Material Internal Control Issues Reported in SEC's Fiscal Year 2004 Financial Statement Audit Report Page: 1 of 14
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AGAO
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, 2004.1 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."
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.
5GAO, 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).
6 A 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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United States. Government Accountability Office. Material Internal Control Issues Reported in SEC's Fiscal Year 2004 Financial Statement Audit Report, text, July 27, 2005; Washington D.C.. (https://digital.library.unt.edu/ark:/67531/metadc302477/m1/1/: accessed April 18, 2024), University of North Texas Libraries, UNT Digital Library, https://digital.library.unt.edu; crediting UNT Libraries Government Documents Department.