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Reg Week®: CRE Regulatory Action of the Week

CRE Submits Supplemental Comments on "Reproducibility" Standard in OMB's Data Quality Guidelines


October 29, 2001

 

Ms. Brooke J. Dickson
Office of Information and Regulatory Affairs
Office of Management and Budget
New Executive Office Building, Room 10236
725 17th Street, N.W.
Washington, DC 20503

Re: Supplemental Comments on OMB’s Interim Final Data Quality Guidelines

 

Dear Ms. Dickson:

The Center for Regulatory Effectiveness (CRE) would like to take this opportunity to supplement its comments dated October 26, 2001, to include the following additional points related to the "capable of being substantially reproduced" standard in OMB's "Guidelines for Ensuring and Maximizing the Quality, Objectivity, Utility, and Integrity of Information Disseminated by Federal Agencies," 66 Fed. Reg. 49718 (September 28, 2001).

Inclusion of Financial Information in the Definition of "Statistical Information"

  • CRE believes that it may be appropriate for OMB to expressly state that financial information is a form of statistical information and, as such, it is subject to the statistical information standards under the Data Quality guidelines.

  • Financial information is presently subject to high professional standards of accuracy. Examples of existing mechanisms that reinforce the quality of financial information include:

- Associations of financial professionals have developed accepted principles of operations designed to ensure the accuracy and reliability of their work, including Generally Accepted Accounting Principles (GAAP) and Generally Accepted Auditing Standards (GAAS).

- Financial information may be subject to standards imposed by federal and state securities laws governing disclosures of financial data on publicly-traded companies.

- Independent organizations also exist that analyze public financial information and publish ratings and opinions of it.

  • In defining the term "objectivity" in its final guidelines (V.3.B), OMB states:

... In a scientific or statistical context, the original or supporting data shall be generated, and the analytical results shall be developed, using sound statistical and research methods.

i. If the results have been subject to formal, independent, external peer review, the information can generally be considered of acceptable objectivity.

  • CRE recommends that OMB clarify that it is not setting new standards for the quality of financial information which is already covered by the rigorous standards of GAAP, GAAS, or federal and state securities law. OMB could achieve this end by revising the above language from section V.3.B of its guidelines to state:

In a scientific, financial, or other statistical context, the original or supporting data shall be generated, and the analytical results shall be developed, using sound statistical or financial research methods.

  • CRE recommends that in the event outside parties are able to demonstrate that accepted financial standards have not been met, agencies must consider such evidence, and if warranted, not accept the objectivity of the financial information in question.

Need to Clarify an "Acceptable Degree of Imprecision" in a Manner that Reflects the Effect of the Imprecision

  • CRE urges OMB to clarify the phrase "subject to an acceptable degree of imprecision" within the definition of "capable of being substantially reproduced." That definition, contained in section V.10 of the guidelines, states:

10. "Capable of being substantially reproduced" means that independent reanalysis of the original or supporting data using the same methods would generate similar analytical results, subject to an acceptable degree of imprecision.

  • While CRE strongly supports the idea that substantial reproducibility should be allowed an acceptable degree of imprecision, CRE recommends that OMB should amend the definition so as to tie the level of imprecision permitted in an agency's information to the regulatory effect that such imprecision would have. We believe that an inverse relationship should hold in this context: the lesser the regulatory effect, the greater the acceptable imprecision may be.

- For example, a federal agency may decide, based upon its scientific, financial, or statistical information, whether a person or entity could be subject to an adverse regulatory action. Such adverse regulatory action could include a rating, a categorization, or a notice.

- In any event, the agency's information would be subject to the "substantially reproducible" standard, and it would be allowed an acceptable degree of imprecision.

  • Where an agency's calculation is a basis for adverse regulatory action, the calculation should be precise, and should at least comply with professional standards for the objectivity of such information.

  • However, if a calculation is not a basis for any adverse regulatory action, a relatively higher level of imprecision should be acceptable.

CRE appreciates this opportunity to provide additional comment, and we would be pleased to further assist the agency regarding Data Quality Act implementation, as appropriate. Please feel free to contact me, should you have any questions or require further clarification.

 

Sincerely,

Jim J. Tozzi
Member, CRE Board of Advisors