GAO: SEC's internal repayments controls less risky

Internal Control: Improvements Needed in SEC's Accounting and Operational Procedures

The Securities and Exchange Commission has improved internal controls and information systems for repayments and penalties paid by securities violators to the extent that the Government Accountability Office has eliminated them as major weaknesses that increase risk.

But GAO will monitor them as reportable conditions, a less significant weakness category, because SEC implemented compensating controls instead of permanent systemic solutions.

For its part, SEC has designed procedures, controls and documentation to track repayments and penalty actions from the time the commission approves them to their recording in the case-tracking system. The controls involve the participation of the Office of the Secretary, the Division of Enforcement and the Office of Financial Management.

SEC recently implemented a new financial management system, called Phoenix, for tracking those payments. It will replace the financial portion of the existing case management system.

As of January, SEC has acted on 18 of GAO’s 35 recommendations from audits of previous financial statements. GAO cited the improvement and increase in management to fix the accounting weaknesses.

Even so, GAO found other vulnerabilities in its latest audit. The agency expressed concerns about SEC’s controls of payroll system access, approval of time and attendance records, and process documentation.

For example, SEC relies heavily on attorneys working on each case to submit to the Office of Financial Management the balance of repayments, called disgorgements, and penalties that each receives. To compensate for the inadequate control, SEC last year directed enforcement office heads to certify the accuracy of the balances. SEC uncovered cases that did not have accurate and current information in the case management system, said Jeanette Franzel, director of GAO’s financial management and assurance, in the report.

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