Constant's pations

If it's more than 30 minutes old, it's not news. It's a blog.

Thursday, May 26, 2005

SEC lost track of $48M

Market regulator can't account. Congress has formally asked the GAO to look into a multi-million budget "loss" at the Securities and Exchange Commission.

Why the letter and interest? Well GAO just reported the oppsite: That things were fine with the accounting at the SEC. I sure wish that I could "lose" $48M and someone say, "Not a problem." Where do I sign up to have that kind of GAO stamp of approval?

There are 4,000 staff members, up from 3,000. With staff increases like that, what kind of reviews have occurred to make sure training was meeting program objectives?

Look at the GAO report which found security weaknesses in the IT department. SEC agreed with all the findings.

Curiously, GAO stated in other reportsthat SEC had been distracted during critical oversight issues.

We can only wonder who will really watch the Securities Market when Elliot Spitzer, NY States Attorney General becomes NY Governor. Spitzer fondly refers to the SEC has still being stuck in the WWI era, fighting trench warfare, while the State AG's office is far more nimbler and responsive.

Perhaps Mr. Spitzer would be able to shed some light on what's really needed to regulate the Securities Market. Self-evidently, from Mr Spitzer's kabosh and laser-like prosecutions, I'm not confident the SEC knows.

It would be appropriate to solve this problem sooner and I applaud Congressman Wolf's Attention. Perhaps some questions are in order:

Questions for the GAO

Why did the GAO report in its May 2005 report that things were fine; yet the $48M number shows up?

Was the $48M figure found by someone else other than GAO?

What could explain the apparent disconnect: GAO conducts and audit, finds not problems; but the $48M figure shows up?

Are we to believe that both the SEC and GAO use of "AICPA-GAAS-GAGAS-like" guidelines are not sufficient to catch "$48M disappearing"?

Questions for the SEC

  • Generally funding problems emerge. Is the $48M just the tip of the iceberg of a far larger budget problem?

  • It's helpful to look into what normal reviews occur within SEC. Curiously, we wonder whether SEC management self-reported this or whether the problem was reported to Congress without SEC Management being aware. How was SEC Management first aware of the problem?

  • It's disturbing to find X-number of years after Chairman Levitt Left and his speech on the "Numbers Game" that the SEC has a numbers problem. How were the internal control problems with IT-security similar with those with the budgeting management controls?

  • The SEC made a fine showing talking about the need for the corporate board to be involved at the SEC Blue Ribbon Committee on Audit Committee Effectiveness. Where was the SEC's internal audit?

  • Audit sampling plans are formulated to ensure that the audit scope is appropriate. What kind of stress testing did the internal auditors do to review and sample budgets?

  • Generally Accepted Government Accounting Standards [GAGAS] offers quite a bit of guidance on how to adequately scope a government audit. With a large increase in budget and staff, how effectively was SAS99 used when formulating internal audit plans within the SEC?

  • How was it determined that the proposed internal audit plans were appropriate?

  • The SEC's Chief Accountant has an important role in interfacing between the SEC and the Auditing Community. What guidance from AICPA does the SEC internal auditor use to formulate audit plans?

  • SES Staff are hired and paid based on their skill. They command high salaries. Some like Chairman Donaldson are approved by the Senate. What type of funding reviews did SEC management have over the construction projects?

  • It's also important to understand the assumptions behind the contract formulation. What types of contracts were awarded: CPFF/CPAF/FFP; how was it determined that the particular contract vehicles were appropriate?

  • One approach to managing large contracts is to use earned value. In this case, the size of the funding delta is above the EVMS theshold. This would imply that there is at least once contract effort greeter than the minimum EVMS threshold. Was earned value management system [EVMS] used to manage the program costs?

  • There are other federal agencies that regularly attend program management conferences. What kind of interface does the SEC have with DoJ or FAA in re EVMS?

  • The value in using EVMS is early signs of problems can translate into management responses. If EVMS was not used, what signs early in the constructions project would have been highlighted had EVMS been used?

    It looks like, despite the 4,000 person increase, they still need more help.

    Learn from the DoJ's experience with SAIC: Some information technology contractors make things worse.