Accounting firm Cotton & Co, based in Alexandria, Virginia, found that the body’s reports were ‘not presented in accordance with the applicable federal accounting requirements’ following the completion of the audit last March. The SEC is responsible for penalising US companies that breach financial regulations or have irregularities in their accounts.
The SEC, according to the audit report, lacked adequate controls over agency funds and failed to verify that stock exchanges were paying all the fees to the body it was owed to.
It had also incorrectly recorded employee salaries, benefit contributions and expenses in the wrong categories in its records.
One of the main bookkeeping problems mentioned in the report was the way the SEC accounted for ‘disgorgements’. The regulator was recording the ill-gotten gains that companies or individuals were forced to give up as revenue, when in fact most of the money was due to other parties.
This and other issues, said the audit, meant that some of the SEC’s financial records ‘may be misstated’.
The SEC has long complained that it has struggled to cope with its task on what many see as a paper-thin budget, and this has been the root cause of some of the troubles raised by the audit.
However, new chairman William Donaldson will be relieved that the US Congress recently approved an increased budget for the body of $716m (£434m), far higher than the previous $487.3m (£295.5m).
The body said it had been aware for some time of all the issues raised in the audit report by Cotton & Co., and that it would be allocating up to half a million dollars to address the problems.
The SEC has now passed on its audit and accountancy responsibilities to a separate body – the Public Company Accountancy Oversight Board.
The board has also had its fair share of troubles since its inception.
Its first chairman, William Webster lasted just a few weeks in the role after it was revealed that he headed up the audit committee of US technologies, a failed company that suffered allegations of fraud from shareholders.
The wake of this scandal caused the departure of former SEC chairman Harvey Pitt. The body also has its headquarters in the building formerly occupied by Big Five firm Andersen.
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