Rio de Janeiro fights fraud and inefficiency with digital data

At a time when so many things are done digitally, it can be unnerving to see important legal processes conducted largely on paper. Yet, until June 2016, that’s how much of the business licensing process in Rio de Janeiro was conducted.

In a process rife with inefficiencies and corruption vulnerabilities dating back more than 100 years, entrepreneurs wanting city approval for a new business in Rio traveled a long and winding road of paperwork. This lengthy process required multiple administrative steps, many face-to-face meetings and local inspections, as well as the engagement of numerous agencies over the course of several months. When a license was finally granted, it had to be hand-signed by a local inspector-director and picked up by the applicant.

Only during this final step in the process was information about the new business entered into a database that was used to track inspections and tax income. But there was still no easy way to extract information from this system about business development and growth in the city.

All this started to change in October 2015, when Mayor Eduardo Paes signed a series of executive orders to simplify the registration process for municipal business licenses, thereby eliminating much of the red tape and opportunities for bribery. The effort to streamline this process took a major leap forward last year with Rio’s creation and deployment of a digital portal for granting city business permits, created with help from Bloomberg Associates, a philanthropic consulting service. It was further improved as part of the 2016 Data for Good Exchange Immersion Day, a program sponsored by Bloomberg and NYC Media Lab.

Bruno Bondarovsky and Bloomberg Associates' Rose Gill Hearn

The result, says Bruno Bondarovsky, who was, until recently, the Under-Secretary for Planning with Rio’s Municipal Bureau of Public Order (Seop), was a huge increase in business licenses, a huge decline in opportunities for bribery and corruption, and a tax windfall for the city worth more than $2 million.

Bloomberg Associates, which helps governments around the world tackle problems by adopting best practices that worked elsewhere, based the portal on the “Doing Business with NYC” portal deployed in New York City shortly after Michael Bloomberg completed his third term as mayor.

“When we started this project, we really didn’t understand what the process was and how it worked, and the city couldn’t supervise and inspect many businesses within its borders because we simply didn’t know where they were located,” Bondarovsky says. “Now we’ve made the process more transparent and reliable, with a lot less bureaucracy.”

In the portal’s first year of operation, the city saw a surge in the number of new business permits issued, almost doubling from 40,000 to more than 74,000. And more than two-thirds of licenses applied for under the new system were issued on the same day they were requested.

Aside from its inherent inefficiencies and tendencies to encourage corruption, the old licensing process failed the city in other ways, Bondarovsky says. For one thing, many businesses registered only with Brazil’s federal and state government and skipped the city licensing process altogether, denying the city revenue to which it was legally entitled in the form of taxes and fees.

For another, it denied the government in Brazil’s second most populous city the ability to track and shape the health of its local business economy by monitoring trends, and regulating the location and zoning of different types of businesses.

”At first, we couldn’t get any useful data on the number of new businesses in the city, because everything was on paper,” Bondarovsky says. “After the new system launched, we had a huge amount of data, but faced a new challenge: how to analyze the information in a simple and useful way?”

To tackle this problem, Rio participated in last year’s Data for Good Exchange Immersion Day program, a partnership between Bloomberg and NYC Media Lab. It hosted a data scientist, Cristian Felix of NYU’s Tandon School of Engineering, who created a visualization tool for the city. This new transparency dashboard makes it easy to extract and understand the data being generated by the system.

As a result, the city can now track, for example, how many hair and nail salons are located in Rio’s relatively poor Campo Grande neighborhood, as well as the number of financial and business consultants based in the upper middle class sections of Botafogo, Bondarovsky said.

“We can now see which neighborhoods are growing faster and the types of businesses that are opening. It is clear that Rio is a service-oriented city, as 65 percent of the new licenses are being issued to those kinds of businesses, with another 25 percent being issued to new retail shops,” he added.

Another big victory was the elimination of the numerous in-person interactions required with city inspectors from various agencies and a paper-heavy administrative process. Bondarovsky said the old system required tens of thousands face-to-face meetings a year between business owners and different city employees. With the online system, more than half of these consultations with inspectors are now automated – with the goal of handling 80 percent electronically by the end of 2017. Not only is there a full electronic record of the application process, but also the approved license can easily be downloaded and printed by the business owner.

According to independent budget organization Econometrica, the new portal also delivered another major benefit for business owners in Rio, saving them almost $6 million in related expenses.

Rose Gill Hearn, who, as Commissioner of New York City’s Department of Investigation during the Bloomberg administration, spent 12 years fighting corruption in the city, supervised the project for Bloomberg Associates.

“It’s hard to know how much abuse there was under Rio’s old licensing system, mainly because of all the in-person meetings, but we do know the process was vulnerable,” Hearn says.

While Hearn concedes there’s no perfect system for eliminating corruption, the opportunities for it to flourish in the new licensing process have been hugely reduced. “I’ll never say there’s a perfect, corruption-proof approach, but with the new system that’s in place, Rio has taken an enormous preventative action.”

Look for more about the 2017 Data for Good Immersion Day to be shared at Bloomberg’s 4th annual Data for Good Exchange (D4GX) on Sunday, September 24, 2017.