What effect reducing number of audits will have on companies

By Elena Rybnikova, Head of Internal Audit, Expertise and Methodology Department

As of today, there exist about 200 types of company audits and inspections in Russia. The Government plan to reduce the number of audits. RASCHET asked Elena Rybnikova, Head of Service Quality Control and Methodology of Intercomp, whether the Government will be successful in implementing what they have conceived and what effect the reduction of audits will have on companies.

Elena Rybnikova
Head of Internal Audit, Expertise and Methodology Department
The legislative initiative to reduce the number of audits of companies and individual entrepreneurs has a lot of positive points. Decreasing inspection visits will allow to do business not wasting the business hours of company employees and management on preparation of documentation and explanations for the inspectors. Do not forget that each audit involves considerable amount work by both companies and individual entrepreneurs and by the auditors.

As of today, quite a large number of officials may pay a visit to an enterprise for auditing purposes. They are auditors from the tax service, non-budgetary funds, police, firemen, labour inspectors and others. In total, about 30 government agencies may check a firm. At the same time, there may be a lot of reasons for such checks. It might be a tax declaration “for redress”, long-time business, liabilities to the non-budgetary funds, checking SNIPs (construction norms and regulations) and GOSTs (state standards) compliance.

What is audited

I don't think that I'll reveal some secret if I say that most of the fiscal audits lead to fines, penalties and additional payments. Audits increase waste of resources of the [Tax] Service itself, conducting monitoring activities does not allow tax authorities to approach the audit from the point of view of the company's audit, the auditors are, to a greater extent, busy with collecting additional revenues to the Treasury, and they do not try to understand why businessmen committed whichever violations.

Please note

The Government’s Resolution No. 559-r is a major step to improve the system for controlling business in Russia, however one must understand that, once having embarked on this path, the reform process will be quite lengthy and the positive results of optimization of the legislation will be visible not earlier than 2020.

So, for example, Rospotrebnadzor check sanitary and hygienic requirement compliance, carries out assessment of the finishing of premises, microclimate in the office and lighting. But the same are checked by the executive authorities when carrying out special labour conditions compliance. Also, under Article 88 of the Tax Code of the Russian Federation, when checking the tax declaration, if the company submits an updated declaration within the audit period, the in-office audit shall be terminated and a new audit (based on the newly submitted declaration) begins. The timeframes for carrying out an in-office audit constitute from three to six months. When an updated declaration is submitted the inspector, in accordance with the Russian Tax Code, must “throw into trash” the results of his work and begin the audit again; and this is inappropriate from the point of view of efficiency of the inspector’s work.

Optimization of legislation

Improvement of the legislative framework in the part of audits will allow to reduce the number of overlapping audits, to reasonably distribute the load on the staff of the executive bodies and, therefore, improve the efficiency of the inspections themselves, and reduce the overall administrative burden on companies and individual entrepreneurs. The legislators understand the fact that there are redundant control and supervision functions, outdated (as of today) mandatory requirements for business, and they seek to streamline these and improve the legislation.

Please note

Resolution of the Government of the Russian Federation No. 559-r of April 1, 2016 contains the following wording: "The legal system generally obligates controlling and supervisory authorities to carry out continuous audits of controlled entities at regular intervals, that often leads to inefficient spending of resources".

So, the way out of the current situation will consist in creation of a unified database on audits and audit results, optimization of auditing plans, increasing the level of monitoring the state of affairs with business in the whole country, thus allowing to minimize the number of non-planned control actions. The Government’s Resolution No. 559-r is a major step to improve the system for controlling business in Russia, however one must understand that, once having embarked on this path, the reform process will be quite lengthy and the positive results of optimization of the legislation will be visible not earlier than 2020.