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Compliance

Small business gets a helping hand

Vicki Stylianou details the framework in place to assist small business owners to address some of the common problems their enterprises face.

Small businesses around the world face similar problems, including dealing with cash-flow issues caused by customers who don’t pay on time or at all, or disputes with suppliers. In many countries, governments have set up agencies to help small businesses deal with these issues. Australia, the United Kingdom and the United States offer three examples where small businesses have received a helping hand through a range of services and programs to deal with not only recalcitrant customers and suppliers through dispute resolution services, but also to gain access to information, loans, expert advice and to act as an advocate for small business.

Australian context – dispute resolution

In the Australian context, there are various state-based small business commissioners in addition to the newly revised federal Australian Small Business and Family Enterprise Ombudsman (SBFEO). When the government was considering an overhaul of the predecessor to the SBFEO, it called for stakeholder views on the most appropriate functions for the office, seeking an expansion of the existing powers, including a dispute resolution function.Overall, stakeholders generally welcomed the dispute resolution function as a valuable measure for smaller businesses. A range of views were provided on the specific disputes the SBFEO could address through its own alternative dispute resolution service. Small business disputes between federal government agencies, business-to-business, international and interstate, as well as the national mandatory industry codes, were among the suggestions for coverage. However, major concerns were also raised about jurisdictional overlap with the plethora of existing services.

The decision was made that the ombudsman would act as a concierge to refer and direct people rather than provide its own dispute resolution service. There is an extensive online tool that provides links and information to state and national-based services. This ensures no duplication of dispute resolution services. For instance, the Victorian Small Business commissioner provides dispute resolution and mediation services across a range of types of disputes, such as fair trading, retail tenancy, payments and contracts, franchising, disputes with government and so on.

Naming and shaming

More specific provisions relate to so-called naming and shaming, which allow the SBFEO to name any party that refuses to submit to or that withdraws from the dispute resolution process. Some stakeholders considered the exceptions, such as those relating to confidential information and the definitions of ‘undue distress’, ‘embarrassment’ and ‘unreasonably affect the person or a business or action related to the person adversely’, which would allow the provisions to be avoided, as being too broad. It would essentially mean almost any person or business could invoke the exceptions to avoid being named as refusing to engage in dispute resolution recommended by the SBFEO. The powers given to the ombudsman to compel information from parties to a dispute and to require attendance to give evidence in inquiries are widely supported.

Duplication and referrals

It is important in a multi-jurisdictional environment to have more detail contained in administrative instruments and processes, including memorandums of understanding, to ensure clarity and certainty across jurisdictions and agencies regarding respective roles, responsibilities and information-sharing mechanisms. It is critical to prevent duplication of government and industry services across jurisdictions and across agencies, with mechanisms being in place to streamline appropriate referrals, and it is also just as critical to ensure there are no gaps.In Australia, this is addressed by prescribing that the ombudsman’s powers are not duplicating the advocacy and dispute resolution activities performed by the state-based commissioners (not all states and territories have small business commissioners).

Some of the state-based commissioners expressed the need for further clarification with respect to areas of state responsibility, especially regarding areas of high demand such as retail lease inquiries and disputes. These types of issues make up about 60 per cent of disputes in some states, so the need for further clarification is justified. In these types of disputes the matter is automatically referred to the relevant state-based office.

Further clarity is also required in relation to the appropriate jurisdiction for other types of dispute, particularly those involving interstate and international businesses. The state-based commissioners provide dispute resolution services for inter alia incorporated businesses operating in their state. Some have contended a locally based service is more likely to provide a higher quality of tailored advice, in a shorter time frame, at more convenience and at a lower cost for small business operators than a federal service.

Commonwealth-wide advocate

There was widespread support for the SBFEO to act as an advocate of small business interests and concerns, particularly to the government.

However, as could be expected, there was a diverse range of views as to how the SBFEO’s advocacy function should operate. The advocacy function in legislation appears quite broad and it will be interesting to watch this play out over time to judge the effectiveness of the SBFEO as an advocate for small business.One issue was whether investigations undertaken by the SBFEO should be limited to matters within jurisdiction to avoid unnecessary duplication. Overall it was widely held that collaboration with industry peak associations and the states and territories should be fostered as a means to share information and gain a broad understanding of small business matters.

Contributor to commonwealth laws and regulations

Most Australian stakeholders supported the SBFEO’s role in independently informing the government on initiatives, legislation, regulations and propositions that directly affect small business. In particular, it was noted there could be an important role for the SBFEO to support the government’s red tape reduction agenda by investigating regulatory imposts on small business and recommending practical solutions. However, care is needed to ensure this function doesn’t conflict with systematic reviews conducted by other agencies.

Inquiries

The ombudsman can conduct an inquiry of their own initiative into matters that impact small businesses and family enterprises. The minister can also refer matters to the ombudsman for inquiry. Currently, there is an inquiry into small business loans, which has resulted basically from the recent attention placed on the banking system.

Independence

Questions of independence from the government of the day have been raised in the Australian context. To provide the maximum benefit for small business, the ombudsman needs to be able to make inquiries into the concerns of small businesses arising out of legislation, policies and practices, without any impediments, real or perceived, from the minister or any other agency of government. It is essential the ombudsman can operate in a fully non-partisan manner.

UK context

In 2015, the UK introduced a Small Business Commissioner to consider complaints by small business suppliers about payment issues with larger businesses that they supply. It has been reported that British small businesses are owed 12,000 pounds each on average in late payments, which is 55 billion pounds in the country overall. Up to 23 per cent of small and medium-sized enterprises have had to consider insolvency because of payment issues. However, it was felt there was no market failure in the provision of dispute resolution services and that the Small Business Commissioner should have more of a signposting role to ensure small businesses have access to the information they need about the various ways to resolve a dispute. These include sector ombudsmen or regulators, existing independent advice services, approved alternative dispute resolution providers or the commissioner’s own complaints handling function. In this regard it is similar to the Australian system.

The UK Small Business Commissioner will also try to help small businesses avoid future disputes through an educative role in providing advice and information, including different ways to resolve disputes and how to negotiate contracts.

US context

Another perspective to small business disputes is what happens when the dispute is against government or a government agency. In the US, the Small Business Administration (SBA) contains an Office of the National Ombudsman (ONO), which is authorised by the Small Business Regulatory Enforcement Fairness Act of 1996. This provides a resource for small business to voice their complaints about federal regulatory enforcement and compliance actions.However, there is no authority given to assist in state and local matters, though state and local governments are encouraged to follow the national framework. The ONO produces an annual report to Congress rating each federal agency’s responsiveness to small business and provides affected agencies with the opportunity to comment on draft notes. The framework is quite extensive and well tested, allowing state and local governments to apply a consistent framework at their own level.

Unfair regulatory enforcement actions can be repetitive audits or inspections, burdensome compliance requirements, unreasonable fines or penalties, threats by a federal agency and/or acts of retaliation by the agency.

One of the main features the US SBA has, and which Australia doesn’t, is a loan program for small businesses. This offer is extended to start-ups or to businesses wishing to expand or to those recovering from disaster. There are loans for purchasing real estate and equipment and exporting. The SBA doesn’t lend the money directly but sets the guidelines for loans made by its partners (lenders, community development organisations and micro-lending institutions). The SBA guarantees these loans will be repaid, which reduces some of the risk for the lenders and helps to ensure the small businesses have affordable access to finance.

The SBA offers an online network to enable small businesses to connect with participating SBA lenders. Prospective borrowers complete a short online questionnaire; the responses are then forwarded to participating SBA lenders that operate within the small business community. If lenders are interested in the referral, the lender and prospective borrower’s contact information will be exchanged. The lender then assesses eligibility of the potential borrower. The SBA assists with information about loan credit factors and how to prepare the loan application and provides lending specialists to help small businesses through the process.

Australia does not have a loan guarantee scheme of this type, which is found in most Organisation for Economic Co-operation and Development countries. In fact, we are one of 47 countries in the developed world without such a scheme. The Institute of Public Accountants has proposed a loan guarantee scheme for small business, in its “Small Business White Paper” (www.publicaccountants.org.au/whitepaper). The parameters can be subject to consultation, however, we have proposed two types of loans: one for capital investment projects with a maximum loan of $100,000 for a maximum term of five years and a guarantee level of 65 per cent and an interest premium of 3.5 percentage points over the retail bank loan rate; and one for international market development projects with a maximum loan of $200,000 for a maximum term of 10 years and a guarantee level of 75 per cent and an interest premium of 2.5 percentage points over the retail bank loan rate. There is evidence from many countries that loan guarantee schemes of this kind for small business result in positive economic benefits.

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