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in interpretation and application of the regulations. How do we. insure a more expeditious processing of field interpretation requests?" That was one of C & E's sixty-four dollar questions-it had been asked before in the course of the Program, and it was to go without a truly satisfatory answer until the end of Phase IV. The compliance and enforcement system was the appropriate context for the question to be raised, because IRS in all its local offices and through its investigating agents interpreted and applied the regulations on a daily basis during all phases.

The Service played a significant role in identifying needs for interpreting and revising regulations during the Program. Early in Phase II, heavy reliance was placed on industry and business sources in drafting regulations, and the point of emphasis was the specific mechanism or constraint. As Phase II progressed, when IRS began to develop compliance cases, alternative ways of applying regulations in specific cases were evolved. IRS began coming back to the policy bodies-CLC, PC, and PB-to request clarifications of many rules. These IRS questions became an important stimulus for official stabilization rulings (especially those of the Price Commission) and for development of policy issue papers. A leading example of the role that IRS and other compliance units played in refining regulations was the "item pricing vs. category pricing" issue which arose during the final months of Phase II. Price regulations in that phase allowed a retailer or wholesaler to choose for control purposes between pricing based on an individual item or category of items basis. This flexibility in the selection of the basis for pricing control led to difficulties in enforcing Phase II rules, most notably in the food retailing industry. IRS found that when a firm was found in violation of a price constraint on an item basis, it declared that it had been a category pricer, and vice versa. PC rulings were issued subsequently attempting to tighten the definition of an item pricer and the method of establishing the base price for an item.

The manner in which IRS disclosure of inconsistencies or relative unenforceability in the regulations was made was never systematized at any time in the Program. An effective compliance and enforcement strategy, in an optimum price and wage control phase, would include a feedback loop through which rule clarifications and proposals for rule revision could return from the field to Washington more easily. Investigation requests could specify that the investigating agent report on the equity and ease of applying a rule as well as on violations.

Equity in imposing penalties on identical violators was quite as important as equity in applying specific regulations. Called "hori

zontal equity," the consistent treatment of price and wage violators at different geographic points with respect to the same violations was never perfected. The complexity of regulations, differential skills of field personnel, and the deliberate search by some firms for favorite treatment all combined to make this kind of equity an elusive objective. The absence of horizontal equity, or significant and visible instances of its breach, had the potential for damaging the credibility of the Program.

One step taken early in the Program to minimize the possibility of inequitable, inconsistent compliance actions at the field level was to withhold authority from that level to impose administrative remedial penalties, to reach compromise settlements, and to collect civil penalties. But as efficient management of compliance programs required the delegation of particular kinds of authority to IRS field locations, other checks had to be established to ensure consistency. Informal memoranda and IRS National Office notices to field units were used during Phase II to assist in establishing uniform criteria for compliance case development and field processing. Toward the end of Phase II, emphasis was placed more on the development of “audit packages" on an industry-by-industry basis; audit packages included a series of guidelines and procedures on how to apply regulations and determine the amounts of violations. During Phase III, CLC and IRS developed complete audit packages for health and food cases, and objective criteria were written for the compromise of violations in health cases. During Phase IV, criteria for use in reaching compromise settlements for all cases were formally developed by CLC and relayed to IRS. An official handbook on procedural regulations was prepared to ensure consistency in the mode of issuing remedial orders by IRS.

As with horizontal equity, the consistent treatment of violatorfirms of different size that had committed the same violations was a procedural objective which if unfulfilled could also damage the credibility of enforcement programs. And it was a much tougher condition to realize. "Vertical equity," as it was known, was skewed by the very nature of mandatory price and wage controls. Small firms are more burdened by the bookkeeping tasks required for price or wage compliance, and they tend to have fewer opportunities to recover lost revenues than do larger firms. Moreover, small entities do not possess the sophisticated accounting and legal talent of sizeable firms, with which to contest the allegation of stabilization infractions. Without compensating for the disparity in resources between large and small firms, which would be a form of deliberate unequal treatment, equity between large and small firms would not seem, a priori, derivable from uniform and consistent treatment. One method of compensation for vertical inequity was of course variance

in the reporting requirements imposed on firms of different size. No other specific measure was taken in any of the phases, and the usual policy assumption was that this type of inequity was so inherent in the structure of American business that the Stabilization Program could not hope to erase it. At the very least, however, compliance and enforcement programs could have been more consciously structured to recognize natural vertical inequality between firms, and not to test smaller firms for compliance as precisely or severely as large firms bound by the same rules. To some extent, this was attempted in Phase IV-the umbrella strategy called for corroborating price and cost data by Category I filers, but asked only a simple profitmargin compliance test for Category III firms.

Since it would not appear that mandatory price and wage controls from 1971 through 1974 were viewed, even at their end, as grossly unfair or willfully inequitable in their application, CLC, IRS and the other stabilization bodies probably succeeded in minimizing the kinds of inequities described above. But the threat they pose to the general popularity and business acceptance of a controls program obliges those who organize the enforcement apparatus to ensure that the strategy of applying regulations, identifying violators, and imposing penalties explicitly recognizes the danger of such inequities.

Possibly the principal shortcoming of compliance and enforcement strategies employed during the Economic Stabilization Program was that there were so many of them-more than the succession of different phases required. Counting all the separate strategies or plans for compliance programs, there were at least seven one in Phase I (less a strategy than a disposition), five in Phase II (one for each agency, except the Price Commission, which had two), one in Phase III, and one in Phase IV. There appears to be no reason why those involved in compliance and enforcement management in Phase II could not have accomplished major analytical work on the problem of strategy and deduced a comprehensive model for enforcement actions. It is true that "day to day pressures and exigencies in the program" (cited by the Phase III Work Plan) tended to require a good deal of ad hoc compliance actions, but there are a finite number of available enforcement actions that can be taken, and a limited number of possible targets. Even ad hoc needs can, to some extent, be accommodated in a general strategy.

To some extent, the succession of different strategies in the Program was a concomitant of the succession of different phases. No single strategy developed early in Phase II could have addressed the changing circumstances of subsequent phases. But in terms of a conceptual framework for the direction of compliance actions, far more continuity in compliance programs could have been achieved

from phase to phase had a common scaffolding for their planning and implementation been devised early in Phase II.

The immediate-need-response mode of compliance activity in most of the phases was probably due in some part to the negligible attention devoted to compliance and enforcement requirements in the planning of regulations and organization that preceded each new phase. Even in the planning process for Phase IV, precious little time was spent on gauging the prospective enforceability of proposed regulations and the pliancy of price and wage constraints for purposes of compliance management.

Another handicap faced by compliance managers who had to reconstruct a compliance and enforcement apparatus at the beginning of each new phase was the preoccupation of the agencies as whole entities with the consolidation of procedures to review reporting forms. At the beginning of both Phase II and Phase IV, emphasis at the senior level was placed on activity generated by the PC Office of Program Operations and the CLC Office of Price Stabilization, respectively, rather than on enforcement programs. In the words of CLC's Deputy Associate Director for IRS Operations and Compliance in Phase IV, "through the first half of Phase IV, CLC did not have compliance on the top of the list."

One dictionary definition of "strategy" calls it "maneuvering forces into the most advantageous position prior to actual engagement with the enemy." 23 On most occasions in the Program, enforcement skirmishes broke out when and if the General Staff decided to clean out bands of price guerrillas-not because a theater of war had been explored in advance. It would even be misleading to describe the history of compliance strategy as a succession of strategies discretely adopted for each phase. Someone following the Program closely at the time would probably have had a picture of compliance activity resembling something like this: Phase I-A legion of spot-checkers covers the land; Phase II-The Price Commission shoots from the hip; Phase III-The stick stays in the closet; Phase IV-Check with your local IRS District. To be frank, this picture is not far from

wrong.

That Phase IV was such an improvement in scope and detail of compliance and enforcement strategy would augur well for any future program of controls whose planners pay attention to the lessons of Phases I through III.

COMPLIANCE METHODOLOGIES

If compliance objectives and enforcement strategy reflect the policies on which compliance and enforcement programs are predi

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cated, then the organization, procedures and management of those programs constitute the methodologies through which policies are achieved. That would be, at least, a deductive model of activities in a price controls program which go under the name "compliance and enforcement." Of course in practice, as we have seen, compliance objectives were not always (or even frequently) used to derive conscious enforcement strategies, and neither objectives nor strategies were necessarily defined before program actions were undertaken. Consequently, the description and assessment of compliance and enforcement contained here depend to an extent on an artificial construct with which all the vagrant ideas, problems, information and opinions about compliance have been sorted out. Although that is to be expected in virtually any historical analysis, it ought to be recognized before a neatly organized narrative is mistaken for a photograph of the way things actually happened. This is not cinema verité.

Nonetheless the deductive model suggested by this analysis bears a strong resemblance to what happened in fact, and an argument can be made that this is the way things should have happened that this is a normative model as well. Specifically, an ideal stabilization program will ensure that the agency it charges with responsibility to design and operate a compliance and enforcement system will first set forth realistic objectives that the system is supposed to achieve, will then prepare a strategy of enforcement actions tailored to reach those objectives, and will further set up a scheme of organization and management procedures that efficiently implement those actions. With compliance strategy as fitful an experience as it was from Phase I through most of Phase IV, the optimal scenario was never realized. But if it was not, the fault lies quite as much with shortcomings in the methodologies of the compliance program as with policy development. Compliance case processing, compliance information systems, delegation of compliance authority, inter-agency coordination-all these and other methodologies of the system were less than perfect.

What follows is a gloss on the notion that compliance methodologies functioned imperfectly, and a Cook's tour of the major compliance and enforcement actions undertaken in all phases of the Program.

ORGANIZATION AND PROCEDURES

Since the functions subsumed under the name "compliance" were never defined precisely during the life of the Program, it might be expected that compliance organization would have reflected that

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