Risk & Compliance

SEC Slow on the Uptake, Says GAO

Three material weaknesses in internal controls, which the watchdog agency identified during its audit of the commission's fiscal year 2004 financia...
Stephen TaubApril 25, 2006

The Securities and Exchange Commission has been slow to comply with recommendations by the Government Accountability Office regarding internal controls and accounting procedures, according to the congressional watchdog agency.

The GAO reported that three material weaknesses in internal controls, which the agency identified during its audit of the SEC’s fiscal year 2004 financials, had not been remedied as of the 2005 audit. The weaknesses concern the SEC’s controls over preparing financial statements and related disclosures; recording and reporting disgorgement and penalty activity; and information security.

Other notable internal-control issues identified by the GAO, though not rising to the level of material weaknesses, concern responsibilities of the contracting officer’s technical representative, reviewing filing fee calculations, and compliance with the prompt payment act.

As of January, the SEC had taken action to close just 13 of the 34 recommendations that the GAO made in its 2004 audit. “Effectively implementing recommendations is critical for SEC to resolve its financial management challenges,” the accountability agency asserted.

Indeed, the GAO added 14 more recommendations to help the SEC improve its internal controls and accounting procedures, including five steps to improve controls over financial statement preparation and reporting:

• Staff the Office of Financial Management with the collective knowledge, skills, and experience necessary to achieve effective implementation of internal control over the financial statement preparation and reporting process

• Finalize formal, written policies and procedures governing financial reporting processes and related internal control and quality assurance, including the basic documentation, audit trails, and crosswalks needed to support financial statement amounts, to facilitate management review of financial information

• Formalize and place into operation a senior management council or committee to oversee financial reporting activities; provide advice; and regularly review the agency’s financial information, operations, and policies

• Determine cutoff dates for significant account balances that are both appropriate and practical to facilitate interim financial reporting and meeting year-end financial reporting deadlines

• Prepare interim footnote disclosures to facilitate meeting year-end financial reporting deadlines