Inspections of regulatory authorities. What you need to know?

Law №877 does not apply to such "specific" types of control as currency, customs and export control, control over compliance with budget legislation and legislation on protection of economic competition, as well as state supervision (control) in the field of television and radio broadcasting and inspections food and non-food products for compliance with its legal requirements. Such inspections are regulated by the Laws of Ukraine "On Basic Principles and Requirements for Food Safety and Quality" and "On State Market Supervision and Control of Non-Food Products".

There are separate laws. For example, the Customs Code of Ukraine, the Law of Ukraine "On Protection against Unfair Competition" and the Law of Ukraine "On Protection of Economic Competition", the Law of Ukraine "On Basic Principles of Public Financial Control in Ukraine", the Law of Ukraine "On Basic Principles and Requirements for Security and Security". quality of food products "and the Law of Ukraine" On state market supervision and control of non-food products ".

I also provide a list of inspections, which in addition to the Law №877 are regulated by other regulations:

Table 1

During the inspections listed in the table, the controlling bodies are obliged to be guided by the Law №877 in the part:

• compliance with the general principles of state supervision;

• mandatory interpretation of the provisions of regulations in the interests of the enterprise;

• prohibition of seizure of originals of financial and economic, accounting and other documents, as well as computers and their parts;

• the procedure for forming and approving inspection plans, the procedure for developing and approving criteria by which the degree of risk from conducting business activities is assessed;

• the procedure and deadlines for notification of scheduled inspections and the frequency of their conduct;

• mandatory notification of the grounds for conducting an unscheduled inspection;

• the procedure for drawing up documents for inspections and requirements for such documents;

• the minimum amount of rights of business entities during the inspection.

The relevant laws may additionally regulate the list of rights of controlling bodies, establish separate lists of grounds for conducting unscheduled inspections, contain additional requirements for documents for conducting inspections, expand the rights of business entities, etc.

 Moratorium on inspections

From 2014 to 2016, the Verkhovna Rada of Ukraine imposed various moratoriums on inspections several times. Due to frequent changes in these moratoriums, the controlling bodies themselves cannot understand who can be checked. Imperfect legislative wording has led to heterogeneous case law and inconsistent explanations from government agencies. I will try to systematize the information about the moratoriums that are in force today.

I'll start with the two simplest, which are related to the anti-terrorist operation. The first is established by the Law of Ukraine "On Temporary Measures for the Period of the Anti-Terrorist Operation". This Law prohibits scheduled and unscheduled inspections of business entities operating in the ATO area. Such a ban will be in effect during the anti-terrorist operation period.

The current list of settlements in the area of anti-terrorist operation was approved by the order of the Cabinet of Ministers of Ukraine №1275-r dated 02.12.2015. These include settlements where anti-terrorist operation has not been carried out for a long time, such as Kramatorsk or Mariupol.

 Importantly! This moratorium does not apply to unscheduled inspections of high-risk businesses.

The second moratorium is established in the Law of Ukraine "On Amendments to the Law of Ukraine" On Basic Principles of State Supervision (Control) in the Sphere of Economic Activity "on Liberalization of the System of State Supervision (Control) in the Sphere of Economic Activity".

Paragraphs 5 and 6 of the final and transitional provisions of this Law prohibit inspections by the State Fiscal Service of Ukraine of economic entities operating in settlements on the territory of which public authorities temporarily do not exercise their powers and in settlements, located on the line of contact, as well as business entities that have carried out state registration of change of location from the territory of the anti-terrorist operation to the territory controlled by Ukraine, and who have lost primary documentation on their economic activities in the territory and during the anti-terrorist operation.

The list of such settlements was approved by the order of the Cabinet of Ministers of Ukraine №1085-r dated 07.11.2014.

The third moratorium, which extends to the entire territory of Ukraine, but not to all regulatory authorities, introduced by the Law of Ukraine №1728-VIII "On temporary features of state supervision (control) in the field of economic activity" (hereinafter - the Law №1728).

Law №1728 until 31.12.2017 establishes a ban on scheduled inspections and establishes an exhaustive list of grounds for unscheduled inspections (on the grounds for unscheduled inspections a little further).

The moratorium does not apply to inspections of the following bodies:

• National Commission for State Regulation of Energy and Utilities.

• National Commission on Securities and Stock Market.

• State Service of Ukraine for Food Safety and Consumer Protection (Derzhprodspozhyvsluzhba) only in terms of inspections on safety and certain indicators of food quality and inspections of compliance with legislation on consumer protection and advertising in this area (explanation of the State Regional Service from 06.02.2017 ).

• State Fiscal Service of Ukraine (SFS).

• State Audit Office of Ukraine.

• State Export Control Service of Ukraine (State Export Control).

• State Inspectorate for Nuclear Regulation of Ukraine (SNRCU).

• State Service of Ukraine for Labor.

• State Aviation Service (State Aviation Service).

• Bodies of the state architectural and construction control and supervision (the State architectural and construction inspection of Ukraine and its territorial bodies; structural divisions concerning the state architectural and construction control of the Kiev and Sevastopol city state administrations; executive bodies concerning the state architectural and construction control of rural, settlement, city glad).

• State Ecological Inspectorate of Ukraine (State Coinspection of Ukraine)[*].

• National Council of Ukraine on Television and Radio Broadcasting.

• National Bank of Ukraine.

• Antimonopoly Committee of Ukraine.

The moratorium applies to inspections of all other bodies.

Read the current information on the effect of this moratorium in 2018 here.

 How to check?

Inspections can be scheduled or unscheduled.

Law №877 defines the general principles and rules for conducting all inspections:

• Inspections are carried out at the place of economic activity of the enterprise or its divisions. They can also be held in the premises of the controlling body, if it is expressly provided by law.

• Scheduled and unscheduled inspections are carried out during the business hours of the business entity, established by its rules of internal labor regulations.

• Partial or complete suspension of the enterprise is possible only by court decision.

• Controlling bodies and business entities have the right to record the process of conducting inspections by means of audio and video equipment.

• During inspections, regulatory authorities are prohibited from seizing original documents, computers or parts thereof.

• The inspection is carried out only in the presence of the head of the enterprise or a person authorized by him.

• It is prohibited to prosecute officials of an economic entity for refusing to provide explanations on the activities of an economic entity (Part 4 of Article 12 of the Law №877).

• Before conducting an inspection, the controller must make an entry about the inspection in the register of measures of state supervision (control) (if such a log is available at the enterprise);

• During inspections, control bodies are obliged to use only uniform forms of inspection acts. Such forms of acts are published on the official websites of the supervisory authorities.

Importantly!

The enterprise has the right not to allow officials of the controlling body to conduct the inspection if the controlling body has not approved and published on its official website a unified form of the act, which provides a list of issues to be inspected depending on the risk of the enterprise.

 Scheduled inspections

Scheduled inspections are carried out in accordance with the annual plans approved by the supervisory authority no later than the first of December of the year preceding the planned one. Amendments to the annual plans are not allowed, except in cases of change of the name of the business entity and correction of technical errors.

Information about the plans is published on the official websites of the regulatory authorities.

If the company is included in the plans of several controlling bodies, then in this case they simultaneously conduct a comprehensive inspection. The plan for conducting comprehensive inspections is published on the website of the State Regional Service.

The controlling body is obliged to notify the enterprise about the inspection within 10 days by sending a registered letter and / or by e-mail or personally against a receipt to the head.

The message must state:

• start date and end date of the inspection;

• name of the legal entity or surname, name and patronymic of the natural person - entrepreneur, whose activity will be inspected;

• name of the controlling body.

Importantly!

If the controlling body has not sent or delivered the notice of the scheduled inspection in time, the enterprise may not allow it to be carried out.

The case law shows an ambiguous interpretation of this provision. In some cases, the courts take the side of the supervisory authority and support the position that the notice of the inspection should be served 10 days before the actual start of the inspection, and not before the date specified in the inspection order or inspection plan (see the position of the court in the case №818 / 44/17).

Terms of scheduled inspections.

Scheduled inspection may not exceed ten working days, and for micro and small businesses - five working days[†]. Extension is not allowed.

The total duration of all planned activities carried out by the supervisory authorities during the calendar year may not exceed thirty working days, and in the case of micro and small enterprises - fifteen working days.

Unscheduled inspections

The moratorium introduced by the Law of 1728 significantly reduced the grounds for conducting unscheduled inspections. However, given that the Law №1728 does not apply to a significant number of regulatory authorities, I also suggest paying attention to the grounds for unscheduled inspections, which are provided by Law № 877.

Table 2

The given list of the bases is exhaustive for those bodies which procedure of carrying out checks is not regulated by other laws. The list of grounds for inspections by bodies governed by individual laws (see Table 1) may differ.

Thus, the following additional grounds for conducting unscheduled inspections have been established for the bodies of state architectural and construction control (Article 41 of the Law of Ukraine “On Regulation of Urban Development Activity”):

• the need to verify the accuracy of the data provided in the notice of commencement of preparatory work, notice of commencement of construction work, declaration of readiness for operation, within three months from the date of submission of these documents;

• detection of the fact of unauthorized construction of the object;

• the requirement of the chief inspector of construction supervision of the central body of executive power, which implements the state policy on the issues of state architectural and construction control and supervision, to conduct an inspection if there are grounds provided by law;

• the requirement of law enforcement agencies to conduct an inspection.

Importantly!

During the unscheduled inspection, only those issues that became the basis for the appointment of the inspection are clarified.

Exit of the controlling body for the subject of unscheduled inspection is the basis for termination of such inspection (paragraph 10 part 1 of Article 6 and paragraph 24 part 1 of Article 10 of the Law №877).

I would like to draw your attention to the rather common "grounds" for the appointment of unscheduled inspections - the decisions of the investigating judge and letters from law enforcement agencies.

Decisions of the investigating judge to conduct unscheduled inspections of business entities have been repeatedly appealed and revoked by the courts of appeal. At the same time, the courts of appeal clearly and unequivocally state that the appointment of unscheduled inspections does not fall within the competence of the investigating judge (see the decision of the Court of Appeal of Donetsk region of 24.05.2017 in case №264 / 2007/17).

As for letters from law enforcement agencies, such letters clearly cannot be grounds for appointing an unscheduled inspection in accordance with Law №877, as the list of such grounds is exhaustive and there are no letters from law enforcement officers (parts 1 and 2 of Article 6 of Law №877).

Instead, the requirements of law enforcement agencies may be the basis for an inspection by the architectural and construction control authorities. However, such claims should be directed within the competence of the law enforcement agency and should be formulated as claims, not proposals (see the decision of the Lviv Administrative Court of Appeal of 11.07.2017 in case №876 / 6433/17).

Documents for inspection

No matter what inspection the inspector came to conduct, he must have the following documents:

1. An official certificate, which he presents to the head of the enterprise or an authorized person before the inspection.

2. Certificate (referral) for inspection.

The certificate (direction) must indicate:

• Name of the controlling body.

• Name of the business entity being inspected.

• Location of the business entity and / or its separate subdivision.

• Number and date of the order (decision, order), for the implementation of which the inspection is carried out.

• List of officials participating in the inspection, indicating their position, surname, name and patronymic.

• Start date and end date of the inspection.

• Scheduled inspection or unscheduled.

• Grounds for inspection.

• Subject of inspection.

• Information about the preliminary inspection (type of event and term of its holding).

A copy of the certificate (referral) must be provided against a receipt to the head of the enterprise, or an authorized person, before the inspection.

3. To conduct unscheduled inspections on the basis of a complaint of an individual, the supervisory authority must also provide the head of the enterprise with a copy of the approval of the State Regulatory Service to conduct this inspection. This paragraph does not apply to inspections which are not covered by the moratorium imposed by Law №1728.

Importantly!

The absence of any of these documents is a legitimate reason for non-admission to the inspection.

I will dwell separately on the moment of admission to the inspection. The case law follows in such a way that the moment of receipt by the head of the enterprise of a copy of the referral for inspection is considered the moment of admission to the inspection (for example, see the decision of the HAC of 05.07.2016 in case K / 800/10253/16).

Currently, there are various court positions on the right of an enterprise to appeal an order appointing an inspection after the actual admission to it.

Some courts argue that an enterprise that considers that the procedure and grounds for appointing an inspection against it have been violated should protect its rights by not allowing officials of the supervisory body to conduct such an inspection (see, for example, the Supreme Court of Ukraine ruling of 24.12.2010 in 21-25a10).

Others, on the other hand, argue that the observance by officials of the controlling body of the legally established restrictions on the appointment of the inspection is a mandatory precondition for the control body to exercise the right to conduct the inspection. The right of an enterprise not to allow officials to inspect is only an additional guarantee of protection of rights, which the enterprise has the right to use at its own discretion. Failure to exercise such a right may in no way justify the violations committed by the supervisory authority during the appointment and conduct of the inspection and exclude the legal consequences of such violations (see, for example, the decision of the HAC of 25.01.2017 №K / 800/225/16).

Given the contradictory case law, I recommend to determine the position on the legality of the inspection before the head of the company signs a copy of the direction for the inspection. This will give the company a guaranteed opportunity to appeal the inspection order.

Documents on the results of the inspection.

Based on the results of a scheduled or unscheduled inspection, an act is drawn up which records the violations that were detected during the inspection.

On the last day of the inspection, two copies of the act are signed. One copy of the act is handed over to the business entity.

Importantly!

If the representative of the enterprise does not agree with the act, the act is signed with comments, which are an integral part of the act.

The controlling body within five working days after consideration of objections to the act of inspection makes one of the following decisions:

• Makes an order to eliminate the identified violations of the law. The prescription is only a requirement of the official of the controlling body. It does not provide for the application of any sanctions to the company and its officials. Sanctions are applied for non-compliance with the order.

• Makes an order, or other administrative document. In addition to the requirement to eliminate the identified violations, the order may also provide for the application of sanctions.

Also, some regulatory authorities may apply to the court for full or partial suspension of the enterprise. Such lawsuits are usually justified by the fact that the detected violations pose a threat to human life and / or health or the environment.

This is a very dangerous category of cases that requires the company to act very quickly and actively. These claims are considered by the courts under the procedure of summary proceedings. This means that the company is given ten days from the date of receipt of the court's decision to initiate proceedings to file objections to the claim. Then the judge considers the case within five days and makes a decision. As a general rule, the court hears the case without the participation of the parties. Therefore, the task of the company is very quickly and as fully as possible to prepare an objection to such a statement of claim to prevent the termination of the enterprise.

Grounds for non-admission

A normal inspection can end in unexpected and very negative consequences for the company - from fines to the complete cessation of the company. These consequences are easier to prevent than to deal with. The easiest way to do this is to find a legal basis for not allowing the inspector to conduct the inspection. Therefore, we summarize the list of grounds for non-admission of the controlling body to the inspection:

• Scheduled inspection must be included in the annual plan. Lack of inspection information on the official website of the inspection body may be grounds for disqualification from the inspector.

• No message - no verification. The controlling body is obliged to notify the enterprise 10 days before the start of the scheduled inspection. The absence of such a notice, or non-compliance with its form, is grounds for non-admission.

• The controller must have the authority, which is confirmed by the service certificate, and the certificate (direction) to conduct the inspection, which must be preceded by the order of the controlling body to conduct the inspection.

• If the frequency of inspections is violated, the inspector may also be barred. The same applies to the duration of the inspection.

• There must be a basis for an unscheduled inspection, and in some cases the approval of the State Regulatory Service. Lack of grounds or approval is a legal opportunity to prevent an inspector.

• It is prohibited to conduct an unscheduled inspection twice on the same grounds, as well as on grounds not provided by Law №877 (or other relevant law).

It is important not only to find a legal basis for non-admission, but also to fix it correctly. So do not forget about the right to record the inspection on camera, be smart and find an opportunity to get copies or photos of documents issued in violation.

News from the "legislative front"

The Verkhovna Rada of Ukraine registers a lot of bills that in one way or another relate to the issues of inspections. However, I want to dwell on one that has a chance to be adopted in the near future. This is the bill №6489 of 23.05.2017 "On amendments to some legislative acts of Ukraine to prevent excessive pressure on business entities of state supervision (control) over compliance with labor and employment legislation." It has already been adopted in the first reading on July 12, 2017 and is awaiting the final - second reading.

What important changes will this bill make?

The draft law defines the concept of "creating obstacles to state supervision (control) bodies or their officials in carrying out state supervision (control) measures" and obliges supervisory bodies to describe actions or omissions that led to the creation of such obstacles, with reference to relevant law. which are violated.

Until now, there has been no such definition and there have been cases when regulatory authorities have openly abused it. This issue is especially relevant for inspections of the State Labor Inspectorate, because in some cases the company may receive a fine of the infamous 320 thousand hryvnias for obstructing the inspector of the State Labor Inspectorate. I have encountered in court practice a case in which the State Labor Office imposed a fine on an individual entrepreneur for refusing to provide explanations about his activities. The inspector described this as creating obstacles to the inspection. It did not even prevent the fact that the right to refuse to give such explanations to the entrepreneur is directly guaranteed by Part 4 of Article 12 of the Law №877.

Another important point is the introduction of liability of officials of regulatory authorities for the issuance of orders, directives, tax notices, decisions, requirements and decisions on the imposition of financial penalties that are canceled administratively or judicially. For such decisions, officials may be fined from 1,360 to 2,210 hryvnias. This should encourage regulators to refrain from making clearly illegal decisions.

They also propose to establish liability for unfounded appeals to regulatory authorities with allegations of violations of current legislation by the business entity, as well as the submission of knowingly false information about the activities of the enterprise, which became the basis for initiating the inspection. Such an unjustified appeal can cost the offender 850 or 1,700 hryvnias, and if the offender is an official, the fine can reach 5,100 hryvnias.

And the last positive innovation - fines for some violations of labor legislation will not be applied if such violations are committed for the first time. In case of violations, the inspector will issue an order and provide time to eliminate them. And only if the company does not eliminate the violation, sanctions will be applied to it.

The proposed bill contains a number of technical changes aimed at regulating inspections of compliance with labor legislation, because due to certain inconsistencies in the legislation, the legality of some inspections is quite questionable.

[*] There is a controversial position as to whether the exemptions from the moratorium apply only to the State Coinspection of Ukraine or also to its territorial subdivisions. On February 8, 2017, the State Regional Service explained that the exceptions to the moratorium also apply to the territorial bodies of the State Coinspection of Ukraine.

Small business entities - legal entities and natural persons entrepreneurs whose average number of employees for the reporting period (calendar year) does not exceed 50 people and the annual income from any activity does not exceed the amount equivalent to 10 million euros, determined at the average annual rate of the National Bank of Ukraine.

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The article was published in the periodical "Journal of the Chief Engineer" №09 September 2017. Information about the magazine can be found on the website:
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