How to Take into Account Business Interests in the Course of Reform of Supervising Activities in Russia?

The program is meant to take into account as much as possible the interests of individuals, the state and the business, that is, simultaneously optimize budget expenditures on supervising activities, prevent possible damage and ensure protection of valuables protected by the law. Among other things, it is planned to reduce an administrative burden on entities and individuals – minimum by 20% and 50% compared to 2016 by 2018 year-end and 2025 year-end, respectively. However, the above goal is not the priority of the program under which the interests of small and mid-sized businesses are met on the residual principle basis.

The specifics of control and supervising activities in respect of small and mid-sized businesses
The research carried out by experts of the RANEPA, the Gaidar Institute and the Center for Strategic Research shows that as regards small and mid-sized businesses the supervising activities have their own specifics which should be taken into account. In selecting the strategy of behavior in respect of legislative norms, entities are guided by calculation of costs; they compare the expected profit from non-compliance with norms, expenditures related to identification thereof and chances of violations being found.

A larger portion of the administrative burden of small and mid-sized entities is normally formed during supervising (field audits): it is time expenditures, informal payments and alternative costs. A major factor behind a failure by small and mid-sized business to comply with the legislation is a lack of personnel and intellectual, financial and time resources, as well as complicated access to information.

Problems related to supervising of small and mid-sized businesses in Russia
An administrative burden which arises as a result of supervising activities by the state creates substantial obstacles for business development. The punitive paradigm of supervising implies total control over businesses because it is believed that each businessman definitely violates something or is going to do it in future if he has got a chance (in case of lack of control). Preparation of documents and reporting implies growth in costs for businesses. High transaction costs on networking with state authorities, including supervising ones, that is, filling in report forms, the need for businessmen to receive personally some state services, costs of complying with mandatory requirements and costs related to field audits make businessmen switch over to the shadow sector of the economy. There are excessive audits, mainly unscheduled ones; numerous violations and abuse committed during audits (it is particularly explicit when the data on audits in regions are compared); overall low transparency of audit procedures and supervising authorities’ work as a whole; high penalties which are often unproportioned to violations identified and entities’ revenues; and numerous, obsolete and conflicting requirements, many of which are ineffective, but still applied. Taking into account the specifics of small and mid-sized businesses as regards compliance with legislative norms, supervising measures should be aimed at reducing entities’ compliance costs.
How to ease the administrative burden of supervising for businesses?

They have amassed abroad some experience in reforming supervising activities, including those aimed at the needs of small and mid-sized businesses. In particular, a special emphasis is made on the effect which the laws introduced have on small and mid-sized businesses (assessment of the regulating effect on the basis of the small business above all principle), reduction of the number of regulating documents and mandatory requirements, preventive measures and consulting, reforming of audits and utilization of KPI for damage assessment. The above measures contribute to a switchover to a smoother supervising which is not that burdensome for small and mid-sized entities;

The priority program takes into account some of those measures, but in terms of the recently declared support of small and mid-sized businesses by the state it is necessary to see to it that the program caters for the interests of this group of entities, too.

In particular, it is important to do the following:

1. establish a long-term moratorium on planned audits of small business entities;
2. regulate the number of audits in respect of businessmen who committed violations depending on whether repeated violations occurred. In case of absence of identified violations within 3 years, there should be no audits at all;
3. introduce new technologies of auditing and data-processing in respect of the audit data (including registertion of small and mid-sized businesses) and the data on companies, supervising authorities and mandatory requirements; in future remote supervising of small and mid-sized business entities should be introduced.

Vera Barinova, Head of the Department of innovation Economy