Supervision and Oversight Delivery Reform to Become Purely Practical Task in Next 1.5-2 Years

18 january 2017

Reforming the state supervision system has become a key focus area for the Presidential Council for Strategic Development and Priority Projects. For 2 days the Analytical Center for the Government of the Russian Federation is holding a seminar titled "Sharing Best Practices in How to Improve Supervision and Oversight", with the participation of the representatives of supervision and oversight authorities, the Supervision and Expert Directorates for the Russian President, the Russian Federation Prosecutor General's Office, scientific, research and public organizations. Representatives of state authorities are going to discuss the implementation of supervision and oversight and share their relevant experience in various areas. The experts will be focusing on practice issues having to do with supervision and oversight, such as the introduction of the risk-oriented approach, updating mandatory requirements, digitizing supervision and oversight, working with human resources, countering corruption and others.

Up to 2 million audits are conducted in Russia every year, the country has over 40 federal supervision agencies, there are more than 200 types of supervision and oversight and over 2 million mandatory requirements for businesses. Business expenses incurred as a result of various state audits are estimated to account for up to 5% of the GDP. And the supervision and oversight system itself is generally regarded as archaic and ineffective. The tasks that need to be completed to reform it have been included in the priority program for the reform of the supervision and oversight function. These include a transition to a risk management model and the use of a risk-oriented approach, a review of the set of mandatory requirements and their publication on open resources, a transition from a focus on punishment for violations to prevention of violations, use of modern information technologies, development of new key performance indicators for supervision authorities, reduction of corruption risks, reorganization of the human resources policy and many others. The reform should produce tangible results by 2024. It is estimated that the number of victims should fall by 15% (over 170 thousand saved lives), the amount of damages will fall by 2.5 trillion rubles, the administrative burden on businesses will be halved, while the overall efficiency of supervision and oversight will increase by 50%. The overall results of the reform are achieved through coordinated efforts by all relevant agencies and ministries working under a centralized management system. The reform will be coordinated from a project office that is currently being established at the Analytical Center for the Government of the Russian Federation.

"To a large extent the passport of the priority program and the resolution of the presidium were based on the progress that had already been made by the supervision and oversight authorities," said the Russian minister Mikhail Abyzov. "We designed the program in close cooperation with the supervision and oversight authorities, always utilizing the best practices and analyzing international experience and then discussing all the issues with the business community. At large, all the remarks and proposals that were made were taken into account." Mr. Abyzov said the program provided guidance for every supervision and oversight organization, stressing there was no time or resources left for further discussions. "Currently I'm telling everyone that although a lot of the measures in terms of the program are supposed to be completed by 2021 and 2024, the government is expecting to see the first tangible results of their implementation in 2017 and 2018," Mr. Abyzov said, "Thus, our ministries and agencies are expected to be involved to practical work in the next 1.5 - 2 years." Mr. Abyzov also noted that the resolution that the Presidium passed last October calls for the program to be implemented first and foremost in 12 key supervision and oversight organizations, but its key parameters and elements must be applied throughout the entire supervision and oversight system. "In the nearest future the procedural rules will be adopted and the order will be defined for approving the appropriate subprograms in organizations and agencies that are not part of the 12 key supervision authorities, and then once every quarter we will discuss whether other agencies should be included on  the list or whether some of those that are already on it should be removed from it."

"A key objective with regards to the risk oriented approach is to develop criteria and group entities into categories. It is a very difficult task, the overall result of which should be a schedule of audits for 2018 compiled on the basis of the risk oriented approach. So I want to call on all managers to start working on this if they have not started yet," said Deputy Minister for Economic Development Savva Shipov, adding that the Ministry for Economic Development is ready to help the regions to cooperate with federal regulators and to assign the supervised entities to the appropriate categories.  

Once the plenary session was completed, the participants continued the first day of the seminar by dividing into 3 sessions focused on specific topics.

While discussing the introduction of the risk oriented approach, Anton Lebedev, Head of Unit for the Protection of the Rights of Entrepreneurs in the exercise of State Supervision and Licensing of the Ministry for Economic Development of Russia, said it was vitally important to formulate the risk criteria and indicators as accurately as possible. "The criteria must be approved by the government, and only then the regions will be able to take appropriate management steps," the government official believes. Risk indicators have already been brought in Federal Law No. 294, including January 1, 2016 amendments, and this new law is already being used as grounds for audits. "We have to bear in mind that the indicators are not violations but rather just signs that there is a high probability of violations, which means that the various institutions must cooperate very closely on them," Mr. Lebedev stressed. He is also of the opinion that no regulation is possible without accounting, so a registry of supervised businesses must be compiled based on the criteria and risk categories. At the same time, a business unit may demand  an adequate substantiation on what grounds it was subsumed under a specific category.

"The main focus of our work must be on prevention rather than on meting out punishments," said Rinat Enikeev, Head of Oversight and Prevention Department of the EMERCOM of Russia. The EMERCOM system has 8 types of oversight, but 92% of all audits are conducted by the State Federal Fire Prevention service. According to the government officials, audits of hazard category 1 and 2 properties are going to be conducted 3-4 times per year, hazard category 3 and 4 properties will be audited once every 7-10 years, while hazard category 5 properties (mostly operated by small and medium sized businesses) will be gradually taken off the list of periodic audits and will only be checked based on one-off indications.

"The Federal Technical Supervision Service has been using the risk oriented paradigm for 3 years now," said Deputy Head of Federal Technical Supervision Service Alexander Rybas, "and we have seen some very impressive results with regards to our audits and permits that we issue." According to him, the number of scheduled audits has fallen by 70% in this time, and all the supervised organizations have been re-registered with the regard to their hazard class. Based on the new criteria, the number of hazardous properties has fallen by a third. "Transitioning from a static model to a dynamic one will allow us to reduce the number of audits even further," Mr. Rybas is confident.

Daniil Egorov, Deputy Head of Federal Tax Service, raised the very important issue of cooperation with the supervised organizations. "The new taxation system was moving away from risk-indicators and towards a system of monitoring, which excludes both on-site and off-site tax audits for major companies that keep up high standards and can conduct tax audits on their own," he noted. Of course, this is currently only possible for a small fraction of companies, but it is one way to go: "the more procedures are standardized, the easier it is for the Taxation Service to focus on more important issues."

According to Deputy Director of Russian Financial Monitoring Service Galina Bobrysheva, the risk-oriented oversight system in the anti-money laundering area is based on international standards that define the global performance assessment criteria, and Russia is going to have an international audit on those in 2019. Ms. Bobrysheva also believes that building partnerships with the supervised organizations is of utmost importance.

The World Bank Consultant Ristic Gordana suggested to design the key performance indicators for supervision and oversight authorities on the basis of the best practices. He said that the World Bank Group is working in this area in 30 countries around the world and talked about universal and particular problems as well as the ways they are tackled in various countries, including some of the former Soviet bloc nations.

The seminar is being held by the Analytical Center in conjunction with the Ministry for Economic Development of Russia and the Expert Council of the Russian Government as part of the implementation of clause 8, section 3 of the Action Plan (Road Map) for Improving the Supervision and Oversight Function in Russia in 2016-2017, approved by the Russian Government in its resolution No. 559-r dated April 1, 2016.