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Bloomberg News - Coburn Blasts SEC on Finances

Location: Washington, DC

Bloomberg News - Coburn Blasts SEC on Finances

Sen. Tom Coburn said the first-ever audit of the Securities and Exchange Commission shows that America's top market regulator is guilty of "hypocrisy."

The audit by the Government Accountability Office, the investigative arm of Congress, found problems in the SEC's system for tracking fines and other payments from defendants, in computer security, and with safeguards for catching mistakes in the financial statements themselves.

The audit report was released in May, and the SEC said it is working swiftly to fix the problems.

"Such disturbing audit results are inexcusable for the financial watchdog for corporate America," Coburn, R-Okla., said Wednesday at a hearing of the Senate Homeland Security and Governmental Affairs subcommittee on financial management, which he chairs.

"Those entrusted with enforcement authority cannot be above their own standards," he said. "Americans will not and should not tolerate that sort of hypocrisy."

Coburn compared the SEC's actions to those of a speeding state trooper passing other motorists while driving home.

David M. Walker, head of the GAO, agreed that the SEC must "lead by example" to maintain its credibility.

James McConnell, the SEC's executive director, told Coburn that the agency is "working aggressively" to resolve the weaknesses identified by the GAO. He said all corrections should be completed in 2006.

"Because of the SEC's regulatory role, we believe the agency must lead by example through our handling of internal-control weaknesses," McConnell said.

The subcommittee's ranking Democrat, Tom Carper of Delaware, said he believes the SEC performed as well as could be expected in a first-time audit.

Walker said there's a risk that the SEC will lose its focus on making improvements as it undergoes a change in leadership. William Donaldson stepped down June 30 as chairman. President Bush's pick to succeed him, U.S. Rep. Christopher Cox, R-Calif., may be confirmed within days.

Under a law passed in 2002, Congress requires the SEC to prepare and submit audited financial statements each year, starting with 2004.

Coburn noted that the SEC also recently discovered a $48 million funding shortfall.

The agency says most of the unforeseen costs are for security measures that were not included in its estimates for a new headquarters near Union Station in Washington. The SEC also failed to budget for renovations to offices in New York City and underestimated construction costs for a new office in Boston.

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