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Could better financial data have stopped Bernie Madoff?

Better data could have stopped Bernie Madoff’s Ponzi scheme that cost investors billions of dollars. That’s the opinion of Rep. Randy Hultgren (R-Ill.) and a new report from the Data Foundation and the accounting firm PwC.

In a column supporting passage of the Financial Transparency Act last year, Hultgren said that “if the regulators adopted consistent data fields and formats for the information they already collect, instead of using PDF documents, they would have a better chance of catching fraudsters like Bernie Madoff and would make better decisions in crises.”

Authors of a recent report, Standard Business Reporting: Open Data to Cut Compliance Cost, agreed. Because Madoff’s “securities disclosures were available only as disconnected documents, not open data,” the report authors wrote, discovering his fraudulent activities “would have required expensive, time-consuming, and purpose-built analytics projects.”

If agencies could define consistent data standards across their compliance requirements, however, they could make the financial regulation easier and less expensive for both government and industry, the report said.

Currently, companies must file much of the same information with several agencies. A common data taxonomy between agencies could eliminate duplicate filing and allow agencies to share filing data, the report said.  

The report points to Standard Business Reporting initiatives in the Netherlands Australia, which the Australian Tax Office estimated saved the government and companies $1.1 billion in compliance costs during the 2015-16 fiscal year.

Adopting an SBR initiative requires four main steps:

Creating a national, open data taxonomy that businesses can use when reporting regulatory information to government. Rather than integrating processes or sharing data warehouses, standardization should come through common data elements and properties.

Using that taxonomy to get rid of duplicate data. Eliminate duplicate fields that collect the same data and clarify where similar data elements overlap and can be combined.

Enabling use of that taxonomy by facilitating straight-through reporting from accounting and compliance software. Businesses must be able to submit reports electronically, and agencies must be able to receive them.

Creating supporting mechanisms to make SBR efficient where they do not already exist, such as a governmentwide portal for reporting financial data, platforms that integrate compliance with a company’s other business functions and software that enables access and analysis of regulatory data.

Such changes would require legislation because there is no single agency in charge of collecting regulatory data, the report said.

On March 16, Rep. Darrell Issa (R-Calif.) reintroduced the Financial Transparency Act, which he said will do for regulation reporting what the DATA Act does for government spending: make it a searchable, easy-to-use dataset.

“By updating the process to an open data standard for the information already reported to the nation's eight financial regulatory agencies, we’ll be able to reduce regulatory burdens on businesses, give the public and investors better access to information, and boost our ability to find, and prevent, instances of fraud,” Issa said in a statement.

The bill -- with 28 co-sponsors on both sides of the aisle, including Hultgren -- has been sent to the House Subcommittee on Commodity Exchanges, Energy, and Credit.

Read the full report here.

About the Author

Matt Leonard is a former reporter for GCN.


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