• Reporting and auditing

Reporting and auditing

Programmes encouraging firms to police their own regulatory compliance and voluntarily disclose the violations they find are becoming increasingly important elements of regulatory strategy, and may be beginning to displace traditional regulatory enforcement tools like inspection and prosecution.

This paper analyses the complex behaviour of corporate self-disclosure to identify the causes and consequences of confessing. It investigates what factors lead organisations to self-disclose violations that went undiscovered by regulators, and whether these self-disclosing organisations obtained any unofficial regulatory benefits, above and beyond formal penalty mitigation. It also evaluates whether self-policing promotes the regulatory objective of improving compliance records.

The paper finds that:

• highly scrutinised facilities are significantly more likely to self-disclose compliance violations as confessions are in effect coerced, since an additional inspection increases the probability of self-disclosure the next year by 10%
  
• facilities with poor regulatory relations are subject to the most intensive regulatory scrutiny, and therefore have an even greater incentive to convince regulators that they have turned over a new leaf and are now more willing and able to comply with regulations
  
• information and outreach efforts are very effective in encouraging facilities to self-disclose compliance violations
  
• self-disclosing facilities are subjected to 21% fewer annual inspections suggesting regulators do indeed grant inspection holidays to self-disclosers
  
• there is strong evidence that facilities’ compliance records improved subsequent to self-disclosure

These findings suggest an important role for self-policing within the context of a broader, deterrence-based regulatory strategy. The fact that self-disclosers improve their compliance records indicates that self-policing affects firm behaviour, and that confessions can serve as reliable indicators of these effects. However, while self-policing holds some interesting possibilities, it is not the panacea for shrinking regulatory budgets. The paper suggests a regulatory policy that recognises the ongoing importance of government regulation and regulators for the success of public-private regulatory partnerships.

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