Management Report:

Improvements Needed in SEC's Internal Controls and Accounting Procedures

GAO-14-416R: Published: May 12, 2014. Publicly Released: May 12, 2014.

Additional Materials:

Contact:

James R. Dalkin
(202) 512-3133
dalkinj@gao.gov.

 

Office of Public Affairs
(202) 512-4800
youngc1@gao.gov

What GAO Found

During its audit of the U.S. Securities and Exchange Commission’s (SEC) fiscal year 2013 financial statements, GAO identified several deficiencies in SEC’s internal control over financial reporting that it did not consider to be material weaknesses or significant deficiencies, either individually or collectively, but which nonetheless warrant SEC management’s attention. These deficiencies related to

  • procedures for transferring disgorgement and penalty-related funds to the Department of the Treasury (Treasury),
  • monitoring of disgorgement and penalty related cases filed in courts,
  • segregation of duties for recording disgorgement and penalty-related financial data,
  • safeguarding of SEC cash receipts received at its service provider,
  • recording of property and equipment transactions, and
  • management’s review of legal contingencies and significant events.

GAO is making 9 new recommendations to address these deficiencies in SEC’s controls over financial reporting. Further, GAO’s follow-up on the status of internal control recommendations that it made in prior reports found that SEC took action to fully address 24 of 40 prior years’ recommendations that remained open at the beginning of fiscal year 2013. Consequently, SEC currently has 25 recommendations that need to be addressed—the 16 prior recommendations and the 9 new ones being made in this report. 

Why GAO Did This Study

During GAO’s audit of SEC’s fiscal year 2013 financial statements, GAO identified several deficiencies in SEC’s internal control over financial reporting that it did not consider to be material weaknesses or significant deficiencies, either individually or collectively, but which nonetheless warrant SEC management’s attention. The recommendations provided in this report will help improve internal control over financial reporting at SEC. In addition, this report provides summary information on the status of SEC’s actions to address the open recommendations from prior GAO reports. 

What GAO Recommends

GAO is making nine new recommendations to address deficiencies in SEC’s controls over financial reporting.

In commenting on a draft of this report, SEC acknowledged that the report contained a number of helpful recommendations to strengthen SEC’s internal controls over financial reporting. Further, the SEC Chair stated that SEC is working to address the recommendations contained in the report and that SEC remains committed to investing the time and resources to maintain strong and sustainable internal control over financial reporting.

For more information, contact James R. Dalkin at (202) 512-3133 or dalkinj@gao.gov.

Status Legend:

More Info
  • Review Pending-GAO has not yet assessed implementation status.
  • Open-Actions to satisfy the intent of the recommendation have not been taken or are being planned, or actions that partially satisfy the intent of the recommendation have been taken.
  • Closed-implemented-Actions that satisfy the intent of the recommendation have been taken.
  • Closed-not implemented-While the intent of the recommendation has not been satisfied, time or circumstances have rendered the recommendation invalid.
    • Review Pending
    • Open
    • Closed - implemented
    • Closed - not implemented

    Recommendations for Executive Action

    Recommendation: The Chair should direct the Chief Operating Officer (COO) and Chief Financial Officer (CFO) to develop and implement specific procedures for documenting (1) the funds availability validation procedures performed and (2) the supervisory review to ensure that validation of funds availability procedures is appropriately performed prior to transferring disgorgement and penalty-related funds to Treasury.

    Agency Affected: United States Securities and Exchange Commission

    Status: Open

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Chair should direct the COO and CFO to enhance current SEC procedures over the daily reconciliation process by developing and implementing sufficiently detailed operating procedures that include specific review procedures to be followed, such as verifying that the alert in CourtLink was actually established and documenting that this review procedure had been performed, to ensure that all SEC disgorgement and penalty judgment cases are tracked in CourtLink and uploaded into ImageNow.

    Agency Affected: United States Securities and Exchange Commission

    Status: Open

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Chair should direct the COO and CFO to restrict user roles in SEC's system for tracking and documenting processes leading to the recording of financial data related to disgorgement and penalty transactions to ensure proper segregation of duties and compliance with SEC's policies and procedures for assigning user roles.

    Agency Affected: United States Securities and Exchange Commission

    Status: Open

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Chair should direct the COO and CFO to coordinate with SEC's service provider to develop and implement controls to (1) physically secure cash receipts received by the service provider on SEC's behalf prior to delivery and processing in the general accounting branch and (2) log mail as it is opened in the general accounting branch and store checks in a safe or other locked facility until deposited.

    Agency Affected: United States Securities and Exchange Commission

    Status: Open

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Chair should direct the COO and CFO to coordinate with SEC's service provider to request that its service auditor test safeguarding controls over cash receipts received by the service provider on SEC's behalf and report on the design and operation of such controls in the service auditor's report.

    Agency Affected: United States Securities and Exchange Commission

    Status: Open

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Chair should direct the COO and CFO to develop and implement control procedures to ensure that responsible offices timely complete and submit the required documentation to the service provider for recording of an asset into the FA module in the same accounting month as it is received or placed in service.

    Agency Affected: United States Securities and Exchange Commission

    Status: Open

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Chair should direct the COO and CFO to develop and implement control procedures for the timely processing of reclassification forms into the Fixed Asset module to ensure that such forms are processed in the same month that the assets are placed into service.

    Agency Affected: United States Securities and Exchange Commission

    Status: Open

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Chair should direct the COO and CFO to implement controls to ensure that procedures for reviewing legal contingencies reflected in the management schedule are followed and that such reviews are properly documented.

    Agency Affected: United States Securities and Exchange Commission

    Status: Open

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Chair should direct the COO and CFO to develop and implement control procedures for timely assessment and, as applicable, timely recording of significant events with financial consequences.

    Agency Affected: United States Securities and Exchange Commission

    Status: Open

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Jul 9, 2014

    Jun 19, 2014

    May 30, 2014

    May 15, 2014

    May 13, 2014

    May 12, 2014

    May 2, 2014

    Mar 27, 2014

    Mar 13, 2014

    Looking for more? Browse all our products here