Fiscal disarray at SEC hurts need for bigger budget

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If a company’s financial reporting were so bad that its auditor had pointed out significant weaknesses in its accounting for seven years running, the Securities and Exchange Commission would most likely be all over it.

But what if the company were the S.E.C. itself?

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…

The auditor did not accuse the S.E.C. of cooking its books, and the mistakes were corrected before its latest financial statements were completed. But the fact that basic accounting continually bedevils the agency responsible for guaranteeing the soundness of American financial markets could prove especially awkward just as the S.E.C. is saying it desperately needs money to increase its regulatory power.

Like the rest of the federal government, the S.E.C. is operating without an increase in its budget, which was $1.1 billion last year. With President Obama talking about extending the freeze and lawmakers continuing their criticism of its embarrassing performance before the financial crisis, the agency’s prospects for more money appear bleak.

That has 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…

Still, by several measures, the S.E.C. is far from starved for money. Its $1.1 billion budget in 2010 was 15 percent higher than the $960 million it received the year before — and nearly triple its $377 million budget in 2000…

Mary Schapiro, Obama’s appointee as chairwoman, receives kudos like. “She’s done an awful lot that people should be proud of and optimistic about,” said Annette L. Nazareth…a former S.E.C. commissioner and division director.

During the Dodd-Frank discussions folks hoped the overage the SEC turns up in fees from corporations they catch stealing would be turned over to the SEC to defray the cost of operations. The financial wizards in Congress managed to fail on that count.

Under George W., the budget tripled while investigators spent time trolling for porn on the Web. Now that the commission looks threatening to Wall Street financiers, actually files suit against illegal profiteers, you know that Congress will try to clamp down.

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