Via the Seattle Post Intelligencer:

GAO: Weak financial management plagues SEC

THE ASSOCIATED PRESS
October 21, 2005

WASHINGTON -- The Securities and Exchange Commission has been plagued by weak financial management that caused budget overruns of nearly $50 million in two years, congressional auditors said in a report released Friday.

The report by Congress' Government Accountability Office found "ineffective management controls" at the SEC, the agency that enforces rules mandating strong internal controls for public companies. The report amplified a GAO study issued in May that cited weaknesses in the agency's preparation of financial statements and the security of its information.

In their budget planning for the two fiscal years ending next Oct. 1, SEC officials underestimated by $48.7 million the costs of building the agency's new Washington headquarters and upgrading its regional offices in New York City and Boston, the new GAO report found. As a result, the agency - whose budget was nearly doubled by the anti-fraud law enacted in 2002 at the height of the corporate scandals - had to freeze hiring and cut back on staff travel.

The SEC's overall budget for fiscal 2006 is $888 million, unchanged from the year before. Among other things, the GAO said, managers of the building projects were "not held accountable for providing accurate and complete (cost) estimates." "Personnel problems and staff vacancies were not addressed" in a timely manner, it said.

The problems were said to have occurred toward the end of former SEC chairman William Donaldson's tenure. The current chairman, Christopher Cox, who left Congress to assume the job in August, said in a letter to the GAO investigators that he has "devoted significant staff resources to completing these (building) projects in a timely manner and funding them appropriately."

"I am determined to put these budgeting errors and omissions behind us," Cox wrote in the Oct. 7 letter. He cited changes made to the projects to reduce their costs and an anticipated $4 million cost saving in connection with the Boston office. In its report, the GAO noted Cox's commitment to resolve the budget and management issues.

Another GAO report released this month found that since 2002, defrauded investors have received only about 1 percent of the billions of dollars collected for them by the SEC. The agency has taken in more than $4.8 billion in civil fines and restitution in settlements with companies and individuals during that period but has distributed to the entitled shareholders only about $60 million from three of the 75 cases in question, the report said.

The original article appears here and October 21 GAO SEC budget analysis report can be found here. The May GAO audit report cited in the article can be found here.

-- MDT

Labels: GAO