GAO Sees Better Controls, Reports at SEC

The government’s auditor gives a strong endorsement of the Securities and Exchange Commission’s most recent financials.
Stephen TaubNovember 16, 2006

After citing the Securities and Exchange Commission for material flaws in its financial reporting and information-technology controls last year, the Government Accountability Office bestowed a clean audit on the SEC for this year.

In a new report, the GAO concluded that the commission’s fiscal year 2006 and 2005 financial statements were fairly presented in all material respects. Further, the accountability office singled out “the significant efforts” the SEC made in addressing the material weaknesses reported in the GAO’s previous years’ audits of the securities regulator’s financials. “Although certain controls should be improved, SEC had effective internal control over financial reporting and compliance with laws and regulations,” the government auditor concluded.

The SEC had no reportable instances of noncompliance with the laws and rules covered by the GAO audit, according to the accountability office. In contrast, in its 2005 report the GAO cited material weaknesses in the SEC’s means of financial reporting processes, in its IT controls, and in its reporting of disgorgements and penalties.

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In the new report, the Congressional watchdog said two previously reported weaknesses—IT security and controls over disgorgements and penalties—are no longer material. However, the GAO warned: since many of the SEC’s efforts “represent compensating controls rather than permanent systemic solutions,” there are still glitches in the design and operation of controls that could hurt IT security and penalty reporting. Thus, the GAO said, those areas are still “reportable conditions.”

The GAO also said that the SEC needs to do enough patching of its agency-wide information-security effort to make sure that financial information and assets are safely protected from misuse, fraud, improper disclosure, an destruction.

The accountability also reported that the commission must improve its controls over the recording of property and equipment deals in order to have adequate assurance of the accuracy and completeness of reported its balances.

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