Irony alert: SEC books plagued by sloppy accounting

Federal agency charged with policing financial markets knocked for faulty reporting


Maybe the Securities and Exchange Commission should buy a copy of Quicken. That might help.

(Also see: SEC looking at trading of shares in private companies)

The New York Times reports that a government watchdog agency is none too impressed with the audited statements submitted for review by the SEC, which itself is supposed to monitor U.S. financial markets for mistakes and misdeeds.

Since the commission began producing audited statements in 2004, the Government Accountability Office has faulted its reporting almost every year. Last November, the G.A.O. said that the commission’s books were in such disarray that it had failed at some of the agency’s most fundamental tasks: accurately tracking income from fines, filing fees and the return of ill-gotten profits.

That's sort of like the U.S. Department of Agriculture's cafeteria having rat droppings in its kitchen, except not nearly as gross.

And while regulation-bashers might get a schadenfreudish rush out of the SEC's internal ineptitude, the NYT's Edward Wyatt writes that the commission's chronic bookkeeping problems threaten prospects for any budget increase, which would have "ominous implications for investors":

The S.E.C.’s technology systems, for example, lack the ability to perform sophisticated analysis of large batches of financial material. As a result, a Congressional report says, S.E.C. analysts sometimes resort to printouts, calculators and pencils. While investigating the “flash crash” of May 6, 2010, S.E.C. computers were so strained by the crush of data from just one day of trading that it took three months to figure out what had happened.

None of which bodes well for the SEC's ability to enforce the Dodd–Frank Wall Street Reform and Consumer Protection Act signed into law by President Obama last year. SEC Chairwoman Mary Schapiro says the commission needs another 800 employees to adequately carry out the regulatory overhaul's mandate, which would bring the total number of SEC workers to 4,500 and obviously necessitate a budget increase.

But it's hard to argue for more money when 1) your budget has tripled over the last decade, a time during which the country has experienced several high-profile and damaging financial scandals, and 2) your books are a mess.

Schapiro says the SEC needs to seriously upgrade its technology to attract top talent and do its job properly. But in the current acrimonious political climate, it might be an uphill struggle for the commission to buy more pencils.

Chris Nerney writes about the business side of technology market strategies and trends, legal issues, leadership changes, mergers, venture capital, IPOs and technology stocks. Follow him on Twitter @ChrisNerney.

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