GAO: Significant Deficiencies in SEC Procedures

Econintersect:   The U.S. General Accounting Office (GAO) has reported 13 April 2012 an audit that there were four major deficiencies and four major issues in internal controls at the SEC (Securities and Exchange Commission). The audit covered the fiscal years 2010 and 2011 with status reported as on September 30, 2011. A total of new recommendations for action were made in the report. In addition 28 of 66 previous recommendations for action were stated to be still not fully addressed.

The audit specified significant internal control deficiencies represent continuing deficiencies concerning controls over:

• information systems;

• financial reporting and accounting processes;

• budgetary resources; and

• registrant deposits and filing fees.

The report summary stated:

These significant control deficiencies may adversely affect the accuracy and completeness of information used and reported by SEC’s management. We are making a total of 10 new recommendations to address these continuing significant internal control deficiencies.

In addition there were four major issues identified in the report:

• payroll monitoring,

• implementation of post-judgment interest accounting procedures,

• accounting for disgorgement and penalty transactions, and

• the government purchase card program.

There were 9 new recommendations for action resulting from these issues.

Editor’s Note: How much of the approximately $1.3 billion spent by the SEC in 2011 was devoted to correcting these deficiencies and how much is devoted to pursuing regulatory activities?  How much of the shortcomings could have been avoided if the SEC had been adequately funded over the past decade?  These are questions that deserve an additional audit.  As reported in GEI News in February, while the SEC budget has grown by more than 400% over the past 15 years, the number of enforcement actions has increase only about 60%.

John Lounsbury

Sources:

• Summary:  Improvements Needed in SEC’s Internal Controls and Accounting Procedures (Management Summary, 13 April 2012)

• GAO-12-424R SEC Management Report (Complete audit report, 13 April 2012)

• Obama Budget Would Beef Up Ineffective SEC (GEI News, 15 February 2012)