The Securities and Exchange Commission, which has been aggressively cracking down on accounting abuses and will be scrutinizing companies’ assessments of their internal-controls deficiencies, has reportedly unearthed a hefty financial deficiency of its own.
The securities regulator has discovered that it has a $48 million budget shortfall, according to Reuters. The deficit resulted from misjudged construction and security costs involving its Washington, New York, and Boston facilities, the wire service added.
In response, Rep. Frank Wolf, chairman of the House appropriations subcommittee that oversees the SEC, asked the Government Accountability Office to investigate the agency’s finances. In a letter to Comptroller General David Walker, Wolf said he was “troubled” by recent reports that the SEC “has not accurately budgeted the costs of their facilities” in the three cities and asked that a review begin as soon as possible.
“This is very damaging to the SEC,” Wolf said. “The SEC polices other people’s books, yet they themselves have huge overruns. I am very disappointed.”
Wolf said he discussed the budget shortfall with SEC Chairman William Donaldson in a phone conversation. He also said he sent Donaldson a letter urging the SEC to “immediately send a formal reprogramming notification” to the House Appropriations Subcommittee on Science, State, Justice, and Commerce.
“The SEC has an obligation – both legal and moral – to come tell Congress about this problem,” Wolf said.
The commission has cut back hiring and put all nonessential travel on hold as a result of the budget shortfall, Dow Jones also reported Wednesday. One person was placed on administrative leave and two others have been disciplined, according to the wire service.
“We’ve been investigating the budget lapse and are in regular communication with Congress as to how we will be proceeding,” SEC spokesman Matt Well told Reuters.
Over the past decade, the SEC’s budget has roughly tripled, to $913 million in fiscal 2005, according to Dow Jones Newswires. Further, the commission’s staff has swelled to more than 4,000 from 3,000, Reuters reported.
The SEC’s problems apparently stem from excess real-estate costs, according to Dow Jones. The agency is moving to new headquarters in Washington and is relocating its offices in Boston and New York, the news service noted.
According to the Dow Jones account, Peter Derby, SEC managing executive for operations, said the commission is experiencing higher-than-expected security and building costs at some facilities.
About $19 million of the shortfall stems from costs associated with the new Washington headquarters, which is costing the agency more than $121 million, including about $65 million for enhanced security, design, equipment, and furniture, according to Dow Jones.
The SEC also never factored into the budget $25 million in costs for the New York office and $1.3 million for the Boston office, the wire service added.