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Pros & Cons of Inspectorate Reforms

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OECD Governance
OECD Governance

Presentation by Cesar Cordova, Jacobs,Cordova&Associates, at the OECD Conference on Enforcement and Inspections which took place at the OECD Headquarter in Paris on 9 November 2017. Further information is available at http://oe.cd/regpol

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www.regulatoryreform.com Pros & Cons of Inspectorate Reforms Cesar Cordova Senior Director JC&A 9 November 2017
www.regulatoryreform.com Assessing Inspection Reforms  Fascinating but fast moving field of regref  JC&A experience – World Bank inspection checklist (2006) – World Bank Survey of 25 country inspection reforms (2010) – Practice e.g. Jordan (2005-2007), Albania (2008), Ecuador (2014), Bosnia (2014-2015) Moldova (2016), Tajikistan (2016), etc. – Reviewer for World Bank Report (2018)
www.regulatoryreform.com Motives for inspection reform • Enforcement & control • Fight against excessive discretion & corruption • Dealing with “informal,” grey, or illegal sector • Appeal and dispute resolution systems Improving the rule of law • Administrative compliance costs of multiple and contradictory inspection visits • Regressive nature of inspection on SMEs Improving the business environment • Regulatory failures, scandals & crisis • Better and smarter compliance and enforcements • Leaner and effective bureaucracies • Cost efficient public services • Potential use of ITC Making inspection more cost effective
www.regulatoryreform.com Reforming Inspections (1)Startdate Single Law Inst’l reform Local componen t Targeted Policy Area Main approach Limiting Frequency of inspection sClarificatio n Procedure s Checklist/ Manual/IR Bs* Risk- based targeting ICT Armenia 2000 Yes Yes Tax, LAB Merger of inspections Yes No Belarus 2004 Yes Fire, Sanitary, LAB Coordination Yes Yes Planned Bosnia 2006- 2007 Yes Yes Yes ALL Centralized/ Unified Inspectorate Yes Yes Yes Planned Yes Croatia 1999- 2008 Yes Yes Yes Most of inspectio ns Centralized/ Unified Inspectorate Yes Planned Yes Georgia 2001 Yes Yes Yes Most FSVP, Customs Merger of inspections Yes Yes Yes Jordan 2005 LAB, ENV, Food Coordination Yes Yes Yes Latvia 1999 Yes Yes Most Coordination Yes Yes Yes Yes
www.regulatoryreform.com Reforming Inspections (2)Startdate Single Law Inst’l reform Local componen t Targeted Policy Area Main approach Limiting Frequenc yof inspection sClarificatio n Procedure s Checklist/ Manual/IR Bs* Risk- based targeting ICT Mexico 1995 ENV, Customs Yes Yes Yes Yes Moldova 2003 Yes Most Coordinatio n Yes Yes Yes Mongolia 2002 Yes Yes Yes Most Centralized/ unified Inspectorate Yes Planne d Poland 2000- 2009 Yes Yes Selected Coordinatio n Yes Yes Yes Yes Yes Romania 2002 Yes Yes Most Centralized/ Unified Inspectorate Yes Yes Yes Russia 2001 Yes Yes Most Yes Yes Yes Slovenia 2002 Yes Yes Yes Most Coordinatio n Yes Yes Yes Tajikistan 2005 Yes Yes Most Yes Yes Yes Yes Ukraine 2005 Yes Most tax Coordinatio n Yes Yes Yes Yes
www.regulatoryreform.com Type of Systematic Reform Models Common legal framework for inspections Processes & Procedures (Management) Institutional Architecture (Governance) Third Party Certification
www.regulatoryreform.com Issues concerning the reform of inspection of processes and procedures  Before the visit – Selecting visits based on risk-based inputs – Controlling the number, frequency and duration of an inspection visit  During the visit – Reducing discretion of inspectors through checklists & Inspection Registration Books (IRB) – From ”inspectors” to “verifiers” – Potential conflict of interest concerning advisory  After the visits – Set clear standards, rights and obligations of inspectors and inspected entities – Appeal mechanisms  Other process and accompanying reforms – Training, ICT, labs, etc. – Performance and accountability of inspectors
www.regulatoryreform.com Reform of Inspection Architecture Cooperation agreement Coordinating and overview body at central level Centralized supervision & control body Mergers and consolidations
www.regulatoryreform.com Some lessons (1) Model/ approaches Who has effective control Institutional costs to implement the reform Increased benefits due to efficiency and effectiveness of control 1. Cooperation Agreement • Ministries and agencies • Peer pressure and goodwill collaborations • Negligible • Sustainability challenges • Savings if properly enforced across inspection bodies: e.g., joint inspections, better communication about risks 2.Coordinating & overview body at central level • Ministries and agencies supervised by a new body • Depends • Sustainability challenges • Significant savings if properly enforced, e.g., good practices sharing, mutual recognitions of visits, benchmarking and peer pressure, sharing laboratories, etc. • ITC opportunities
www.regulatoryreform.com Some lessons (2) Model/ approaches Who has effective control Institutional costs to implement the reform Increased benefits due to efficiency and effectiveness of control 3.Merging and consolidating related risks or policy area • New inspection agencies organized according to sectors and policies • Significant but depends on the area • Takes time • More sustainable • Economies of scale and scope on enforcement costs • Speeder adoption of improved practices, e.g., Risk based Inspection, performance of inspectors • But constraints for large public administrations 4.Centralised supervision/control model • General Inspectorate or Inspector General’s office, and Government • Large • Takes time • Strong political and bureaucratic opposition • International constraints and irritation • Important efficiency gains for small administrations (including better immunization against capture) • But possible diseconomies of scale and scope for large inspectorates
www.regulatoryreform.com Prerequisites for the reform  Political economy and readiness of policy-makers to implement reform and sustain support – Organizational/Operational change – The use and limits of donors and “Champions”  Reform of existing laws & regulations to be inspected – Worst case: good enforcement of bad regulations  External capacity building – Training of inspectors and drafting implementation by-laws to complement organizational and operational changes – IT management system for supervision, planning, control, and risk-management of inspections and inspectors

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Pros & Cons of Inspectorate Reforms

  • 1. www.regulatoryreform.com Pros & Cons of Inspectorate Reforms Cesar Cordova Senior Director JC&A 9 November 2017
  • 2. www.regulatoryreform.com Assessing Inspection Reforms  Fascinating but fast moving field of regref  JC&A experience – World Bank inspection checklist (2006) – World Bank Survey of 25 country inspection reforms (2010) – Practice e.g. Jordan (2005-2007), Albania (2008), Ecuador (2014), Bosnia (2014-2015) Moldova (2016), Tajikistan (2016), etc. – Reviewer for World Bank Report (2018)
  • 3. www.regulatoryreform.com Motives for inspection reform • Enforcement & control • Fight against excessive discretion & corruption • Dealing with “informal,” grey, or illegal sector • Appeal and dispute resolution systems Improving the rule of law • Administrative compliance costs of multiple and contradictory inspection visits • Regressive nature of inspection on SMEs Improving the business environment • Regulatory failures, scandals & crisis • Better and smarter compliance and enforcements • Leaner and effective bureaucracies • Cost efficient public services • Potential use of ITC Making inspection more cost effective
  • 4. www.regulatoryreform.com Reforming Inspections (1)Startdate Single Law Inst’l reform Local componen t Targeted Policy Area Main approach Limiting Frequency of inspection sClarificatio n Procedure s Checklist/ Manual/IR Bs* Risk- based targeting ICT Armenia 2000 Yes Yes Tax, LAB Merger of inspections Yes No Belarus 2004 Yes Fire, Sanitary, LAB Coordination Yes Yes Planned Bosnia 2006- 2007 Yes Yes Yes ALL Centralized/ Unified Inspectorate Yes Yes Yes Planned Yes Croatia 1999- 2008 Yes Yes Yes Most of inspectio ns Centralized/ Unified Inspectorate Yes Planned Yes Georgia 2001 Yes Yes Yes Most FSVP, Customs Merger of inspections Yes Yes Yes Jordan 2005 LAB, ENV, Food Coordination Yes Yes Yes Latvia 1999 Yes Yes Most Coordination Yes Yes Yes Yes
  • 5. www.regulatoryreform.com Reforming Inspections (2)Startdate Single Law Inst’l reform Local componen t Targeted Policy Area Main approach Limiting Frequenc yof inspection sClarificatio n Procedure s Checklist/ Manual/IR Bs* Risk- based targeting ICT Mexico 1995 ENV, Customs Yes Yes Yes Yes Moldova 2003 Yes Most Coordinatio n Yes Yes Yes Mongolia 2002 Yes Yes Yes Most Centralized/ unified Inspectorate Yes Planne d Poland 2000- 2009 Yes Yes Selected Coordinatio n Yes Yes Yes Yes Yes Romania 2002 Yes Yes Most Centralized/ Unified Inspectorate Yes Yes Yes Russia 2001 Yes Yes Most Yes Yes Yes Slovenia 2002 Yes Yes Yes Most Coordinatio n Yes Yes Yes Tajikistan 2005 Yes Yes Most Yes Yes Yes Yes Ukraine 2005 Yes Most tax Coordinatio n Yes Yes Yes Yes
  • 6. www.regulatoryreform.com Type of Systematic Reform Models Common legal framework for inspections Processes & Procedures (Management) Institutional Architecture (Governance) Third Party Certification
  • 7. www.regulatoryreform.com Issues concerning the reform of inspection of processes and procedures  Before the visit – Selecting visits based on risk-based inputs – Controlling the number, frequency and duration of an inspection visit  During the visit – Reducing discretion of inspectors through checklists & Inspection Registration Books (IRB) – From ”inspectors” to “verifiers” – Potential conflict of interest concerning advisory  After the visits – Set clear standards, rights and obligations of inspectors and inspected entities – Appeal mechanisms  Other process and accompanying reforms – Training, ICT, labs, etc. – Performance and accountability of inspectors
  • 8. www.regulatoryreform.com Reform of Inspection Architecture Cooperation agreement Coordinating and overview body at central level Centralized supervision & control body Mergers and consolidations
  • 9. www.regulatoryreform.com Some lessons (1) Model/ approaches Who has effective control Institutional costs to implement the reform Increased benefits due to efficiency and effectiveness of control 1. Cooperation Agreement • Ministries and agencies • Peer pressure and goodwill collaborations • Negligible • Sustainability challenges • Savings if properly enforced across inspection bodies: e.g., joint inspections, better communication about risks 2.Coordinating & overview body at central level • Ministries and agencies supervised by a new body • Depends • Sustainability challenges • Significant savings if properly enforced, e.g., good practices sharing, mutual recognitions of visits, benchmarking and peer pressure, sharing laboratories, etc. • ITC opportunities
  • 10. www.regulatoryreform.com Some lessons (2) Model/ approaches Who has effective control Institutional costs to implement the reform Increased benefits due to efficiency and effectiveness of control 3.Merging and consolidating related risks or policy area • New inspection agencies organized according to sectors and policies • Significant but depends on the area • Takes time • More sustainable • Economies of scale and scope on enforcement costs • Speeder adoption of improved practices, e.g., Risk based Inspection, performance of inspectors • But constraints for large public administrations 4.Centralised supervision/control model • General Inspectorate or Inspector General’s office, and Government • Large • Takes time • Strong political and bureaucratic opposition • International constraints and irritation • Important efficiency gains for small administrations (including better immunization against capture) • But possible diseconomies of scale and scope for large inspectorates
  • 11. www.regulatoryreform.com Prerequisites for the reform  Political economy and readiness of policy-makers to implement reform and sustain support – Organizational/Operational change – The use and limits of donors and “Champions”  Reform of existing laws & regulations to be inspected – Worst case: good enforcement of bad regulations  External capacity building – Training of inspectors and drafting implementation by-laws to complement organizational and operational changes – IT management system for supervision, planning, control, and risk-management of inspections and inspectors