What Does SEC's Internal Audit Trouble Say to Public Companies?

Lora Bentley

At the end of 2010, the Government Accountability Office issued its report on the government's financial statement. Among many other things, the report revealed that the very agency responsible for monitoring financial statements and reports from the country's public companies has made a mess of its own books. That would be troubling under any circumstance, but it's especially troubling considering the added responsibility the Securities and Exchange Commission has been given under the Dodd-Frank Wall Street Reform and Consumer Protection Act.


As The New York Times reported last week, the GAO has faulted the SEC's financial statements for seven years running-particularly the agency's failure to track income from fines, fees and "the return of ill-gotten profit." The continuing problems with basic accounting, according to the auditor, mean that a material misstatement of the agency's financial position is not only possible, but that it would go undetected for a significant period.


It doesn't do a thing for the agency's credibility. Yet, SEC Chair Mary Schapiro is asking for more money. At present, the story says, the SEC's technology is not up to speed. Often, auditors resort to printed spreadsheets and calculators, which take considerably more time. Travel to visit regulated businesses has been restricted, and positions that have been vacated in the last year have not been filled-despite the fact that reforms called for in the Dodd-Frank Act will require an estimated 800 new staffers.


Former SEC Chair Harvey Pitt told The New York Times it seems as if the agency is being set up to fail. But the question no one is asking is this: How does the agency correct the problems with no new money during a hiring freeze? Schapiro, who was appointed to her post when President Obama took office, has made sweeping changes already, putting the SEC in a much better position to do what it needs to do, according to some. But will we see the results from those changes before the administration changes hands again?


That's not clear. But the SEC will need to reprioritize if it expects to continue the renewed focus on enforcement that began after the Madoff scandal came to light. If "Do as I say, not as I do" doesn't work well for parents, it's certainly not going to be effective for government agencies looking for compliance.

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