Summary
On November 16, 2007, we issued our report on the U.S. Securities and Exchange Commission's (SEC) fiscal years 2007 and 2006 financial statements and on SEC's internal control as of September 30, 2007. We also reported on the results of our tests of SEC's compliance with selected provisions of laws and regulations during fiscal year 2007. The purpose of this report is to present areas of SEC's internal controls identified during our fiscal year 2007 audit that could be improved. This report contains 14 recommendations to SEC to improve these internal controls and procedures. These recommendations are in addition to those we already provided to SEC as a result of our prior audits of SEC's financial statements.
Our November 16, 2007, report concluded that SEC had a material weakness in internal control over its financial reporting process, and therefore did not maintain effective internal control over financial reporting as of September 30, 2007. This weakness is comprised of four significant deficiencies, which taken collectively result in more than a remote likelihood that a material misstatement of the financial statements will not be prevented or detected. These significant deficiencies concern (1) the period-end financial reporting process, (2) disgorgements and penalties accounts receivable, (3) accounting for transaction fee revenue, and (4) preparing financial statement disclosures. In addition to the material weakness discussed above, we identified three significant deficiencies in internal control, which although not material weaknesses, represent significant deficiencies in the design or operation of internal control. These significant deficiencies concern (1) information security controls, (2) property and equipment, and (3) accounting for budgetary resources. As of January 2008, SEC had taken actions to fully address 3 of the 23 recommendations that remained open as of January 2007 from our audits of the agency's 2004, 2005, and 2006 financial statements. We also identified one other internal control weakness that although not considered to be a material weakness or significant deficiency, we believe warrants SEC management's consideration as to whether additional actions are warranted. This issue concerns certification of employees' time cards, documentation of monitoring of time card certification, and approval of personnel actions. In providing written comments on a draft of this report, the SEC Chairman expressed his commitment to remediate the control deficiencies this fiscal year and summarized SEC's corrective action plans to address GAO's recommendations.
Recommendations
Our recommendations from this work are listed below with a Contact for more information. Status will change
from "In process" to "Implemented" or "Not implemented" based on our follow up work.
Director:
Team:
Phone:
Jeanette M. Franzel
Government Accountability Office: Financial Management and Assurance
(202) 512-9471
Recommendations for Executive Action
Recommendation: To improve its period-end financial reporting process controls, SEC should integrate subsystems that process significant accounting data with the general ledger.
Agency Affected: Securities and Exchange Commission
Status: In process
Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.
Recommendation: To improve its period-end financial reporting process controls, SEC should, until subsystems are fully integrated, develop and implement documented data reliability checks for data extracted from nonintegrated subsidiary systems, including spreadsheets. These data reliability checks should include supervisory review.
Agency Affected: Securities and Exchange Commission
Status: In process
Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.
Recommendation: To improve its period-end financial reporting process controls, SEC should prepare written procedures which describe explicitly the steps required to accomplish and document each significant activity in the general ledger closing process and in the generation of the financial statements, including related disclosures.
Agency Affected: Securities and Exchange Commission
Status: In process
Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.
Recommendation: To improve its disgorgement and penalties accounts receivable controls, SEC should develop and implement controls over the calculation of disgorgement and penalties accounts receivable, including the reliability of data downloaded from Phoenix and the accuracy of spreadsheet cell formulas and related methodologies.
Agency Affected: Securities and Exchange Commission
Status: In process
Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.
Recommendation: To improve its accounting for transaction fee revenue controls, SEC should establish and implement detailed written procedures for recording transaction fee revenue and the related receivable, including procedures for recognizing data received after the balance sheet date but prior to issuance of the financial statements.
Agency Affected: Securities and Exchange Commission
Status: In process
Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.
Recommendation: To improve its financial statement disclosure preparation controls, SEC should establish and implement detailed written procedures for the preparation and review of the financial statement disclosures, including the comparison of financial statement disclosure amounts to related information presented in the current and previous year financial statements and Management's Discussion and Analysis.
Agency Affected: Securities and Exchange Commission
Status: In process
Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.
Recommendation: To improve its property and equipment controls, in addition to GAO's previous recommendations in this area, SEC should establish and implement controls over invoiced property costs and dates to ensure that property and equipment acquisitions are accurately recorded in the relevant subsidiary ledgers for personal property, leasehold improvement, and software.
Agency Affected: Securities and Exchange Commission
Status: In process
Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.
Recommendation: To improve its property and equipment controls, in addition to GAO's previous recommendations in this area, SEC should establish and implement controls to ensure proper calculation of depreciation and amortization of additions to existing items over the remaining useful lives of the associated items.
Agency Affected: Securities and Exchange Commission
Status: In process
Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.
Recommendation: To improve its budgetary accounting controls, SEC should correct general ledger system configurations to properly account for upward and downward adjustments of prior-years' undelivered orders in accordance with the U.S. Standard General Ledger.
Agency Affected: Securities and Exchange Commission
Status: In process
Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.
Recommendation: To improve its budgetary accounting controls, SEC should establish and implement controls over obligation-related entries (including original obligations, corrections, and deobligations) to ensure the use of correct U.S. Standard General Ledger accounts and the recording of correct amounts.
Agency Affected: Securities and Exchange Commission
Status: In process
Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.
Recommendation: To improve its budgetary accounting controls, SEC should clarify administrative control of funds guidance and document the responsibilities of the staff performing obligation-related activities with regard to recording obligations in accordance with the recording statute.
Agency Affected: Securities and Exchange Commission
Status: In process
Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.
Recommendation: To improve its budgetary accounting controls, SEC should establish and implement controls to ensure that SEC staff adheres to existing policies and procedures to prevent violations of the recording statute.
Agency Affected: Securities and Exchange Commission
Status: In process
Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.
Recommendation: To improve its payroll controls, in addition to GAO's previous recommendations in this area, SEC should establish and implement procedures for documenting evidence of monitoring of time card certifications and include procedures to document any identified exceptions.
Agency Affected: Securities and Exchange Commission
Status: In process
Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.
Recommendation: To improve its payroll controls, in addition to GAO's previous recommendations in this area, SEC should segregate key responsibilities over the approval of personnel actions so that no one individual approves his own personnel action.
Agency Affected: Securities and Exchange Commission
Status: In process
Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.
