The Securities and Exchange Commission has six “significant deficiencies” that prevented it from having effective internal controls over its financial reporting as of Sept. 30, 2009, the Government Accountability Office warned in an audit released this week.
The audit covered the SEC’s fiscal years 2008 and 2009.
The GAO found that the commission lacked sufficient internal controls over its information security, financial reporting process, fund balance with the Treasury, deposits from registrants, budgetary resources, and risk assessment and monitoring process.
The criticism of the agency, which must prepare its financial statements in conformity with U.S. generally accepted accounting principles, comes as SEC chairman Mary Schapiro is pushing for state and local governments to be required to follow GAAP. It also comes as Schapiro has been pushing for more resources for the SEC, which she contends is smaller than it was in 2005.
The congressional watchdog agency, for example, found the SEC had “ineffective information system controls” for Edgar, or the Electronic Data Gathering, Analysis, and Retrieval system, which collects, validates, indexes, and makes available the financial statements of companies, as well as the forms of other filers.
These deficiencies “give rise to significant management challenges” that have: reduced assurance that data processed by SEC’s information systems are reliable and appropriately protected; impaired the SEC’s ability to prepare its financial statements without extensive compensating manual procedures; and resulted in unsupported entries and errors in the general ledger, the GAO said.
Despite these problems, the “SEC was able to prepare financial statements that were fairly stated in all material respects” for the two fiscal years, the GAO said, adding: “However, the material weaknesses in the SEC’s internal control over financial reporting ... may adversely affect any decision by the SEC’s management that is based, in whole or in part, on information that is inaccurate because of this weakness.”
In a letter sent to the GAO Monday, Schapiro said the commission plans to devote “the resources necessary to address these issues head-on” and that these efforts are “a priority of the very highest order.”
“As you and your staff noted, the issues that underlie these deficiencies have been building and accumulating for years,” she said. “While some of the them can — and will — be addressed quickly, others will take more time to solve. But our resolve to diligently correct all of these problems is strong.”