Less Burden, More Transparency, and Higher Quality IN FOCUS Electronic System for Business FINANCE, COMPETITIVENESS & Safety Inspections in Peru INNOVATION Manuel Barron, Guadalupe Bedoya, Diego García Montúfar, and Ana Goicoechea FIRMS, ENTREPRENEURSHIP & INNOVATION © 2020 The World Bank Group 1818 H Street NW Washington, DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org All rights reserved. This volume is a product of the staff of the World Bank Group. The World Bank Group refers to the member institutions of the World Bank Group: The World Bank (International Bank for Reconstruction and Development); International Finance Corporation (IFC); and Multilateral Investment Guarantee Agency (MIGA), which are separate and distinct legal entities each organized under its respective Articles of Agreement. We encourage use for educational and non- commercial purposes. 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The research team consists of Manuel Barron, Assistant Professor, Universidad del Pacífico, Department of Economics; Paul Gertler, UCLA-Berkeley, Professor; Guadalupe Bedoya, Senior Economist, World Bank, Development Impact Evaluation; Diego García-Montúfar, Impact Evaluation Coordinator, World Bank, Firms, Entrepreneurship, and Innovation; and Ana Goicoechea, Senior Economist, World Bank, Firms, Entrepreneurship, and Innovation. The team acknowledges with gratitude the inspectors, coordinators and managers in the Municipalities of Los Olivos, San Isidro, Surco, and La Victoria for their valuable contributions during the design and pilot of the e-system, as well as Robert Tenorio for his excellent support in developing the e-system. Design and Layout: FPS and Aichin Lim Jones Photo Credits: Freepik.com, World Bank/Diego Garcia-Montúfar, and Shutterstock.com Table of Contents BACKGROUND 3 THE POLICY PROBLEM AND POSSIBLE SOLUTIONS TO BE TESTED 3 IMPROVING STANDARDIZATION AND ACCOUNTABILITY THROUGH AN ELECTRONIC SYSTEM 5 DEVELOPING AND IMPLEMENTING THE INSPECTION E-SYSTEM IN A PARTICIPATORY AND ADAPTIVE MANNER 7 EVALUATING THE IMPACT OF THE E-SYSTEM 9 LESSONS: HOW THE E-SYSTEM IS PROVIDING INPUTS FOR REGULATORS 12 CONCLUDING REMARKS 13 REFERENCES 15 FOREIGN DIRECT INVESTMENT AND PRODUCTIVITY | 1 2 | LESS BURDEN, MORE TRANSPARENCY, AND HIGHER QUALITY Background B usiness safety inspections are commonly cited as one of the most important bureaucratic barriers to doing business around the developing world (World Bank 2019, 2020). In Peru, the business safety inspection system is characterized by low compliance with established norms, misaligned incentives and high transaction costs. These inefficiencies affect micro, small, and medium enterprises (MSMEs) disproportionally, as they do not have the resources or know-how to navigate the inspection procedures. MSMEs constitute 99.5 percent of firms, employ up to 89 percent of the population, and contribute up to 31 percent of gross domestic product (GDP) in the country (Ministry of Production 2017). Thus, the inefficiencies in the inspection system hamper the business environment, adversely affecting shared prosperity and economic growth. The World Bank Group is conducting a rigorous The Policy Problem and Possible impact evaluation study in collaboration with Solutions to be Tested the Ministry of Housing of Peru.1 Specifically, it will assess how the deployment of an electronic In 2018, the Peruvian government implemented a system for inspections—in combination with the reform of the regulatory framework for business- improved monitoring of inspector performance and safety inspections. Accordingly, it introduced a risk- optimized firm auditing—can be used to address key based model to classify firms, as well as an expedited constraints in the inspection system. This work will procedure for low-risk businesses to obtain their shed light on whether these mechanisms can reduce operating licenses. However, the inspection process the compliance burden on firms by improving continues to face important constraints. Based on regulatory efficiency while also ensuring safety. In data obtained by the research team in one pilot addition, it will provide evidence about how such municipality in 2020, only 46 percent of firms systems could operate when implemented at scale. complied with all requirements. These firms passed the inspection, albeit in some cases, after two or This note provides an overview of the policy problem more visits—illustrating the high cost to firms and that Peru faces, and describes the solutions to be the government. The constraints identified in this tested. It then focuses on lessons from developing system include a high degree of discretion in the and implementing the electronic system to solve the application of the regulation, and low capacity in policy problem, with an emphasis on those lessons enforcing the regulation by the municipalities in related to the constraints and inputs to improving charge of implementation. As a result, most firms regulatory efficiency and accountability. require multiple visits to obtain the safety certificates This impact evaluation study is supported by the World Bank Competitiveness Policy Evaluation Lab, with contributions from the 1 United States Agency for International Development (USAID) and the United Kingdom’s Prosperity Fund. FOREIGN DIRECT INVESTMENT AND PRODUCTIVITY | 3 necessary to start their operations, thereby creating inspectors and firms, assessing their impact on inefficiencies, opportunities for rent-seeking, and compliance, safety, leakages, and the efficiency of the perpetuation of safety risks. the inspections. Various factors may be contributing to the The first accountability mechanism to test (Phase regulation’s lack of standardization, and the 1) is the adoption of an electronic system for low capacity of municipalities to enforce it. The inspections (hereafter, the e-system) that contributes inspection regulation is vague, and the list of items to the standardization of the application of subject to inspection is not clearly defined. Although regulations. It provides municipalities with a tool inspectors use a checklist tool covering areas such to monitor inspections and obtain data and analytics as risk of fire and collapse, its application is highly in real time. During 2018 and 2019, the e-system discretionary. For instance, various elements of one was designed, tested, and fine-tuned in collaboration object (constituent components of a gas cylinder) with five district municipalities, namely: Comas, La or various objects (gas cylinders, fire extinguishers, Victoria, Los Olivos, San Isidro, and Trujillo. More and so on) are often combined in a single checklist recently, the e-system was launched and adopted in item. There is no standardized process to determine one municipality. It has provided useful data, as compliance when multiple objects are evaluated, or well as an opportunity to see how well the e-system to identify the specific element that is causing the functions. At least two other municipalities are safety hazard. expected to adopt the system in 2020. Low capacity at the municipal level stems from a The second accountability mechanism to test (Phase lack of resources. The current regulation requires 2) entails a monitoring scheme of inspectors and municipalities to conduct supervisory visits or audits random quality checks. It is expected to increase to verify that firms maintain the appropriate safety accountability through the standardization of their standards over time (that is, after they have obtained assessments. Currently, the work of inspectors is only their initial safety certificate). However, most lightly monitored. Furthermore, the regulation lacks municipalities do not conduct these audits because effective procedures to correct or modify inspectors’ they are expensive and are not paid for by the firms. assessments if errors are somehow identified. Thus, In this context, these audits sometimes require up the scheme will introduce a dedicated group of to three inspectors and multiple visits. Thus, these qualified third-party evaluators, who will verify and other constraints reduce business incentives to some inspections shortly after they are conducted. maintain safety standards over time. Likewise, they reduce inspector incentives to perform accurate The third accountability mechanism to test (Phase assessments, leaving room for discretion and rent- 3) targets the notion of accountability from the seeking behavior. firms’ point of view. It consists of conducting audits in a certain share of firms to incentivize them to maintain safety standards over time Accountability Mechanisms to be (after they have passed the inspection). These Evaluated audits consist of follow-up inspections that firms The main objective of the impact evaluation study undergo following the same safety standards is to assess the role that stronger accountability as those required at the time of applying for the can play in improving safety standards and safety certificate. Currently, the municipalities reducing leakages—without imposing excessive do not have resources to conduct these audits, burdens on firms. Accountability is a condition despite being mandated to do so by the regulation. that reduces bureaucratic discretion through clear However, most firms are never audited. Given rules, monitoring and enforcement (Light 1993). the resource constraints that municipalities face, The study will evaluate the use of a combination the study aims to analyze the effects and cost- of mechanisms to increase the accountability of effectiveness of different auditing probabilities. 4 | LESS BURDEN, MORE TRANSPARENCY, AND HIGHER QUALITY Improving Standardization The app allows inspectors to record granular and Accountability Through an observations of objects while they complete the inspection checklist, take photographs, note Electronic System comments, and sign the inspection form directly on The impact evaluation study first evaluates the their device (either a tablet or phone). Devices are adoption of the e-system to conduct inspections. equipped with a subscriber identity module (SIM) The e-system is expected to help standardize the card that allows inspectors to send the inspection application of the inspection regulation and reduce report by email to the business representative as discretion when assessing business safety. The soon as the inspection is concluded. In addition, e-system does not change the technical aspects of basic data such as the address and business name the inspection. For example, the objects inspected need to be entered only once or can be pre-loaded. are the same as those listed on paper. Likewise, the This represents an improvement from having inspection checklist and official reports generated to write this information by hand in each of the by the e-system are the same as the paper checklists various forms. and reports. However, the e-system records more granular data and introduces significant changes • Reduces paper and time spent by inspectors in procedures to promote greater standardization, on administrative tasks. efficiency and accountability. The next section will examine how the e-system can help solve • Provides access to forms, aggregate reports the problem of the lack of standardization in the and inspection data in real time. application of the regulation. Eliminating Paper Forms and Introducing Streamlining the Inspection Procedure Real-time Administrative Data and The e-system contributed to the streamlining of Information the inspection procedure, making it more efficient The e-system’s most significant change involves and accurate. Two key features of the app include the elimination of paper forms, and the introduction its ability to tailor the inspection checklist to the of a computerized system. The new e-system is type of business and group questions in a more expected to result in gains in efficiency, institutional efficient manner. memory, and easy access to reports and analysis The paper inspection checklist includes questions by all concerned stakeholders. With paper forms, for the various types of businesses (for example, inspectors are obliged to carry multiple forms in hospitals, schools, offices, and so on), as well duplicate (including three possible paper forms to as questions that only apply to businesses with be completed, with some up to 13 pages long). specific characteristics (for example, buildings With the e-system, the checklist has been programmed with more than two floors). Inspectors are required into an application developed to conduct inspections to indicate manually which questions do not utilizing tablets or smart phones (hereafter, the apply to the current type of firm. As such, they “app”). When an inspection is finished, the app sometimes inadvertently miss questions in the determines which reports are generated based on process. However, the app automatically filters out the inspection outcome. As such, inspectors do the questions that do not apply based on the type not have to worry about which specific forms to of business and the characteristics of the building. complete, which to hand over to the business, and As a result, inspectors do not need to think about which to keep with them for later updating. The app which questions may apply because non-relevant automatically determines the forms to be generated questions are automatically skipped. In addition, and their recipients, thereby freeing the mental and they do not have to worry about omitting certain physical resources of the inspectors. questions because the app’s main menu uses colors LESS BURDEN, MORE TRANSPARENCY, AND HIGHER QUALITY | 5 to indicate which questions have been answered and objects (for example, several fire extinguishers which are pending. or electrical outlets), but require the inspector to condense their evaluation into a single yes/ The app also organizes the checklist questions no answer. In these cases, the regulation does not in a more efficient way. The paper checklist tool specify whether inspectors must evaluate all objects organizes questions by type of risk, for example, on the premises or evaluate a subset. In practice, risk of fire, collapse, and so on. In practice, inspectors usually evaluate a subset of objects and however, inspectors usually evaluate objects or then record aggregate compliance for the group. equipment that involve different types of risk. An This practice can cause a lot of valuable data to air-conditioning unit, for example, might be poorly be lost. However, with the app, the assessment of affixed to the wall (with a risk of collapse) and each object is standardized. Inspectors can record missing a ground connection (with a risk of fire compliance for individual objects (that is, for and electrocution). The fact that these questions each fire extinguisher, electrical outlet, or escape are not grouped by object on a paper checklist route), with the system then calculating aggregate means that inspectors usually take notes about the compliance automatically. During the study period, object. They then complete the paper form at the the inspectors using the app will record data for end, thereby leading to inaccuracies. However, the individual objects, but only for select checklist app groups relevant questions by object, allowing items (given that this may also be time consuming). inspectors to answer all questions pertaining to The research team will then analyze whether this specific equipment or collective objects. The standardization process contributes to making the fact that inspectors can extract all questions for a inspections more accurate. specific object at once and in front of the object itself makes it a more practical tool. As such, they The app also standardizes the inspection procedure can more easily answer the questions while they by activating follow-up actions automatically. conduct the inspection, thereby contributing to These follow-up actions are specific instructions greater accuracy. provided to the firm when an item is non-compliant. For example, a non-compliant fire extinguisher The app has changed the procedure for recording can trigger seven different follow-up actions observations. However, the information collected (recharge the extinguisher, change its location, is then aggregated to electronically generate the and so on). On paper, inspectors must manually official forms according to the regulation (that is, check the relevant follow-up actions after they grouping again by the type of risk). have marked the item as non-compliant. To further complicate things, these actions are sometimes not • Automatic filtering optimizes the questions on the paper inspection checklist, but on a separate that need to be answered. form. Thus, the app has been designed so that the • Organizing questions by object contributes relevant actions are automatically activated, and to more accurate and comprehensive the corresponding electronic forms generated. inspections. This may reduce the chances of human error and save inspectors’ time. Standardizing Assessments • Option to evaluate compliance on an item- by-item basis generates richer data and may One of the main problems with the regulation is that reduce inspector discretion. it provides few parameters or rules to standardize the assessments conducted by inspectors. One example • Automatic activation of follow-up actions involves checklist items that refer to multiple may increase accuracy and save time. 6 | LESS BURDEN, MORE TRANSPARENCY, AND HIGHER QUALITY Developing and Implementing corresponding electronic forms. Based on the the Inspection e-system in a granular information entered in the app, the official inspection forms that are consistent with the Participatory and Adaptive Manner regulation are generated electronically and then The e-system was developed to operate and manage accessed through the web-based platform. inspections at scale and in real time. Currently, inspections are conducted on paper and no data are The app consists of a section to enter key information available to track the results or monitor business about the establishment before the inspection safety issues, which limits policymaking and begins. The inspectors then use the main menu to learning opportunities. see and access all objects that need to be inspected and track their progress. Once they select an object The e-system is comprised of two main components: (such as electric panels, fire extinguishers, alarm systems, and so on), the app displays all questions • The app: a low-cost application for tablets or or assessments pertaining the object. Indeed, the phones to conduct the inspection. It is based on main menu is an important feature because it allows the regulatory checklist, but it allows for the inspectors to make assessments in whichever order collection of more granular information in a they wish; for example, grouping questions by systematic manner and incorporates workflow object allows them to have all the relevant questions management. for a specific object in the same place. • A web-based platform: a site where inspectors Field testing, which was conducted in six can access official inspection reports and generate municipalities over a period of approximately one photographic panels tagged to each establishment. year, was crucial at an early stage to build a flexible Municipalities can also access monitoring and system to incorporate and standardize inspection performance data on a dashboard. practices. For example, with paper forms, inspectors This customized solution produces timely and typically walked through an establishment observing actionable information to identify challenges in objects and taking notes, completing the checklist the implementation of inspections—and enhance only after the walk-through was completed. By accountability by making mid-course corrections. contrast, the app encourages them to record their Moreover, it does so without the intensive use of assessments on the spot and with a high degree of resources, expertise or equipment that are commonly standardization. absent in resource-constrained contexts. The app also incorporated many unwritten procedures The development of the e-system was a participatory that were not specified in the paper forms or the regulation and adaptive process, involving continuous field manual, but were useful to the inspection process. In testing, inspector feedback, timely adaptations, this way, field testing helped highlight instances that and the training of inspectors. The key steps and required clarification or further instructions to ensure components of the e-system are outlined below, standard recording. For example, some municipalities highlighting the importance of user experience, require inspectors to photograph the façade of a building adaptability, flexibility, and pertinence as crucial (to provide evidence of the inspector’s presence on the contributors to its success. site and to serve as a record of the firm’s location). This procedure is now incorporated as part of the app’s Field Testing and Joint Development of inspection workflow sequence. the app with Inspectors: Key Factors in Building a Flexible System and Finally, collaborative field testing ultimately allowed Generating Ownership inspectors to develop ownership of the app. Several of the existing features were incorporated at the The initial step in developing the e-system involved request of inspectors as ways to improve the system the design and testing of the app, including the or to save time. For example, developers initially LESS BURDEN, MORE TRANSPARENCY, AND HIGHER QUALITY | 7 separated a question about escalators, elevators, and download inspection reports in a PDF format. forklifts and other electrical equipment into four These can also be emailed to firms directly from the separate questions in order to capture more detailed platform, which can be useful in cases where the data about each type of equipment. Inspectors firm did not provide an email during registration. An recommended keeping it as a single question, and advantage of this setup is that municipal managers instead incorporating a multiple-choice field to have access to inspection results in real time. When identify the item under inspection as an escalator, using the paper-based system, managers usually elevator, forklift or other. This was the format that have to wait until the next day to receive the paper was ultimately adopted, as it saved inspectors time forms with the results from the inspectors. while providing the same level of data detail as the previous alternative. The web-based platform also automates the creation of photographic panels. These are reports Web-based Platform: Facilitating the where inspectors must provide evidence, with Generation of Official Reports and pictures, of the compliance or non-compliance Monitoring of Inspectors and Firms of the safety conditions observed. The platform automatically uploads all photographs taken by Once the app and corresponding digital inspection the inspector with the app; inspectors can then forms were finished and thoroughly field tested, the select which ones to include in the panel and write next step involved designing a report platform. The their comments. The end product is a PDF report, web-based platform allows inspectors and managers as mandated by the regulation. to access inspection reports, create photographic panels, and retrieve statistics and key indicators There are two main advantages to the automation through a report dashboard. The platform has separate of the photographic panels: (i) it saves inspectors’ interfaces for inspectors and municipal managers. time, as they do not have to download photos from Inspectors can access reports, photographic panels cameras and paste them in a document; and (ii) and statistics regarding inspections that they have it provides an additional layer of accountability, conducted. Managers have access to information as municipal managers can view all photographs regarding all inspections in their municipality. taken by inspectors (as opposed to only those that are included in the final photographic report) and The report component is straightforward. Users can do so in real time. Image 1 shows the photographic search for records of specific inspections and access panel interface. Image 1. Photographic Panel Interface Source: Diego Garcia-Montúfar, World Bank. 8 | LESS BURDEN, MORE TRANSPARENCY, AND HIGHER QUALITY Finally, the dashboard displays key indicators that Upon completion of both trainings, inspectors were municipal managers can use to monitor inspector able to use the app for real inspections on their own. and firm performance across their districts. For Alternatively, they could request field support for example, they can monitor compliance in a detailed one day. All municipalities participating in the study manner (by type of firm, location, dates, and so on), are expected to undergo these trainings and fully and analyze safety risks with detailed information adopt the e-system. about the main violations. The dashboard generates tables and graphs with the following information: The trainings revealed that inspectors of all ages and backgrounds were able to adopt the e-system Inspection progress (for example, are inspections • with relative ease. Most inspectors are ready to taking place? Where? When? In what type of start using the system on their own after attending business?). the classroom and field training. Those that have • Inspection results at the firm and aggregate levels difficulty using technology sometimes require (for example, how are firms performing?). additional one-on-one support for a full morning. However, even in such cases, inspectors are ready Safety risks (for example, which items from • to use the system on their own after an additional the checklist present the highest rates of safety session. Inspectors can also consult the e-system violations across inspections? What are the most instruction manual if they experience problems. frequent violations in common elements such as Overall, the implementation of the e-system thus electric panels or fire extinguishers?). far has demonstrated that the system’s user-friendly • Inspection quality (for example, what is the level interface translates into a short learning curve and of adherence to protocols?). quick adoption by inspectors. Learning-by-doing: An Effective Means of Improving e-system Skills Evaluating the Impact of the e-system Once the e-system was developed, inspectors from three municipalities participated in classroom Once the e-system is functional in at least four trainings, where they were introduced to the app, municipalities, the first phase of the impact evaluation and field-trainings, where they conducted a mock study (expected in 2020) will assess the impacts of inspection on the premises of a business (Image 2). introducing the e-system on the following: Image 2. Classroom Training with a Team of Inspectors Source: Diego Garcia-Montúfar, World Bank. LESS BURDEN, MORE TRANSPARENCY, AND HIGHER QUALITY | 9 Inspector performance (number of inspections • paper (from 26 to 0 percent), but not for inspections per day) and learning curve (time taken for the conducted with the app (15 to 4 percent). This could average inspection duration to stabilize after be an example of how the app is serving to enforce the implementation of the system). inspection protocol, resulting in greater thoroughness. Process efficiency (time required for paperwork • Comparing compliance with safety standards by from application to obtaining the safety certificate). inspector can also be useful for quality purposes, Compliance of safety conditions (percentage • as well as for identifying possible leakages, of firms that pass the inspection, and number of broadly defined as corruption or insufficient effort. violations). For instance, from Figure 3, it would be important This phase of the study will leverage the administrative for the municipality to assess why two inspectors data generated by the e-system. To assess the effects have 100 percent compliance rates, when on attributed to the e-system, inspectors in all pilot average it is known that most enterprises do not municipalities will be randomly assigned to either pass the inspection. paper or app inspection during a six-week period. The non-compliance rate for specific elements also After this period is completed, paper reports will be has important policy implications, as it informs digitized. The impact evaluation will then compare municipalities and regulators about the key the outcomes of the inspections conducted with the security conditions that need to be targeted. Table 2 app with those conducted on paper. suggests that differential switches in electric panels, So far, preliminary data are available for 176 circuit directories in electric panels, and electrical inspections conducted between February and March equipment without plugs with earth pins, seem to be 2020 in one municipality (96 with the app and 80 the items that are most frequently inspected (in 169, on paper). It is important to note that at this early 172, and 152 firms, respectively). However, among stage, these data cannot be used to draw conclusions the items assessed, the lack of fire alarms and ground regarding the effectiveness of the e-system. connections of metal structures in roofs present the However, the preliminary data provide insights into largest rate of violation (with non-compliance rates how the e-system can be used to inform policy and of 48 and 45 percent, respectively). This type of make improvements. information was previously unavailable and difficult to obtain. For example, in order to present the Table 1 highlights an interesting occurrence. It shows figures for the paper inspection, the research team that suspended inspections seem to be disappearing had to digitize inspection reports and enter all the between the initial and final inspection visit using data manually. Table 1. Inspection Results (percentage of total inspections) First Visit Last Visit App Paper All App Paper All Complies 27% 40% 33% 45% 46% 46% Does not comply 47% 31% 40% 51% 54% 52% Pending corrections 11% 3% 7% - - - Suspended 15% 26% 20% 4% 0% 2% Total inspections 96 80 176 96 80 176 Source: Research team calculations. Note: For 73 percent of firms, the inspection is completed in the first visit. For these firms, the results of the first and final visits are the same. For the other 27 percent, more than one visit was needed to complete the inspection. 10 | LESS BURDEN, MORE TRANSPARENCY, AND HIGHER QUALITY Another insight from Table 2 is the discrepancy in compliance rating among app inspections. Rusted the ranking for non-compliance between the paper steel structures are identified prominently in the app and the app inspections. For instance, the lack of fire inspections, but not in the paper inspections. Further alarms is the item with the highest non-compliance analysis is required to identify the reasons for these rating among paper inspections, whereas deficient discrepancies when more data become available. hoses of gas cylinders has the highest non- Figure 1. Percentage of Inspections Recorded by Inspector that Comply with Safety Standards Inspector 6 (N=66) 44% App Inspector 5 (N=26) 38% Inspector 4 (N=4) 100% Inspector 3 (N=19) 100% Paper Inspector 2 (N=22) 18% Inspector 1 (N=39) 36% 0% 20% 40% 60% 80% 100% Source: Research team calculations. Table 2. Rank and Non-compliance Rates (by element) All App Paper Checklist Item N NC (%) Rank Rank Rank Facility has a fire alarm system installed 33 48 1 10 1 Metal structures in rooftops have ground connection 21 48 2 9 2 Hoses of type 10 gas cylinders are in good condition 22 45 3 1 4 Facility has a security plan 18 44 4 3 8 Steel structures are free of rust 16 44 5 2 51 Electrical equipment plugs have an earth pin 152 42 6 8 3 Electric motor casings have a ground connection 28 39 7 4 14 Electric panels have a differential switch 169 39 8 6 5 Electric panels have a circuit directory 172 34 9 7 10 Outdoor fire extinguishers are stored inside a cabinet 15 33 10 4 19 Source: Research team calculations. Note: NC is the percentage of non-compliant firms of the total number of firms for which the item was assessed (N). A total of 172 firms were inspected in this sample, excluding suspended inspections. LESS BURDEN, MORE TRANSPARENCY, AND HIGHER QUALITY | 11 Lessons: How the e-system is the e-system, specifically while ensuring that its Providing Inputs for Regulators features and processes were compliant with general administrative directives. This challenge became Highlighting Accountability Features an opportunity in understanding how the e-system Affecting Inspection Quality and can enhance the efficiency and accountability of the Reliability—But Missing in Regulation inspection system for all stakeholders. The development and implementation of the The major procedural challenge involved the legal e-system has revealed important accountability notification to firms about the inspection. When features that are missing in the regulation and using the paper inspection, firms sign and receive implementation guidelines, including a lack of a copy of the inspection forms, which serves as a standardization. The regulation leaves many aspects legal notification. However, the legal requirements of the inspection procedure undefined, such as the for electronic notifications are different and involve process to determine which items on the checklist two components. First, they must be authorized are applicable to the establishment at hand. For by the firm or applicant. Second, the government example, should inspectors ask the business must produce evidence that the notification was representatives if the establishment is equipped received. The first requirement was addressed with air-conditioning, electric motors or gas tanks, at the municipal level. In this regard, partner or should they determine this themselves during municipalities incorporated a short form whereby the inspection? Leaving such procedural issues applicants could authorize electronic notifications unspecified can lead to discretionary judgments and at the time of requesting the inspection. For the low standardization. second requirement, email receipt notifications were incorporated into the e-system. With these elements In practice, inspectors using paper forms usually in place, municipal employees can track which firms observe the establishment first and then mark have received their notifications and can follow up their assessments. In the paper checklist, they are with those that have not received them. required to mark not applicable for any item or equipment not encountered during the inspection. Another illustrative challenge concerns the Thus, items that were hidden, located on rooftops or difficulty in addressing mistakes made by in basements, or outside their route are sometimes inspectors. Currently, once an inspection is omitted. With the app, this procedure can be finalized (that is, the inspection form has been standardized: inspectors must ask several questions duly signed by all inspectors and the applicant), before starting the inspection in order to determine the result cannot be easily reversed—even if a whether certain questions apply. Questions that the genuine mistake is identified (for example, if app automatically marks as N/A can still be retrieved the report has the incorrect firm identification later if the inspector finds the equipment in question number). The procedure to amend this entails an while conducting the inspection. This and other audit of the establishment, requiring additional examples illustrate how the e-system can contribute financial resources (as businesses do not pay for to standardization and completeness, reducing the audits), as well as a lengthy administrative process room for discretion and errors. (as the previous business-safety certificate must be annulled through a municipal resolution). Identifying New Administrative Procedures to Enhance Efficiency and Overall, this costly and lengthy process reduces the Accountability incentives for quality controls. One way to address Electronic inspection processes should follow the this is through the implementation of a brief grace regulation for business safety inspections, as well as period (for example, one day) in which managers the general administrative law of Peru. In this context or supervisors can identify and correct mistakes a challenge surfaced during the implementation of (perhaps only of a specific kind) made by inspectors. 12 | LESS BURDEN, MORE TRANSPARENCY, AND HIGHER QUALITY The e-system could facilitate the incorporation of Concluding Remarks this procedure by sending the electronic notification (with any corrections) to the firm by email after the The ongoing collaboration and use of the e-system inspection form has been revised or approved by the through an adaptive and participatory approach manager. Thus, this would eliminate the need for have produced important insights and lessons: additional visits. • Participatory approach. A participatory Appropriate and low-cost features that allow for approach utilizing local expertise and involving the tracking of actions (or lack of actions), such key stakeholders is critical to selecting the right as the brief grace period or flags and alerts, can design variations of a system to operate and monitor enhance transparency and accountability and help inspections with timely and actionable information. avoid leakages. These innovations provide the • Information and Communications Technologies e-system with the flexibility to adapt to changes (ICT)-based monitoring and evaluation (M&E) in the regulation. At the same time, they allow systems. It is possible to develop ICT-based, low- multiple actors to save time and allocate their cost, and fully functional M&E systems in capacity- resources into monitoring inspection outcomes in constrained settings. Such systems can increase a more efficient way. transparency and improve accountability through the reporting of information in real time to government Revealing Potential Mechanisms to agencies. They can also improve standardization, Increase Quality Inspections and Reduce efficiency and quality. Challenges for developing Leakages such systems include the detailed and extensive The lack of resources and capacity in the thinking around its design, as well as the governing municipalities has led to some implementation principles and protocols of the monitoring function. challenges. Two problems that most municipalities • Extensive testing is essential to ensure that the face are a high volume of inspections and a lack of system is functional, flexible, user friendly — and resources to hire enough inspectors. The result is that not overly dependent on single users. In this regard, available inspectors are spread too thinly. In addition, ICT solutions can help through automatizing most low-pay results in some inspectors having to work steps to minimize the risk of bottlenecks due to multiple jobs in different municipalities. Therefore, inaction by some parties. inspectors have limited time to dedicate to individual • Capacity building. An important lesson stems inspections, which can affect the thoroughness and from the limited technical capacity of government overall quality of inspections. In the face of these agencies to develop and adopt these systems. constraints, the e-system provides valuable tools to Therefore, special attention should be given to ensure inspections are conducted more quickly and building capacity to take advantage of technology. with greater rigor and thoroughness. • Multi-disciplinary team. Building adequate The implementation of the e-system has also management and information systems has the generated some ideas and strategies to improve potential to improve delivery capacity and accountability. However, they have not yet been accountability. Such systems can also serve as a implemented. For example, the use of Global critical tool for data-driven and evidence-based Positioning System (GPS) tracking can help policymaking in the future. This requires that the to ensure that inspectors visit the premises of systems be built by a multi-disciplinary team. firms during an inspection. It can also be used to This team would work on defining what should track the duration of inspections, contributing to be measured and how. It would also guarantee the improvements in planning and logistics. quality and reliability of the measures, and heed user experience (UX) and user interface design (UI). Finally, it should allow for the integration with other existing systems. LESS BURDEN, MORE TRANSPARENCY, AND HIGHER QUALITY | 13 References Government of Peru. 2017. “Las MIPYME en Cifras.” Ministry of Production. See: http:// ogeiee.produce.gob.pe/index.php/shortcode/oee-documentos-publicaciones/publicaciones -anuales/item/829-las-mipyme-en-cifras-2017. Light, C.J. 1993. Monitoring Government: Inspector General and the Search for Accountability. Washington, DC: Brookings Institution Press. World Bank. 2020. Doing Business. See: http://documents.worldbank.org/curated/en/688761571934946384/ pdf/Doing-Business-2020-Comparing-Business-Regulation-in-190-Economies.pdf. ______. 2019. Doing Business. https://www.doingbusiness.org/content/dam/doingBusiness/media/Annual- Reports/English/DB2019-report_web-version.pdf. LESS BURDEN, MORE TRANSPARENCY, AND HIGHER QUALITY | 15