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GAO: SEC Lacks Effective Report Controls

The Associated Press
Thursday, May 26, 2005; 6:57 PM

WASHINGTON -- The Securities and Exchange Commission, which enforces rules mandating strong internal controls for public companies, itself lacks effective oversight of its financial reporting, congressional investigators say.

Congress' Government Accountability Office, in a report released Thursday, found "material internal-control weaknesses" in the SEC's recording of fines and restitution to investors that it wins in settlements with companies and individuals, its preparation of financial statements and the security of its information. As a result, the report says, the watchdog agency "did not maintain effective internal control over financial reporting as of Sept. 30, 2004."

The inadequate controls over the information systems increase the risk that confidential and sensitive SEC data could be altered or lost, possibly without agency staff being aware of it, the report says.

"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," the GAO says.

The agency said it's working to improve its controls in all the problem areas.

SEC officials said Thursday that the agency will add new staff to handle financial reporting and establish an internal committee, similar to a corporate board of directors' audit committee, to correct deficiencies.

"We're holding ourselves to the same standard we hold public companies," said SEC spokesman Matt Well. "We're disclosing these material weaknesses and explaining how we intend to remediate them."

Earlier this month, the SEC issued guidelines that allow flexibility for companies in implementing the provisions of a landmark anti-fraud law that mandates stronger internal financial controls. Many companies have complained that the requirements under the 2002 Sarbanes-Oxley Act, born of the corporate scandals, are too burdensome and costly.

The U.S. Chamber of Commerce, one of several business groups that have urged revision of the rules, said that the GAO's new findings prove its point.

"Our position could not be clearer or better proven," the group said in a statement. "The federal agency charged with upholding the integrity of corporate financial statements is unable to properly manage its own controls."

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On the Net:

Securities and Exchange Commission: http://www.sec.gov

Government Accountability Office: http://www.gao.gov

© 2005 The Associated Press