SEC Falls Short in Financial Audit

Jenna Greene

The National Law Journal

November 18, 2009

If there was one federal agency you'd expect to get its financial statements right, it's the Securities and Exchange Commission.

Or not.

Monday the SEC came up short in a financial audit released by the Government Accountability Office. The GAO found that the SEC "did not have effective internal control over its financial reporting as of Sept. 30, 2009."

As part of its mission, the SEC is charged with enforcing strict financial disclosure rules for public companies. Apparently, it is less adept at policing itself.

For example, the GAO reported that SEC's general ledger system allows unauthorized personnel to view, manipulate or destroy data, and that "serious unauthorized activity" may remain undetected.

Until the SEC fixes these problems, the GAO found, the SEC can't be sure "1) its financial statements, taken as a whole, are fairly stated; 2) the information the SEC relies on to make decisions on a daily basis is accurate, complete, and timely; and 3) sensitive data and financial information are appropriately safeguarded."

Nor could the SEC "provide evidence that it monitored controls over its payroll exception reports to ensure payroll transactions were recorded accurately and timely."

While the GAO did credit the SEC with producing statements that were "fairly stated in all material respects," it flagged "six significant deficiencies" for FY 2008 and 2009.

The six areas are:

• information security;
• financial reporting process;
• fund balance with Treasury;
• registrant deposits;
• budgetary resources;
• risk assessment and monitoring progress.

"Successfully addressing these issues is critical to maintaining SEC's credibility given its important role in the financial reporting process of registrants," the GAO found.

In a letter Monday to James Dalkin, the GAO's director of financial management and assurance, SEC Chairman Mary Schapiro wrote that "We are committed to making the resolution of these deficiencies a priority of the very highest order ... Over the coming months, we will tackle the systems and operational issues identified to enhance the SEC's controls in all areas."

Schapiro continued, "As you and your staff noted, the issues that underlie these deficiencies have been building and accumulating for years. While some of them can -- and will -- be addressed quickly, others will take more time to solve."

This article first appeared on The BLT: The Blog of Legal Times.