United States Government Accountability Office GAO November 2008 Report to the Chairman, United States Securities and Exchange Commission_part4 docx

Management’s Discussion and Analysis Page 30 GAO-09-173 SEC’s Financial Statements for Fiscal Years 2008 and 2007 2008 Performance and Accountability Report 22 Each offi ce head prepared an annual assurance state- ment that identifi ed any control defi ciencies meriting the attention of the Chairman. These statements were based on information gathered from various sources, including, among other things: • Management’s personal knowledge gained from the daily operation of the offi ce; • Internal management reviews and self-assessments; • GAO and Offi ce of Inspector General reports; • Annual performance plans and reports; • Audits of the agency’s fi nancial statements; • Reports and other information from Congress or the Offi ce of Management and Budget; and • Additional reviews relating to the offi ce’s operations, including those discussed in the Other Reviews section below. Each year, the agency’s FMOC evaluates the Section 2 and 4 submissions, recommendations from the Offi ce of the Inspector General (OIG), and other supplemental sources of information. Based on this review, the FMOC advises the Chairman as to whether the SEC had any internal control or system design defi ciencies serious enough to be reported as a material weakness or non-conformance. Other Reviews Also during the year, the OIG and the Offi ce of Information Technology (OIT) conducted a combined total of 21 additional reviews. The reviews covered 16 of the 33 assessable units (48 percent). Some components had multiple reviews. Further, OIT, in conjunction with system owners, completed the certifi cation and accreditation of 21 major systems in FY 2008. As a result, the SEC has now certi- fi ed and accredited a total of 45 systems in accordance with the appropriate guidance from OMB and National Institute of Standards and Technology. OIT also com- pleted contingency testing on the majority of the SEC’s accredited systems in conjunction with several of its disaster recovery exercises. Finally, GAO audited the Commission’s financial statements. GAO’s procedures included audits of the FY 2008 financial statements, internal control over financial reporting and compliance with selected laws and regulations material to SEC’s financial state- ments, and actions taken in response to prior GAO audit recommendations. Eliminating Material Weakness in Internal Controls over Financial Reporting Description of FY 2007 Material Weakness. GAO’s audit of the SEC’s fi nancial statements for FY 2007 found a material weakness in internal controls over fi nancial reporting, stemming from the combination of four control defi ciencies. These four defi ciencies related to the SEC’s period-end fi nancial reporting process, disgorgements and penalties accounts receivable, accounting for transaction fee revenue, and preparing fi nancial statement disclosures. The fi rst two defi ciencies, related to the period-end fi nancial reporting process and the disgorgements and penalties accounts receivable, were attributed to the same underlying condition: lack of an integrated fi nancial system forcing reliance on manual processes. With manual processes, the risk of error is inherently greater. GAO found that SEC processes for recording transaction fee revenue and preparing fi nancial statement disclosures were subject to error because the agency did not have documented procedures. Corrective Actions Taken. The SEC was successful in eliminating in FY 2008 the material weakness in internal controls over fi nancial reporting that was cited in the FY 2007 audit. Developing a fully integrated fi nancial management system was the keystone of the SEC’s FY 2008 Corrective Action Plan for remediation of the material weakness and system non-conformance. The fi rst step toward full integra- tion of the SEC’s fi nancial management systems was the upgrade of the agency’s core fi nancial system, Momentum, which was accomplished in FY 2008. The upgraded system provides full integration of accounts payable; accounts receivable, including disgorgements and penalties; purchasing; and property, plant, and equipment (PP&E) transactions with the general ledger. The system improve- ments eliminated a signifi cant amount of manual data handling of material fi nancial balances, resulting in enhanced timeliness, accuracy, and reliability of fi nancial information, and greater transparency in fi nancial processes. To address the lack of documented procedures cited by GAO as the cause for defi ciencies related to transaction fee revenues and preparing fi nancial statement disclo- sures, the SEC improved process documentation for fi nancial reporting and period-end closes. The SEC’s fi rst quarter 2008 fi nancial statements were the fi rst to be prepared using the newly documented methodologies. This is trial version www.adultpdf.com . statements; • Reports and other information from Congress or the Offi ce of Management and Budget; and • Additional reviews relating to the offi ce’s operations, including those discussed in the Other. daily operation of the offi ce; • Internal management reviews and self-assessments; • GAO and Offi ce of Inspector General reports; • Annual performance plans and reports; • Audits of the agency’s fi. Management’s Discussion and Analysis Page 30 GAO- 09-173 SEC’s Financial Statements for Fiscal Years 2008 and 2007 2008 Performance and Accountability Report 22 Each offi ce head prepared