Trustee Companies

The Productivity Commission 'Future Giving' report summarised in the preceding post considers questions about trustee companies. It states 

Administration of charitable trusts There are unique features of the administration of charitable trusts that could affect consumer choice and fee arrangements Donors can appoint trustees to oversee and manage charitable trusts. Trustees can include individuals, public trustees or a licensed trustee companies (trustee companies that hold an Australian financial services licence issued by the Australian Securities and Investments Commission (ASIC)). Licensed trustee companies are major providers of fund management services for charitable trusts, ancillary funds and other charities. Donors may also adopt co-trustee arrangements, where trustees include both a licensed trustee company and another trustee such as a family member of the donor. 

 

In 2012-13, the Corporations and Markets Advisory Committee (CAMAC) examined issues relating to licensed trustee companies in its report The Administration of Charitable Trusts (CAMAC report) (box 8.3). The CAMAC report’s recommendations have not been implemented and a number of submissions to this inquiry have advocated for their implementation. 

 

In September 2012, the Parliamentary Secretary to the Treasurer, the Hon. Bernie Ripoll MP, requested CAMAC examine various matters concerning fees and replacement of trustees for those charitable trusts that are administered by licensed trustee companies. The scope of the review did not extend to charitable trusts more generally or other charities. Among its recommendations were: 

• amendments to Chapter 5D of the Corporations Act to adopt ‘fair and reasonable’ requirement for all fees and costs charged by licensed trustee companies 

• a standardised approach to the disclosure of services and fee schedules to help donors compare prices 

• expansion of the jurisdiction of the court when dealing with allegations of excessive fees being charged to encompass all fees and costs charged to clients 

• enhanced juridical procedure, via legislation, for dispute resolution for charitable trusts administered by licensed trustee companies, including whether they should be replaced as a trustee 

• undertaking stewardship audits for a cross-section of charitable trusts administered by license trustee companies to increase information on the administration of charitable trusts, the findings of which could be used to inform any future regulatory change. 

 

There has been no government response to the CAMAC report. 

 

Although the focus of the CAMAC inquiry was on licensed trustee companies, some of the issues raised in relation to the administration of charitable trusts, including the oversight of fee arrangements and the ability to change trustees, could arise in contexts where an entity other than a licensed trustee company has been appointed a trustee of a charitable trust. For example, where an individual or a company has been appointed as the trustee of a charitable trust created through a will. To date there has been no broader review of the administration of charitable trusts, which goes beyond the role and practices of licensed trustee companies, to examine these issues more broadly and holistically. 

 

Competition in the licenced trustee sector 

 

High rates of market concentration increase the risk that competition will be muted. This can create situations where fees for services are higher or the quality of service is lower than would be the case if there were greater price competition. The Competition and Consumer Act 2010 (Cth) contains provisions which are enforceable by the regulator the Australian Competition and Consumer Commission (ACCC) in relation to mergers and acquisitions that have detrimental effects on competition and hence the potential to harm consumers. The long-term nature of these structures means that for funds held in perpetuity, there is sometimes limited ability to change trustee service providers once the donor is deceased. Where a licensed trustee company has been used, the licensed trustee company is essentially ‘locked in’, although the Supreme Court is able to remove a trustee in instances where they have not acted in accordance with their obligations. This is relatively rare and requires an application to be made to the Court, which can involve significant costs. 

 

Since the CAMAC report, the number of major licensed trustee companies has further consolidated to two major providers (Perpetual Limited and Equity Trustees), following the acquisition of the Trust Company Limited by Perpetual Limited in 2013 and the acquisition of both ANZ Trustees and Australian Executor Trustees by Equity Trustees in 2014 and 2022 respectively. In its Public Competition Assessment of the Trust Company Limited acquisition, the ACCC found there was unlikely to be ‘substantially lessening competition’ (ACCC 2013). Its reasoning included that in the market for private trust services, there was competition for trustee companies in the form of bank subsidiaries, other parties including solicitors, financial advisors and accountants and public trustees (noting their offer and focus differs). The licensed trustee companies that participated in this inquiry stated that these mergers contributed to efficiency gains, for example by building economies of scale for grant applications. 

 

Fees charged by licensed trustee companies for the administration of charitable trusts xx Fees charged for the administration of charitable trusts influence the level of funds available for distributing towards charitable purposes. If fees are higher, all else equal, this can reduce the amount of funds available. However, trustees also add value through their activities by ensuring that legal obligations are fulfilled, managing grant application processes and seeking to distribute funds effectively. This involves costs, which are met through fees. 

 

The Commission heard different views on how fees are charged by licensed trustee companies and whether there are sufficient mechanisms in place to protect the interests of donors and the broader community. Fees charged by licensed trustee companies must be paid from trust income (Corporations Act 2001 (Cth) (Corporations Act), s. 601TBE(3)(a)). Licensed trustee companies argued fees charged should be brought in line with other trust structures by allowing them to be taken from either capital or income, where it does not significantly affect the capital of the trust, under section 601TBE(2) of the Corporations Act. Although not specifically referring to licensed trustee companies, Seedling Giving  argued the commission-based approach to charging fees on funds under management creates a disincentive for funds to be distributed to charities. The Charitable Alliance also argued against allowing fees to be paid from capital on the basis that it would materially erode trust capital and would materially impact the ability of the trust to achieve the primary impact of the donor. 

 

A related question is how trustee and investment services are structured, which CAMAC identified as an area that would benefit from more clarity. When administering a charitable trust, a licensed trustee company may provide both trustee services and investment management services, with the assets of all administered charitable trusts placed in a ‘common fund’ that is invested to generate a return. There is a question as to whether these services need to be delivered together and it may be appropriate for a trustee to adopt an arms-length process to decide upon the provider of investment management services. This could be the investment management arm of the licensed trustee company, or it may be another company. It is unclear what arrangements are currently used in this regard and what steps are adopted so that that value for money is provided. 

 

A holistic examination of the oversight arrangements for charitable trusts 

 

The CAMAC report identified issues with the administration of charitable trusts by licensed trustee companies. In the draft report, the Commission sought further information about the administration of charitable trusts by licensed companies. This included information regarding competition issues that adversely affect donors and arrangements for switching providers or charging fees, particularly for funds held in perpetuity. A number of submissions addressed this information request and it was also the subject of evidence at the public hearings. Licensed trustee companies stated that they are focused on fulfilling the charitable purposes of the trusts they administer, as provided by the settlor of the trust, and are subject to adequate governance controls and extensive regulatory requirements . Perpetual commented that the market for trustee services ‘has likely never been more abundant’ . 

 

The Charitable Alliance stated that charitable trusts administered by licensed trustee companies are ‘materially compromised by governance issues’ and supported the implementation of the CAMAC report’s recommendations. Morgans also supported the implementation of those recommendations, with ANZTSR asking that the ACNC be resourced to conduct audits of charitable trusts for which licensed trustee companies are the sole trustee. 

 

Only one foundation provided a submission which commented on the fees charged to them by a licensed trustee company, which they considered ‘to be reasonable in the context of the considerable professional services to deliver to the purposes of the trust’. They did however suggest: … an informed discussion of this subject would be beneficial for Australia, but this could only be undertaken with full transparency over services provided and fees charged by all Trustees across the sector. While the Charitable Alliance presented a substantial amount of anonymised evidence and case studies which the Alliance argued provided evidence of unreasonable fee charging by licensed trustee companies . Since the CAMAC Review there have been significant changes to the market for trustee services, including consolidation of the licensed trustee sector, as well as major changes to the regulation of charities, including charitable trusts administered by the licensed trustee companies. The commencement of the ACNC in late 2012, just prior to the CAMAC report’s completion in May 2013, introduced new reporting requirements which increased the level of transparency applying to charities, including charitable trusts administered by licensed trustee companies. 

 

The CAMAC report only examined issue related to charitable trusts administered by licensed trustee companies. However, many of these issues, such as those concerning fees and the replacement of trustees, could arise more broadly in relation to charitable trusts, regardless of whether they are administered by a licensed trustee company or not. It would therefore be less than optimal to recommend changes which would apply only to one category of charitable trusts with a particular type of trustee. Rather, it is important to examine oversight arrangements for the administration of charitable trusts holistically, in order to achieve consistent outcomes for all charitable trusts. In addition, there are complex legal questions, involving the interplay of state and federal laws, derived both from statute as well as equity. Appropriate caution is therefore needed when considering changes, to avoid unintended consequences. 

 

The Commission recommended that the Australian Law Reform Commission undertake a review of charities law and regulation, which would include examining the roles and responsibilities of state and territory Attorneys-General and other relevant regulators, including in relation to oversight of charitable trusts (recommendation 7.2). Given that charitable trusts are generally regulated under state law, this review could conduct a holistic examination of relevant matters, including the adequacy of state laws in relation to regulating fees charged by all types of trustees of charitable trusts and whether the provisions about changing trustees are appropriate. As part of this, the review could consider the interaction of these laws with the regulation of licensed trustee companies by the Australian Government. 

 

The Commission also notes that there are existing regulators who have roles monitoring various aspects of licensed trustee companies. Licensed trustee companies are governed by the Corporations Act and have regulatory obligations to ASIC and to the ACNC (as mentioned above). In addition, should evidence of any issues emerge that are a direct result of market concentration in the trustee company market in future, the ACCC is able to investigate.

Philanthropy

The Productivity Commission's report Future foundations for giving recommends major changes to the Australian charitable trusts regime. The Commission comments 

 Philanthropy contributes to a better society by providing money, time, skills, assets or lending a voice to people and communities who would otherwise have lower quality outcomes or have less access to goods and services. • Many Australians give money, other assets or their time. Over $13 billion was donated to charities in Australia in 2021 and 6 million people volunteered in 2022. • Philanthropy, particularly volunteering, can help build social capital by contributing to social networks, building trust within communities, and diffusing knowledge and innovations through communities. • Philanthropy can also provide untied, flexible or long-term funding for more innovative and riskier projects compared to what government funding can offer. 

Philanthropy in Australia is increasing and government policies are supporting this growth. The Productivity Commission’s recommendations reinforce the foundations for philanthropy in Australia, so that the benefits of giving can continue to be realised into the future. 

The deductible gift recipient (DGR) system is not fit for purpose and should be reformed. • The arrangements that determine which entities can access DGR status are poorly designed, overly complex and have no coherent policy rationale. • All Australian taxpayers co-invest in charities through the DGR system, so reform is needed to simplify the DGR system and direct support to where there is likely to be the greatest net benefits to the community from subsidised philanthropy. If adopted, the Commission’s recommendations would mean that more charities overall would be able to access tax-deductible donations. 

An independent organisation should be established to strengthen relationships between Aboriginal and Torres Strait Islander organisations and philanthropic networks. • Provisionally called ‘Indigenous Philanthropy Connections’, it should be led and controlled by Aboriginal and Torres Strait Islander people and be funded by an endowment provided by the Australian Government. Reforms are needed to enhance the regulatory framework for charities and to support high levels of public trust and confidence in charities now and into the future. • Establishing a National Charity Regulators Forum comprised of Australian, state and territory charity regulators would formalise the regulatory architecture to embed coordination and cooperation. 

The Commission has designed policy principles to inform the minimum distribution that ancillary funds are required to make each year to charities for the benefit of the wider community. • Guided by these principles, the Australian Government should set the minimum distribution rate for ancillary funds between 5% and 8%, following further consultation with the philanthropic and charitable sectors. 

The Australian Government should create more value for the public from the data collected about charities and giving, including by publishing aggregate information on corporate giving and by requiring listed companies to be more transparent to stakeholders about their giving. 

Philanthropy literally means ‘the love of humanity’. Each day, millions of Australians express this sentiment in practical ways, seeking to improve the wellbeing and resilience of their communities by contributing to causes they care about. People and organisations give for many reasons. Some are highly personal, such as those associated with a loved one or with their family experiences. Religious traditions and values provide an important source of motivation for many people and shape the ethos of many Australian charities. Other motivations can be broader, such as wanting to ‘give back’ to the community by helping those in need. Access to philanthropic networks and information also shape decisions to give. 

Whatever our reasons for giving, Australians give generously. Over $13 billion was donated to charities in Australia in 2021 and 6 million people volunteered in 2022. In real terms, the Productivity Commission expects giving to increase by $6.4 billion or 48% by 2030 (box 1). This once-in-a-generation inquiry comes at a key point in time. While the Australian Government has a goal to double giving by 2030, some of the most important policy settings that would underpin such an increase are not fit for purpose. This report therefore focuses on reforms to build firmer foundations for philanthropy in Australia, so that the benefits of giving can continue to be realised into the future. 

The reforms proposed in this report focus on four main areas: improving the system that determines which charities have access to tax-deductible donations; improving access to philanthropic networks for Aboriginal and Torres Strait Islander people; enhancing the regulatory framework for charities and ancillary funds; and improving public information on charities and donations. 

Policy choices come with trade-offs. Subsidising philanthropy through tax deductions can encourage giving, but it also means the Government collects less revenue through income tax, which could otherwise be used to fund core government services or fund charities directly. Regulation can provide benefits, but it can impose compliance burdens and require additional resources for regulators. The bottom line is: there is no free lunch. 

With this in mind, the Commission developed a framework to assess where there is a role for government to support philanthropy and where policy changes are needed. This assessment was based on the expected benefits and costs to the community of different forms of government involvement in philanthropy. 

The Commission drew on the perspectives of donors, charities, philanthropic foundations, researchers and governments to analyse policy options to support giving, including their effect on equity and efficiency. The Commission was informed and guided by the contributions of inquiry participants through 1,611 public submissions, 1,593 brief comments, over 120 consultations, 10 roundtables and 6 days of public hearings, as well as previous government reviews and the academic literature.

The report states

Charities are subject to oversight from multiple national, state and territory regulators, each with their own institutional arrangements, responsibilities, powers, priorities and resources. The Australian Charities and Not for profits Commission (ACNC) is the national charities regulator. However, regulatory oversight is not consolidated at the national level because the Australian Parliament does not have the constitutional power to generally legislate for charities or the full range of structures a charity can adopt. Two effects of this are: • charities found to have engaged in the same kind of misconduct can face different regulatory consequences • the full scope of the ACNC’s regulatory powers is limited to a small proportion of charities characterised as ‘federally regulated entities’ and charities that operate outside Australia. 

A referral of powers by state parliaments is likely to be the best approach to address the constitutional limitations of the ACNC, but that would involve significant implementation challenges and costs. Variation across jurisdictions may still occur if some states decline to refer a matter to the Australian Parliament. 

Given this, the Commission proposed a suite of recommendations that build on the existing collaborative approach to charities regulation that would strengthen the ACNC’s information gathering powers and are proportionate to current and foreseeable risks. The Commission’s recommendations include enabling the ACNC to: • require a charity to provide information necessary to form an opinion on whether it is a ‘federally regulated entity’ • require a charity undergoing revocation of its ACNC registration to evidence the distribution of its net assets to an eligible entity, unless the ACNC Commissioner waives that requirement • have standing so it can seek orders in the Supreme Courts of all jurisdictions, where necessary, to protect charitable assets. 

There are also technical issues in charities law that require further examination. In consultation with the Standing Council of Attorneys-General, the Australian Attorney-General should refer an inquiry to the Australian Law Reform Commission to examine: • the scope and coverage of Australian, state and territory charities laws focused on opportunities to simplify and harmonise laws across jurisdictions • the roles and responsibilities of state and territory Attorneys-General and other relevant regulators in relation to the oversight of charities, including charitable trusts. 

As the behaviour of donors and charities evolves, a referral of powers may need further consideration by governments, should it become apparent that the current sharing of responsibilities for charities regulation is not sufficient. 

A sound regulatory framework will only promote trust and confidence in the charitable sector if the ACNC exercises its powers when the need arises. ACNC data suggests that it has made limited use of its formal enforcement powers. The Commission was not asked to assess the effectiveness of the ACNC as a regulator and acknowledges there are several explanations for why the ACNC may not have used its formal enforcement powers more routinely. As the ACNC progresses through its second decade of operation, it may have greater ability to assume a more assertive enforcement and compliance posture, where necessary, to support trust and confidence in the charitable sector. 

The role, powers and functions of the ACNC would be expanded if these recommendations were adopted. The reforms the Commission is proposing to strengthen the ACNC are more likely to be successful if the ACNC is able – and resourced – to adopt a more assertive regulatory posture, while retaining its emphasis on supporting charities to meet their obligations through education and guidance.

The Commission's Findings and Recommendations are - 

Chapter 3: Philanthropy in Australia 

Finding 3.1 Rising income and wealth are the major reasons behind rising tax-deductible donations 

Tax-deductible donations by individuals made directly to charities have increased in value, but fewer people are making such donations. From 2000-01 to 2020-21, tax-deductible donations tripled (in real terms) despite the number of taxpayers increasing by only 38%. The available evidence indicates that this coincided with individuals’ financial capacity to donate increasing. 

The Australian Government also made policy changes that provided additional or more flexible financial incentives to give, which likely also played a role in increasing giving. Giving into private and public ancillary funds has grown in value (from $692 million in 2011-12 to $2.4 billion in 2020-21). The relative importance of private ancillary funds has also grown from 15% to 27% of individual giving. 

Finding 3.2 Volunteering is widespread in Australia, but the formal volunteering rate has declined 

In 2022, about one in four people in Australia (about 6 million people) volunteered for an organisation. Nearly twice as many people volunteered informally (that is, assisting people other than family members, outside of the context of an organisation or group). However, the formal volunteering rate fell from 36% in 2010 to 25% in 2020. Data indicates that by 2022, the volunteering rate had recovered slightly to 26.7% following the COVID-19 pandemic. xx These figures likely understate total volunteering given official data sources use language and definitions that may result in underreporting of such giving because of different cultural meanings of volunteering.   

Finding 3.3 People give or do not give for a range of personal reasons 

People give for a range of complex and multifaceted reasons that can change over time. Specific events can also prompt people to give. Common patterns of giving behaviour include: • people affected by natural disasters are likely to donate more to help others in their own community • some people with high net worth use giving vehicles (such as ancillary funds or trusts) to connect with family through giving, to leave a legacy or to teach skills to the next generation • many businesses use high-visibility giving, including pro bono work, to bolster their corporate reputation, and to attract and retain employees and customers. xx People choose not to give for a variety of reasons. A lack of financial resources is one of the main reasons people do not donate money and common reasons people do not volunteer are work and family commitments. A lack of trust in how charities will use donations and financial constraints on volunteering are also common reasons people choose not to give. 

Chapter 4: How governments can incentivise giving 

Finding 4.1 People respond to incentives, with those on a higher income more likely to give 

Modelling undertaken by the Commission indicates that people give more than they otherwise would because of the personal income tax deduction for donating to entities with deductible gift recipient status. The modelling draws on Australian taxpayer panel data and is the first time panel data has been used in Australia to estimate how people respond to personal income tax deductions for donations. The Commission used two models to estimate the price elasticity of giving – which is how people change their giving behaviour in response to changes in tax incentives for giving – and the income elasticity of giving, which is how people change giving behaviours in response to changes in their own income. The Commission’s estimates fall within the following ranges for: • price elasticity of giving in Australia: from -1.67 to -0.48, meaning a 1% increase in the tax deduction for giving is associated with a 0.48% to 1.67% increase in giving • the income elasticity of giving in Australia: from 0.86 to 1.17, meaning a 1% increase in income is associated with a 0.86% to 1.17% increase in giving. However, these estimates are only one factor to consider when evaluating the effectiveness of tax incentives to give. The share of taxpayers claiming a deduction for giving increases with income. Most of the tax benefits from giving that accrue to people in the lowest taxable income decile go to people who had high incomes before claiming any tax deductions. 

Recommendation 4.1 Remove the $2 threshold for tax-deductible donations 

The Australian Government should amend the Income Tax Assessment Act 1997 (Cth) to remove the $2 threshold for tax-deductible donations to entities with deductible gift recipient status. 

Finding 4.2 A personal income tax deduction is likely to be an effective way to encourage giving 

Tax incentives can be designed to target the total amount donated, increase the number of people participating in giving or to encourage particular types of giving, such as money, physical assets or time. The current design of the personal income tax deduction is likely to be the most cost-effective way for the Australian Government to encourage giving. A flat tax credit would likely incentivise more people to give, but the total amount given overall would likely fall if people who have a high income faced a higher price of giving than they currently do. Adjustments to a tax credit to account for the likely fall in overall giving, including a hybrid approach – a tax deduction for some income cohorts and a tax credit for others – would add complexity and the effect on total donations would be uncertain. Whether a tax deduction or tax credit would encourage more people to volunteer is highly uncertain, but they would likely increase tax integrity risks and compliance costs given volunteer work and expenses are often undocumented or informal. Government grants to support volunteering where there is a clearly identified need would likely generate greater net benefits to the community than tax incentives for volunteering, if properly targeted and evaluated. 

Chapter 5: An assessment of the deductible gift recipient system 

Finding 5.1 The deductible gift recipient (DGR) system is poorly designed, overly complex and has no coherent policy rationale 

The DGR system is not fit for purpose as a mechanism for determining which entities should be eligible to receive indirect government support through tax-deductible donations. There is no coherent policy rationale for why certain entities are eligible for DGR status and others miss out. The complexity of the system continues to increase as new DGR endorsement categories are added in a piecemeal manner. The DGR system creates inefficient, inconsistent and unfair outcomes for donors, charities and the community. It needs reform. 

Chapter 6: Reforming the deductible gift recipient system 

Recommendation 6.1 A simpler, refocused deductible gift recipient (DGR) system that creates fairer and more consistent outcomes for donors, charities and the community 

The Australian Government should amend the Income Tax Assessment Act 1997 (Cth) to reform the DGR system to focus it on activities with greater community-wide benefits. The scope of the reformed system should be based on the following principles. • There is a rationale for Australian Government support because the activity has net community-wide benefits and would otherwise be undersupplied. • There are net benefits from providing Australian Government support for the activity through subsidising philanthropy. • There is unlikely to be a close nexus between donors and beneficiaries, such as the material risk of substitution between fees and donations. In applying these principles, the Australian Government should: • extend eligibility for DGR status to most classes of charitable activities, drawing on the charity subtype classification in the Australian Charities and Not-for-profits Commission Act 2012 (Cth) to classify which charitable activities are eligible for DGR status and which are not • expressly exclude the following classes of charitable activities or subtypes: – primary, secondary, religious and informal education activities, with an exception for activities that have a specific equity objective (such as activities undertaken by a public benevolent institution) – the activities of early childhood education and care and aged care (other than activities undertaken by a public benevolent institution) – all activities in the subtype of advancing religion – activities in the other analogous purposes subtype that are for the purpose of promoting industry or a purpose analogous to an exclusion in another subtype – activities in the law subtype that further another excluded subtype • only grant DGR status to government entities where they are analogous to a charity and undertake activities that would be eligible for DGR status if undertaken by a charity • continue to limit the scope of the DGR system to registered charities and equivalent government entities • only use the specific listing mechanism in exceptional circumstances. When it is used, the Australian Government should increase the transparency of applications, how these are assessed, and the decision-making process to maintain confidence in the broader DGR system. 

Recommendation 6.2 Supporting reforms to improve the deductible gift recipient (DGR) system 

To facilitate the implementation of reforms to the DGR system, and provide greater clarity to both charities and the Australian Charities and Not-for-profits Commission (ACNC), the Australian Government should: • amend the Australian Charities and Not-for-profits Commission Act 2012 (Cth) to require the ACNC to register new and existing charities with all applicable charitable subtypes where a charity has endorsement as a DGR or has indicated they will be seeking such endorsement. This should include any necessary amendments to enable the ACNC to compel the provision of necessary information to assess eligibility for subtype registration where that registration has not been applied for by an entity. Charities should continue to be able to seek review of subtype registration decisions through the Administrative Appeals Tribunal or its successor • develop a legislated definition of what constitutes a public benevolent institution to delineate its scope more clearly. 

Recommendation 6.3 Transition arrangements to support reform of the deductible gift recipient (DGR) system 

In implementing reforms to the DGR system, the Australian Government should also provide a transition period of five years, during which time entities with DGR status (largely, school building funds and entities that provide religious and ethics education in government schools) can maintain their existing DGR endorsements and receive tax-deductible donations. Subsequently, there should also be a further period in which these entities can use those donations for their intended purposes. The length of this period should be determined by balancing the potential constraints imposed on entities with the benefits of simplifying the DGR system over the longer term. In the context of the proposed withdrawal of DGR status for school building funds, the Australian Government should concurrently develop and put in place other funding mechanisms for primary and secondary school infrastructure outside the DGR system. 

Chapter 7: A sound regulatory framework 

Recommendation 7.1 A more transparent and consistent approach to regulating charities 

The Australian Government should amend the Australian Charities and Not-for-profits Commission Act 2012 (Cth) to remove the concept of ‘basic religious charity’ and associated exemptions, so all charities registered with the Australian Charities and Not-for-profits Commission are regulated in a consistent manner. This should include obligations to comply with principles based governance standards and reporting requirements proportionate to size. 

Recommendation 7.2 Strengthening the Australian Charities and Not-for-profits Commission 

The Australian Government should: • amend the Australian Charities and Not-for-profits Commission Act 2012 (Cth) (the Act) to enable the Commissioner of the Australian Charities and Not-for-profits Commission (ACNC) to require a charity to provide the information necessary to assess whether the charity is likely to be a ‘federally regulated entity’ • amend the Act to enable the Commissioner of the ACNC to require a charity undergoing revocation of its ACNC charity registration to evidence the intended or actual distribution of its net assets to an eligible entity unless that requirement is waived by the Commissioner • work with state and territory governments to ensure the Commissioner of the ACNC has the necessary enforcement powers to fulfil their role within the regulatory framework for charities. This should include implementing or reforming laws, where necessary, to confirm that the Commissioner of the ACNC has standing to make applications in a state or territory Supreme Court for orders regarding the administration of charities, including the protection of assets held in trust for charitable purposes, regardless of a charity’s structure. 

Recommendation 7.3 Review of charities law by the Australian Law Reform Commission 

The Australian Government should refer an inquiry to the Australian Law Reform Commission to examine: • the scope and coverage of Australian, state and territory charities laws focused on opportunities to simplify and harmonise laws across jurisdictions • the roles and responsibilities of state and territory Attorneys-General and other relevant regulators in relation to oversight of charities, including charitable trusts. 

Recommendation 7.4 Increasing certainty about Australian Charities and Not-for-profits Commission regulation 

The Australian Government should: • provide test case funding for the Australian Charities and Not-for-profits Commission (ACNC) to distribute to charities in specific circumstances for the purpose of developing the law • amend the Australian Charities and Not-for-profits Commission Act 2012 (Cth) to introduce a rulings scheme for the ACNC, modelled on part 5-5 of schedule 1 of the Taxation Administration Act 1953 (Cth), to support certainty in regulatory outcomes. 

Recommendation 7.5 Regulatory architecture to improve coordination and information sharing among regulators 

The Australian Government should: • establish a permanent National Charity Regulators Forum comprised of Australian, state and territory charity regulators • develop and agree to an intergovernmental agreement to, among other things: – give effect to the National Charity Regulators Forum and determine its terms of reference, how the chair is selected and the corresponding secretariat support, frequency of meetings, and any other operational matters – clarify roles, responsibilities and information sharing arrangements between the Australian Charities and Not for profits Commission, relevant Australian, state and territory regulators, and Attorneys General through the development of memorandums of understanding, including in relation to referrals, joint compliance approaches, appointments of a lead regulator, non-operating charities and processes to protect charity assets – progress charities law and regulation reform – identify any regulatory risks in the sector and collaborative approaches for managing, mitigating and responding to these risks, including the development of legislative or policy responses where needed. 

Recommendation 7.6 Review of nationally consistent fundraising regulation reforms 

The Council on Federal Financial Relations should: • continue to monitor the implementation of nationally consistent fundraising registration, reporting and conduct requirements by state and territory governments • commission an independent review of the outcomes of the fundraising harmonisation process and options to maintain regulatory consistency over time within 12 months of the tabling of this report in Parliament. This review and the response from the Council on Federal Financial Relations should be made public. 

Recommendation 7.7 Explicitly consider the effects on volunteers when designing policies and programs 

To support volunteering, Australian, state, territory and local governments should consider how changes to policies and programs would affect volunteers. This includes adopting measures that may mitigate any adverse effects on volunteer participation and identifying opportunities for volunteers as part of policy or program design. 

Chapter 8: Structured giving vehicles 

Recommendation 8.1 Improving the effectiveness and performance of ancillary funds for the whole community 

The Australian Government should amend the private ancillary fund and public ancillary fund guidelines to: • set the minimum distribution rate at between 5% and 8% for ancillary funds, based on: – the Government’s assessment of the trade-off between bringing forward the funds that are distributed to charities and a lower amount distributed in the future – available information – further consultation with the philanthropy and charitable sectors • require that ancillary funds develop a ‘distribution strategy’ outlining how they will support eligible entities to further their charitable purpose. The Australian Government should also: • change the name of ancillary funds to Private and Public Giving Funds to make their philanthropic purpose clearer • provide a five-year period of notice before any new minimum distribution rate applies to allow existing ancillary funds to make any necessary changes to their investment strategies • conduct a periodic review of the minimum distribution rate every 10 to 15 years to decide whether the rate should be adjusted • conduct and publish a survey of charities on their preferred minimum distribution rate for ancillary funds and how money is distributed to charities each time the minimum distribution rate is reviewed. 

Recommendation 8.2 Enabling distributions of funds to be smoothed over three years 

The Australian Government should increase the flexibility of the regulatory regime by amending the private ancillary fund and public ancillary fund guidelines to enable smoothing of the distribution rate over a period of up to three years, with integrity measures to ensure the resulting distributions are at least equal to (or higher than) the amount that would have otherwise been payable under existing rules. 

Recommendation 8.3 Improving public information on ancillary funds 

The Australian Taxation Office should: • publish additional aggregate information on distributions by ancillary funds • collect and publish additional information on sub-funds within public ancillary funds • raise public awareness of information on ancillary funds, including by collaborating with the Australian Charities and Not-for-profits Commission to include additional information in the Australian Charities Report. 

Finding 8.1 There is no case for reducing superannuation taxes for bequests 

The current tax arrangements for superannuation treat a donation to a charity in the same way as a payment to any other non-dependant beneficiary. The tax system is not neutral in death and provides a larger tax benefit for the superannuation component of an estate. Adding further concessions at the time of death would be a relatively costly way for the Australian Government to incentivise philanthropic giving. 

Chapter 9: Public information about charities and giving 

Finding 9.1 Administrative expenses are not an accurate reflection of the performance of a charity 

An overemphasis, amongst donors and other stakeholders, on the amount of revenue that charities spend on administrative expenses can lead to incorrect conclusions about charity effectiveness and create perverse incentives for charities. For example, it can result in the underreporting of administrative costs or underinvesting in core capabilities and capacity, such as staff training, which undermines long-term capacity to further charitable purposes and benefit the community. Charities have incentives to provide information about effectiveness to donors and this information is shared in various ways. Introducing additional requirements, such as standardised effectiveness measures, would be impractical and may lead to significant unintended consequences. 

Recommendation 9.1 Enhance information published by the Australian Charities and Not-for-profits Commission 

The Australian Charities and Not-for-profits Commission (ACNC) should enhance the usefulness of the information it provides on charities and giving for donors and the public. The ACNC should: • present data on the ACNC charity register in ways that are more meaningful and accessible to donors and the public based on stakeholder consultation • publish the DGR status of charities on the ACNC charity register • raise public awareness of the ACNC charity register and other government sources of information on charities. 

Recommendation 9.2 Introduce enhanced disclosure and reporting of corporate giving 

The Australian Government should introduce a requirement for listed companies to publicly report itemised information on their donations of money, goods and time (volunteering) to entities with deductible gift recipient status. This would enhance accountability to shareholders, consumers, employees and other stakeholders within the community. The Australian Taxation Office (ATO) should amend the company tax return to require listed companies to report donations of money and assets to entities with deductible gift recipient status as a distinct line item in deductions, similar to what is required for individuals. The ATO should regularly publish aggregate information on corporate giving in Australia (for example, in the Australian Taxation Statistics) including, at a minimum, donations by company size, taxable status and industry. 

Recommendation 9.3 Improve data on charitable bequests 

To provide more information about giving through charitable bequests, including trends over time, the Australian Charities and Not-for-profits Commission should require registered charities to separately report income from bequests in their annual information statement and publicly report the aggregate data. 

Recommendation 9.4 Improve the usefulness of public information sources on volunteering 

The Australian Bureau of Statistics (ABS) should improve the usefulness of public information sources on volunteering. It should amend the questions on volunteering in the Census to capture: • whether respondents engaged in informal volunteering (in addition to whether they engaged in formal volunteering with an organisation) • the amount of time the respondent engaged in formal or informal volunteering (for example, hours each week). The ABS should also collect more detailed information on volunteering annually through a survey such as the General Social Survey. At minimum, the survey should collect information on whether respondents engage in formal and informal volunteering, and the time spent engaged in these activities. However, the ABS should strongly consider including additional questions to improve information on volunteering, in consultation with relevant stakeholders. Following engagement with communities, the ABS should develop methodologies that enable better measurement of volunteering by Aboriginal and Torres Strait Islander communities and culturally and linguistically diverse communities. 

Chapter 10: Increasing participation in giving 

Recommendation 10.1 Establish Indigenous Philanthropy Connections 

The Australian Government should establish an independent organisation, provisionally called Indigenous Philanthropy Connections, controlled by – and for the benefit of – Aboriginal and Torres Strait Islander people and communities. The goals of Indigenous Philanthropy Connections should be to strengthen the capacity of: • non-Indigenous philanthropic organisations to be more culturally safe and responsive to the needs of Aboriginal and Torres Strait Islander people and organisations • Aboriginal and Torres Strait Islander people and organisations to build relationships and partnerships with philanthropic and volunteering networks • Aboriginal and Torres Strait Islander communities by supporting the establishment and growth of new and existing Aboriginal and Torres Strait Islander philanthropic organisations. Indigenous Philanthropy Connections should: • have governance arrangements that support self-determination, including a board comprised by a majority of Aboriginal and Torres Strait Islander people • not replace or replicate existing Aboriginal and Torres Strait Islander philanthropic organisations • be funded by an endowment from the Australian Government that is large enough to guarantee that it is financially sustainable and independent, without need to seek further funding from either government or philanthropy. The Australian Government should also fund an independent evaluation of Indigenous Philanthropy Connections, to be conducted 10 years after its establishment. 

Finding 10.1 A government-funded public campaign could help broaden participation in giving, but there is insufficient evidence to conclude that such an intervention would be effective 

More evidence is needed, including through rigorous evaluations from Australia or overseas, to demonstrate that a government-funded campaign would be effective at increasing giving and yield net benefits to the community. Governments could maximise the chances of a successful public campaign (and opportunities for learning) by ensuring any public campaigns that involve public resources (whether it be a campaign run by a government agency or public funding of a sector-led campaign) adhere to sound program design, evaluation and transparency principles.

Cheating

'Chegg’s Growth, Response Rate, and Prevalence as a Cheating Tool: Insights From an Audit within an Australian Engineering School' by Edmund Pickering and Clancy Schuller in (2024) Journal of Academic Ethics comments 

Online tools are increasingly being used by students to cheat. File-sharing and homework-helper websites offer to aid students in their studies, but are vulnerable to misuse, and are increasingly reported as a major source of academic misconduct. Chegg.com is the largest such website. Despite this, there is little public information about the use of Chegg as a cheating tool. This is a critical omission, as for institutions to effectively tackle this threat, they must have a sophisticated understanding of their use. To address this gap, this work reports on a comprehensive audit of Chegg usage conducted within an Australian university engineering school. We provide a detailed analysis of the growth of Chegg, its use within an Australian university engineering school, and the wait time to receive solutions.

The authors state that over half of audited units had  assessment content found on Chegg. 

1180 solutions were found on Chegg which directly matched assessment content, with the largest unit having 394 matches identified. We reiterate that the uploading of these 1180 assessment items to Chegg constituted academic misconduct as these were efforts to subvert assessment.

They note that

Chegg is broadly used to cheat and 50% of questions asked on Chegg are answered within 1.5 h. This makes Chegg an appealing tool for academic misconduct in both assignment tasks and online exams. We further investigate the growth of Chegg and show its use is above pre-pandemic levels. This work provides valuable insights to educators and institutions looking to improve the integrity of their courses through assessment and policy development. Finally, to better understand and tackle this form of misconduct, we call on education institutions to be more transparent in reporting misconduct data and for homework-helper websites to improve defences against misuse.

AI Regulation

'Lessons from the FDA for AI' (AINow Institute) by Sarah Myers West and Amba Kak comments 

 When we initiated this project at the start of 2023, a growing chorus of voices was mobilizing in favor of stronger and, importantly, ex ante or premarket regulatory scrutiny for artificial intelligence. Industry leaders and regulators alike were calling for stronger standards to bring a sense of order and stability to the sector; the UK AI Summit even had major AI labs commit (in principle) to premarket testing of certain AI models; and there was a general, pervasive sense that some friction was necessary in the frenzied AI industry. The devil would be in the details: Would a licensing scheme, such as that lobbied for by Microsoft, bring stronger scrutiny to the sector, or would it tip the scales in favor of incumbents? How should responsibility be distributed among the many actors involved in development along the AI supply chain, from the base models to end products? Taking time and space to read and think deeply to arrive at viable answers seemed well worth doing. 

As we write this executive summary in July 2024, enacting premarket enforcement of any kind seems like a distant prospect: the conviction that “something should be done” fell prey to a lack of political will to move on actual proposals, while those that did gain traction contained worrying carve-outs. Recent case law brought down from the Supreme Court may create further barriers to agency-led regulation, Congress remains sharply divided on the path forward after losing months to industry-centered deliberation, and Silicon Valley’s venture-capital class is rallying around a deregulatory agenda for AI as central to the Republican presidential election agenda.  Why, amid these headwinds, read up on lessons from the Food and Drug Administration, one of the most regulated industries in the US? 

As the report that follows illustrates, the example of the FDA is most instructive not as a road map for how to approach AI, but as a set of lessons on attuning ex ante regulation to an evolving market and its products. The question at hand is not whether we need an “FDA for AI,” since that crude formulation will inevitably lead to unhelpfully vague answers. Rather, how the FDA transformed the pharmaceutical sector in the United States, from a domain of snake oil salesmen and quack doctors to a market that produces lifesaving drugs that are tested rigorously enough for people around the world to travel to the US just to obtain them, holds key insights for regulatory debates on AI. 

Amy Kapczynski, a member of the advisory council for this project, has written that we didn’t know much about how drugs worked until an agency existed to motivate companies to research them, producing the evidence necessary for entry into the market. One could think about the long-critiqued opacity and unreliability of AI systems along the same lines. 

Because market entry hinges on approval by a regulator, the structure of the pharmaceutical market also provides strong motivations for compliance with the law. Similar motivations are lacking in AI, where regulatory fines often amount to a budget line that deep-pocketed tech firms build into their financial planning year by year. 

Ex ante regulation also provides consistency and reliability for industry players and regulators alike, in contrast to the whack-a-mole approach that constitutes AI regulation at present. 

And while many conversations about artificial intelligence center on risk management, from the FDA example we can learn about the necessity of also validating the efficacy of these systems, enabling a meaningful evaluation of the trade-offs between risks and benefits rather than relying on breezy assertions that AI is inherently innovative. 

To be clear, this is not meant to portray the FDA as a shining beacon: if anything, it is a clear example of how regulatory hurdles hinder competition between firms, leading to bloat. Market incentives are often tipped against sufficient investment in providing affordable access to drugs for populations not seen as highly valued by corporate shareholders. The revolving door between regulators and industry has been and remains an endemic challenge, and real ethical concerns need to be raised about a funding model that relies on corporate fees to support testing and evaluation. 

We do want to emphasize, however, that strong arguments can be made that regulation that orders an otherwise unruly and unpredictable market, that provides not only incentives for beneficial corporate behavior that would not be induced by the market alone, but also disincentives for risky behavior by any one entity that would tarnish the market as a whole, can offer significant value to industry and to the public at large. 

As we launch this report amid more uncertainty around imminent regulatory possibilities, we’re left with new questions to wrestle with: What is the landscape of possibility for regulation post-Chevron? How will First Amendment challenges be navigated for premarket regulatory proposals? How should AI regulators interface with the existing jurisdiction and authorities of sectoral regulators? How should we think about appropriate benchmarks for sociotechnical evaluation, both of the risks associated with AI systems and their efficacy? What audiences are most relevant to increased generation of documentation and information about the AI market (for example, consumers, businesses, regulatory authorities, third-party auditors, journalists and civil society members), and how does this lead to greater accountability? How should regulators ensure the information is meaningful and relevant to that audience? How can regulatory intervention be structured to incentivize compliance? What penalties will be most meaningful to this sector? How do we draw boundaries around the “AI industry” as the focus of regulatory scrutiny? What counts as an “AI firm”? 

AI is already a regulated technology, and the companies developing and deploying AI are bound by existing law. As the frequent refrain of many US government officials goes, There is no AI exemption to the law on the books. Despite this, the current regulatory environment for AI leaves much to be desired: the penalties are paltry given the deep pockets of many tech firms; it’s almost entirely reliant on ex post accountability for harms surfaced by underresourced regulators and investigative journalists; and the haphazard nature of the regulatory approach means that it is difficult, if not impossible, to clearly conscribe boundaries around the “AI market.” 

Given these weaknesses, the idea of creating a novel regulatory agency for AI waxes and wanes alongside waves of attention to the sector, as we’ve outlined in Box 1. This report does not endorse, one way or another, whether or not we need a new regulatory agency for AI. Instead, it seeks to draw lessons from the analogical model most frequently referenced in relation to a stronger regulatory regime for AI: the Food and Drug Administration (FDA). 

Delving deeply into this model surfaced the following key insights: 

An “FDA for AI” is a blunt metaphor to build from. A more productive starting point would look at FDA-style regulatory interventions and how they may be targeted at different points in the AI supply chain: 

Discussions about an “FDA for AI” often operate in a broad analogical manner—a blunt instrument for a conversation deserving of greater nuance. Rather than simply porting over to AI the functions of a large agency whose regulatory toolbox includes many varied approaches, a supply chain approach to understanding AI development adds useful conceptual clarity to conversations about appropriate regulatory design. 

FDA-style interventions might be better suited for certain parts of the AI supply chain than others: 

The FDA’s approach translates most directly at the level of the application or eventual use case, where it is most tractable to validate the safety and effectiveness of an AI product. 

By contrast, attempting similar interventions at other stages of AI development, such as the base or “foundation model” layer, presents potentially intractable challenges like how to identify in advance the universe of possible harms using empirical evaluation. Here, other regulatory design approaches, such as financial regulation and its treatment of systemic risk, may offer more useful corollaries. 

At minimum, mandates for clear documentation of base models, including the data used to train them, will be necessary to enable evaluation at the application layer. 

It is important to clearly differentiate between the “‘users” of AI applications, which are the entities procuring AI systems, and the people or communities the system is used on—the “subjects” of AI’s use. Often there is a significant power differential between “users” and “subjects,” which regulatory interventions must also account for. 

The FDA model offers a powerful lesson in optimizing regulatory design for information production, rather than just product safety. This is urgently needed for AI given the lack of clarity on market participants and the structural opacity surrounding AI development and deployment. 

The FDA has catalyzed and organized an entire field of expertise that has enhanced our understanding of pharmaceuticals and creating and disseminating expertise across stakeholders far beyond understanding incidents in isolation. AI is markedly opaque in contrast: mapping the ecosystem of companies and actors involved in AI development (and thus subject to any accountability or safety interventions) is a challenging task absent regulatory intervention. 

This information-production function is particularly important for AI, a domain where the difficulty—nay, impossibility—of interpretability and explainability remain pressing challenges for the field, and where key players in the market are incentivized against transparency. Over time, the FDA’s interventions have expanded the public’s understanding of how drugs work by ensuring firms invest in research and documentation to comply with a mandate to do so—prior to the existence of the agency, much of the pharmaceutical industry was largely opaque, in ways that bear similarities to the AI market. 

Many specific aspects of information exchange in the FDA model offer lessons for thinking about AI regulation. For example, in the context of pharmaceuticals, there is a focus on multistakeholder communication that requires ongoing information exchange between staff, expert panels, patients, and drug developers. Drug developers are mandated to submit troves of internal documentation, which the FDA then reformats for the public. 

The FDA-managed database of adverse incidents, clinical trials, and guidance documentation also offers key insights for AI incident reporting (an active field of research). It may motivate shifts in the AI development process, encouraging beneficial infrastructures for increasing transparency of deployment and clearer documentation. 

The lack of consensus on what counts as efficacy (rather than safety) is a powerful entry point for regulating AI. There will always be potential harms from AI; the regulatory question thus must consider whether the benefits outweigh the harms. But to know that, we need clear evidence—which we currently lack—of the specific benefits offered by AI technologies. 

A lesson from the FDA is that safety and efficacy of products must be evaluated in parallel. In the context of AI, policymaking has tended to index heavily on safety and harm and not focus as intently on evaluating or challenging the fundamental premise of efficacy, or on presenting a concrete appraisal of risks and benefits. 

To serve the public interest, measures of efficacy should be considered carefully so that they are not primarily or solely indexed on profit or growth, but take into account benefits to society more generally. Regulatory approaches in AI should require developers of AI systems to explain how an AI system works, which societal problems it attempts to address, and what benefits it offers—not just to evaluate where it fails. 

Efficacy evaluation could present an existential challenge to some domains and applications of AI where we currently lack the necessary methods to validate the ostensible benefits of AI usage, given widespread failures in machine learning research to reproduce the findings published in papers. 

Premarket approval is potentially the most powerful stage of regulatory intervention: this is where alignment between regulatory power and companies’ incentives to comply reach their peak. 

Past the point of market entry, the FDA retains some ability to act in the public interest, through market surveillance and recalls—but we see a significant drop in the agency’s ability to act and its track record for doing so successfully. 

In both the context of the FDA and in AI, assuring downstream compliance after a product enters the market is a regulatory challenge. Post-market surveillance is a challenge for AI given the varied provenance of AI system components, but currently characterizes the bulk of ongoing AI regulatory enforcement. 

Looking to the FDA analogy, downstream accountability occurs through mechanisms such as recalling products after the fact, though its ability to enact these remedies is weakened once they are in commercial use. Applied to AI, this is made even more challenging given the difficulty in clearly identifying the chain of provenance for particular components of AI systems. 

In the context of the FDA, companies remain liable for harms caused to the public after drugs are made available for wide release, but establishing liability and then demonstrating causation in the AI context are significant barriers. Currently, the bulk of regulatory enforcement of existing law in AI occurs ex post, and is thus subject to these challenges. 

To have teeth, any regulatory intervention targeting the AI sector must go far beyond the current standard of penalties to meaningfully challenge some of the biggest companies in the world. 

The FDA model hinges on the FDA’s ability to prevent pharmaceutical companies from marketing drugs to physicians—without which they cannot sell their drugs on the market. Controlling this essential gate to market entry is what grants the FDA a big stick, critical to its effectiveness as a regulator; under present conditions, no corollary gates to market entry for AI companies exist. 

The power of FDA regulation also comes from other actors in the system, from physicians to insurance companies, who can themselves refuse to recommend or cover a product if they believe it not helpful. This has acted as an important second line of defense in pharmaceuticals, where the regulatory process has failed to be sufficiently rigorous; there are also corollaries in other industries such as banking and insurance. This deserves stronger development in the context of AI, where the dependencies and sites of friction remain comparatively immature. 

Greater transparency into what constitutes the market itself, and the process through which AI products are sold, will be important to AI governance. Currently, the contours of what constitutes the “AI market” are underspecified and opaque. 

FDA regulation for pharmaceuticals is triggered by the “marketing” of a drug as a critical gate to entry. In other industries, there are gates around the sale of certain products, which may be preferable over marketing given First Amendment concerns. Any attempt at sector-specific AI regulation will run into a thorny set of definitional questions: What constitutes the AI market, and how do products enter into commercial use? Moreover, conceptual clarity that the entity procuring the AI system is often not the same as the individual the system is used on is key, given that AI systems are frequently used by comparatively powerful entities on the less powerful, necessitating interventions that go beyond deceptive marketing and protect the interests of the public at large. 

The funding model for regulatory agencies matters tremendously to its effectiveness, and can inadvertently make the regulator beholden to industry motives. 

The FDA utilizes fees paid by industry players to fund its review process, which ensures adequate resourcing for reviews. However, under the present model, the FDA must submit its budgets regularly to companies paying fees, making them responsible to the companies it is reviewing for its accounting. This is a significant weakening of the agency’s power and risks creating leverage by industry. 

FDA-style documentation requirements for AI would already be a step-change from the current accountability vacuum in AI. Encouraging stronger monitoring and compliance activities within AI firms like recordkeeping and documentation practices would generate organizational reflexivity as well as provide legal hooks for ex post enforcement. 

Introducing FDA-style functions into the AI governance process could motivate restructuring of the development practices, and potentially the operating model, of AI developers. In and of itself, this would create greater internal transparency and accountability within AI firms that would convey societal benefits, and aid the work of enforcement agencies when they need to investigate AI companies.

Surveillance

'Managing and Monitoring Mobile Service Workers via Smartphone App: A case study on worker monitoring, algorithmic management and software for "field service management"' by Wolfie Christl comments 

Mobile service workers, whether they are technicians, homecare workers or cleaning personnel, are increasingly being managed and monitored through smartphone apps. Data that was previously unavailable to employers is now being recorded and evaluated. As these apps give workers instructions about which client to visit next, how to get there and which tasks to perform at the client site, they become algorithmic managers. In the background, powerful software systems for “field service management” help employers organize, coordinate and schedule client visits, work orders and tasks. They promise to optimize, streamline and automate task allocation and help dispatchers and managers supervise workers, monitor their location, assess work performance and identify undesired behavior. 

This case study explores how employers can use software and smartphone apps to manage and monitor mobile service workers. It focuses on the potential implications for employees in Europe and makes two contributions. First, it summarizes survey-based research on how employers actually use these technologies and how workers are affected. Second, it examines software that is available on the market. To illustrate wider practices, it investigates Microsoft software for “field service management”, which is part of the company’s comprehensive “Dynamics 365” system. The investigation aims to identify, examine and document data practices that affect workers, based on a detailed analysis of technical documentation and other publicly available sources. 

Microsoft’s “field service management” system provides extensive functionality for algorithmic management, performance control and behavioral monitoring:

Via mobile app, workers receive instructions about work orders, client destinations, travel routes and a list of predefined tasks to be performed at client sites. The required arrival times and expected durations of work orders and tasks serve as target times. Workers confirm via app when they travel to clients, complete tasks or take breaks. Tasks can include sub-tasks with step-by-step instructions. Consequently, the app structures, directs and micromanages work, aligning it with rigidly defined processes. As it constantly reminds workers of time constraints and deviations, it includes implicit mechanisms for performance and behavior control. 

Employers can utilize behavioral monitoring and performance control to supervise and pressure workers. Dispatchers can see their real-time location and travel routes on a map. They can monitor the current degree of completion of work orders and tasks. For completed work, they can see how much time a worker actually spent on it in relation to the target time. The system can remind both dispatchers and workers of cost limits associated with the time spent on work orders. To keep contractually agreed response times low, it can show a timer to dispatchers that counts the minutes and seconds that have elapsed since the creation of a work order. 

New work orders can result from client inquiries or machines sending error codes, or they are automatically generated on a recurring basis, for example, based on service agreements. Organizations can define standardized work orders that include specific service tasks, instructions and estimated durations. The specified durations serve as target times and are used to distribute and schedule actual work orders to workers. The system can automatically schedule and dispatch work orders, and, as such, automatically assign tasks to workers. It can generate schedules for all workers for entire days or calculate a new schedule every 30 minutes. To match work orders to workers, it considers workers’ availability, location, predicted travel times and skill profiles. Automated scheduling is based on customizable optimization goals. The “maximize productivity” goal leads to schedules with minimized travel and idle times. The system can optionally create schedules that require workers to travel to or from client sites outside their working hours. Besides fully automated scheduling, it can also semi-automatically recommend workers for particular work orders. 

Microsoft offers to predict how long it will take to complete particular work based on past data on work activities and “AI” models. It outlines possible reasons for deviations between predicted and previously specified durations by suggesting, for example, that a particular client, region, weekday, task or worker will likely increase the time required to carry out the work. As such, it may accuse workers of being slower than expected. This functionality can help dispatchers “enhance their team’s performance”, according to Microsoft. 

The system is designed to rate and rank workers according to a wide range of performance and behavior metrics over the previous year, including by the number of completed work orders, the time spent on them in relation to target times and the time spent travelling, on break and in an “idle” state, i.e. without an assignment. Managers can identify undesirable behavior by evaluating how often workers missed the target time or arrived late to a client. They can assess workers by how much revenue they generate and by how satisfied the customers are with their work, based on surveys sent to clients after work was completed. Group-level metrics, for example, on the average time spent completing certain types of work in relation to targets, can also create pressure to speed up work. Employers can use Microsoft’s “Power BI” system to create almost any type of report. 

While GPS location tracking is optional, many features rely on it. Microsoft recommends recording a worker’s location every “60 to 300 seconds”. Clients can be offered access to the current location of the scheduled worker and their estimated arrival time. The system systematically exposes personal data on worker behavior to employers, who can, for example, view records about workers’ exact whereabouts over time. It provides access to enriched location records that indicate, based on geofencing, at which time workers have entered or exited certain client sites or other areas. The system also provides records about remote assistance calls, including their start and end times, and summarizes how much time each worker spent on those calls. 

Despite concerns about the reliability of “generative AI”, Microsoft has rushed to put its CoPilot technology into many products, including field service management. CoPilot promises to summarize information, create draft work orders based on customer emails and draft email replies. While Microsoft advertises it as a means to accelerate work, dispatchers are told to review “AI-generated content” because it can be “incorrect”. The system can be integrated with Microsoft 365 and other Microsoft software. Dispatchers and workers can handle work orders directly from within Outlook and Teams, turning them into task management systems. 

Employers can customize Microsoft’s field service technology and use it in more or less problematic ways. Some intrusive pre-built reports are not available for German customers. Employers can add custom workflows to manage and monitor different types of mobile work. Microsoft’s Home Health system extends its field service technology with functionality specific to homecare. A brief investigation of field service technology offered by the major German vendor SAP shows that its system also offers intrusive performance monitoring functionality. 

Implications for workers. The review of survey-based research on the practical use of field service technology in Austria, Norway, the UK and the US shows that these systems can have significant negative implications for workers. Digital task documentation in the name of billing, quality management or workload balancing can quickly evolve into far-reaching algorithmic management via app. Task direction and monitoring via smartphone app generally leads to increased surveillance and digital control at work. Employers may intentionally misuse the data for purposes other than it was originally collected, including for making negative decisions about workers. Standardized processes, rigid performance targets and automated scheduling can accelerate and intensify work and undermine work discretion. Knowledge that once resided with workers now increasingly lies within technical systems