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U.S. Securities and Exchange Commission

Written Statement Concerning
H.R. 4685, the "Accountability of Tax Dollars Act of 2002"

Written Statement of the U.S. Securities and Exchange Commission
Before the Subcommittee on Government Efficiency, Financial Management and Intergovernmental Relations, Committee on Government Reform, U.S. House of Representatives

May 24, 2002

The Securities and Exchange Commission is pleased to comment on H.R. 4685, the "Accountability of Tax Dollars Act of 2002." The proposed bill would require Federal executive agencies appropriated budget authority of more than $25 million and not currently subject to the Chief Financial Officers Act or other statute requiring audited financial statements, to prepare annual audited financial statements.

The Commission fully supports efforts to strengthen financial and performance reporting for Federal agencies. As the agency charged with overseeing the financial reporting of public companies, the SEC is uniquely aware of the importance of audited financial statements. Moreover, as a part of the federal government, we are aware of our obligation to the public to be faithful stewards of the fees we are authorized to collect and the funds we are annually appropriated.

H.R. 4685 reflects these principles by requiring all but the smallest federal government agencies to prepare and submit to the Congress and the Director of the Office of Management and Budget annual audited financial statements "covering all accounts and associated activities of each office, bureau, and activity of the agency." The bill would apply to the Securities and Exchange Commission, since it is not currently required by law to prepare full audited financial statements and its budget authority exceeds the threshold established in the bill.

The bill would require the SEC and other covered agencies to prepare audited financial statements beginning next fiscal year (although the Director of the Office of Management and Budget could grant waivers from this requirement for up to two years). Without detracting from our support for the important principle embodied in this bill, we respectfully suggest that the bill permit the smaller agencies it covers at least the same amount of time to introduce those statements as was provided to larger agencies under the Chief Financial Officers Act of 1990, Pub. L. No. 101-576 (1990), and the Government Management Reform Act of 1994, Pub. L. No. 103-356 (1994).

Last year the Commission began an effort to evaluate its ability to meet the requirements for preparation of such statements. In its authorization request for fiscal years 2002-2003, the Commission requested funds to allow it to assess the requirements for producing audited financial statements and to begin the necessary systems enhancements. To date, however, the Commission has not been authorized or appropriated funds for this purpose. SEC staff advises us that the Commission's current budget and staff resources are inadequate to make the necessary financial, information and management systems improvements to prepare audited financial statements. H.R. 4685's ambitious deadline, fiscal year 2003, would further stress those budgetary and staff resources.

Administrative management staffs of small agencies routinely face the challenges of meeting the government-wide management control and management improvement requirements imposed on the Cabinet-level and other large agencies with larger staff and budgetary resources. Therefore, if the bill is enacted, it should give small agencies the same amount of time that the larger agencies were granted to complete the extensive preparations for their first audited financial statements.

Moreover, a recent General Accounting Office survey indicates that most small agencies that do not now prepare audited financial statements expect to use consultants to advise the agency in preparing for audit. Those consultants usually are independent public accounting firms. The Commission would likely face additional challenges in securing such assistance, since the SEC has regulatory responsibilities over public accounting firms. This challenge should not prevent our preparing audited financial statements, but it may increase the costs and delay the completion of this initiative.

Thank you for the opportunity to submit this statement for the record of the Subcommittee's hearing on H.R. 4685. We hope that our comments will be useful to the Subcommittee.



Modified: 05/24/2002