With thousands of companies struggling to prove to the Securities and Exchange Commission that their internal controls are air-tight, the SEC itself has been cited by the Government Accountability Office for “material” controls weaknesses.

Reporting on its recent study of the SEC, the GAO said that the commission failed to maintain effective internal control over financial reporting as of September 30, 2004. While stressing that the SEC’s financial statements for fiscal 2004 “were fairly presented,” the GAO said it found “material internal control weaknesses” in three areas: the reporting of disgorgements and penalties, the preparation of financial statements, and data security.

The weaknesses of the SEC’s controls over disgorgements and civil penalties activities increased the likelihood “that such activities will not be completely, accurately, and properly recorded and reported for management’s use in its decision making,” according to the government agency’s study.

The study also unearthed faulty controls over the SEC’s financial- statement preparation process, making it more likely SEC managers couldn’t be sure “that the balances presented in the financial statements and related disclosures are supported by the SEC’s underlying accounting records.”

The GAO also cited the SEC has for failing to protect its financial data and sensitive information, “increasing the risk of unauthorized disclosure, modification, or loss of the data, possibly without detection.”

“The risks created by these information security weaknesses are compounded because the SEC does not have a comprehensive monitoring program to identify unusual or suspicious access activities. SEC is currently working to improve controls in all these areas,” the GAO added.