Summary
On November 14, 2008, we issued our opinion on the U.S. Securities and Exchange Commission's (SEC) fiscal years 2008 and 2007 financial statements. We also issued our opinion on the effectiveness of SEC's internal control over financial reporting (including safeguarding of assets) and over compliance as of September 30, 2008, and our evaluation of SEC's compliance with selected provisions of laws and regulations during fiscal year 2008. The purpose of this report is to present issues identified during our fiscal year 2008 audit of SEC's internal controls and accounting procedures and to recommend actions to address these issues. Accordingly, in this report we are making 19 recommendations to SEC to strengthen internal controls and accounting procedures. These recommendations are in addition to 24 remaining recommendations included in prior year audits of SEC's financial statements that still need to be fully addressed.
As part of our audit of SEC's fiscal years 2008 and 2007 financial statements, we identified three significant deficiencies in internal control, which although not material weaknesses, represent deficiencies in the design or operation of internal control that could adversely affect SEC's ability to meet its internal control objectives. These significant deficiencies concerned controls over (1) information security, (2) property and equipment, and (3) accounting for budgetary resources. We also identified other internal control issues that, although not considered material weaknesses or significant deficiencies, warrant SEC management's consideration. These issues concern (1) documenting accounting procedures, (2) reviewing accounting entries, (3) reporting Freedom of Information Act (FOIA) fees, (4) adding footnote disclosure for disgorgement and penalty activities, (5) estimating allowance for loss amounts for disgorgement and penalty accounts receivables, (6) safeguarding cash receipts related to disgorgement and penalty payments, (7) recording disgorgement and penalty transactions in Momentum, (8) processing personnel actions and certifying employees' time cards, and (9) considering Office of Compliance Inspections and Examinations (OCIE) inspection results. At the end of our discussion of each of these issues in the following sections, we make recommendations for strengthening SEC's internal controls or accounting procedures. In addition, the status of recommendations from our prior audits that were reported as open in our April 1, 2008, management report are included. These recommendations are intended to bring SEC into conformance with the standards for internal control to be followed by all federal agencies and to minimize the risk of future misstatements in SEC's financial statements.
Recommendations
Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - 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: In order to improve controls over property and equipment, the SEC Chairman should provide training for all appropriate employees on entering and processing transactions related to property and equipment purchases in the new property and equipment system.
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: In order to improve controls over property and equipment, the SEC Chairman should develop and implement procedures for performing and documenting oversight and review processes over property and equipment transactions.
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: In order to improve controls over property and equipment, the SEC Chairman should develop and implement procedures for the use of project codes in Quicktime to automate the calculation of federal employee costs related to capitalized software 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: In order to improve SEC's budgetary accounting controls, the SEC Chairman should develop and implement formal operating procedures for monitoring undelivered orders to include guidance for documenting review and approval of downward adjustment transactions.
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: In order to improve SEC's budgetary accounting controls, the SEC Chairman should correct general ledger configurations to properly record offsetting collections as these transactions occur.
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: In order to improve SEC's budgetary accounting controls, the SEC Chairman should update the written guidance for funds management to include correct accounting entries and use of correct general ledger accounts for recording offsetting collections transactions.
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: In order to improve controls over accounting procedures that precede the general ledger closing process and generation of financial statements, the SEC Chairman should develop and implement a desktop procedures manual that provides detailed instructions for performing each key accounting process preceding the general ledger closing process; the associated internal control to be followed for each step, as applicable; and the manner for documenting compliance with these controls.
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: In order to improve controls over accounting entries, the SEC Chairman should develop and implement written procedures for the preparation and review of accounting entries to include descriptions of the steps to be performed and the documentation required for supervisory-level review of all supporting documentation.
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: In order to improve controls over accounting entries, the SEC Chairman should develop and implement written procedures providing guidance for when to use journal voucher or standard voucher entries.
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: In order to improve reporting for Freedom of Information Act fees, the SEC Chairman should develop and implement procedures to account for the receipt of FOIA fees in accordance with GAAP and federal financial reporting requirements.
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: In order to improve disclosure of SEC's disgorgement- and penalty-related activities, the SEC Chairman should develop procedures for including in the footnotes to the financial statements disclosure and explanations about the source and disposition of SEC's disgorgement and penalty activities.
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: In order to improve SEC's processes and controls over estimating collectibility for disgorgement and penalty accounts receivable, the SEC Chairman should develop and implement procedures specifying how the collectibility assessments provided by Enforcement will be used by Office of Financial Management (OFM), to include documentation requirements for instances in which an allowance amount other than Enforcement's assessment is recorded.
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: In order to improve SEC's processes and controls over estimating collectibility for disgorgement and penalty accounts receivable, the SEC Chairman should reevaluate the reasonableness of the methodology used for calculating the allowance for loss on disgorgement and penalty accounts receivable, specifically evaluating whether the methodology should be revised to separate debts into risk-based groups when calculating the historical collection percentage and considering the effect of debts moving in and out of the top 25 debt list.
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: In order to ensure the safeguarding of disgorgement and penalty receipts, the SEC Chairman should develop and implement improved safeguarding procedures within SEC's Operations Center for checks received or establish a lockbox for the submission of checks to OFM and instruct defendants to mail checks to the lockbox.
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: In order to improve SEC's controls over recording disgorgement and penalty transactions, the SEC Chairman should provide training to staff on the proper use of the new system module and the proper procedures for recording disgorgement and penalty transactions in Momentum.
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: In order to improve SEC's controls over recording disgorgement and penalty transactions, the SEC Chairman should modify existing guidance to provide for a timely and documented supervisory review of all disgorgement and penalty transactions entered in Momentum to ensure that transactions are entered completely and accurately.
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: In order to improve its controls over payroll processing, the SEC Chairman should develop procedures for implementing management's policy on the authorization and validation of personnel actions and the timely processing of such actions.
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: In order to improve its controls over payroll processing, the SEC Chairman should configure Quicktime to preclude lower-level employees from approving higher-level employees' time cards.
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: In order to improve SEC's controls over securities transaction-fee revenue, the SEC Chairman should develop and implement procedures for the review and consideration of OCIE inspection results by OFM as part of its process for recording Section 31 fees.
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.
