TRADE, INVESTMENT AND COMPETITIVENESS TRADE, INVESTMENT AND COMPETITIVENESS EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT Approaches to Integrated Inspections Reforms Based on selected case studies © 2022 International Bank for Reconstruction and Development / The World Bank 1818 H Street NW Washington DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org This work is a product of the staff of The World Bank with external contributions. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy, completeness, or currency of the data included in this work and does not assume responsibility for any errors, omissions, or discrepancies in the information, or liability with respect to the use of or failure to use the information, methods, processes, or conclusions set forth. 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Cover design and layout: Diego Catto / www.diegocatto.com >>> Contents Acknowledgements 4 Executive Summary 6 1. Institutional frameworks for integration 9 a. Clarifying institutional mandates, aligning inspectorates’ functions with 11 regulatory goals b. Achieving integration of inspectorates through institutional consolidation 12 c. Establishing coordination and cooperation arrangements 14 2. Legal instruments for integration 19 a. Providing a unified and binding legal framework on principles, procedures, and 19 operational guidance through a horizontal law b. Introducing a high-level common legal framework 20 c. Integrating through self-binding government regulation to insulate 21 inspectorates from political influence d. Integrating without a legal instrument 21 3. Strategy, planning, and operational tools 24 a. Articulating a clear vision and strategy toward a paradigm shift to inspections 24 b. Standardizing procedures and implementing risk-based tools 26 4. Competencies 28 a. Improving human resource capacity, skills, and competencies 28 b. Managing performance within the inspectorate 30 5. e-Inspections 31 a. Implementing e-Inspections through an evolutionary approach 32 b. Enabling integration through shared inspections management systems 33 c. Ensuring sustainability of e-Inspections systems 36 6. Reform strategy 37 a. High level political support and engagement 37 b. Ongoing feedback from the private sector 39 7. References 40 >>> Acknowledgements The development of this report was led by Aris Molfetas (Private Sector Special- ist), and Giuseppa Ottimofiore (Consultant).1 Lars Grava (Senior Private Sector Specialist) and Goran Vranic (Senior Private Sector Specialist) provided valuable inputs and guidance to the lead authors. The background work and documen- tation were carried out by Florentin Blanc2 (Consultant), Giuseppa Ottimofiore, Goran Vranic, Gordana Ristic (Consultant), and Imeldin Radaslic (Consultant). The team appreciates the feedback and advice received from Giedrius Kadziaus- kas (Senior Consultant), and Sylvia Solf (Senior Private Sector Specialist). The team would like to thank Christine Zhenwei Qiang (Practice Manager, Investment Climate) for her feedback and overall guidance. Several people contributed valuable information on the case studies referenced in brackets, including Goran Vranic and Imedlin Radaslic (e-Inspections); Paolo Sarnelli and Claudio de Martinis (Campania Region, Italy); Jair Fernando Imba- chi Cerón, Juan David Martínez, Fernando José Estupiñan, and Carmen Rosa Ávila Robles (Bogotá, Colombia); Miro Babic, Slavko Vidovic and Andrea Au- gust (Croatia); Tarik Sahovic, Natalia Dolinskaya, and Syinat Arynova (Kyrgyz Republic); Giedrius Kadziauskas (Kyrgyz Republic and Lithuania); Luis Martinez (ASEA, Mexico); Djidmaa Dugeree (Mongolia); Richard Lee (AUSTRAC, Austra- lia); Hadewych van Kempen, Jacqueline Conemans, Rob Velders, Ger de Boer, and Tony Liebregts (The Netherlands); Mario Emilio Gutiérrez, José Daniel Ji- ménez Ibáñez, and Fátima Ávila Acosta (COFEMER, now CONAMER, Mexico); Esther Ing and Stephanie Anctil (MRA, Canada); Domen Bizjak (Slovenia); Mi- chael Bone, Emily Tudball, and Joseph Januszewski (HSE, United Kingdom); and Abeer Kamal Shalan (Jordan). 1. Now working for the Organization for Economic Co-operation and Development (OECD). 2. Now working for OECD. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 4 >>> Acronyms AFP Australian Federal Police AI artificial intelligence AML anti-money laundering ATF antiterrorism financing AUSTRAC Australian Transaction Reports & Analysis Centre ASE Safety, Energy, and Environment Agency (Mexico) CPD continuous professional development DCED Donor Committee for Enterprise Development G2B government-to-business GASI General Agency for Specialized Inspection (Mongolia) GRIP Guidance for Regulators Information Point (UK) HSE Health and Safety Executive (UK) IFC International Finance Corporation IIMS integrated inspection management system IMS inspection management system KPI key performance indicator ML machine learning MTAP medium-term action plan OECD Organisation for Economic Co-operation and Development OHS occupational health and safety RDNA Regulators’ Development Needs Analysis (UK) RMS risk management strategy SIMS shared inspections management systems WBG World Bank Group EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 5 >>> Executive Summary Supervision of business activities through an inspections system is a key component of a government’s regulatory apparatus. Effective and efficient supervision ensures public policy objectives, such as consumer protection and food safety, are achieved with minimum burdens on businesses. A country’s inspections system comprises all laws and regulations, institutions, strategies, operational tools, human resources, and digital solutions that support realization of its objectives. In many economies, businesses complain about the insufficient technical expertise of inspectors, lack of coordination, overlap or duplication of inspection-related activities, insuf- ficiently transparent and predictable processes, and at times even harassment and corruption. If not properly managed, inspections become burdens on the private sector and ineffective at achieving regulatory objectives. Moreover, inefficient or unfair inspections can create an uneven playing field. When similar businesses receive different treatment, the business receiving less favorable treatment is hampered in its ability to compete and grow. Several jurisdictions have attempted to address these challenges by further standard- izing the approaches, resources, practices, and tools used by two or more inspectorates, a process also known as integration. Integration efforts can range from structural changes in the institutional framework to coordination mechanisms or unified inspection laws. Some gov- ernments have also achieved a degree of integration through softer mechanisms such as con- sensus among stakeholders. Integration, however, is not a silver bullet, nor is it the only way to improve inspections systems. Reforms in only one inspectorate or inspection domain, for example, remains a viable strategy. This note offers insights for reformers and practitioners based on lessons from selected case studies, with a focus on in-land inspections systems integrated in the past decade, and discusses some recent developments in inspection reform. A previous WBG publica- tion identified five integration models. This study, while confirming that these models remain relevant, examines integration efforts using the five key areas of inspection reform as a lens: in- stitutional frameworks, legal instruments, strategy planning and operational tools, competences, and e-Inspections. Background research for this study was conducted through interviews with practitioners, government officials overseeing reforms, and other stakeholders; desk research; and lessons learned from country projects supported by the World Bank Group. The research covered 16 case studies in 14 countries across different regions in North America, Europe & Central Asia, Middle East & North Africa, Latin America & the Caribbean, and East Asia & the Pacific. This note, intended for reformers and practitioners, is not a comprehensive overview of all elements of in-land inspections reform, but rather compiles the main solutions that emerged from the case studies. Below are some of the study’s highlights: EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 6 • Successful reforms in inspection systems require between the authorities; harmonization and standardiza- some degree of integration, especially within the tion of practices, tools, and procedures; information shar- same regulatory domain.3 A shared understanding of ing; and integrated risk management to ensure integration the inspection goals, planning, interpretation of manda- efforts are implemented. tory regulatory requirements, risk-based tools, competen- • Tangible improvements in inspection reform require cies, etc., is needed to avoid duplication and overlap and capital investments to build capacity and upgrade to achieve expected outcomes. equipment, infrastructure, and digital technology • No one approach to integration fits all situations. tools. Initial investments can range from several million Reformers have applied different models, legal instru- to over US$10 million, depending on the jurisdiction, for a ments, institutional frameworks, tools, and approaches to three-to-five-year reform cycle. achieve the same goal. The essential element is to make • A common denominator among the country examples a continuous effort toward integration. is that one of the underlying objectives of integration • Although some degree of integration is desirable, efforts was to pivot away from policing and towards a it is not a silver bullet. Inspection systems can be im- preventive-advisory approach anchored on risk man- proved using other reforms as well, such as by eliminat- agement. Since the maturity levels of the inspections sys- ing conflicts of interest between political and operational tems varied, so did the sophistication of risk-based tools. roles in the inspections system and by shifting from an • Digital solutions can be powerful tools in helping re- enforcement-first approach to an advisory and preventive formers leapfrog into more integrated systems. Exist- approach without integration efforts. ing and emerging technologies have broadened the pos- • In the absence of integration at the operational level, sibilities for inspections reform and enabled more scalable institutional consolidation does not in itself improve solutions to integrating both the inspectorates themselves the efficiency or effectiveness of inspection services. and the inspections systems and other areas of business In fact, practices may be more important than institutional regulation (e.g., licensing and business registration).  structures. Integration efforts must include a shared vision 3. The term “regulatory domain” refers to the public goods that inspection authorities are mandated to safeguard, such as public health, food safety, occupational health and safety, environmental protection, transportation safety, consumer protection, infrastructure safety, etc. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 7 > > > BOX 1 Early lessons learned from the impact of COVID-19 on regulatory delivery The COVID-19 crisis has affected every aspect of life; regulatory delivery is not an exception. Some of the early lessons learned from regulators and inspection authorities include the following: • The need to lower the risk of infection by reducing the number of site inspections and minimizing in-person contact has made the need to prioritize risk-based tools more pressing. In response, inspectorates in several jurisdictions reduced site inspections to a minimum, prioritized high-risk objects, and focused on critical issues. Con- sistent approaches, planning, choice of risk management solutions, etc., become essential in this situation. • Closer cooperation and regular information exchange between inspectorates are needed. Limits on the abil- ity to inspect makes effective and consistent information exchange and integration fundamental. Some forms of coordination and cooperation between inspectorates can be increased (e.g., inspecting on behalf of others, joint efforts to provide guidance, etc.) where topics relate to more than one regulatory area. • More than ever, direct communication with businesses is key to improving compliance and reducing risks. With fewer site inspections, risk management relies heavily on businesses’ ability to conduct self-assessments and manage risks on their own. To support this, inspectorates must invest more resources to produce user-friendly guidance and tools (e.g., self-risk assessment and inspection checklists) and to disseminate them online. In addi- tion, inspectorates must provide channels for direct communication with stakeholders and businesses. • Engagement with the private sector has become increasingly important. The pandemic accelerated transfor- mation in the way many businesses function. To detect, analyze, and mitigate new risks, dialogue between inspec- torates and industries will be more important than ever. Information and data shared by the private sector can be crucial for managing risks in these new approaches. • Regulators who relied on flexible legal frameworks were better positioned to adapt to the challenges brought by the pandemic. For example, in Canada, regulators and inspectorates responded to the pandemic with great flexibility. In particular, inspectorates were encouraged to reduce, waive, or defer low-risk claims, report- ing requirements, and fee payments. Alternative compliance options were allowed, such as electronic signatures, video interviews, etc., and nonessential inspections were deprioritized. This flexible approach was possible largely due to the existing legal framework, which enabled exemptions, temporary orders, provisional certificates, etc. A degree of flexibility in legal frameworks is also crucial for allowing remote inspections. • Rapid adoption of COVID-19 social distancing and home detention orders accelerated the trend in some jurisdictions to leverage digital technologies. For example, some jurisdictions relied more heavily on hybrid in- spections combining remote documentation checks, interviews, etc., with site inspections focused on more critical issues. Some inspectorates even carried out inspections virtually through remote virtual inspections (RVI), provid- ing an alternative to in-person inspections and helping to ensure business continuity. Where items are inaccessible or in hazardous environments, or circumstances or conditions prevent site inspections (ICC 2020), technology- enabled RVIs allow inspectors to observe products and/or materials remotely. Some regulators thus consider RVI an additional risk management tool to help maximize resources and restore full capacity. • The ongoing transition from a punitive inspection approach to an advisory one now seems to have been prescient. Faced with the economic turmoil brought by the pandemic, inspectors’ goals should be to help busi- nesses comply rather than punish them for compliance failures. This requires enforcement management models that use guidance and gradually escalating enforcement actions to promote compliance. Information campaigns can raise awareness, user-friendly guidance can help businesses comply, and self-assessment tools can help business manage risks on their own. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 8 1. >>> Institutional frameworks for integration The term institutional framework refers to how inspection functions (i.e., spheres of re- sponsibility) are organized. Lack of a clear delineation of responsibilities and functions be- tween inspectorates, as well as between the various departments within inspectorates, is a com- mon challenge for governments and often affects predictability and transparency for businesses. To resolve this, several countries have attempted to consolidate their inspections systems to improve integration. Such reforms typically seek to: • Make better use of government resources by eliminating overlap and duplication. • Improve inspectorates’ and inspectors’ accountability by clarifying their roles and responsi- bilities. • Professionalize inspections by removing political influence and conflicts of interest. • Strengthen businesses’ confidence in the rule of law and inspections systems by increasing inspectors’ prevention and advisory roles, thereby achieving greater voluntary compliance and risk reduction. Integration efforts can include: • COORDINATION: Separate institutions (or departments within the same institution) can coordinate operations to improve efficiency and effectiveness by aligning policies, standard- izing tools, harmonizing practices, planning reforms, and exchanging practices, while each department continues to carry out its own functions independently. • COOPERATION: To achieve a shared objective, different institutions or departments co- operate to carry out some functions by aligning strategies, harmonizing procedures, and exchanging information. In some cases, one institution or department may fulfill a task at the request of another institution or department. • INSTITUTIONAL CONSOLIDATION: Different institutions (or departments within the same institution) consolidate their governance by, for example, merging two or more inspectorates or creating a new institution that consolidates all or most inspectorates (Hawks 2015, 2). The term “integration” in this report refers to the standardization of approaches, resources, practices, and tools between two or more inspectorates (or units within an institution). This leads to tangible improvements in inspections systems’ effectiveness and efficiency. The process is illustrated in Figure 1. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 9 > > > F I G U R E 1 . - Integration (top right) can be achieved through different models; these include coordination (bottom right), cooperation (bottom left), or institutional consolidation (top left). Institutional Consolidation Institutional Cooperation Consolidation Inspectorate Inspectorate A B All can achieve integration Inspectorate C Integration Coordination efforts Cooperation Inspectorate Coordination Inspectorate A A Inspectorate Inspectorate Inspectorate Coordination Inspectorate D B D machanism B Inspectorate Inspectorate C C Source: The authors. Note: If the inspections system is plagued by structural weaknesses such as a high degree of fragmentation, overlap, and duplication, cooperation and coordina- tion arrangements may not be sufficient to accomplish integration. Instead, such arrangement must be supported by institutional consolidation reforms. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 10 a. Clarifying institutional mandates, aligning inspectorates’ functions with regulatory goals Ensuring clear and adequate spheres of responsibility and Technical Safety and the State Inspection on Veterinary among the various inspectorates is at the crux of inspec- and Phytosanitary Safety. Early results indicate that the need- tions reform. It is achieved by (a) defining and delineating based focus has improved resource use, reducing the number jurisdictions to remove overlap and duplication between orga- of inspections and compliance costs for the private sector. nizations, and (b) improving sector regulations. In Jordan, early attempts to clarify institutional mandates To integrate inspectorates, it is necessary to align inspec- based on memoranda of understanding did not yielded tion functions with clear regulatory goals or domains, results, and the need remained for more binding and such as food safety, occupational health and safety, envi- sustainable solutions. Business surveys indicated that land ronmental protection, etc., corresponding to the risks each inspections lacked transparency and were a source of unpre- regulator is mandated to manage. This can be achieved, for dictability for businesses. In response, the Ministry of Industry example, by following the list of inspection functions proposed and Trade set up a national level Inspections Committee to by the Organization for Economic Co-operation and Develop- improve regulatory delivery in this area. The inspection law,5 ment (see OECD 2014, particularly Chapter 6). Integration developed with IFC support, addressed the institutional as also frequently requires delineating jurisdictions, designating well as operational aspects of 10 ministries and 14 inspection a primary inspectorate for each inspection domain, improving directorates. coordination between inspectorates at different levels of gov- ernment, and improving sector regulations. Typically, clearly Jordan’s law introduced the concept of a primary regula- defining inspection jurisdictions requires analyzing and im- tor, that is, one regulator is assigned for each regulatory proving thousands of prescriptive sector regulations and thus domain and given exclusive authority over supervision a high level of effort and investment. activities. The primary regulator determines compliance re- quirements and leads operational aspects, such as checklist Several countries provide successful examples. The Neth- development and risk assessments, and can delegate to sup- erlands reduced the number of inspectorates from 25 to 10 be- porting agencies activities such as inspections on low-risk tween 2006 and 2017 by merging inspection authorities with businesses or businesses in specific economic sectors or similar functions or supervised by the same ministry. In the geographical areas. Additionally, the primary regulator can co- Kyrgyz Republic,4 21 independent inspectorates were merged ordinate visits with other inspectorates to reduce businesses’ into 12 as part of a broader government effort to address cor- compliance burdens. ruption and create a level playing field for businesses, a key pillar in the Country Development Strategy 2007–2010. The Following the law’s enactment, inspection overlap and objective of the inspections reforms was to optimize govern- duplication in Jordan declined significantly, as did the ment spending and simplify the inspections regime for the number of site inspections. An IFC survey found that the private sector by eliminating overlap and duplication between average number of inspectorates visiting the same enterprise functions. During the reform, the roles, functions, and compe- dropped from 7 in 2011 to 2.6 in 2019. The average number tencies of inspectorates were reviewed, overlapping functions of visits per enterprise per year dropped from 31 in 2011 to 10 were merged, and policy making was separated from opera- in 2019. The aggregate number of visits conducted shows a tions. This was largely achieved by aligning inspectorates’ clear declining trend between 2017 and 2019. These improve- functions according to specific regulatory goals (occupational ments are primarily attributed to the new institutional frame- safety, food safety, environmental protection, etc.). Most were work and the implementation of risk-based approaches. merged into two agencies: the State Inspection on Ecological 4. Although the Kyrgyz reforms do not as yet strictly follow the steps listed above, the overall trend in recent reforms is consistent with best practices for reform with attention to function. 5. The law, published in the Official Gazette on September 17, 2017, came into effect on March 17, 2018. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 11 b. Achieving integration of inspectorates through institutional consolidation A common challenge in consolidating inspection func- treme cases, it may adversely impact goals by spreading tions is loss of momentum following institutional reform. bad practices through the larger institution, where they For integration to succeed, however, it must be pursued ultimately gain even more influence. at both the institutional and the operational level. After clearly defining the inspectorates’ mission and objectives, relevant Croatia recently reinstituted 8 the State Inspectorate, incorpo- strategies, processes, tools, and inspector competencies rating 17 inspection functions. This new Inspectorate officially must be developed. Without them, nominally consolidated in- started operations in April 2019, and since its mandate is still spectorates may continue operating along “legacy” lines, and developing, the jury is still out on its success. overlap, duplication, and lack of coordination will most likely survive the reform. Mongolia, too, integrated inspection functions under its General Agency for Specialized Inspection (GASI). Several countries’ experiences reveal the critical nature The Agency’s authority was initially limited, and new forms of integration at the operational level. A cautionary tale is of duplication emerged among its various branches. As a re- Croatia’s attempt to consolidate several inspection functions sult, private sector perceptions about GASI’s performance did under a State Inspectorate6 that was dismantled in 2014 after not improve, and complaints continued to be filed against it: 15 years of effort.7 The Inspectorate’s weaknesses included GASI had consolidated bad practices of preexisting agencies lack of a strategic review of the inspection system; some line “under one roof.” The IFC team facilitated extensive consul- ministries maintained inspection functions which resulted in tations with the public and private sector and conducted an duplication with the State Inspectorate, and the Inspectorates assessment to better understand the bottlenecks preventing failed to adequately exchange information and coordinate in- integration within GASI. Subsequently, the reform focused on spections planning. As a result, for example, trade inspectors selected operational aspects crucial to improving integration, recalled products over labeling issues when the same labels such as mainstreaming risk-management, standardizing tools had been approved by food inspectors from the Ministry of (checklists, guidelines, etc.), developing Key Performance In- Agriculture. Croatia’s experience thus offers several lessons: dicators (KPIs), and building inspectors’ capacity. Lastly, the • Institutional mergers/changes are challenging and reform focused on improving vertical coordination between often resisted. GASI’s central and local offices and between its leadership • Institutional consolidation does not in itself improve and frontline inspectors. As a result, between 2009 and 2015, efficiency or effectiveness without integration at the op- the share of businesses inspected by GASI per year de- erational level. creased from 58 percent to 43 percent.9 • Practices are more important than institutional struc- tures: planning using risk-based targeting, professional These experiences show the importance of understand- competencies, relations with businesses, internal pro- ing the specific context when determining if merger will cesses, etc., are key elements that must be part of the be the best option for achieving reform objectives. Al- reform design. though Mongolia’s example demonstrates that a consolidated • Institutional consolidation may consume resources and “single” inspectorate can serve to achieve change across the political capital, and after the first quick wins, reform fa- board, Croatia’s experience indicates the risks of merging tigue and stagnation may follow. As a result, the reform without integrating. Other country examples indicate that it is may not delve deeply into harmonizing and standardizing possible to attain greater integration and coordination without internal processes, practices, approaches, etc., and in ex- institutional consolidation. 6. The State Inspectorate assumed the responsibilities of 12 inspectorates (labor and workers’ safety and protection; trade and market surveillance; power, mining, and equipment) that had been split among four ministries. 7. The objectives were to reduce costs, improve inspection system efficiency and coordination, harmonize practices for each inspection type, improve transparency, and reduce the inspection burden on the private sector. 8. Act on State Inspectorate of December 20, 2018, published on the Official Gazette 115/18. 9. Dugeree et al. 2019. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 12 > > > BOX 2 Institutional consolidation in Campania Region, Italy In Italy’s Campania region, between 2007 and 2010, the regional government initiated reforms in the ineffective food safety inspection system to alleviate concerns following major incidents (brucellosis and dioxins crises in 2008) and a breakdown of trust between the private and public sectors. To implement an integrated risk-based approach to inspec- tions, measures were taken to harmonize legislative tools with relevant EU regulations,10 redefine and standardize inspection practices and procedures, and introduce an IT solution for all stakeholder authorities. To ensure buy-in, several stakeholders were involved early in the process, including: • Health authorities’ prevention units and local offices (Aziende Sanitarie Locali (AASSLL)), which are charged with performing inspections. • The Experimental Animal Disease Prevention Institute (Istituto Zooprofilattico Sperimentale del Mezzogiorno11 (IZSM)), and its local offices. • The Regional Food Safety Observatory (Osservatorio Regionale per la Sicurezza Alimentare (ORSA)).12 • Relevant regional reference centers dealing with veterinary and foodborne diseases. Institutional consolidation was implemented in phases and in parallel with reforms at the strategic and operational lev- els aimed at achieving better service delivery, coordination, and outcomes in the inspection system. Several mergers were carried out in AASSLL, reducing the number of agencies from 13 to 7. In parallel, joint working groups, involving AASSLL and regional authorities and reference centers, were set up to enhance interagency collaboration. Subse- quently, the reform effort was gradually extended to areas beyond the official control of foodstuffs, such as veterinary health, and it later included animal welfare more broadly (i.e., conditions for keeping animals). Campania’s example indicates that integration may have greater chance of success when institutional consolidation is only one aspect (or even a result) of a broad and coherent reform plan and when integration efforts are phased in gradually. 10. EU Regulation on food safety 178/2002 and the rest of the Hygiene Package. 11. See http://www.izsmportici.it/portale/index.php?la=&sm=8&p=2. 12. See http://www.orsacampania.it/. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 13 c. Establishing coordination and cooperation arrangements Coordination and cooperation mechanisms can help • Defining the performance and planning of preventive and solve challenges in inspection practices by removing multidisciplinary inspection activities with the competent fragmentation. These mechanisms vary from limited coop- authorities. eration to integrated models typically enabled through legis- • Designing and organizing capacity-building and commu- lation. In most cases, coordination and cooperation mecha- nication plans needed to support the implementation of nisms that work properly, harmonize inspection approaches, the IVC function in the capital district. use resources more efficiently, and reduce duplication in op- erations. Integration between several inspectorates typically Slovenia, Greece, Jordan, and the Kyrgyz Republic intro- requires institutional consolidation reforms that complement duced similar binding mechanisms. Slovenia’s Inspection coordination and cooperation arrangements, especially in in- Law14 introduced an inter-ministerial body, known as the In- spections systems plagued by structural weaknesses such as spection Council, to strengthen coordination between minis- a high degree of fragmentation, overlap, and duplication. For tries and municipalities. The Council was mapped under the example, systems with more than 30 inspectorates will find it Ministry of Public Administration and included several expert difficult to address overlaps solely through cooperation and committees tasked with improving consistency in selected ar- coordination arrangements. The following sections offer ex- eas of the inspection system.15 The Inspection Council under- amples of use of these mechanisms. took the following primary steps: • Plan joint inspections (especially at the municipal level) i. Binding coordination mechanisms and facilitate information sharing. In Bogotá, Colombia, in 2016, the mayor’s office launched • Define and monitor performance indicators to evaluate ef- a reform process aimed at addressing implementation ficiency and quality in the system. gaps in a 2007 initiative intended to achieve integration • Address common professional and organizational issues. and address systemic issues in the inspection system. • Propose and plan professional training for inspectors. Issues included excessive costs for the public sector, abusive • Plan the standardization of equipment, records, and ac- practices against the private sector, overlaps and duplications cess to databases. among the inspectorates, and low overall effectiveness. The • Provide a shared ICT system for information exchange. mayor sought to improve standardization and the overall co- • Provide guidance to ensure a uniform interpretation of the ordination of the IVC (Inspección, Vigilancia y Control) sys- regulations relating to inspections. tem, previously launched to cover other regulatory domains. • Provide legal assistance in complex operational cases. The initiative focused on integrating as many inspectorates • Discuss proposals for amendments to the regulations. as possible;13 introducing risk-based planning to promote a • Participate in resolving issues in the areas of competence. proactive rather than a reactive system; building capacity at • Discuss reports from inspection bodies. the inspectorates by retraining them on technical aspects and on soft skills (e.g., compliance promotion); and, lastly, imple- Greece in 2018 introduced a coordination mechanism un- menting an IT platform to support the inspection system. The der the Ministry of Development and Investment, known directorate’s functions and powers were strengthened by a as the Better Regulation Delivery Directorate (BRDD), 2016 decree that hardwired the coordination entity (known as through the Inspection Law.16 Part of broader efforts to im- the district sub-directorate for Management Monitoring of IVC) prove the country’s competitiveness and contribute to eco- into Bogota’s inspections system. The decree expanded the nomic recovery following the 2010 economic crisis, BRDD’s coordination entity’s mandate as follows: role is to design, spearhead, coordinate, and monitor business • Managing the reform process, monitoring the perfor- regulation reforms to improve the country’s business environ- mance of the district authorities in charge of inspections, ment. BRDD’s mandate is to monitor implementation of the and monitoring inspection plans of businesses and/or re- principles, approaches, and tools mandated by the Inspection tail establishments operating in the capital district. Law at both the central and local government levels; to support 13. Including the District Health Secretariat, District Government Secretariat, District Environment Secretariat, Safety Secretariat, Metropolitan Police of Bogotá, and Special Administrative Unit Official Fire Department of Bogotá. 14. Official Gazette of the RS, Nos. 56/02, 26/07, 43/07-UPB1. 15. Examples include the Legal Committee, IT Committee, Inspection Services Performance Committee, Efficiency and Quality Assessment Committee, and the Education and Training Committee. 16. Greek Law 4512/2018, Article 133. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 14 the line ministries in issuing secondary legislation for inspec- ment government decisions regarding coordination and co- tions; and to convene and disseminate knowledge on best operation in the inspections system. The Inspection Council’s practices to the inspectorates. Lastly, BRDD was charged with Bureau monitors implementation of new practices, approach- developing an e-Inspections solution, known as the Integrated es, and tools by its members, advises at a strategic level, and Licensing and Inspections Management System (ILIMS), to supports the Council in its activities. Inspectorates lead the digitalize inspection procedures and enable information ex- reform, mostly supporting the Council’s initiatives, but deci- change between the inspectorates. sion making requires consensus, and each inspectorate must do the heavy lifting for implementation. In cross-cutting initia- Jordan introduced the Higher Committee (HC), a stand- tives (such as information systems), finding consensus can be alone unit under the Ministry of Investment, Trade, and challenging. If some inspectorates find a proposed solution Supply (MoITS), to oversee reform. HC was first introduced too disruptive or mature, the solutions ultimately selected may as a temporary body through a Prime Minister’s decree, and not always be the most effective. subsequently became permanent through the Inspection Law. It includes four members from the private sector to ensure the In Lithuania, positive results achieved during the first private sector’s involvement in reform monitoring. In addition, phase of reforms were largely driven by an effective coor- MoITS established an operational arm, known as the Inspec- dination mechanism. This was known as the Expert Commit- tion Unit, to support the HC. IFC provided technical support tee, consisting of representatives from the nine largest inspec- to the HC and the Unit by developing the National Inspec- torates and a reform team, which met bi-weekly. The committee tion Strategy 2020–2025 and an operational manual for the shares experiences, promotes and disseminates examples on Inspection Unit. best practices, builds consensus on decision making, and co- ordinates reform implementation (see also Box 3). ii. “Soft” coordination mechanisms The Netherlands and Lithuania opted for soft mecha- Although these examples indicate that soft mechanisms nisms to help inspectorates harmonize tools and prac- for coordination can work, replicating this approach in tices, break siloes, and improve knowledge sharing. The developing countries may be suboptimal. In such contexts, Inspection Council (Inspectieraad) in the Netherlands, under a more binding and structured approach is typically neces- a cooperation agreement, brings together the heads of the ten sary to bring about change. Also, a lead agency with a clear national inspectorates,17 who have met monthly since 2007. mandate based on a law and hardwired into the inspections The Inspection Council’s two main tasks are to (a) encourage system may better suit jurisdictions with weak institutions and inspectorates to use “sound supervision” principles (indepen- limited coordination and cooperation across ministries and dence, transparency, professionalism, cooperation, selectivity, levels of government. and decisiveness) to carry out their activities, and (b) imple- 17. See https://www.rijksinspecties.nl/over-de-inspectieraad. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 15 > > > BOX 3 Lithuania’s reform: Harmonization of inspections’ approach and practices under the slogan “from punish- ment to advice” Business regulations in Lithuania were seen as excessive and complex, with unpredictable and punitive inspections limited information for and consultation with businesses. The various inspectorates did not cooperate or focus on risk reduction. Instead, inspectorates policed the private sector. The reform—intended to consolidate inspectorates, reduce the burden on businesses, and improve transparency—was launched with the slogan “From punishment to advice” and was gradually implemented by adding new tools on a rolling basis depending on specific needs and priorities, opera- tional capabilities, and each inspectorate’s assessed maturity. The nine larger inspectorates joined the Experts Committee and were the first to adopt the “declaration on the first year of business,” under which signatory inspectorates committed to imposing sanctions only as a last resort if a business had been operating for less than a year, to allow sufficient time for new businesses to learn how to comply. By 2014, a total of 50 inspectorates (out of 60) had voluntarily signed the declaration. Other compliance promotion measures included a hotline created by the Tax Inspectorate to advise businesses on regulations. Other inspectorates, includ- ing some deemed “best performers,” later replicated this example. The hotline also improved uniformity in the advice provided to businesses by recording conversations for training purposes, and the supervisory institution assumed responsibility for the advice provided. Other reforms introduced risk-based approaches, checklist-based site inspec- tions, and procedures to manage administrative violations. Lastly, performance management measures with relevant indicators were introduced. iii. Cooperation arrangements Authorities from different jurisdictions can also benefit In the absence of institutional or legal reform, soft instru- from cooperation. For example, Canada and the EU member ments, such as service-level agreements and memoranda states’ inspection agencies introduced a cooperation agree- of understanding, can also foster integration at the opera- ment for drug and medical device inspections. Based on mu- tional level. These efforts can improve efficiency, effective- tual recognition agreements regarding compliance programs, ness, and private sector perceptions of the system. In Austra- duplicate inspections for specific product categories were lia, the initiative between the Australian Transaction Reports & eliminated, allowing both inspectorates to focus on higher pri- Analysis Centre (AUSTRAC) and the Australian Federal Po- ority products. This led to cost savings for both the inspector- lice (AFP) illustrates how key inspection functions can be inte- ates and the private sector. Mutual recognition of compliance grated through cooperation between two institutions. Reached programs can make international systems of regulation (Good through a cooperation agreement, the arrangement did not Manufacturing Practices)18 more effective and more efficient in require any legal change. The reform aimed to strengthen the use of available resources. This effort showed that repeat- collaboration in anti-money laundering (AML), antiterrorism ed testing in import and export procedures is not necessary to financing (ATF), and financial crime and to tackle other prob- ensure product quality and safety. lems transcending institutional siloes. AFP and AUSTRAC ex- changed knowledge on operations; trained staffs on both insti- iv. The UK Primary Authority scheme tutions’ policies and practices; co-located staff; and agreed on In the United Kingdom (UK), the Primary Authority coop- protocols for operating procedures and information sharing. eration and consolidation scheme19 tackles challenges Key elements in the success of this approach are the clear un- stemming from regional variation in service delivery. Busi- derstanding of both institutions’ missions, requirements, and nesses in different parts of the country experienced significant roles (reinforced through staff co-location), and collaborative differences in local authorities’ (LA) interpretation of the same adaptation of the processes. national regulations. The Primary Authority scheme was intro- 18. Good Manufacturing Practices (GMP), an aspect of quality assurance, ensures that medicinal products are consistently produced to the quality standards appropriate for their intended use and as required by the product specification as defined by the World Health Organization. See http://www.who.int/biologicals/vaccines/good_manu- facturing_practice/en/. 19. See https://www.gov.uk/guidance/local-regulation-primary-authority#who-can-enter-a-partnership. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 16 duced to improve consistency and reduce complexity, unpre- While the Primary Authority scheme was designed to dictability, and costs for the private sector, particularly for busi- solve issues arising in a system that places local authori- nesses operating in multiple locations across the UK. Under ties in charge of most inspections, countries with other this new model, businesses establish formal partnerships giv- institutional models often face similar challenges. Even in ing a specific LA a prevailing (“primary”) role over others. The governance frameworks under which inspectors nominally re- primary LA provides local regulators supervising a businesses’ port to the central government, significant local autonomy and other branches detailed advice, based on national regulations variation may exist. The Primary Authority scheme illustrates and guidance, for inspections or enforcement actions. Agree- how it is possible to meet challenges inherent in both devolved ments can cover broad or specific areas of environmental pro- and centralized inspection frameworks. tection, health, occupational safety, fire safety, licensing, and trading standards. > > > F I G U R E 2 . - Comparing institutional models for reform identified in the country examples, in terms of how binding they are, and the degree of institutional consolidation they introduce. Strong institutional consolidation Central inspectorate Mergin related inspections Non-binding Binding Soft coordination Binding coordination mechanisms mechanisms Cooperation Agreement/MoU No institutional consolidation Source: The authors. Note: This comparison refers to the country examples reviewed under this study. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 17 > > > T A B L E 1 . - Overview of the institutional models for reform identified in the country examples. Institutional Legal changes Investments Options for Description Advantages Disadvantages changes needed for needed for required for integration implementation implementation implementation Clarifying • Related inspectorates • Enhanced efficiency • Requires analysis and assessments • Institutional changes are Some legal changes will be • Initial investments institutional that are part of the and effectiveness of in particular based on risk required and will likely be required for the merger. The are required to mandates, aligning regulatory domain or inspectorates’ functions • Difficult to implement due to significant. The scope will scope will depend on the implement the inspectorates’ ministry are merged or • Optimization in the political economy constraints (e.g., depend on the number degree of changes in terms merger and some functions with combined under one allocation of resources resistance due to fear of losing of inspectorates being of approaches, operational recurring costs regulatory goals Specialized authority/ power, influence, jobs) merged tools, procedures. are expected to UK-Lead authority, Italy inspectorate • Difficult to reverse if proven ensure integration (Campania region), ineffective of the old Estonia • Requires medium to longer term inspectorates into implementation efforts a new authority/ inspectorate Achieving • Merging all or a majority • Powerful and influential • Requires analysis and assessments • Significant institutional • Significant legal reform • Significant initial integration of of inspectorates into a • Consistent enforcement in particular based on risk changes are expected is necessary to introduce investments are inspectorates centralized inspectorate due to common practices • Requires strong political will to either by merging the new institutional required and through institutional or introducing an under one authority sustain and finance all inspectorates framework and other recurring costs consolidation Inspector general’s • Enhances public • Requires substantial institutional or by consolidating changes in terms of new (e.g. Central office); reforming accountability and changes inspectorates, as approaches, operational inspectorate) operational policies responsibilities • Challenging change management independent bodies tools, procedures Mongolia, Croatia of inspectorates, their • Addresses structural process under the line ministries mandate/jurisdiction, weaknesses such as • Creates a managerial position which (with a separate budget organization, unclear mandates/ is politically attractive and may code), and by having a competencies, jurisdictions introduce challenges in terms of central inspectorate at coordination, • Optimal use of resources maintaining professionalism and the level of government governance, processes, integrity to coordinate and operational tools, • Difficult to reverse if proven represent the inspection approaches ineffective system • Requires medium to longer term implementation efforts to ensure integration at the operational level (e.g., through capacity building, reformed practices and procedures etc.) Coordination • Establishing a • Good oversight and • May not address the root causes of • Institutional changes • Legal changes are • Limited initial mechanisms coordination mechanism coordination of reforms fragmentation and inefficiency (e.g., may be needed but these not always necessary investments are (e.g., consisting of head across inspectorates unclear mandates and jurisdictions) are typically limited to introduce the needed for the soft coordination of inspectorates or other • Does not require • Requires political will, high level coordination mechanism coordination mechanisms: central mechanism) to significant investments, support and commitment to per se, but in some cases mechanism, some Lithuania, the coordinate inspection or legal and institutional ensure proper functioning of the they may be necessary recurring costs Netherlands reforms; This can changes coordination mechanism to complement the are expected if the complement legal • Can be implemented in coordination mechanism mechanism is made binding coordination reforms such as a unified the short term permanent and mechanisms: legal framework, but it grows over time Slovenia, Greece, can also be introduced Jordan, Kyrgyz without legal reform Republic, Colombia (Bogota) Cooperation • Two or more • Easy to implement and • Not binding and depends on • Institutional changes are • Legal reform is not • Limited investment Agreement, or MOU organizations decide easy to reverse commitment and willingness of not needed needed is required Australia to facilitate inspection • Can be implemented in organizations service through the short term • May not address the systemic/ delegation or authority, • Usually bilateral and root causes of inefficiency/ secondment of staff or therefore small scale ineffectiveness, especially in agreement on sharing of of impact in a certain jurisdictions with a low maturity information domain or geographical level and a formalistic legal tradition jurisdiction • More appropriate for jurisdictions with a culture of cooperation, a high maturity level • Needs to be renewed and monitored frequently • Usually applied to integrate few inspectorates Source: the Authors. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 18 2. >>> Legal instruments for integration The legal framework governing the inspections system is a key element of business in- spection reform in general and of integration in particular. The legal framework defines an inspection system and creates a foundation for the three key goals: removing unnecessary in- spections, eliminating conflicts of interest, and shifting to an advisory and prevention approach. This section discusses some legal solutions introduced in various countries. a. Providing a unified and binding legal framework on principles, procedures, and operational guidance through a horizontal law Countries that seek deep changes in the inspections system often introduce a binding and detailed horizontal framework that applies to most inspectorates, with the typical exceptions of the banking sector, financial services, customs, and tax administration.20 Mongolia’s framework law21 introduced a unique legal basis governing inspections in different regulatory domains. It mandated a risk-based approach to inspections and the use of new tools and measures, including prior notice, transparent inspection processes, checklists, adoption of risk criteria, risk-based inspection planning, and publication of inspections plans. The law also prescribed rights and duties for both the inspectors and the private sector. In Lithuania, Greece, and Jordan, framework laws introduced crucial innovations across regulatory domains. Lithuania’s 2010 amendments to the Law on Public Administration22 de- fined “supervision” to include consultations, inspection visits, analysis of available information, and enforcement measures. The law also introduced a set of common principles, including in- spectorates’ obligation to provide advice and assistance to regulated entities. Risk assessments and risk planning are now the foundations of inspection activities. Similarly, Greece in 2018 adopted a new framework law23 on supervision aimed at unifying the principles, approaches, procedures, and operational tools for almost all supervision authorities.24 Jordan enacted a horizontal law in 2017 consolidating its inspection system across four regulatory domains. Fo- 20. Three alternative models address the scope issue: (i) some inspection domains are specifically excluded from the law; (ii) the horizontal framework is not very detailed, thus allowing it to cover all regulatory areas (more detailed regulations are adopted separately for each regulatory domain); and (iii) some articles apply to all regulatory domains (e.g., the core principles, provisions on the governance of inspectorates), but some domains are specifically excluded from application of the detailed provisions of the law. 21. Law of Mongolia on State Supervision and Inspection of January 3, 2003, with subsequent amendments June 10, 2010. 22. Republic of Lithuania Law on Public Administration No VIII-12341999 of June 17, 1999. Chapter on “Supervision of Activities of Economic Entities.” 23. Greek Law 4512/2018. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 19 cused primarily on clarifying the institutional framework, the One challenge typically encountered with this type of le- law’s four horizontal bylaws covered (i) operational aspects gal reform are particularly lengthy adoption and amend- of inspections, such as the shift toward risk management; (ii) ment process(es). For example, in the Russian Federation, human resource aspects; (iii) grievance and recourse mecha- preparing and adopting a 2020 framework law on supervi- nisms to provide a framework for inspection decision appeals; sion29 took several years to finalize. and (iv) a framework on coordination between inspectorates (e.g., delegating responsibilities and conducting joint inspec- tions). Similar legal changes have been adopted elsewhere, b. Introducing a high-level for instance, in the Kyrgyz Republic,25 Slovenia,26 and Colom- common legal framework bia (District of Bogotá).27 In Mexico, legal changes extended as far as a constitu- tional amendment,28 foreseeing the need for the authori- Inspections can also be integrated through high-level ties at all government levels to implement regulatory im- common legal frameworks. This approach, less prescriptive provement policies and promote simplified formalities, and granular than the framework approach, can help improve regulations, procedures, and services. The amendment cohesion while providing each inspectorate with flexibility on provided the basis for the National Commission of Regulatory how it adheres to the set principles and allowing experimenta- Improvement (CONAMER), responsible for promoting better tion with regulatory delivery and the tools, practices, and pro- regulation and administrative simplification, and the National cesses that best fit each inspectorate’s specific needs. For Registry of Inspections (Registro Nacional de Visitas Domicili- example, in the United Kingdom, the 2014 Regulators’ Code30 arias), a list of public servants authorized to perform inspec- provided key principles for regulators to follow “when develop- tions and the inspections these authorities can conduct. ing policies and operational procedures that guide their regu- latory activities.”31 These principles included the need to pro- A framework law on inspections that covers all or most vide guidance and advice to promote compliance, to always regulatory domains may be more suitable for jurisdic- consider the social and economic impact of regulatory deci- tions with legal traditions of prescriptive, mandatory, sions, to prioritize enforcement decisions that will help busi- detailed rules (i.e., civil law systems such as the former nesses grow,32 and to adopt proportionality and risk-focused Eastern bloc and post-Soviet countries of Central Asia). approaches, among others. This solution is also relevant where a drastic shift in the overall approach to inspections is needed and its initiation is marked Legal instruments like the Regulators’ Code may be more by setting strong foundations based on a compulsory, unified, effective in certain types of jurisdiction. By foreseeing binding framework. However, additional instruments and ac- principles for regulators to follow and setting rules governing tions are required to ensure the adequate implementation of coordination schemes for inspection authorities (e.g., the UK the framework, including secondary legislation; operational Primary Authority scheme), such codes generally better suit tools, such as risk assessments and checklists; and harmo- jurisdictions with more mature inspection systems or with laws nized practices. and implementation procedures (e.g., common law systems) that are less codified or prescriptive. The approach is less rel- evant for jurisdictions requiring drastic change or with weak institutional capacity or poor implementation track records. 24. Greece’s consolidated law applies to all inspection domains, except tax and customs, banking and financial services, civil aviation safety, and labor law. 25. Law of the Kyrgyz Republic No. 72, “On Procedures for Inspecting Business Entities,” of May 25, 2007 and subsequent amendments introduced in 2011. 26. Republic of Slovenia Inspections Act No. 56/2002, with subsequent amendments No. 26/2007, 40/2014. 27. Bogotá Capital District Decree 483 of October 22, 2009 establishing the Unified District System of Inspection, Oversight, and Control (Inspección, Vigilancia y Control (IVC)). 28. Published in the Federal Official Gazette on February 5, 2017. 29. Federal Law of the Russian Federation of July 31, 2020, No. 248-FZ on state control (supervision) and municipal control in the Russian Federation. 30. The 2014 Regulator’s Code replaced the 2008 Regulators’ Compliance Code. 31. Regulators whose functions are specified by order under section 24(2) of the Act “must have regard to the Code when developing policies and operational procedures that guide their regulatory activities. Regulators must equally have regard to the Code when setting standards or giving guidance which will guide the regulatory activities of other regulators.” For more information see the 2014 Regulator’s Code available at https://assets.publishing.service.gov.uk/government/uploads/system/uploads/ attachment_data/file/300126/14-705-regulators-code.pdf, p. 3. 32. Rule No 1 of the Regulators’ Code foresees: “Regulators should carry out their activities in a way that supports those they regulate to comply and grow.” EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 20 c. Integrating through self-binding Although the internal regulation is binding for the min- istries, implementation is contingent on the ministers’ government regulation to commitment, since no independent oversight mecha- insulate inspectorates from nism monitors adherence. Therefore, although the regula- tion offers flexibility and expedience, it may be vulnerable to political influence government transitions. Such instruments may be more suit- able where successive governments are assured of showing a strong commitment to transparency and the rule of law than Some reformers have used government regulation and/or to jurisdictions with strong pockets of resistance to reform soft legal instruments not founded on a framework law to and at high risk of reform reversals under succeeding govern- integrate and improve the inspection system. For example, ments. To ensure success, this approach should be comple- in the Netherlands, the reform of the overall inspection system mented by other legal instruments, tools, and measures that has gradually introduced integration elements, often under support integration. stakeholder institution agreements.33 In 2015, the government adopted an internal regulation, known as “Instructions of the Prime Minister,”34 on the position of inspectorates under the d. Integrating without a ministries. Developed in response to growing concerns about the inspectorates’ dependence on political influence and the legal instrument need to enhance transparency in the inspections system (e.g., by improving standardization of procedures and information sharing between the inspectorates), the Instructions provided In some exceptional cases, inspections system harmoni- a framework for internal organizational measures between zation, cooperation, and integration have been achieved ministries and inspectorates and introduced safeguards to re- without enacting a new law or issuing new regulations, move risks of conflict of interest and political interference. The although these have been limited to small-scale integra- Instructions introduced a uniform institutional framework with tion efforts. One example is the initiative mentioned above horizontal competencies and procedures for all inspection- between two Australian commonwealth government agen- related decisions. Accordingly, inspectorates report directly cies, AUSTRAC and the AFP.36 This reform demonstrates to the Secretary General of their line ministry, and ministers that improvements in regulatory outcomes do not always can provide instructions to the inspectorates only subject to require comprehensive institutional and legal changes if the specific conditions.35 Ministers can no longer interfere in the stakeholders have aligned interests and work jointly toward inspections system by providing inputs to findings, opinions, a common goal. Success was largely due to the two agen- or conclusions, and they cannot interfere in an inspectorate’s cies’ mutual effort to understand each other’s goals, practices, inspection-related activities. The regulation also introduced a requirements and to adapt their processes. At the same time, functional separation between supervision and other regula- however, the changes were implemented in a rather narrow tory functions, such as licensing. regulatory area. A reform with a broader scope would most likely require a new law or regulation to support the more com- prehensive changes desired. 33. Such as the Inspection Council, established in 2007 to ensure collaboration between national inspectorates. Its decision-making process depends on consensus and shared IT solutions implemented in 2013 to support horizontal collaboration among inspectorates. 34. Regulation of the Prime Minister regarding the determination of instructions relating to the exercise of supervisory duties by National Inspectorates (Regeling van de Minister-President, Minister van Algemene Zaken houdende de vaststelling van de Aanwijzingen inzake de rijksinspecties), nr. 3151041 of September 30, 2015. 35. For example, instructions can only be communicated in writing; general instructions must be published in the Government Gazette; and special instructions must be submitted to the Parliament. 36. As of 2017, to manage relationships and facilitate information sharing, AFP has a staff member permanently co-located with AUSTRAC in its Sydney office and AUS- TRAC has eight staff co-located in AFP offices around the country. The co-located staff assist AFP staff in analyzing financial intelligence and train them in the use of AUSTRAC systems. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 21 > > > F I G U R E 3 . - Comparing the legal instruments for reform identified in the country examples, in terms of how binding they are, and the degree of institutional consolidation they introduce. Horizontal Unified & binding Self-binding High-level framework through fovernment common legal a horizontal law regulation framework (for several or all domains) Non-binding Binding Unified & binding Integrating through framework through MoUs or without a a vertical law (e.g., legal instrument domain specific) Vertical Source: Authors. Note: This comparison refers to the country examples reviewed under this study. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 22 > > > T A B L E 2 . - Overview of the legal instruments for reform identified in the country examples. Institutional Legal changes Investments Options Description Advantages Disadvantages changes needed for needed for required for implementation implementation implementation Unified legal • Enacting a unified and • Provides a solid legal • May not resolve all systemic • Institutional changes are A new framework • Some investments framework for most binding legal framework basis for integration weaknesses in the institutional typically not necessary legislation accompanied by may be required to inspections across for inspections either of approaches, tools, framework such as unclear for the unified legal implementing secondary implement the new domains or for all horizontally across practices mandates and jurisdictions, framework, unless this legislation is required legal framework, inspections within a several/most regulatory • Can be implemented in especially if implementation is introduces institutional Domain-specific laws will especially if this domain (principles, domains, or vertically the medium term weak. Other reforms may be needed reforms as well (see have to be amended to be prescribes new approaches within a domain. as well such as a coordination table 1) aligned with the framework approaches, procedures and mechanism or institutional law operational operational tools) consolidation tools and digital Greece, Lithuania, technology Jordan, Mongolia solutions, and not only new procedures Introducing a high- • Introducing a set of • Improves cohesion • High degree of flexibility may • Not necessary • A new framework law • Some investments level common legal common principles while providing each not address fragmentation and or Code (depending on may be required to framework that inspectorates inspectorate with structural weaknesses in the the jurisdiction’s legal implement the new United Kingdom must adhere to without flexibility on how inspections system tradition) accompanied legal framework, providing much detail on to adhere to the set • This approach may not be fit-for- by implementing especially if this the specific operational principles purpose in the case of inspections secondary legislation is prescribes new tools, procedures, and • Allows experimentation systems at a low level of maturity required approaches, methods that must be with regulatory delivery • Changes to sectoral operational implemented to adhere to and the tools, practices, laws may be needed tools and digital the principles and processes that best to implement the new technology fit each inspectorate’s principles. solutions, and specific needs not only new procedures Integrating through • Introducing a common • Offers flexibility and • This approach may be vulnerable to • None or negligible • A government regulation • Some investments self-binding legal framework through expedience government transitions and requires or other soft legal may be required government regulation, either a strong level of commitment to instrument to implement the regulation horizontally across deliver expected outcomes new regulation, The Netherlands several/most regulatory especially if this domains, or vertically for prescribes new one domain approaches, operational tools and digital technology solutions, and not only new procedures Integrating without • Aligning operations, • Offers maximum flexibility • This approach may not be very • None or negligible • None • Some investments a legal instrument exchanging information since the integration can sustainable may be required, Australia, UK Primary and knowledge, and be tailored to the needs • Although this approach may work especially if the Authority scheme working towards a and specificities of each between two organizations, it may aligning operations common goal without inspectorate be difficult to scale and include requires developing a binding commitment • Offers expedience several inspectorates new tools, and being set in a law or implementing regulation digital technology solutions (e.g. for information exchange, Source: the Authors. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 23 3. >>> Strategy, planning, and operational tools The strategies and operational tools deployed by the inspectorates are important com- ponents of the inspection system, and their degree of development, implementation, and standardization can determine the success or failure of integration efforts. Lack of coherent, result-driven strategies and of common tools and practices may undermine efforts to improve an inspection system’s efficiency and effectiveness. To ensure adequate focus on outcomes, each inspectorate must undertake strategic planning that includes coherent design and implementation of appropriate operational tools, such as risk assessments and planning methodologies. Other key strategic aspects include inspection equipment; inspectors’ salaries, roles, and responsibilities; performance management; continuous professional education (sec- tion 4 below discusses competencies more fully); and internal auditing frameworks to ensure adequate checks and balances. a. Articulating a clear vision and strategy toward a paradigm shift to inspections Successful inspection systems typically have a clear mission and well-articulated goals for short, medium-, and longer-term objectives. Good practice strategies emphasize improv- ing compliance by enhancing the inspectorates’ preventive and risk management roles rather than focusing solely on enforcement. This is an essential element in the cultural shift from a “policing” role, where the inspectorates focus on ensuring compliance with regulations, to an advisory role, where the inspectorates work to improve regulatory outcomes. Robust strategies also include indicators to assess the inspectorate’s performance. For example, Mongolia’s integration efforts were supported by a medium-term strategy that im- proved GASI’s ability to focus on results. The integration initiated in 2003 that led to the merger of 25 separate inspection areas into 7 departments was not particularly successful in addressing systemic weaknesses in the inspection system. GASI inspectorates continued to have poorly delineated responsibilities, and in the first years following the reform, the regulatory objectives set by the various departments did not always focus on improving outcomes. As a result, almost 58 percent of businesses were being inspected at least once per year, an excessive number when compared to international good practices. Moreover, despite the high number of adminis- trative sanctions imposed by inspectors, no data show that compliance levels improved. IFC’s EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 24 subsequent review identified several weaknesses in GASI sion and activities away from chasing violations and toward and proposed a series of reforms that culminated in 2010 in ensuring safety and promoting compliance. The objective of amendments to the State Inspection Law that mandated risk this medium-term strategy was to set performance objectives management, improved transparency, and strengthened pro- and indicators for 2016–2018 based on outcomes related to fessionalism. health, safety, and consumer protection. RMS implementation involved each GASI department in developing a medium-term Adoption of a new strategy was at the crux of this sec- action plan (MTAP) and setting objectives of benefit to the ond generation of reforms. A risk management strategy public to be achieved over a three-year period. MTAPs also (RMS), adopted in 2015, crystallized the shift in GASI’s mis- establish individual officers’ performance objectives. > > > BOX 4 The UK Health and Safety Executive’s multilayer approach to developing a strategy for occupational health and safety across sectors The UK Health and Safety Executive (HSE), a non-departmental public body reporting to the Department for Work and Pensions with the core purpose of reducing work-related injuries and ill-health, operates from several sites across Great Britain and employs over 2,000 people. HSE was established in 1974 by the Health and Safety at Work Act and is the leading institution for ensuring the Act’s implementation. At the same time, the Act puts the responsibility for health and safety on economic operators and foresees a major role for regulated industries in developing codes of conduct with specific guidelines for each. HSE plays a prominent role not only in the Act’s implementation, but also in the consistent, coherent, and standardized regulatory delivery of occupational health and safety (OHS), by both HSE and local authorities. HSE thus wears two hats: It is mandated to act as both a regulatory delivery agency and a rule- making regulator. As a regulatory delivery agency, it conducts inspections and investigations, develops and provides guidance, and cooperates with the industries it supervises to proactively manage and reduce risks. As a regulator, to ensure the homogeneity and integration of the overall inspection system, it sets strategy, approach, rules, and guid- ance for all regulatory delivery agencies, including objects and sites under its own direct responsibility and those under local authority control. HSE has produced a high-level, multiyear strategy37 based on strategic themes to help it in guiding all OHS activities and to ensure a shared vision for the ongoing co-regulatory partnership between HSE and the local Authorities. The strategy sets out priorities for the next five years: • First, HSE develops annual forward-looking business plans38 with overall objectives, specific priorities for each objective, and identifiable deliverables for each priority area. • Second, HSE develops sector specific plans for each of the 19 sectors it regulates,39 covering health and safety performance, identifying the top three strategic priorities for the next three to five years, and including actions that HSE proposes to take to achieve those priorities. • Third, HSE develops specific plans for each of the top health priorities identified in its business plans. For example, based on HSE’s strategy, the top three health priorities for this period include occupational lung disease, musculo- skeletal disorders, and work-related stress.40 • Lastly, through its annual reports, HSE evaluates its performance against the objectives, priorities, and milestones set out in its business plans.41 The annual reports are complemented by annual surveys of individuals that produce granular information on perceptions concerning several workplace health and safety areas. 37. For more information on “Helping Great Britain Work Well” from 2016, see https://www.hse.gov.uk/strategy/assets/docs/hse-helping-great-britain-work-well-strate- gy-2016.pdf. 38. For more information on the HSE’s business plans, visit https://www.hse.gov.uk/aboutus/strategiesandplans/index.htm. 39. For more information on HSE’s sector plans, visit https://www.hse.gov.uk/aboutus/strategiesandplans/sector-plans/index.htm. 40. For more information on HSE’s health plans, visit https://www.hse.gov.uk/aboutus/strategiesandplans/health-and-work-strategy/index.htm. 41. For more information on HSE’s annual reports, visit https://www.hse.gov.uk/aboutus/reports/index.htm. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 25 As discussed in Box 2, Italy’s Campania region reformed and ensuring cohesion within the inspection system, its food safety inspection system, moving from an ex-post especially when integration efforts are at issue. For ex- enforcement regime to a risk-based system consistent ample, to improving their cooperation, AUSTRAC and AFP with the requirements set out in the EU Hygiene Package. developed mutually agreed templates for inspection reports, The food safety inspection system was reformed to focus on minutes, etc., to facilitate information sharing and reflect the ensuring the following: site-inspection process and the relevant findings. • Inspection planning by all competent authorities based on risk categorization to improve the inspection system’s ef- More importantly, recent reformers have mainstreamed fectiveness. risk-based tools into their operations to improve in- • Proactive and preventive (rather than reactive only) in- spectorates’ efficiency and effectiveness. For example, spections to reduce the high costs involved in the treat- Greece’s Inspections Law provides a horizontal framework ment of foodborne and zoonotic diseases. to harmonize and standardize procedures and tools between • Human resources effectively managed through risk-based inspectorates. This framework requires inspectorates to carry planning and by monitoring the quality of inspectors’ work. out risk assessments (based on factors such as the inherent risk of each economic activity, the duty holder’s compliance The adoption of multiannual Integrated Regional Plans42 ap- record, and the risk profile built through the site-inspection plicable to all regional and local authorities involved in inspec- checklists, etc.) and to use risk classification tools to place tions has been crucial in ensuring a coherent strategy from the regulated entities within a risk pyramid. It also requires inspec- reformed official control. The Regional Plans stipulate guiding torates to produce inspection plans based on the risk assess- principles, regional strategic objectives, staff training require- ments, the estimated level of effort for each site inspection, ments, and the competent authorities and reference laborato- and the available resources. The horizontal framework pro- ries. They also provide guidance on how to organize and man- vides a standardized approach to managing complaints by age official controls, procedures, and operational criteria and prioritizing them according to specific criteria. The goal here to establish intervention and mutual assistance plans between is to ensure that inspectorates proactively focus their activities competent authorities. on risk planning and limit reactive inspections (i.e., site inspec- tions in response to complaints) to urgent, high-risk events. Greece’s Inspections Law, for example, requires inspec- Additionally, the law mandates that enforcement management torates to produce annual or multiannual strategic plans models be adopted across regulatory domains to ensure a based on information collected through the licensing level playing field for businesses and consistency in enforce- regime, proactive site-inspections, complaints received, ment decisions (e.g., warning notices for minor violations and and official registries/databases. Intended to help inspec- temporary or permanent business closure in cases of risk- torates improve resource allocation, the plans must include sensitive violations). At the time of writing this note, Greece is supervision activities foreseen during the plan’s duration and in the early stages of implementing this approach, so no evi- the overall goals and specific measurable objectives to be at- dence is as yet available on the outcomes of enacting this law. tained, based on KPIs for each regulatory domain. Moreover, the law requires inspectorates to produce self-assessments to Reformers typically standardize inspection procedures evaluate their performance and overall institutional effective- across inspectorates and mandate the use of checklists ness using the selected KPIs against the objectives set out in to enhance accountability, transparency, and proportion- the plans. ality. Checklists focus on critical points of control, thus helping businesses comply and inspectors prioritize their checks to the critical points of control. Checklists are developed by re- viewing technical regulations to set priorities, an approached b. Standardizing procedures and used by the Kyrgyz Republic, Mongolia, and Lithuania, among implementing risk-based tools several other jurisdictions. Some reformers go a step further, assigning scores to each point of control to help inspectors quickly assess risks during the site-inspection or when receiv- Different inspectorates typically have their own proce- ing a complaint. dures, tools, and practices. As discussed earlier, stan- Uniform practices can rarely be adopted by legal or regu- dardizing these is important for harmonizing practices latory mandates. Rather, successful reformers offer detailed 42. The first Plan was prepared for the period 2011–2014. The next Integrated Regional Plan, for 2015–2018, is available at http://www.orsacampania.it/piano-regionale- integrato-20152018/. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 26 guidelines that help inspectors develop and use the new in 2019 and closure orders for noncompliant businesses fell tools. For example, the WBG produced horizontal and domain from 4,408 in 2017 to 115 closures in 2019. specific guidelines in Greece and Mongolia to help inspec- tors develop risk-based tools in each regulatory domain. The Despite such achievements, mainstreaming risk man- guidelines help ensure uniformity in the inspections system by agement into operations is not a panacea, especially for providing granular guidance to the inspectorates for interpret- inspectorates with weak capacity and limited resources. ing and implementing the unified legal framework, and they Risk-based inspections were introduced in the Kyrgyz Repub- help inspectorates transition to e-Inspections systems. lic in 2011, but this was too early given its inspections system’s maturity level at the time. As the project team noted, “Inspec- Because risk-based tools target businesses that pose tors were not ready for it; the IT tools and databases for this higher risks to regulators’ objectives, jurisdictions that did not yet exist. When the reform of risk-based inspections adopt them typically see improvements in compliance began, many statistics and other needed information were not levels over time. For example, the IFC project in Jordan yet available. A simpler approach to risk-based inspections found that the total number of notices against businesses would start by focusing on the size of a given firm and sector, dropped from 106,734 at baseline to 42,751 at completion, then gradually move to a more complex, granular approach while the number of complaints against businesses dropped based on new feedback and experience” (IFC 2021). from 14,436 at baseline to 10,205 at completion. Records from the Greater Municipality of Amman indicate that following Finally, to remain useful and relevant, risk management IFC support to 14 inspection directorates for designing criteria tools require continuous updates and improvements, to for risk assessments, developing risk-based plans, and check- calibrate tools based on lessons learned from their use. lists, violations by businesses fell from 17,641 in 2017 to 6,688 EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 27 4. >>> Competencies Inspection system integration requires not just legal, institutional, and operational frame- work reform, but human resource reforms as well. Individual inspectors’ technical knowledge and soft skills and how their performance is measured are crucial components of the inspections system. a. Improving human resource capacity, skills, and competencies To be successful, reforms cannot focus on the institutional and legal aspects of inspec- tions systems and overlook other components such as frontline staff capacity. Improving regulatory outcomes directly depends on individual inspectors’ competence. Developing compe- tency frameworks and mapping competencies of existing inspectors to identify gaps in human resources and ensure that inspectorates have adequate expertise are essential. Inspectors’ competencies must also figure into annual inspection plans. Inspecting sophisticated, risk-sen- sitive objects requires inspectorial depth, so assigning inspectors with experience and exper- tise in the relevant areas should be a priority. Lastly, training should not be a one-off exercise. Inspectorates should develop a continuous professional development (CPD) framework that ensure inspectors receive training throughout their careers, not just when they initially join the inspectorate. Budget and time for CPD must be priced into the annual plans. Lack of staff with the requisite skills is a common institutional challenge when transition- ing from a reactive approach focused on policing to a preventive approach anchored by risk management and compliance promotion. Inspectorate staff are usually trained to conduct site visits but not necessarily to conduct risk assessments or develop risk-based plans, guidance for businesses, or other compliance promotion material. The most common approach- es to addressing this skills gap are to (i) train most or all inspectors to carry out these specific tasks, (ii) establish new dedicated units that focus on supervision tasks other than inspections (e.g., risk analysis, operational planning, communication and compliance promotion, etc.), and (iii) hire new staff. Building capacity is crucial to implementing risk-management and ensuring inspectors’ uniform application of new tools. To this end, the Academy for Supervision in the Netherlands, for example, introduced a training program for inspectors across different regulatory domains to harmonize practices. The program’s curriculum includes both theoretical and practical mod- ules with hands-on information from inspectors in other inspectorates on how they conduct site EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 28 inspections. These programs, taught in small groups, encour- spectors. This “train-the-trainers” approach ensured scalable age peer-to-peer learning. Participants identified professional- delivery of capacity building. To measure its impact, trainees ism and risk-based enforcement as the most important topics took short tests before and after the training, and the follow- the program covers. up tests showed an increase of 35 to 40 percent in correctly answered questions. These tests also helped assess the av- In Jordan and Mongolia, IFC supported several trainings erage level of inspectors’ knowledge of a domain, identifying for operational staff and facilitated peer-to-peer learning knowledge gaps. Results were shared confidentially with each for management. One of the four by-laws issued in Jordan inspector and a report was produced for management to de- based on its inspections law focused on improving capacity by cide on next steps. requiring inspectorates to develop competency frameworks, codes of conduct, and policies to address conflicts of interest. Improving the private sector’s trust in the inspections IFC conducted training needs assessments to help inspec- system requires building inspectors’ capacity in both torates identify gaps in human resources, supported inspec- technical and soft skills. The Safety, Energy, and Environ- torates in developing training plans, and delivered targeted ment Agency (ASEA) in Mexico prioritized improving inspec- capacity-building activities to bridge gaps and train inspectors tors’ technical level by investing in training and by recruiting on risk-based tools. According to the project completion sur- subject matter experts across various disciplines. Adequate vey, the program contributed to strong positive trends. For ex- qualifications and experience, as well as knowledge of risk ample, 89 percent of surveyed businesses indicated that they management, are highly valued by businesses, but other skills saw inspectors as competent and knowledgeable on technical matter too. Interpersonal skills, professionalism, and the abil- matters, and 90 percent of respondents reported being satis- ity to advise businesses on how to comply can go a long way fied with inspectors’ overall behavior. Businesses’ perceptions toward promoting compliance and improving perceptions in of the fairness of inspections also improved: the percentage the private sector. In the UK, implementation of the Primary of businesses reporting they were subject to unfair inspection Authority scheme relies on inspectors with a high level of pro- decisions dropped to 9 percent from a baseline of 42 percent. fessionalism and the ability to implement risk assessment and risk management. It also requires inspectors who can work In Mongolia, IFC delivered tailored trainings for senior cooperatively with businesses as well as investigate and iden- management on specific themes and facilitated study tify salient sources of risk. The Primary Authority structures its tours to the UK, Lithuania, Serbia, Bosnia and Herze- efforts to improve inspectors’ and, more broadly, regulators’ govina. Trainings for frontline inspectors ensured tangible im- skills around the Common Approach to Competency for Regu- provements in inspectors’ practices and helped overcome re- lators.43 Core skills needed by inspectors, in addition to the sistance to the risk-based approach. Inspectors were required technical skills specific to their activity domains, include risk to take a test (covering both theoretical and practical aspects) assessment, knowledge of regulated subjects, activity plan- and a group of 18 top performers nationwide, in recognition of ning, compliance checking, compliance support, response to their professional excellence, were certified to train other in- noncompliance, and evaluation. 43. The Competency Framework is supported by online resources, including the Guidance for Regulators Information Point (GRIP) and the Regulators’ Development Needs Analysis (RDNA). Used for training, GRIP, “provides links to learning materials to help regulators in local authorities and elsewhere to meet their development needs in a cost-effective way” (see https://www.regulatorsdevelopment.info/grip/). RDNA’s “self-assessment tool is an interactive website that provides a robust process enabling regulators to identify and prioritize their development needs. It includes a list of core competencies providing a general framework for consideration and technical knowl- edge sections specific to particular regulatory functions” (see http://rdna-tool.bis.gov.uk/). The RDNA supports development planning and is a rich source of low and no-cost development resources. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 29 b. Managing performance within the inspectorate A well-articulated mission supported by measurable Indicators on the number of grievances received from goals is common among robust inspection systems. regulated entities should be treated with caution. A high Measuring progress against goals is typically achieved using number of grievances against a specific inspector (i.e., com- KPIs at the inspectorate level. For example, a food safety in- plaints against inspectors or the inspectorate) may indicate spectorate’s mission is to protect public health by ensuring poor performance (e.g., lack of professionalism, lack of exper- that food is safe. Fulfilment of this mission must be measured tise, etc.), but an overall increase in the number of grievances against specific outputs and outcomes that can be monitored may indicate that businesses trust the grievance and redress and evaluated. Adequate KPIs must be developed, based on mechanism and perceive it as transparent and effective. the agency’s mission—which should be defined in terms of achievements in compliance promotion, risk reduction, and Inspector-level performance indicators are difficult to regulatory outcomes. implement, especially in a risk-based system focused • Outputs refer to the inspectorates’ activities and may on compliance promotion. Clear and tangible KPIs, such include strengthening sampling programs, using site- as the number of inspections conducted, verified violations, inspections to ensure establishments meet performance imposed fines, etc., are not very relevant in this approach. In- standards, and increasing public awareness of specific stead, it may be more useful to measure performance at the risks or practices, among others. unit and organization levels and to use limited KPIs, linked • Outcomes include the tangible results of those activities, to the organization’s broader objectives (such as inspectors’ such as the number of foodborne illnesses, deaths from participation of inspectors in training), as proxies for individual food poisoning, and work-related fatalities, among others. performance. In Mongolia, GASI’s Medium Term Action Plans (MTAPs) could include objectives on outcomes to be achieved A common pitfall when designing KPIs is the tendency to over a three-year period by each inspection unit. MTAP ob- measure outputs only. For example, relying exclusively on jectives set the basis for inspectors’ performance objectives. the number of site inspections as a proxy for success should Although initially progress was slow, a 2016 evaluation by IFC be avoided, since this leads to circular referencing. Even saw improvement; GASI gradually implemented the approach worse, governments (particularly, ministries of finance), tend introduced by the reform (e.g., data-driven objectives and op- to measure government agencies’ performance based on their erational plans combined with outcomes-based performance ability to generate revenue. As a result, performance is some- management). times measured based on the number of fines or the monetary value of sanctions. Such KPIs introduce skewed incentives. KPI achievement must be supported by incentives. Ad- The number of fines and the monetary value of sanctions are equate remuneration, career opportunities, and rewards for more likely to push inspectors to focus on penalizing business- good performers help improve performance at the inspector es rather than on promoting compliance and managing risks. and organization levels. Incentives can include behavioral The longer-term goal should be to improve compliance, and and nonmonetary incentives that reward high performers and increasing numbers of fines or the monetary value of sanc- people with innovative ideas. tions both indicate lower compliance. The country examples reviewed for this note revealed that output indicators are still Finally, a comprehensive performance management sys- used by many inspectorates globally. For example, in Slove- tem must also be supported by a code of ethics for in- nia and many other countries, the Inspection Council’s KPIs spectors and by periodic internal audits for the inspector- have been based on the number of inspection measures and ates. Procedures and organization for internal audits must go fines, not on improving compliance and businesses’ operation hand in hand with introducing a grievance mechanism, code practices. Performance should instead be measured against of ethics, continuous professional development, and periodic core skills, such as technical knowledge, the ability to conduct performance evaluation for inspectors. risk assessments, effectiveness in promoting compliance, and proportionality of enforcement decisions. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 30 5. >>> e-Inspections Digital technologies are key to the success of a well-designed and sustainable inspec- tions system. They can also help accelerate inspections system integration by expanding the possibilities for information sharing and data analysis between inspectorates and by helping standardize tools and procedures. More broadly, although many weaknesses in inspections management can be addressed through legal, institutional, and administrative reforms, digital technologies can play a major role in improving efficiency, transparency, and accountability. Digi- tal and emerging technologies, for example, are prerequisites for implementing full-fledged risk management to improve resource allocation and attain better regulatory outcomes.44 > > > BOX 5 COVID-19 and accelerated digitalization of regulatory delivery The COVID-19 pandemic accelerated digitalization, including in government-to- business (G2B) services and inspections. Data availability, enhanced connectivity, and emerging technologies have driven such recent approaches as including virtual inspections through satellite imagery and drones and adaptive inspections using risk- based targeting improved by data availability and artificial intelligence (AI). Some de- veloped jurisdictions have piloted or implemented these new approaches on a small scale. Early outcomes, such as in Estonia, show improved regulatory efficiency from replacing manual inspections with satellite imagery and AI/machine learning (ML); the effort helped save US$755,000 during the first year. A pilot on adaptive inspections by the Southern Nevada Health District authority indicated that applying ML to Twitter data can improve effectiveness in identifying problematic venues by 64 percent. In addition, it brought some unexpected benefits, such as identifying locations without permits and with contagious kitchen staff (Sadilek et al., 2017). 44. Mangalam, Srikanth, and Goran Vranic. 2020. Use of New Technologies in Regulatory Delivery: Summary Note and Case Studies. January. Business Environment Working Group, Donor Committee for Enterprise Development, Cambridge, UK. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 31 Reaping the full benefits of digital technologies requires E-Inspections initial functions are typically limited to records- implementing them in tandem with other policies and management, statistical reporting, complaints management, activities, including legal reforms, institutional develop- and public portals. More advanced systems include compre- ment, and capacity building. Several WBG projects confirm hensive databases of regulated entities and locations, use that a framework law on inspections makes a good starting of inspection checklists, and mobile devices (e.g., tablets) to point. The framework can be followed by a strategy and road- capture data and record results during site visits. In the third map to guide implementation of necessary improvements, stage of maturity, inspection databases enable implementa- including e-Inspections. Developing inspectors’ capacity is tion of automated, risk-based inspection planning and more key to applying new tools, approaches, and digital technol- advanced models for enforcement management. Fully ma- ogy solutions. Experiences from Mongolia and Bosnia and ture e-Inspections include use of real-time data and emerg- Herzegovina indicate that when developing an e-Inspections ing technologies for inspections planning and the virtual and solution, involving inspectors from the beginning makes the adaptive approaches noted in Box 5. transition to the new system is easier and faster and ensures the ownership necessary for the system’s sustainability. Given this range, it is helpful to categorize the spectrum of digital technology functionalities into five maturity levels, from the initial stage of no digital technologies to the advanced level employing optimized solutions. Table 1 summarizes the key a. Implementing e-Inspections inspection functionalities across four levels of technological through an evolutionary maturity.45 This research confirms that data is a building block approach for more advanced e-Inspections functionalities. Once data- bases are established, other back-end functionalities, such as fully risk-based inspections planning, can be developed as E-Inspections should be implemented using an evolu- well. More mature systems can aim to introduce transactional tionary approach and by considering the inspections services and mobile inspections, including advanced back- systems’ maturity level across different areas. This in- end tools such as inspections planning using real-time data creases the chances of successful and sustainable reform. and AI algorithms for analysis. 45. The maturity assessment helps determine the developmental stage of digital solutions across several areas and the relevance and applicability of key functionalities. In addition, it can be used to prioritize implementation of new technologies for each assessed area and to monitor progress. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 32 > > > T A B L E 3 . - Key functionalities of SIMS based on a maturity model approach46 MATURITY LEVEL Basic Basic+ Standard Advanced Registry of Registry of Updated using Updated registry subjects/ Registry of Entities subjects of semi-automated completely based businesses, inspection data exchange on data exchange licenses/objects Business Internal and Based on internal Intelligence Risk Assessment - external risk simple indicators supported risk indicators assessment Fully risk-based Inspections Semi-automated Automated based Key Simple and manual inspections Scheduling based on risk on risk functionalities planning of a Shared Inspection Simple checklists All core processes - Dynamic checklists Inspection Checklists and processes are standardized Management Cases and Recording Record-based Record-based with Automated System document Outcomes system simple workflow workflows management Range of Business Performance Simple statistical web-based Time-series reports Intelligence and Management reports reports KPI reporting HTML5 web Online mobile Online and off-line Mobile Application - application application mobile application Public site e-Inspections e-Inspections Public Portal Simple public site with two-way public portal public portal communication Source: Donor Committee for Enterprise Development (DCED) 2020. b. Enabling integration through shared inspections management systems Several studies confirm that shared inspections manage- support risk management tools (such as risk assessments), ment systems (SIMS) can facilitate reform efforts, enable checklists, automated performance management, statistics integration, and accelerate achievement of results.47 SIMS generation, mobile applications, and e-Inspection portals. Fig- range from simple database applications that track inspection ure 2 shows the SIMS modules that support the full lifecycle results and provide back-end support, to more complex web- of supervision activities based on best practices. The core based systems that automate decision support, manage busi- concept of SIMS is, on the one hand, to improve the inspec- ness processes, and provide an online information interface tion system’s capabilities and, on the other, to drive regulatory for businesses. SIMS are increasingly common in developed change by integrating business registration, business licens- economies, with key functionalities including registries of enti- ing, and other government interoperability projects. ties and facilities and registries of regulations, modules that 46. The table appears in the Donor Committee for Enterprise Development (DCED) 2020 publication, “Use of New Technologies in Regulatory Delivery,” available at https:// www.enterprise-development.org/wp-content/uploads/DCED-BEWG-Use-of-New-Technologies-in-Regulatory-Delivery.pdf. It provides a detailed review of twelve case studies using a basic maturity model to examine the conditions regulators need to create to regulate effectively. 47. See John Wille’s study, “Implementing a Shared Inspection Management System,” available at https://web.worldbank.org/archive/website01553/archived/www.wbgin- vestmentclimate.org/advisory-services/cross-cutting-issues/ict-in-investment-climate-reform/upload/Implementing-a-Shared-Inspection-Management-System.pdf. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 33 > > > F I G U R E 4 . - System Modules of Shared Inspections Management Systems REGISTER OF PLANNING MODULE RISK MANAGEMENT E-INSPECTIONS BUSINESSES, • Annual and multi- MODULE PORTAL AND OBJECTS, LICENSES, annual operational • Risk-based planning INTEROPERABILITY AND PRODUCTS plans • Comprehensiveness (G2B, G2C) • Established based on • Joint inspections planning • Checklist registry data exchange with plan and inspectors’ • Adequate selection • Complaint submission state registries schedules of inspection • Risks & self- measures assessment INSPECTION DOCUMENT/CASES KNOWLEDGE INSPECTION CHECKLIST MANAGEMENT DATABASE MODULE STATISTICS MODULE MANAGEMENT MODULE • Inspection • Plan execution, KPI MODULE • Office record preparation time series, taken • checks, irregularities, management • Inspections’ results measures, checks measures, • Support for mobile • Decision support and indicators, geo- regulations devices positioning BORDER INSPECTION INSPECTION COMPLAINTS ENFORCEMENT MANAGEMENT FUNCTIONS AND MANAGEMENT MANAGEMENT • Event-driven ORGANIZATION SYSTEM MODULE integration with MODULE • Monitoring efficiency • Ensuring consistency, customs & IBM • Sector supervision and output proportionality, systems • Organizational • Using complaints to and transparency • Online case tracking structure jurisdictions inform inspection in enforcement • Integration with • Inspectors and planning decisions rapid-alert systems competences • Improving compliance Source: Goran Vranic, Implementing e-Inspections - Insights from International Practice and Lessons Learned, World Bank Group, October 27, 2019 SIMS and integrated inspection management systems isters, complaints records, and decision-making frameworks (IIMS)48 are increasingly important for inspection system for enforcement decisions publicly available to improve trust. integration since they help standardize and harmonize Additionally, e-Inspection portals help disseminate risk as- tools, approaches, procedures, and performance man- sessments, self-assessments, and detailed guidance to help agement. These systems can facilitate information sharing businesses comply with regulations and manage risks on their and thus coordination between inspectorates and provide own. Similar to other digital technologies, SIMS maturity lev- more comprehensive or integrated profiles of business-relat- els vary depending on the scope of stakeholders involved and ed data, as well as enhancing organizational performance by the features and functionalities supported. Table 2 shows the improving targeting, operational efficiency, and performance overall maturity development of the SIMS surveyed in several management. Lastly, public access to an e-Inspection portal49 jurisdictions. It provides a summary of the cases studied by can help improve transparency and communication with busi- the WBG team and highlights the scope and main functional- nesses. For example, inspectorates can make checklist reg- ities in different countries. 48. The difference between integrated inspection management systems (IIMS) and shared inspection management systems (SIMS) is that the former is limited to integration between inspectorates, while the latter integrates G2B services beyond inspections (e.g., inspections, licensing, registration, and possibly others). 49. An e-Inspection portal is inspection management software designed to assist inspections with data collection, analysis, and reporting. The system typically provides a wide range of services through its web and mobile interfaces, ranging from the creation of flexible checklists to customizable reports. It empowers inspections to create plans, identify potential risks, address complaints, and collect statistical data from workplaces in different sectors. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 34 > > > T A B L E 4 . - Overview of SIMS solutions surveyed Type of solution Maturity level Level of (commercial-off- Year of Inspectorates Jurisdiction (basic, standard, Government the-shelf or custom implementation involved or advanced) solution) Market surveillance, labor, Federal & Canada Custom 2020 construction, environmental, Advanced Provincial other  technical inspections Market surveillance, other Colombia Municipal Custom 2017 Basic+ technical inspections Market surveillance, food, labor, public health, Jordan Federal Custom 2020 Advanced environmental, fire safety,  other technical inspections Market surveillance, food, labor, public health, Kyrgyzstan Federal Custom 2012 environmental, construction, Basic+ fire safety, other technical inspections Mongolia Federal Custom 2016 Central inspectorate Standard Peru Federal Custom 2018 Environmental inspection Standard Source: The authors. Note: Solutions can be either Commercial-off-the-Shelf (COTS) or Custom. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 35 The National Inspection Reform Program in Jordan (2012– efforts to implement e-Inspections in developing countries is 2020) included an integrated inspection management the simple software initially available for data capturing dur- system. Instead of having several agency-specific ICT sys- ing inspections and for statistical reporting. This approach was tems, an IIMS was selected to accommodate several national applied in Bosnia and Herzegovina, in the Kyrgyz Republic, and municipal inspectorates. Effective transition to a simplified and by Mongolia’s central inspectorate (GASI). The countries risk-based inspection system required deployment of a digital implemented regulatory reforms and improved data collection inspection management platform that was fully integrated into using these simple software applications to structure inspec- the e-government ecosystem and automated all basic inspec- tion checklists. tion activities. At the back end, IIMS has helped inspectorates standardize inspections reporting, reduce transaction costs, manage activities more efficiently, and improve capacity to target high-risk businesses. The e-Inspections portal enables c. Ensuring sustainability businesses to access inspection schedules, view their in- of e-Inspections systems spection history, track inspection results, report resolution of irregularities, and log complaints, appeals, and feedback. It also helps reduce the number of inspections, lower compli- A typical challenge for inspectorates is maintaining and up- ance costs in the private sector, and communicate compliance grading digital technology solutions after initial development requirements to businesses. is completed. Since these systems must be constantly devel- oped in phases, government funding is required. In contrast Although digital solutions can be shared across multiple to some other regulatory services (e.g., licensing), however, inspectorates, as in Jordan, e-Inspections are typically inspection authorities are not known for generating revenues, implemented within a single agency. Recent notable exam- making it difficult at times to justify capital investments. One ples involve software solutions for inspections management solution to this challenge is to integrate licensing with inspec- by Peru’s Environmental Evaluation and Enforcement Agency tions management. This approach is currently being used in and shared IT solutions implemented in Jordan, the Kyrgyz Greece’s ILIMS, which supports both business licensing func- Republic, and Serbia. A shared challenge in all these exam- tions that generate revenues and inspection activities that do ples, including both single agency and multi-agency/shared not. Since business licenses generate direct revenues based solutions, is data management, a prerequisite for risk-based on administrative fees, it becomes easier to justify mainte- inspections. The Jordan inspection reform project spent over nance costs and future capital investments to upgrade ILIMS, six months in 2016 and 2017 developing an initial registry of contributing to its overall sustainability. entities and facilities. Another common denominator among EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 36 6. >>> Reform strategy Inspection reforms should be designed and implemented in consultation with stakehold- ers, including policy makers, regulators, inspectors, and the private sector. a. High level political support and engagement A common challenge in integration efforts is aligning the different—and sometimes con- flicting—interests of stakeholders. Integration may require redefining the inspectorates’ man- dates, reorganizing human resources, reallocating funding, and making “cultural change” at the operational level through new tools, processes, and approaches. However, resistance to reform at the operational level is common across many countries that attempt to integrate inspection functions, and it often leads to failure. High-level political support is crucial to ensure comprehensive inspection reform and sustainability of integration efforts. In particular, political support is necessary to (a) curb pockets of resistance, (b) spearhead legal reform to set the foundations, (c) ensure that adjust- ments necessary during the reform process are consistent with the broader vision and (d) design a system which is free of conflicts of interest and has adequate funding to ensure sustainability. In Lithuania, the Prime Minister and the Ministers of Economy and Justice provided strong politi- cal support and oversight during the reform process by sitting in a committee with the reform team. Similarly, in Mongolia political support was a key success factor in the reform process by creating incentives for inspectors to overcome resistance. One lesson learned in Mongolia is that high-level political support may wane over time, especially since integration efforts typically last several years (often over a decade). This can be mitigated by introducing at the outset a reform committee with a clear mandate and objectives that reports to the top level of government. Such committees can survive political cycles and help maintain reform momentum. An example is Greece’s BRDD, which is tasked with monitoring reform implementation and supporting the inspectorates in developing the tools and approaches foreseen in the law. A higher-level body, comprising Secretary Generals and known as the Steering Committee, oversees reform implementation and agrees on new reforms. Engagement of the inspectorates is also important to increase their mutual cooperation and encourage peer-to-peer learning. In most countries, inspectorates tend to work in siloes, limiting cooperation and knowledge exchange between inspectorates. Inspectorates also tend to see their work as unique and to underestimate similarities with the challenges other inspector- EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 37 ates face and how transferable some solutions can be. Hence, jointly for both the private sector and GASI’s inspectors. Busi- it is important to engage with the inspectorates and to encour- nesses provided their premises to simulate inspections and age knowledge exchange on their practices before and during pilot the checklists before rolling them out. The reform also the reform—especially when integrating an inspections sys- aimed to improve trust in the system by including provisions in tem. This effort can identify good practices within the country the inspections law on the rights and duties of inspectors and that can in turn help curb resistance to change by showcasing regulated entities and by publishing annual inspection plans how a practice works in the country’s legal, cultural, and so- (including risk levels and aggregated risks per province to in- cioeconomic context. For example, in Lithuania, the State Tax crease awareness). The design of new tools and procedures Inspectorate pioneered a hotline offering advice to taxpayers, benefited from dialogue with and inputs from the private sec- a measure later adopted by other inspectorates as well. tor. Checklists are revised periodically by an advisory council that includes representatives from inspectorates, businesses, Successful reformers engage with the private sector and professional associations/NGOs, and academia. other stakeholders early in the process: • At the diagnostic phase, engagement helps identify pain Similarly, in Colombia, overhauling Bogotá’s inspections points for businesses and build understanding of how reg- system benefited significantly from private sector input ulation and regulatory delivery impacts their operations. during consultation at an early stage and partnerships • At the design phase, it helps gain insights into how the on specific aspects of implementation. The Confederation inspection system can be redesigned to become more Chamber of Commerce (Confecámaras) and Bogotá’s Cham- effective by focusing on select tools and strategies with ber of Commerce partnered with the municipalities through greater impact on improving compliance and reducing the IVC interinstitutional cooperation agreement. The Foreign risks. Investment Promotion Agency in Bogotá (Invest) was also in- • At the implementation phase, stakeholder feedback helps volved in both diagnosing problems and devising solutions for pinpoint implementation gaps. Since integration efforts the new system to improve the business environment. Bogo- typically take time to implement, this is an important suc- tá’s Chamber of Commerce participated through counselling cess factor. and advice delivered to businesses and by collecting data on businesses for the IVC system. Moreover, the reform includ- Overall, engagement with the private sector builds trust ed outreach activities to raise awareness among businesses in both the inspection system and the reform process that on their rights and obligations. These efforts helped the IVC can ultimately lead to better compliance with key regu- achieve the central reform goals of improving trust between latory requirements and more effective risk mitigation. the inspectorates and the business community by building in- For example, Mexico’s ASEA established formal and informal spectors’ capacity, raising awareness in the private sector of communication channels with the private sector while consoli- the importance of its role, and increasing the transparency of dating environmental and industrial safety supervision in the conflict resolution mechanisms. hydrocarbons’ sector. As it shaped new regulations, ASEA in- cluded private sector experts on committees for their technical Although consultative processes are important for build- inputs, ensured proposed regulations went through a public ing consensus, vested interests may undermine con- consultation process, offered public hearings when requested sultation efforts and derail or delay reforms. If not prop- by regulated entities to discuss progress of a permitting pro- erly managed, platforms for consultation can be captured by cess, and used roundtables to conduct structured dialogue stakeholders who would like to maintain the status quo and with industry associations on a rolling basis. use the opportunity for dialogue as a means to delay or even derail the reform process. For example, in Jordan the proposal In Mongolia, the private sector was heavily involved in the draft law on inspections to realign inspection functions throughout the overall reform process, which lasted about faced strong resistance from some inspectorates. The leading eight years. The development of checklists50 and guidelines ministry’s approach was to try to reach stakeholder consensus took over two years, and the private sector participated to on all aspects of the reform, but after two years of discussions ensure a balanced approach. The checklists were adopted this proved to be unattainable. Only after a change in leader- by GASI and were revised periodically by an advisory coun- ship in 2017 and the political support of the newly appointed cil that included inspectors and representatives from profes- minister was the consultation process concluded; the draft law sional associations, nongovernment organizations, academia, was then enacted in four months. and selected businesses. Moreover, training was conducted 50. Checklists are available at the GASI website; see www.inspection.gov.mn. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 38 b. Ongoing feedback from the private sector Some jurisdictions have set up channels to receive feed- Feedback tools have a greater chance of success if they back from the private sector through web-based tools in are integrated into an inspection management system order to close implementation gaps and improve regula- (IMS) as opposed to being offered as a stand-alone chan- tory delivery on a rolling basis. Making feedback a manda- nel. Jordan launched a mobile-based feedback tool53 as an in- tory part of the inspection or reporting processes can ensure novative approach to enabling quick and timely feedback from inspectors’ accountability. Making the feedback process trans- businesses to inspectorates regarding an inspection and the parent will further support this effort. For example, some in- inspector’s performance. The mobile application, implement- spectorates share with the public reports on feedback received ed and piloted for six inspectorates, was initially accepted by and actions taken in response. In the Campania region of Italy, both the inspectorates and businesses, but uptake was not businesses can provide feedback on the inspection using a sustained, despite extensive promotion and awareness-rais- website linked to the IT system.51 Similarly, since 2015, busi- ing activities. 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