State inspections burden businesses

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Unnecessary and unorganized state inspections and supervision, as well as the outdated system of inspection, have led to bureaucracy and pressure on businesses, as confirmed by numerous surveys. In particular, they have created several problems, which most often are linked to abuses of powers and other forms of corruption.

Entrepreneurs responded that the number of employees in the business sector had halved by the end of 2020 and that other factors, including state inspections, had exacerbated the situation. They unanimously agreed that corruption, bribery, and government bureaucracy were the biggest obstacles to business and that the economy, governance, and legal environment were the worst in Mongolia. In other words, the majority of businesses have identified corruption, bribery, bureaucracy, and injustice as the biggest barriers of doing business.

In fact, state inspections and supervision should serve to ensure public wellbeing or mitigate risks in an effective and efficient manner, boost economic growth as well as improve transparency and accountability of public services.

Regulations are essential to ensure that the economy functions effectively and sustainably as they provide a foundation for the interaction of businesses, governments and civil society organizations.

The role of inspections and supervision are to ensure smooth operation of the economy consistent with environmental, social and public interests. Indeed, regulations are meant to build trust between businesses and authorities, thus reinforcing the operations of markets. They help to safeguard the rights and safety of consumers and citizens and guarantee that goods and services are delivered in line with public interests. 

Unfortunately, in our country, inspections seem to be used as a source of budget revenue. Several inspection bodies, for instance, conduct inspections on the same issues, which lead to major abuses of the system and discontinnuation of effectiveness and legitimacy. In order to avoid this conflict of interests, it is crucial to ensure that inspection agencies have clear mandates and that their activities are in line with their general mission in terms of preserving the public interest and mitigating risks.

On the contrary, the outdated Mongolian system of inspection and control of activities has led to considerable direct and indirect monetary and non-monetary costs for businesses and society. The system is adding unnecessary administrative burdens and costs for businesses, reducing trade and investment and leading to corruption and abuses.

In particular, citizens are frustrated that professional inspection agencies are confiscating a large amount of goods and products under the guise of inspection. For example, one citizen tweeted, “I received an offer to import bananas from Vietnam. One box of bananas was brought in by plane for testing, but it was not delivered to me because it required a professional inspection permit. So, all the imported bananas were inspected by experts. But I didn’t get them back.”

“In order to get beef and mutton dumplings tested at the laboratory of the General Agency of Specialized Inspection (GASI), I had to give 50 kilograms of products. I was getting only four types of products tested,” another person commented.

These issues are largely influenced by not only the legal environment but also GASI. This is acknowledged by lawmakers and even the agency itself. In specific, during the parliamentary session, legislator N.Uchral noted, “In the name of planned inspections, government agencies have distorted the meaning of inspections. Because of this, people are afraid of inspections. Head of GASI B.Baasandorj is a very hardworking person and is trying to reduce the pressure of state inspections. But we have to tell the truth. GASI is a ‘bankrupt’ organization. The five specialized inspectors of GASI do nothing but check documents. Such people cannot advise or perform their duties properly. As a person who worked in the private sector, I was pressured by GASI for many years. Assistant advisors should cooperate with either researchers or policy-making bodies. In general, it is time to hand over consulting services to professional associations.”

B.Baasandorj acknowledged this and said, “In principle, I agree with Member of Parliament N.Uchral. There is a problem in our organization. There are more than 800 laws in force in Mongolia. Of these, 113 laws are connected to GASI. The organization is also obliged to inspect the implementation of 200 more laws.”

On top of that, GASI lacks professionalism. Recruitment rules, qualifications processes and procedures, training of inspectors on core inspecting skills, compliance promotion and mitigation of risks linked to business activities, and even the performance assessment of inspectors were not well defined or developed in a coherent and homogeneous manner. Defining common basic skills and methods for all kinds of inspection areas is essential. In addition, it is crucial to improve relations with inspected subjects and reduce burdens on businesses.

Institutional structures are unsurprisingly diverse across different countries since constitutional, cultural, economic and other pertinent contexts differ from one country to another. However, in most foreign countries, professional associations carry out low-risk professional supervision. This is the international standard.

Head of GASI B.Baasandorj expressed, “Our inspectors must become specialized. All levels of governors, police, waste inspectors, and GASI monitor the implementation of the Law on Waste. The Ministry of Culture, the Department of Culture, and our organization are also responsible for overseeing the Law on Promotion of Cinematography. These can be done by professional associations. There are inspectors involved in corruption cases. However, there are also honest GASI inspectors.”

‘GOVERNMENT SHOULD NOT BE INVOLVED IN BUSINESS ACTIVITIES’

Due to the current situation, entrepreneurs are urging the government to stop inspections of businesses to speed up economic recovery.

Executive Director of the Mongolian Employers’ Federation Kh.Ganbaatar recommended, “A total of 3,200 inspectors inspect businesses each week. Stop it and we, the employers, will take responsibility for this work. The government should not be involved in business activities.”

President of the National Chamber of Commerce and Industry of Mongolia O.Amartuvshin says that entrepreneurs always raise the issue of government inspections and “harassment”. According to a bureaucratic survey conducted by the organization, companies are required to obtain more than 940 government permits.

“Extension of permits and regular and irregular inspections are the biggest pressures on business operations. In particular, the bureaucracy index is higher in the capital than in rural areas. For starters, licensing is no longer required for 74 trade and services in Ulaanbaatar, which will become a great support for businesses and enterprises,” he emphasized.

In general, entrepreneurs consider promoting compliance rather than systemically imposing control and sanctions as one of the most effective ways for enforcement agencies to improve public outcomes.

It has been found that oftentimes SMEs do not know what to expect from inspection visits, thus they fear inspectors and may react in a hostile fashion during such visits. On the other hand, they usually are unaware of all the regulatory requirements that apply to their line of business and/or of the way to implement them.

Experts say that providing clear guidance and hands-on advice to the inspected parties has demonstrated in many cases its effectiveness and benefits. Indeed, it helps improve compliance with regulations and reduce the risks that economic activities pose to the safety of consumers, the environment, and so on.

In the UK, for example, the Safer Food, Better Business toolkit has successfully helped businesses comply with standards and reduce their level of risk to food safety. Also, in Lithuania, the mandatory use of checklists during inspection visits, which ensures that inspectors are focusing on the right things, has resulted in improvements of relations between inspectors and inspected parties and clearer requirements that ensure better compliance with regulations. This shows that more advisory measures are needed and that reducing inspection fines and sanctions are also highly recommended by experts.

STATE INSPECTION TO BE REDUCED BY 50%

Minister of Finance B.Javkhlan informed that the government will pursue a policy of reducing state inspections. In other words, the number of inspections the private sector and citizens have to undergo will be reduced by 50 percent. This doesn’t mean that the government will weaken its control and supervision. Electronic or remote monitoring structures will be established, the minister clarified. However, audits of general budget governors will continue. The government plans to make all public services electronic and transparent through these measures.

In connection with this, Parliament is reviewing a bill on the suspension of certain types of state supervision and inspection. The bill was initiated and developed for the first time to reduce the negative impacts of the COVID-19 pandemic on the economy, increase economic efficiency and temporarily suspend planned inspections to accelerate economic recovery. Bill initiators view that the new law will have a positive impact on businesses.

In accordance with the bill, scheduled inspections will not be conducted for three years. The draft law stipulates that unscheduled inspections will be carried out on the basis of petitions, requests, complaints and information of citizens, business entities and organizations, or in the event of a decision of an authorized body. It also reflects that in case of non-compliance during an unscheduled inspection, a formal request for advisory assistance and warnings will be issued as a matter of priority. This regulation on issuing requests for assistance and warnings does not apply to inspections conducted by Mongol Bank, the Financial Regulatory Commission, and authorized bodies in charge of tax, customs, social and health insurance, child and family development. In other words, the bill will not stop the planned inspections of state organizations, government-owned, locally-owned and partly-owned legal entities.

Bill initiators believe that the adoption of the draft law can alleviate the burden of inspections on businesses and help create a legal environment for inspections that provide them with professional, methodological advice and assistance.

Conversely, some lawmakers are raising the issue of possible harm to society due to the lack of inspections. However, under the draft bill, organizations are obliged to maintain quality and standards. In the event of damage or accident, organizations will be held accountable, according to the government.

More specifically, Minister of Justice and Internal Affairs Kh.Nyambaatar explained, “State inspections will be conducted based on citizens’ feedback. However, we need to improve our risk-based monitoring system. There are concerns that the cessation of scheduled inspections could weaken the quality and standards of organizations”.

Only health, social insurance and tax inspections, which generate direct income, are to be regulated. Organizations must meet their legal obligations within three years and they will enter into a liability agreement, the justice minister said.

Effective and efficient regulatory inspections require adequate planning and targeting of inspections and controls, good communication and coordination between inspection agencies, experts reminded. In addition, clear and precise information and guidance to businesses and citizens can be a cornerstone for the good functioning of the system since the primary responsibility for compliance remains with the regulated subjects. Such key components of an inspection system can help avoid malpractices such as corruption and other unethical practices. Hence, an adequate regulation and supervision inspection system can provide critical benefits to businesses and society as a whole. Therefore, lawmakers must review and approve the draft bill with prudence.

Misheel Lkhasuren

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