Have you got a risk management strategy?

With the commencement of a new financial year, now is the time to stop and think about how your organisation has weathered the risks in the year gone by and plan ahead for the future. If you are one of those businesses that has fared well in 2017, then it could be down to a case of good risk management or good luck. Sound and effective Risk Management is the best way to manage your risks rather than relying on good fortune, especially as you try to navigate through the challenges ahead in 2018.

Risk is not only about threats but also about forgone or lost opportunities.

With change being a constant, businesses need to be agile to be able to respond to the challenging and evolving risk landscape. In the year ahead, being prepared + proactively adjusting + timely response = agile.

Risks to look out for in 2018

To be agile, you need to consider risk management a priority and devote appropriate time to risk management activities. Some of the top risks likely to be faced by businesses in 2018 include:

  • New technologies (increased connectivity, nanotechnology, artificial intelligence, drones etc.)
  • Disruptive business models & innovation coming to market (e.g. Uber and the taxi industry, Airbnb and the hotel industry)
  • Macroeconomic developments and government policy directions
  • Cyber incidents and privacy breaches
  • New regulations
  • Negative events that can damage a reputation.

Risk Appetite Statement and Enterprise Risk Management Framework

Having in place an effective Enterprise Risk Management Framework supported by a Risk Appetite Statement should be an integral part of your business. Embedding of a risk culture within your organisation is the next step towards business success. A mantra that should permeate across your organisation should be: “Risk is everyone’s business – not just the management team”.

The risk appetite underpins your group’s strategic and business planning process. It involves the board of directors or owners setting the risk appetite within which management operates, highlighting those decisions outside of risk tolerances which need escalation to the board or owners. This could mean management is not authorised to accept risks that are assessed as “Extreme” or “High” which requires board/owner approval. For example an offshore expansion or a new product development.

An Enterprise Risk Management Framework refers to the overarching structure by which the organisation organises itself for managing risks. These include things such as:

  • Defining the Risk Response Strategy (determining appropriate actions such as avoidance, reduction, taking alternative actions, sharing or insuring or just accepting the risk)
  • Articulating risk definitions and risk rating criteria
  • Developing and actively maintaining a Risk Register
  • Defining accountabilities and responsibilities for risk management
  • Defining the risk management process for your organisation and
  • Using watch lists to monitor emerging risks etc.

The key is ensuring that the level of risk management sophistication is appropriate to your business and seen as a value adding aspect to running your business. It should never be a ‘tick the box’ approach or be in isolation to the core activities of the business.

Negative Events and Reputation Risk – Ethics Management

Managing your organisation’s reputation and brand as well as demonstrating your commitment to being a good corporate citizen means having in place the necessary systems to enable this. It is very much a part of sound risk management.

One of the neglected areas in managing business risks is considering the impact of negative events on your reputation and on your business, especially in the area of ethics. All it takes is for a small issue or event to snowball out of control and the next thing you find is that you are embroiled in controversy and embarking down the road of managing an ethics-related media crisis.

The last twelve months have seen a number of high profile reputations damaged through ethical misconduct matters raised by whistleblowers. These organisations failed to put in place an appropriate mechanism for wrongdoing to be appropriately raised, especially from an anonymous source, with the result that some whistleblower’s took the last resort which was to air their grievances through the media and bring events to a head.

Good governance on ethics starts at the top, and should pervade through an organisation, becoming an embedded part of your culture. Consideration towards introducing an external independently managed hotline for individuals to raise concerns should be a key consideration in the year ahead.

Reasons why Ethics and Ethics Risk Management should be on your agenda

  • Sweeping new legislation is on the way. A Parliamentary Inquiry is currently underway looking at legislation change around Whistle-blower systems and protections;
  • Engaging your people as an employer of choice. Active policies and procedures backed up by a hotline supports and encourages reporting of wrongdoing;
  • Providing assurance to your stakeholders that you have the required systems in place for identifying damaging allegations within a safe environment and that these are properly managed before they snow ball out of control, thus protecting your brand;
  • Demonstrating that you are a good corporate citizen who values the input from your staff and others relating to wrongdoing even if it means some short term pain.

Now is the time to consider your risk management, and Ethics management response for the year ahead. For help in understanding your risks and developing appropriate strategies, including an independent whistleblower system, contact Prosperity Advisers on 1800 855 844 for a confidential discussion.

Recent case highlights the need for diligence when it comes to Service and Facility Arrangements and the interaction with payroll tax for Medical Practices

It’s common place for medical practices to use a Facility Fee arrangement where a Practitioner derives an income and the practice charges them a Facility Fee for the use of the premises, support staff, etc. This is typically excluded from payroll tax. A recent decision in NSW highlights the challenges for practices in getting this approach right and the implications if they get it wrong, or don’t follow the agreement in practise.

Written in conjunction with Prosperity Health BS&T Manager, Moien Khan

A recent and important decision given by the New South Wales Civil and Administrative Appeals Tribunal, in the case of Winday International Pty Ltd vs Chief Commissioner of State Revenue, sought to impose payroll tax on Winday’s service agreement with its practitioners.

We want to share with you the outcomes of this case and what it means for medical and dental practices when it comes to payroll tax obligations.

What is payroll tax and what payments are subject to payroll tax?

Payroll tax is a state imposed tax on wages paid to employees and certain deemed employees if the wages paid by the tax payer exceed a threshold amount which currently is set at $750,000 in NSW and $1,100,000 in Queensland.

What happened in this case?

Quick facts about the Winday International Pty Ltd case:

  1. Winday provided fully operational radiology facilities to radiologists who then provided radiology services to the public.
  2. Each of the radiologists entered into a service agreement with Winday for the use of its facilities.
  3. The practitioners had access to the following provided by Winday:
    1. Place to conduct their services
    2. Specialist plant and equipment required to perform their service
    3. Medical supplies
    4. Staff to assist the practitioner
    5. Administrative staff
  4. Winday collected all the patient fee on behalf of the practitioners and made a net payment to each practitioner after withholding the service fee.

The Tribunal’s decision challenges the agreements from a payroll tax perspective in that the agreement indicated that this was a typical arrangement that would not attract payroll tax, however the Tribunal thought otherwise, and ruled that Winday is incorrect and should be liable for Payroll Tax on its payments to practitioners.  Here are some of the key points that led the tribunal to think the practitioners were actually employees for payroll tax:

  1. Contrary to the agreement, the practitioners were obliged to provide locum cover if they were unable to attend the facility on any day.
  2. Winday ensured that the amount payable to the radiologists would be no less than $2,000 for each day services were provided.
  3. Winday referred to the radiologists as “our staff” on the website they advertised their services.
  4. Winday’s actions and procedures differed from the terms of the agreements.

The Tribunal’s decision has since raised a number of points not usually present in service arrangements in the healthcare space.

What does this mean for medical and dental practices?

It is prudent for practice owners to carefully consider the wording of any contractual arrangements between themselves and their associate practitioners, with all potential tax consequences carefully considered with an accountant and a lawyer. This could help your practice to avoid potential payroll tax consequences down the track.

Further words of caution

If it has been a while since you have reviewed your service agreements, we would recommend that you undertake a review to check that these agreements reflect what they are intended for, and also ensure the clauses in the agreements are being followed in practise. Please note that payroll tax is a state based tax and the specific rules for payroll tax do vary state by state, but are similar.  Also Payroll tax has interaction with income tax, however they are governed by different rules and being assessed as an employee for payroll tax will not necessarily be the same for income tax.

If you are in doubt about whether your processes are compliant or if you change your business model and need assistance to determine how you should deal with payroll tax, please contact a Prosperity Adviser to discuss your circumstances.

 

^Details of the decision in the Winday International Pty Ltd case can be found here.

Two Prosperity Advisers listed among Australia’s Top 50 Financial Advisers in The Australian’s Deal Magazine

Prosperity Directors John Manuel and Gary Dean have both been listed among Australia’s top 50 financial advisers in the inaugural list of Australia’s top advisers by The Deal, the monthly business magazine in The Australian in conjunction with Barron’s, a US based financial publication.

John Manuel a Director and partner of Prosperity Advisers was ranked in 13th position, while Gary Dean Director and partner based in the Sydney office of Prosperity Advisers came in at 40th position. In speaking about the recognition, John Manuel says, “Our clients are dynamic. They are attracted to us due to our willingness to understand their financial needs intimately and to deliver tailored, strategic and ongoing advice.”

Gavin Fernando, Director Financial Services at Prosperity Advisers says, “This list celebrates the leaders in the financial advice sector and we are very proud to have two of our advisers listed among a pool of very high calibre personal financial experts. Both John and Gary are the best of the best and this recognition builds on the feedback we regularly receive from their clients about the positive experience of working with each of them.”

The purpose in undertaking to rank Australia’s top financial advisers is twofold, to provide the market with a selection of quality advisers and to establish a benchmark for a high stand of client care that all advisers can emulate.

About undertaking the survey, the organisers of the list, Barron’s says, “It is to cast a positive spotlight on the advisory business in Australia broadly, by highlighting a group of leading advisers as examples of the tremendous skill, passion, and acumen represented within the industry. Our goal will be to recognise excellence in wealth advisory and educate the investing public on the value of a talented adviser.”

The survey comprised 73 questions covering everything from the financial performance of the advisers’ practices to their credentials, education and charitable philanthropic work.

“At Prosperity we firmly believe that reaching your financial goals may not always mean making more money, but rather making smart decisions with what you have”, says Fernando.

The partners and staff at Prosperity congratulate John and Gary for achieving this remarkable recognition!

Find out more about the Barron’s survey and Australia’s Top 50 Advisers listing here.

Gavin Fernando is an Authorised Representative of Prosperity Wealth Advisers Pty Ltd (ABN 32 141 396 376) is part of the Prosperity Advisers Group and an Authorised representative of Hillross Financial Services Limited, Australian Financial Services Licensee 232705. This article contains information that is general in nature. It does not take into account the objectives, financial situation or needs of any particular person. Readers need to consider their own financial situation and needs before making any decisions based on this information.