Regulatory functions

Regulation involves enforcement by public sector agencies of controls and restrictions on certain activities. NSW state and local governments regulate many activities, including the health and safety of workplaces, environmental management, construction and property development, motor vehicles, and food, as well as licensing of occupations and skills.

The term “regulator” used here includes public officials who assess applications, or perform inspectorial, investigative or other compliance functions. It can also refer to third-parties that are contracted by government to perform regulatory functions; for example, state agencies may outsource assessment functions.

Contract regulators working for the NSW public sector at the state or local government level are “public officials” for the purposes of the Independent Commission Against Corruption Act 1988.    

• a regulator failing to declare a conflict of interest involving a person or business they are regulating
• a regulator soliciting or accepting a bribe or benefit to exercise their powers in a certain way
• a regulator improperly providing confidential information to a regulated entity
• a person acting fraudulently in relation to an application for a licence or permit.

Developing a strategy

Regulatory functions should automatically be categorised as high-risk. A risk assessment of regulatory activities could include:

• creating a process map to understand the formal and informal regulatory processes undertaken by an agency, including all the positions involved
• reviewing the nature and adequacy of accountability measures for individuals involved in regulation, including around decision points, appropriate supervision, role segregations and recordkeeping, and other points of particular vulnerability to improper influence
• reviewing how well an agency informs the public about both its regulatory role and the public's rights in terms of its regulatory activities (action points from the review should be incorporated into a corruption prevention plan).

Consider the following measures:

• adding values or principles into a code of conduct that can be used to guide regulator-client engagement
• ensuring employees who are involved in regulatory work understand their roles and responsibilities (for example, through induction, formal training, mentoring, on-the-job training, supervision, policies and publications)
• communicating with the public about what they can expect from regulators, the standards that apply and the rights and responsibilities of those being regulated (for example, through documents such as a statement of business ethics, a client service charter or information brochures)
• maintaining regular contact between regulators and their supervisors in the field
• assigning managers/supervisors to accompany regulators on fieldwork on a random unscheduled basis without prior notification
• regularly reviewing completed matters to test compliance with recordkeeping requirements and consistency of decision-making
• holding periodic formal work reviews of regulators’ work
• segregating regulatory inspection work from the role of allocating regulatory work
• assigning regulators to work in pairs when they are conducting fieldwork
• scheduling inspections so regulators cannot choose the inspection targets and dates
• ensuring computerised systems reflect actual decision-making protocols so employees cannot close a matter or change allocated tasks on the computer system without authority
• prohibiting regulators from engaging in any outside employment that would conflict with their regulatory role
• having a policy to manage declared conflicts of interest.

Outsourcing regulatory functions creates particular risks for corruption. When outsourcing regulatory functions, consider the following strategies:

• analysing the risks for corruption before outsourcing the function
• defining in writing who will be accountable for the work (remember that public sector agencies cannot outsource corruption risks, but must take responsibility for managing these risks even for an activity that is, itself, outsourced)
• deciding and documenting the level of contract management and performance measurement needed and who will be responsible for monitoring it
• exercising additional care with former employees who bid for regulatory work
• engaging contractors only after due diligence has been done on their past work
• establishing a system and an obligation for contractors to disclose conflicts of interest
• communicating standards of conduct to contract regulators (for example, adherence to the code of conduct), and providing information sessions and training
• reminding contract regulators in writing that they are within the jurisdiction of the Independent Commission Against Corruption Act 1988
• monitoring contractor performance systematically
• resolving complaints about contractors promptly.

Regulators often work alone and usually have direct contact with those they regulate, inspect or investigate. These factors make regulators vulnerable to pressures from the people and organisations they regulate, including the pressure to engage in corruption. Agencies should not assume their regulators know how to handle these pressures or how to resolve ethical problems without practical guidance and support.

A practical preventative measure is to conduct a community awareness campaign that explains what the public can expect when dealing with the agency. Consider the following elements as a way to foster a community awareness campaign:

• establish a simple system for making complaints
• communicate in written form what the public should expect when dealing with regulators, including what standards apply, what fees and charges are payable (and to whom), what refreshments are acceptable, and how to appeal against regulatory decisions
• communicate definitions and examples of corruption, and the penalties for engaging corrupt conduct, such as offering gifts and benefits.

A number of ICAC reports provide details about investigations into corrupt conduct involving regulators, such as:

• Parramatta City Council – corrupt conduct associated with regulation of brothels (August 2007)
• Report on an investigation into corruption allegations affecting Wollongong City Council Part 3 (October 2008)
• Investigation into corrupt conduct of Sydney Water employees and others (March 2011)
• Investigation into the corrupt conduct of Willoughby City Council officer (June 2011)
• Investigation into the conduct of a Regional Illegal Dumping Squad officer and others (June 2017).

The ICAC’s Report on corruption in the provision and certification of security industry training (December 2009) and Investigation into false certifications of heavy vehicle competency-based assessments by a Roads and Maritime Services-accredited assessor (January 2014) deal with outsourced assessment functions.

In addition, the following ICAC reports deal with approaches to regulation:

• Governance and regulation in the NSW Aboriginal Land Council Network (May 2017)
• Election funding, expenditure and disclosure in NSW: Strengthening accountability and transparency (December 2014)
• Reducing the opportunities and incentives for corruption in the state’s management of coal resources (October 2013).

The Commonwealth Office of Best Practice (OBPR) has developed a publicly-available online course on regulatory impact analysis and the skills required for better practice regulation. Information about the NSW Government’s approach to regulation can also be found in the NSW Department of Finance, Services and Innovation’s Guidance for regulators to implement outcomes and risk-based regulation (2016).

The UK Committee on Standards in Public Life has also released Striking the balance: Upholding the seven principles of public life in regulation (2016).

Updated December 2018