Call them worthless bureaucrats if you must but the US Government Accountability Office (GAO) just […]
Mind you, it was a small sample of 19 but of those, 17 were wrong: […]
Last year the Government Accountability Office issued a report that called attention to the SEC’s accounting system (or lack thereof). Reuters now reports that the SEC will admit in testimony tomorrow that the material weaknesses in their accounting system are largely due to technology that would make your grandparents laugh.
“These material weaknesses are unacceptable,” the SEC’s top division directors said in prepared testimony that was viewed by Reuters. They added the “root causes” of the problems stem from “years of underinvesting in financial system technologies.”
It should be noted that while the accounting systems were not quite up to snuff for the GAO, the equipment used by employees was sufficient for viewing a metric asston of porn, which we just learned moments ago, was even more widespread than initially thought.
Namely, the Commission would like a bigger budget because Dodd-Frank is making their lives increasingly difficult but since they got such bad marks from the GAO the Times reports that it might be just a tad inappropriate since, ya know, the SEC’s own numbers are, arguably, unreliable:
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.
“A reasonable possibility exists that a material misstatement of S.E.C.’s financial statements would not be prevented, or detected and corrected on a timely basis,” the auditor concluded.
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.
“These material weaknesses are likely to continue to exist until the SEC’s accounting system is either significantly enhanced or replaced, key accounting activity in other systems is fully integrated with the accounting system at the transaction level, information security controls are significantly strengthened, and appropriate resources are dedicated to maintaining effective internal controls.”
~ From a report issued by the Government Accountability Office
The Head Start Program, under the Department of Health and Human Services, provides child development services to mostly low-income families and their children. Up to 10% of Head Start-enrolled families can be over-income, with an income 130% above the poverty line.
Of course, things don’t always work out as they are supposed to and the GAO has discovered problems with about half of the centers it examined through the investigation, just a small sample of the 1,600 nonprofit centers running 3,000 Head Start programs.
GAO received allegations of fraud and abuse involving two Head Start nonprofit grantees in the Midwest and Texas. Allegations include manipulating recorded income to make over-income applicants appear under-income, encouraging families to report that they were homeless when they were not, enrolling more than 10 percent of over-income children, and counting children as enrolled in more than one center at a time. GAO confirmed that one grantee operated several centers with more than 10 percent over-income students, and the other grantee manipulated enrollment data to over-report the number of children enrolled. GAO is still investigating the other allegations reported. Realizing that these fraud schemes could be perpetrated at other Head Start programs, GAO attempted to register fictitious children as part of 15 undercover test scenarios at centers in six states and the District of Columbia. In 8 instances staff at these centers fraudulently misrepresented information, including disregarding part of the families’ income to register over-income children into under-income slots. The undercover tests revealed that 7 Head Start employees lied about applicants’ employment status or misrepresented their earnings.
GAO managing director for special investigations Gregory Kutz told a House education committee last month that “the system is vulnerable to fraud.” No kidding.
While unable to determine the motivation of Head Start employees to commit fraud by adjusting income levels on applications, Kutz theorized that management of nonprofit agencies receiving Head Start funds pressured staff to fudge, fiddle with, or straight up fake figures on applications in order to keep federal funds coming in.
Head Start has served over 25 million children since 1965 and there are currently over 1 million children enrolled in Head Start programs.
Accounting News Roundup: Japan Adopting International Fair Value; GAO Not Down with PCOAB Risk Standards; Oscar Gift Bags = $91k Income | 03.08.10
• Japan embraces new fair value rule [Financial Times via Accountancy Age]
Here’s a novel idea: making a decision on IFRS! Japan’s Financial Services Agency will be allowing companies to adopt the international version of the new fair value rule developed by the IASB, starting Wednesday. Since the world’s second largest economy is opting to pull the trigger on IFRS it may throw the G20’s request/demand for the world to get all kumbaya when it comes to accounting rules.
“Fair value accounting…as unleashed one of the most divisive debates to have emerged from the credit crisis, threatening to disrupt a pledge by the G20 group of leading economies to create a single, global accounting system by mid next year,” reports the FT and judging by the SEC’s indecisiveness, they may be right. With this latest development, now leaders will be able to blame each other’s securities agencies for their particular actions that will likely lead to divergence.
The allowance of Japanese companies to adopt IFRS 9 could also give Knight of the Accounting Roundtable, Sir David Tweedie, even more leverage when dealing with countries around the world to adopt the IFRS.
Right or wrong, the Japanese are sending a signal that they are prepared to move forward while the SEC prepares to have more meetings.
• GAO Criticizes PCAOB Approach to Audit Risk [Web CPA]
The General Accountability Office, never shy to point out the faults of others (that’s kind of what they do, after all), isn’t so keen on the PCAOB’s latest “risk assessment” audit standards. This after the PCAOB originally proposed standards in 2008 and then revised and re-released them late last year.
The GAO feels that the ‘duplication and inconsistencies’ created by the PCAOB’s new standards would likely lead to…more billable hours! So, as you might imagine, some firms are on board:
PricewaterhouseCoopers told the PCAOB, “We fully support the board’s objective to update interim standards regarding risk assessment,”
And some, not so much:
McGladrey & Pullen…warned that “unnecessary differences between the board’s standards and those of other standard-setters increase the costs of performing all audits because firms must develop and maintain two, and even three, audit methodologies and training programs, with no corresponding benefit to audit quality.”
Personally, we’re skeptical of anything that has the unmitigated support of the biggest players in the industry but from a more practical standpoint, do auditors really need more rules to follow? And now this could add to the workload? Is that really necessary?
• Oscar Swag Bags to Result in $91k Income to Celebrity Presenters [TaxProf Blog]
Celebrities have enough tax trouble the way it is, how is giving them gifts going to make their tax returns easier? We’re guessing most of them have smart CPAs working for them that will suggest that they give it all to charity but we may be underestimating the temptation of free luxury swag.
We don’t envy anyone working at the GAO. Telling Congress how badly they spend money and then telling the whole world about it (even though no one listens) sounds like a pretty thankless job.
So the fact that the GAO gave itself an “A” on its performance review shouldn’t come as a surprise to anyone. Who else was going to the give them the performance review? Plus if you’re regularly known as the “Taxpayer’s Best Friend” then we think you can be trusted with the honor system.
In fiscal year 2009, GAO met or exceeded all of its performance targets by, for example, identifying $43 billion in financial benefits–a return of $80 for every dollar GAO spent–and over 1,300 improvements in laws and government programs and operations. The rate at which GAO’s recommendations were implemented by federal agencies or the Congress was 80 percent, and over two-thirds of the products issued contained recommendations. During fiscal year 2009, the GAO met or exceeded all of its performance targets and made recommendations that resulted in “over 1,300 improvements in laws and government programs and operations.
To be perfectly honest, that does sound pretty damn impressive. Trying to make any sense of the ins and outs of the federal government isn’t something that we would wish upon our worst enemy.
If you’re still skeptical of the GAO stellarness, you’ll be happy to know that it was recently ranked #2 in the best places to work in the federal government. Now before you dismiss this silver medal, this isn’t some hack job put out by Fortune; this is something that is only issued every two years, by the Partnership for Public Service. We’re not saying that it would be difficult to rank so high on such a list but it’s got to be worth something.
• ‘Girls Gone Wild’ Founder Sues IRS – The newly crowned Douche of the Decade is in a litigious mood. After threatening to sue Gawker for the prestigious honor he was bestowed, DOTD is now suing the IRS for freezing his assets. Will someone stop to this
man douche?[Web CPA]
• Bill Would Require Comptroller General to be a CPA – Now there’s an idea. [Web CPA]
• Lehman administrators PwC repay $11bn to creditors – Seems like good news. [BBC]
• 2010: Get Ready for a Tax-a-palooza – “Facing trillions of dollars of expiring Bush-era tax cuts, President Obama and Congress will be forced to make some critical decisions in the new year.” [Tax Vox]
• SEC Seeks PAFs: Jan. 13 Deadline – Professional Accounting Fellows. You. [FEI Financial Reporting Blog]
• Let’s Talk About the Terrorist Underpants, Shall We? – Yes. Let’s. [DI]
• Revealed: How Oscar Nominee Ballots Are Counted – Because we know you were wondering. [The Wrap]
• Shareholders Win Settlement in Comverse Suit – Deloitte pitched in $275,000. That’s roughly the equivalent to one partner’s Starbucks budget. [Web CPA]
• Bouncing Back: Overcoming a Negative Performance Review – Anyone? [FINS]
• Tax Accountants to Get Biggest 2010 Raise – Good news already! [TaxProf Blog]
[The] GAO says the SEC ended its fiscal year on Sept. 30 with ineffective internal control over financial reporting, a now recurring theme ince [sic] the SEC was first required in 2002 to submit audited financial statements to Congress and the Office of Management and Budget.
“In connection with our prior audits, GAO has made numerous recommendations to SEC to address the internal control issues that continued to persist during fiscal year 2009,” GAO wrote in its report. The deficiencies that most troubled the government auditor were problems with information security, financial reporting processes, fund balance with the U.S. Treasury, registrant deposits, budgetary resources, and risk assessment and monitoring processes.
The deficiencies add up to a material weakness, GAO said, giving good reason to wonder whether data processed by SEC’s systems are reliable and adequately protected.
SEC Gets Another Material Weakness Finding from GAO [Compliance Week]
We’re pretty surprised that the Defense Department has an audit of its contracts at all but since they do, we’ll give them credit for at least setting up some faux-oversight. That’s where the credit stops however, since the auditors work for “The Pentagon’s Defense Contract Audit Agency” (“DCAA”) which just reeks of independence.
As we mentioned, the fact that anyone would attempt to audit the Defense Department is laughable at best. Some problems that the General Accounting Office found, according to Web CPA:
The problems uncovered by the investigation included waste of time and resources by the audit agency. As an example, the GAO noted that DCAA auditors spent 530 hours to support an audit of the cash management system at a research and development grantee, only to discover that the billing system was non-existent.
Awesome. Three months of work to discover a phantom billing system. Oh, but there’s more:
During a separate billing system audit of a supplier of combat systems, “Auditors deleted key audit steps related to the contractor policies and internal controls over progress payments without explanation.” One DCAA auditor told the GAO he did not perform detailed tests because, “The contractor would not appreciate it.”
Testing is rather inconvenient when accountability is involved. Especially in the name of national security.
For one of the 69 reviews the GAO performed, the audit report cited eight significant deficiencies in the contractor’s accounting system but since the contractor wasn’t really cool with that, the auditors dropped five of the SD’s and recommended that the other three be “improved without additional work”.
Buckling to clients isn’t as unusual so we’ll let this one slide and considering the DoD’s track record, they’ll continue doing whatever they hell they want. We just thought we’d bring it up here for the record.
GAO: DOD Audit Oversight Has “Widespread Problems” [Web CPA]