Budget cuts have hamstrung our regulators

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By Leith van Onselen

Following on from LF Economics’ detailed submission to the 2016 Parliamentary Inquiry into Penalties for White-Collar Crime, which argues that Australia is a haven for white-collar criminality and control fraud, The Australia Institute has released a detailed report, entitled Corporate malfeasance in Australia, which finds that corporate wrong-doing is endemic in Australia and laments the Budget cuts that have hamstrung Australia’s regulators.

Below is the Executive Summary:

This paper estimates the extent of corporate wrong-doing in Australia, based on data published by:

– Australian Competition and Consumer Commission (ACCC)

– Australian Securities and Investments Commission (ASIC)

– Australian Tax Office (ATO)

– Fair Work Ombudsman

– Fair Work Commission

– Australian Bureau of Statistics (ABS)

There are fewer cops patrolling the corporate beat than there were three years ago. The regulators and other government agencies that monitor corporate malfeasance have had staffing cut by 3,926 people (or 14.9 per cent) between the numbers budgeted for in 2013-14 and that for the present year, 2015-16.

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It is difficult to understand the rationale for these cuts, given the official publications of the relevant agencies show that corporate wrongdoing is widespread in Australia.

The Australian Competition and Consumer Commission (ACCC) is responsible for promoting competition and protecting consumers and small businesses against other businesses. Based on its press releases, over the last 10 years the ACCC has taken action against 669 companies: 167 for competition issues, 489 safeguarding consumers and against unfair trade and 13 others.

We examined the top 50 Australian listed companies which accounted for 29 of the court appearances. Of those Wesfarmers (Coles) was top of the list and involved in seven cases closely followed by Woolworths (6), Telstra (4), AGL (4) and Origin (3). However, if other out-of-court actions are included Woolworths tops the list being the subject of 29 issues identified in the press releases.

The Australian Securities and Investments Commission’s (ASIC) performance was also examined over the four and a half years to December 2015 during which it successfully concluded 3,115 cases against corporations, of which 2,095 were criminal matters. This is unlikely to represent the full extent of non-compliance by corporations with relevant legal requirements because ASIC, like most regulators, has limited resources and a reluctance to take formal proceedings unless there is a very high prospect of success and other cheaper enforcement options have been exhausted. Recently ASIC reported on the special case of the construction industry and reported incidents of alleged misconduct. This is a much wider category than the cases already referred to. Nevertheless ASIC reports a large number of incidents with 10,667 cases over those five years.

The Australian Tax Office (ATO) annual reports were examined to determine the extent of tax evasion and avoidance. Overall the ATO figures and discussion suggest that in the ATO’s normal course of business it recovers huge amounts from companies and other businesses that attempt to conceal their liability for taxation. In earlier years the ATO was prosecuting over 500 companies a year and still prosecutes 300 a year, the downward trend possibly reflecting the staffing reductions. It settles with many more and as a result recovers some $3.5 billion in tax from companies attempting to hide their profits. Companies also try to underpay the GST and other indirect taxes as well as PAYG on behalf of their employees; those amounted to $6.3 billion in the latest year for which there is complete data. One of their compliance programs, the taxable payments reporting system’ specifically targets building and construction firms and has recovered $2.3 billion for the year 2012-13 alone. Similar successes have been recorded in relation to the other specific target groups such as the international profit shifting program.

The Fair Work Ombudsman recovers payments for employees and takes enforcement action where necessary. In the nine years to 2014-15, the Fair Work Ombudsman recovered a quarter of a billion dollars for over 174,000 employees with an average of $1,471 per employee. It finalised 217,000 complaints from employees, while targeted investigations or campaign audits resulted in repayment of over $46.6 million to 47,000 employees from 2006-07 to 2014-15. That amounts to $991 per employee. In some cases it pursues enforcement action for serious, wilful and repeated breaches and those totalled 1,051 instances over the period.

The Fair Work Commission deals with breaches of workplace laws and especially unfair or unlawful dismissal. In the six years to 2014-15 there were a total of 71,106 claims lodged for unfair dismissal and some 80 per cent of those tend to be settled at conciliation. Around 50 per cent of those dismissals that go to arbitration tend to be ruled as unfair. On the latest figures problems such as unfair dismissal claims are not so much an issue for small employers but 81 per cent of cases involve substantial or large employers.

The Australian Bureau of Statistics (ABS) reports that every year some 5,000 matters are brought to court involving organisations (mainly companies) as defendants and on average around 4,000 are found guilty. Unfortunately the ABS national data cannot be broken down further. In addition to the number found guilty there would be a substantial number that settle out of court.

This report concludes by remarking on the large number of companies apparently involved in corporate malfeasance, in particular, the widespread problems among companies and businesses in the building and construction industry.

The publications of official agencies demonstrates that malfeasance by the private sector is widespread in Australia. The staff and resources needed to reduce this wrongdoing and to enforce corporate and workplace laws must be restored to the relevant regulators and government agencies.

Full report here.

About the author
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.