RISK MANAGEMENT
Key Issues
Corporate compliance: don’t get
caught, it could cost your
firm big dollars
By Susan Charteris, Managing Director,
Corporate Express
D
ue to the continuous disclosure requirements,
corporate compliance has become a timeconsuming and tedious administration load for
Company Secretaries. The priority given to this
compliance should be re-assessed in light of the
CLERP 7 regulations that require, firstly, the
recognition, and secondly, the implementation of
a cultural change associated with work practices.
More thought must be given to what and how
information is reported to ASIC.
The increase in penalties ASIC can impose for
late lodgment/payment should not be the driver
forcing implementation of this cultural change.
Company Secretaries have two choices, either to:
1 continue the preparation and lodgment of
documents in-house or
2 outsource such preparation and lodgment to
specialists.
Background
CLERP 7 was implemented to improve the quality
of information stored on ASIC’s company register.
In lieu of the elimination of annual returns, ASIC
has gone down the route of continuous disclosure.
Most changes to a company register must be
notified within 28 days, thus achieving greater
searching accuracy for the public and, therefore,
increased transparency.
A fundamental aspect of this new process is
the emphasis on computerisation to increase
efficiencies. To achieve this end, online validation
of electronically lodged forms has been
introduced. This means that any data on the
electronically lodged changes to forms that does
not exactly match what is in ASIC’s record will
not be processed.
As opposed to previous practice, this
immediate rejection places all responsibility for
finding and correcting mistakes back on the
lodging agent. Ultimately, ASIC’s progressive use
of computerisation results in its ability to enforce
compliance with greater ease.
Since the introduction of CLERP 7, we have
seen numerous computer programming glitches,
from both software houses and ASIC, all of which
• The emphasis on clean data in relation
to lodgment of documents with ASIC
• The period of leniency in relation to
software programming difficulties is
coming to an end
• The advantages of outsourcing
corporate compliance
have necessitated many software patches. As a
result, ASIC has been unwilling to fully enforce
compliance with the new regime.
However, computer programs now have a
more stable environment, eliminating the excuse
for non-compliance caused by software difficulties.
Therefore, the leniency demonstrated to date by
ASIC in extending moratoriums in relation to the
issue of the Corporate Key, late lodgment and late
payment penalties is near its end.
The main issues with CLERP 7
Computerisation will result in the faster and easier
enforcement of the corporations law by ASIC.
There are two main issues to consider in relation
to online lodgment of documents:
1 your in-house software and database, and that
of ASIC’s
2 the enforcement of the new regulations.
CLERP 7 has taken away much of the human
interaction that previously marked the lodgment
of documents with ASIC. Now it is your computer
talking to ASIC’s computer. If the data is not
exactly the same in both computers,
communication is not achieved. For this reason,
Company Secretaries should take the time to
‘clean up’ the mistakes that have crept into their
organisation’s databases. Company Secretaries
must also be aware that notification of changes
can only be lodged chronologically.
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Key Issues
RISK MANAGEMENT continued
One area in which officeholders have been
historically tardy is noting changes to their
residential addresses. Be aware that under
s 205B(4) of the Corporations Act, ASIC has the
power to fine company directors, including
alternate directors and Company Secretaries, for
failure to notify a change in a residential address
within the prescribed time. The penalty is $1100
and/or three months’ imprisonment.
Residential addresses constitute one of the
most inconsistent data lodgments in corporate
secretarial compliance. It has been well
documented that modern society is more
transient than ever and, to put it simply, an active
director in multiple companies could have more
than one residential address on ASIC’s database.
ASIC can loop this information and, more
importantly, has already started to enforce the
above section by writing directly to offending
directors requesting data correction.
The fact is that most of these inconsistencies
are administration errors only, yet a director
receiving this type of letter from ASIC would not
be happy and would look to the Company
Secretary for accountability.
The second most common information error
lies with shares and capital changes and remains
the most difficult area to correct for private or
unlisted public companies. In-house programs
lack full functionality on share details and cannot
store the correct details efficiently. Listed public
companies need particular attention. On the
surface, it appears that reporting only the top
20 shareholdings annually would be easy.
However, this year, if this lodgment has not taken
more than a few hours to prepare, the chances are
that it has not been done correctly.
ASIC’s requirements are totally different from
those of the ASX relating to the top 20 members
(see s 107 Corporations Act). ASIC acknowledges
there is confusion over this issue and will be
making changes to the instructions on the
regulated form to clear up any misunderstanding.
The reporting of the changes in the top
20 shareholdings of members in public listed
companies is where it becomes confusing. If, within
the top 20 shareholdings, an amount of 20 000
shares is the least amount of shares held to qualify
and this amount is being held by 10 members, then
all 10 members need to be reported. If, in the
following year, 21 000 shares held replace the 20 000
held the previous year, then the 10 members
previously reported have to be reported again as not
being in the top 20 shareholdings. This annual
members’ register update could thus contain many
more shareholders’ details than the top 20 members,
depending on the company’s share registry activity.
It is not a requirement for public listed companies to
report shares beneficially held or not.
The frustration already experienced with
electronic lodgments has resulted in many Company
Secretaries going back to mailing handwritten paper
forms to ASIC. The belief is that at least the form is
lodged and it is seen as ASIC’s responsibility to
process the change. However, there is no guarantee
that this lodgment will be processed either. It just
takes longer to find this out. This, of course, defeats
the concept of efficient corporate compliance.
ASIC has added security with the introduction
on 1 March 2004 of a Corporate Key for display
on paper forms. This Key is required on the most
commonly lodged document, Form 484. It is also
required on Forms 486, 362 and 492. The
Corporate Key number changes each year with the
annual review. Since enforcement of the
regulations has become faster and easier, the
obvious solution lies in correcting the data entry
mistakes that are creating the problem in the inhouse program. This will bring the current data
up-to-date but procedures and systems need to be
put in place now to maintain the data quality.
In-house production
If the Company Secretary is to continue with
producing this work in-house then the following
areas must be addressed:
1 Correct data entered in your in-house database
Time must be allocated to correct any mistakes
that have developed in your database and
coordinate these corrections with ASIC’s
computer. For example, a director who was on
the board of a number of companies has four
Christian names. Each time a new company has
been incorporated for him, his name has been
entered differently in the database, resulting in
ASIC having 10 different entities recorded for
him. Naturally, the director has three different
addresses. This will become an administration
nightmare when the agent tries to lodge a
change for this director. The odds are extremely
slim of getting this lodgment correct the first time.
The computer has no subjective way of
automatically correcting inconsistent data
entries and the new, regulated forms require
exact data entry for processing. Assuming that
your data is already correct could be a very
false premise to work from. Our experience,
when taking on a new client, has shown there
to be an average 56.41 per cent level of data
entry mistakes.
2
Download regularly from ASIC
Depending on the number of companies
being administered, a schedule should be
maintained to download regularly from ASIC
to ensure all documentation is up-to-date.
3
Maintain a tight control on lodgments and payments
There are now late lodgment and late payment
continued on page 350
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I continued
NEWS AND VIEWS
(c) that the financial reports of each company
for the last three years were lodged with
ASIC on time. This certification must be
provided by a legal practitioner holding a
current practising certificate or by a
registered company auditor.
Again, these changes apply only to deeds of
cross guarantee and assumption deeds lodged with
ASIC from 1 July 2004.
Use our checklists
To ensure your company meets the relief
requirements, use our checklists at
<www.asic.gov.au/financialreporting>. You will
find a checklist for each of the following:
• deeds of cross guarantee and assumption deeds
• revocation deeds, and
• notices of disposal.
But keep in mind that these checklists are not
exhaustive and are not a substitute for your
company and directors ensuring that all
requirements for relief are met.
Consequences of not complying
The consequences of non-compliance with these
requirements can be serious. If your company fails
to meet all the class order conditions, relief won’t
be available. This means each affected whollyowned subsidiary must comply with the normal
financial reporting requirements of Chapter 2M of
the Act for that financial year and perhaps one or
more prior years.
ASIC does not have the power to relieve a
company retrospectively of those breaches.
We will check compliance
ASIC will, from time to time, check compliance
with the requirements for relief through
surveillance of a random selection of companies.
These checks may not occur around the time
deeds are lodged.
For copies of the checklists and of
pro formas 24 and 27, visit our website at
<www.asic.gov.au/financialreporting>. ●
Risk management, continued from page 348
penalties that you will experience if data changes
and review payments are not made on time.
Also, a facility imposing a double late lodgment
4
5
is now operational for certain lodgments.
Continuously update data
Implement new procedures to accommodate
the yearly continuous activity.
Back-up
Holidays, sick days and peak times when larger
number of companies may need to be
administered, such as the months of June and
July, require a back-up person to ensure that
compliance does not fall behind in your office.
Outsourcing corporate compliance
to specialists
A decision can be taken to outsource the
accounting and taxation requirements, fleet
management and IT software to realise efficiencies
and cost effectiveness for the business. Company
Secretaries who are already outsourcing their
corporate compliance have already experienced
these benefits. Outsourcing can produce amazing
results, attaining a high level of corporate
compliance maintained by:
a) comprehension of ASIC’s computer system
b) an additional skill base gained by the higher
volume of lodgments and
c) the dramatic reduction of the compliance
cost base.
Corporate Compliance Specialists produce
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secretarial activities consistently, based on a higher
level of computing expertise and compliance
knowledge. This expertise will effectively be in
your back office.
Another choice is to buy off-the-shelf in-house
software. However, it can have limitations in its
functionality. Lack of functionality results in the
construction of a ‘fix’, utilising word documents
outside of the corporate secretarial program
environment. This ‘fix’, plus the abovementioned
handwritten ASIC paper forms, usually generate
the initial database problem that causes validation
problems with ASIC.
With outsourcing, the responsibility for data
integrity, document creation and storage is
abrogated. By introducing outsourcing:
1 the cost base is immediately reduced
2 clients’ staff have been redeployed and are
applying their energies to their firms’ core
competencies, a far more profitable outcome
for the organisation.
In conclusion, the sting in the tail to the
introduction of CLERP 7 is that more and more
costly compliance is being forced onto businesses.
The question to ask is how much more work can
you and your staff handle? Or is it time to take
advantage of a better mouse trap?
For further information see our website
www.corporatexpress.com.au or email
[email protected]. ●