prohibitions on passing on costs to customers. Some compliance costs such as the cost of appointing an Embedded Network Manager in an embedded network, cannot be passed onto customers.[6] Energy businesses will need to consider which costs they can pass on before determining their compliance spend.

If you would like some advice on your compliance program, including how you can utilise our compliance technology offerings for a more efficient compliance spend, please get in touch.

 

[1] See https://www.compliancequarter.com.au/accc-blueprint-to-reduce-energy-prices/ for more information.

[2] See Retail Electricity Pricing Inquiry—Final Report, p296.

[3] See https://www2.deloitte.com/au/en/pages/media-releases/articles/rules-eat-up-250-billion-a-year-271014.html.

[4] See https://www2.deloitte.com/us/en/pages/regulatory/articles/compliance-trends-report.html.

[5] See http://www.corporatecompliance.org/Portals/1/PDF/Resources/Surveys/scce-2016-benchmarking-guidance-survey-report.pdf?ver=2016-06-15-075138-863.

[6] See https://www.aer.gov.au/networks-pipelines/network-exemptions/embedded-network-managers/.

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