First Cuts at Compliance

May 25, 2010 by David Loshin in Compliance, Data Quality

Regulatory compliance is an interesting challenge for a few reasons. First, the imposition of new governmental regulations to which companies must adhere seems to be, to some degree, unfair, mostly because the government is essentially insisting that a company allocate funds towards observing the regulations with limited return on that investment (other than, perhaps, increased good will for not being non-compliant, if you know what I mean). Second, the creation of new regulations to which companies must adhere is also an imposition on the agencies that are supposed to oversee that compliance. It means that they must spend their budget in ensuring that the companies remain complaint and to determine when companies are not compliant and to do something about that noncompliance.

Consider the whole situation from a practical (that is, budgetary) standpoint: For the company, where the managers would like to limit the expenditures on this non-revenue generating activity, the objective is to spend the smallest amount of resources in order to appear to be as compliant as possible. For the government agency, which is probably already stretched thin with a limited budget and is being asked to monitor compliance with no increase in funding, the objective is to identify noncompliance when it appears to pose the greatest risk to citizens.

Let’s apply this concept to regulatory reporting. Congress passes a law stating that companies must submit reports listing some sets of transactions in order to be compliant. The associated agency can fine companies that do not accurately report those transactions. Where do we start?

From the company’s standpoint, not reporting will be a red flag, since it would then be implicitly non-compliant. From the agency’s standpoint, allocating staff to review all transactions from all companies that report will require a significant resource investment; best to start with those companies that have not reported at all, since they are implicitly non-compliant. The perception, then, is that it is in everyone’s best interest for the company to provide some kind of report and for the agency to focus on those companies that did not report.

So what about the question of the quality of that reported data? If this thought experiment is accurate, it will be up to a third party (such as an independent advisory or oversight watchdog, or investigative reporters) to identify data errors or inconsistencies. And as predicted, check out this article on physician payments.

Tags: Compliance, Data Quality