Red Tape - Report on the Cost of Government Compliance

Not for Profits can spend an average of almost 144 hours a year completing Federal and State Government paperwork and the cost of compliance places a much greater burden on smaller NFPs according to a new Queensland report.

A common anecdotal complaint of third sector organisation managers concerns the amount of paperwork associated with the submission, reporting and acquittal of government grants.

A number of Queensland third sector grant recipients kept logs to record government generated paperwork over a 12 month period in 2005. They also provided their experiences of government paperwork including grant submission and reporting processes.

The research was carried out by Myles McGregor-Lowndes, Christine Ryan and Cameron Newton from QUTs Australian Centre for Philanthropy and Nonprofit Services (CNPS)

Over 12 months, 14 organisations together reported taking an average of 143.57 hours (median of 95 hours) to complete government generated paperwork. The average time taken per form was 5.05 hours, but with a median of 1.00 hour.

The fourteen NFPs completed:
– 46 grant submissions (on average taking 15.17 hours to prepare);
– 157 grant acquittals (average 6.04 hours per acquittal);
– 90 tax forms (average 1.87 hours per form); and
– 111 ‘other’ forms, e.g. database information on client services for Health or Disability Departments (average 1.88 hours).

Grant submissions and acquittals together made up just over 50% of all compliance paperwork for NFPs.

60% of compliance forms were submitted to state government; 34% to the Commonwealth; only 1% to local government; and 5% to both state and Commonwealth.

The research found the cost of government generated paperwork to be an average of 1.74% of an organisation’s total revenue. This does not include volunteer time because of the difficulties.

Submissions (0.85%) and acquittals (0.73%) had the largest average costs.

The average cost of compliance for small organisations was 2.76% of revenue, compared with large organisations at 0.36% of revenue—that is, 7.6 times greater for small organisations.

This finding is consistent with what other researchers have found in small business, both in Australia and elsewhere.

The researchers say one reason for the greater costs of compliance in small organisations relates to who did the work.

In small organisations the CEO or manager (on a higher hourly rate) did more of the compliance work (31%, compared with 11% in large organisations). In larger organisations, where division of work was more specialised, much of the compliance was done by the finance manager (47%, compared with 25% in small organisations) with a lower hourly rate.

The compliance load increases when NFPs are required to report to multiple funders.

Compliance for Health (state and federal) Departments took significantly more time (22 hours per form) than for other departments. This is because Health Departments make more use of databases, which require extensive data collection.

On the other hand, Disability Departments make small grants to many individuals, depending on their needs, and they also allocate ‘block grants’ to organisations.

Few NFPs outsourced form completion to external agents such as bookkeepers, accountants or lawyers. The research says surprisingly, only half the forms had instructions and just over a third had a specific departmental contact such as a telephone or e-mail contact.

There was occasional praise for government efforts to simplify compliance documentation, but some departments are considered "obstinate" and "unreasonable".

It says the most serious problem is the requirement to extract and reformulate information from financial and data systems within an organisation in ways that meet the requirements of different departmental forms.

The researchers concluded with a series of recommendations to reduce the cost of government compliance and reduce the paperwork burden.

1. Agreement on a Whole of Government data dictionary to standardise financial, client data collection and other reporting terms and adherence to it by government. Only information defined in the data dictionary could be collected from NFPs to minimise the costs of data conversion and special collections.

2. Data should be collected once and duplicate data to government minimised. A computerised data collection product could be provided to small to medium organisations based on the Whole of Government Data Dictionary to implement such an ideal.

3. Any data collected should be either useful to the NFPs in the first instance or returned as useful information to NFPs in a timely fashion after analysis. This should improve the quality of the information collected for all concerned and attitudes towards its collection.

4. Communication about the fate and reasons of failed submissions needs to be improved, made timely and meaningful.

5. All government forms must be accompanied by adequate instructions and a contact point where inquiries can be dealt with in a prompt fashion.

6. Government paperwork should be designed in proportion to the size and capability of the organisations that it is directed to—one size does not fit all.

7. Government should examine its funding submission processes to ensure that scarce NFP resources are not wasted by adopting the use of expressions of interest and other techniques.

8. Further research is warranted to establish the benefits of red tape reduction measures implemented after this research was completed.

9. Further quantitative research is required into the burdens and benefits of statutory mandated quality accreditation processes being currently deployed by several Queensland and Commonwealth departments.

10. Further research needs to be undertaken into the non-paperwork burden of government regulation such as workplace health and safety, corporate entity and taxation provisions.

The full report can be downloaded at: http://www.bus.qut.edu.au/research/cpns/documents/2008_4PaperworkReportingCostsofGovtGrants.pdf