SEC chairman William Donaldson resigned his post only days after two highly embarassing scandals were revealed at the agency that enforces the nation’s accounting rules.
The Government Accountability Office conducted an audit of the agency and found three material weaknesses in its internal controls. The weaknesses related to its recording of fines and restitution via settlements with companies, its preparation of financial statements and the security of its data. The SEC, under Donaldson’s watch, “did not maintain effective internal control over financial reporting as of Sept. 30, 2004.” Thus the enforcer of Sarbanes-Oxley and overseer of all corporate financial statements could not even oversee itself.
The other revelation was a $48 million cost overrun resulting from misjudged construction and security expenses at its new Washington headquarters and its New York and Boston offices. The SEC blamed the budget shortfall on an “internal budgetary process control problem.” Over the past decade, the SEC’s budget has tripled to $913 million.