The mortgage meltdown exposed the weakness of self-regulation in financial markets, but now the U.S. salmonella outbreak is doing the same for the food industry.

A government subcommittee Thursday released new documents that showed how private inspectors contracted by Peanut Corp. of America failed to find long-standing sanitary problems at company facilities.

Peanut Corp. is at the centre of a U.S. outbreak that has sickened nearly 700 people and is blamed for at least nine deaths.

Lawmakers said the food industry's private inspection system failed to catch filthy conditions because the company itself hired the inspectors.

"There is an obvious and inherent conflict of interest when an auditor works for the same supplier it is evaluating," said Rep. Bart Stupak, chairman of the House Energy and Commerce investigations subcommittee. He termed it a "cozy relationship."

Last summer, Peanut Corp.'s private inspector, a company called AIB, awarded the peanut processor a certificate for "superior" quality at its Plainview, Texas, plant. This year, salmonella was discovered there.

The outbreak was initially traced to a Peanut Corp. facility in Blakely, Ga. Later, contamination was found at the Texas plant.

Peanut Corp. is under criminal investigation for allegedly shipping products it knew to be tainted.

Owner won't talk

Owner Stewart Parnell has refused to answer questions from lawmakers, citing constitutional protections against self-incrimination. On Thursday, Parnell told the Associated Press he couldn't comment on the allegations and referred questions to his attorney, who was not immediately available.

Federal law does not require food companies to pay for their own inspections of suppliers. Nor are industry labs and inspectors required to tell the government about any problems they find.

At least one food company that used its own inspectors, Nestle USA, ultimately decided not to do business with Peanut Corp. Nestle USA had no recalls. But a Nestle affiliate in Puerto Rico recalled some ice cream products, and Nestle HealthCare Nutrition — another affiliate — recalled a nutritional bar.

The committee released a 2002 Nestle USA inspection report of Peanut Corp.'s Blakely plant. "They found that the place was filthy," said Rep. Henry Waxman.

A second audit by Nestle USA of Peanut Corp.'s Texas facility in 2006 also found major pest control and other problems. The audit said that would disqualify the plant from supplying chopped peanut pieces to sprinkle atop Drumstick ice-cream cones.

No pathogen monitoring

Auditors found at least 50 mouse carcasses in and around the plant and also a dead pigeon "lying on the ground near the peanut-receiving door."

The audit also said the plant had no pathogen-monitoring plan and noted that one needed to be developed for the plant to be in compliance with audit standards.

Companies that bought ingredients from Peanut Corp. said they had no way of defending themselves against a supplier they accuse of deliberately breaking the rules and covering up.

"I think we did everything we could do," Kellogg Co. chief executive David Mackay told the committee.

"The issue was that [Peanut Corp.] acted in a dishonest and unethical way," he added.

Lawmakers and the Obama administration say the problem goes beyond a rogue company, and major reforms are needed. Legislation has been introduced in Congress to take food safety oversight away from the Food and Drug Administration and give it to a new agency with stronger legal powers and more funding.

Peanut Corp. produced not only peanut butter, but peanut paste, an ingredient found in foods from granola bars and dog biscuits to ice cream and cake. More than 3,490 products have been recalled, including some millions of Kellogg's Austin and Keebler peanut butter sandwich crackers.