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GAO-05-691R 1 (2005-07-27)

handle is hein.gao/gaocrptaruv0001 and id is 1 raw text is: SGAO Accountability * Integrity Reliability United States Government Accountability Office Washington, DC 20548 July 27, 2005 The Honorable Cynthia A. Glassman Acting Chairman U.S. Securities and Exchange Commission Subject: Material Internal Control Issues Reported in SEC's Fiscal Year 2004 Financial Statement Audit Report Dear Ms. Glassman: In May 2005, we issued our report expressing an opinion on the Securities and Exchange Commission's (SEC) fiscal year 2004 financial statements and an opinion on SEC's internal control as of September 30, 2004.' We also reported on the results of our tests of SEC's compliance with selected provisions of laws and regulations during fiscal year 2004. Our report on SEC's fiscal year 2004 financial statements identified reportable conditions in the internal controls over financial reporting that we considered to be material weaknesses.2 These weaknesses related to SEC's controls over (1) recording and reporting disgorgements3 and penalties4 pertaining to those who violate securities laws, (2) preparing financial statements and related disclosures, and (3) information security. In March 2005, we reported on the information security weaknesses, making six recommendations to address those weaknesses.5 The purpose of this report is to provide SEC with 18 recommendations to addresses the remaining weaknesses concerning disgorgements and penalties, and financial statement preparation and reporting.6 1 GAO, Financial Audit: SEC's Fiscal Year 2004 Financial Statements, GAO-05-244 (Washington, D.C.: May 26, 2005). 2 A material weakness is a condition in which the design or operation of one or more of the internal control components does not reduce to a relatively low level the risk that errors, fraud, or noncompliance in amounts that would be material to the financial statements may occur and not be detected promptly by employees in the normal course of their duties. 3 A disgorgement is the repayment of illegally earned profits. 4A penalty is a monetary sum that is to be paid by the registrant to SEC as a result of a security law violation. The monetary sum is usually based on amounts prescribed by statute or the amount of disgorgement. 'GAO, Information Security: Securities and Exchange Commission Needs to Address Weak Controls over Financial and Sensitive Data, GAO-05-262 (Washington, D.C.: Mar. 23, 2005). 6A separate report to management on other issues identified during our audit that, although not material in relation to the financial statements, warrant management's consideration, will be issued shortly. GAO-05-691R SEC's FY 2004 Material Internal Control Issues

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