Perfecting Our Recipe for Regulatory Compliance

Established regulatory development procedures such as transparency and regulatory impact analysis requirements, although not implemented consistently across all federal regulatory programs and statutes, have greatly helped ensure that the benefits of new federal regulations outweigh their costs.

Often lost in the analysis when developing new regulations are issues of monitoring and enforcement, which are essential to ensure that society receives the full benefit associated with government regulations. Usually, non-compliance is not considered when analyzing proposed rules, with the implicit assumption being made that every regulated entity will comply with new requirements on schedule, thus maximizing both the benefits and costs of the new regulation.

However, the messy reality is that once the details of any new regulation are promulgated – whether they are speed limits, worker safety requirements, or environmental rules – corporations and individuals continue to seek to maximize their own gains, often at the expense of the commonly held goods served by regulation. Governmental monitoring and enforcement are needed because the real costs of compliance are at odds with the self-interest of regulated firms and individuals.

Agencies do have large and active organizational units that deal with monitoring, compliance assistance and enforcement against regulated entities. Yet funding for these compliance-related efforts often varies according to each administration’s ideology and too seldom do these efforts get systematically factored into the development of new regulations. A better recipe for improving both regulatory analysis and the implementation of new regulations would recognize that compliance cannot be assumed and would allocate agency compliance resources based on the measured level of non-compliance and the magnitude of unrealized benefits associated with non-compliance.

A recipe for perfecting regulatory compliance consists of five steps.

Step 1: Assemble the ingredients. Agencies should continuously collect information on compliance rates, strategies, technologies, root causes of non-compliance, and costs. To the extent possible, they should maintain granularity of information so that analyses and information products can be developed for specific regulations. This information can be mined from inspector reports, enforcement case reports, self-disclosures, state and federal compliance data systems, and independent research. When existing sources are insufficient, agencies could survey the regulated community to quantify baseline compliance rates and inform governmental planning for meeting compliance goals.

Step 2: Combine ingredients. Agencies should integrate and process the raw information from various sources to produce regulation-specific analyses and information products useful for both regulators and the regulated community. Regulators need sound information on the universe of regulated operations, baseline compliance rates, impediments to compliance, and the efficacy of historical compliance assurance and enforcement activities. With information about baseline compliance rates and related issues, regulators can formulate the appropriate type and level of monitoring, assistance and enforcement. The same information can be usefully processed in a way that would be helpful for members of the regulated community to understand all of their regulatory requirements, the causes of non-compliance for specific regulations or processes, and the potential solutions and proven strategies to maintain or return to compliance.

Step 3: Serve while hot. Once information is assembled and processed, agencies need to distribute it to various stakeholders. Existing internal processes for distributing information are suitable for disseminating information to regulators. To achieve broader publicity of compliance strategies, something which has been shown to increase overall compliance, agencies should take advantage of social media now available. Dissemination of regulator- and expert-reviewed compliance information via social networking channels could give on-demand assistance to regulated entities. Opportunities should also be provided for peer-to-peer sharing of compliance experiences and opinions, as well as giving feedback to regulators.

Step 4: Monitor performance and publish results. Regulators should quantitatively track changes in compliance rates and should solicit qualitative feedback on the effects of their regulations and their compliance and enforcement activities, using this information to fine-tune their activities. Regulators should also increase the transparency of this information in order to focus attention on the efficacy of governmental initiatives and the performance of the both the regulators and regulated entities. Successful initiatives should be visible to citizenry, demonstrating the value of governmental oversight. Similarly, the spotlight of public scrutiny will help ensure that unsuccessful initiatives are retooled or retired more rapidly. In January, President Obama called for just such transparency. The Environmental Protection Agency (EPA) has already responded to this call by providing an interactive website showing the levels of success that state and EPA Regional regulatory agencies have had in carrying out federal compliance and enforcement plans.

Step 5: Repeat until goals are met. Effective compliance requires ongoing efforts to improve. The recipe provided here will enable regulators to implement their regulatory goals more effectively and also provide a better basis for factoring compliance into developing such goals in the first place. The regulatory process can benefit from improvements in analysis before regulations are adopted as well as throughout the entire process of their implementation and enforcement.