Title

Investigating the need for transparent disclosures of political campaign contributions and lobbying expenditures by U.S. private prison corporations

Source of Publication

Accounting and the Public Interest

Abstract

© 2015, American Accounting Association. All rights reserved. Transparency is a fundamental principle of good corporate governance. A disclosure is an important mechanism that enhances corporate governance through increased transparency and better informed stakeholders. When a government operation contractually assigns prison services to a nongovernment for-profit entity, then that entity is fulfilling a public interest role of incarceration and should be accountable to the citizen taxpayers (i.e., the stakeholders). Accountability is important. But what happens to accountability when the mission statements and business strategies of the nongovernment for-profit entities diverge from the original government operation? The private prison industry, annually, spends thousands and sometimes millions of dollars toward political campaigns and lobbyists to influence and educate legislatures as a part of their corporate political strategy to ensure a steady stream of growing revenues. Consequently, various laws have been implemented resulting from successful lobbying efforts that affect the public interest. These nontrivial amounts are not disclosed in their annual reports or proxy statements. However, this information is reported in a disaggregated way in various non-SEC filings. This study shows that tracking federal and state lobbying expenditures and political campaign contributions is a complicated task for a trained staff of researchers, and would be quite difficult for most stakeholders; thus, current reporting obscures transparency. I thus argue for greater transparency by requiring mandatory disclosures of political contributions and lobbying expenditures in the financial statements of publicly held private prison corporations. Benefits of audited annual reports filed with the Securities and Exchange Commission would enhance the reliability of management assertions about expenditures related to political contributions and lobbying costs reported by private prison corporations and the detailed information would be presented in a single, complete disclosure. This new disclosure requirement would improve corporate governance, increase accountability, decrease information asymmetry that exists between the private prison corporations and stakeholders, and allow external stakeholders to make informed judgments about whether those in the business of incarceration are fulfilling their public interest role.

Document Type

Article

First Page

27

Last Page

52

Publication Date

12-1-2015

DOI

10.2308/apin-51401

Author First name, Last name, Institution

Winifred D. Scott, Zayed University

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