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Why Congress Should Increase The SEC's Enforcement Budget

According to research by the Consumer Federation of America, the SEC's division of corporate finance has responsibility for reviewing financial statements of publicly traded companies to ensure that they clearly explain the company's operations, financial condition, and risks. For some time now, however, the division has lacked adequate personnel to review financial statements more than once every few years. That problem was exacerbated in the late 1990s by the enormous growth in the number of IPO registration filings that the division was also charged with reviewing.

As a result, SEC apparently last reviewed Enron's financial statements for 1997. Despite already over-taxed agency resources, however, the Wall Street Journal has reported that the FY 2003 budget recommended for the agency by the president only increased 4% from 2002 levels, to $438 million, despite SEC requests for over $500 million. In addition, the proposed budget further delayed proposals to increase SEC staff pay levels 24-39% to match pay at other financial regulators (pay parity). According to the Wall Street Journal, this could exacerbate the "major exodus of experienced staff" that has hampered agency enforcement (see "Budget Gives SEC Only Slight Boost Despite Calls for Better Enforcement," 4 Feb 2002, by Greg Ip, Wall Street Journal).

PIRG, CFA and other consumer groups believe that major increases in the SEC budget are required. Proposed legislation by U.S. Rep. John LaFalce (D-NY), the Comprehnsive Investor Protection Act (CIPA), would double agency resources in key divisions: CIPA would double the resources for the Divisions of Enforcement and Corporation Finance, as well as the Office of the Chief Accountant. Moreover, CIPA would fund pay parity for the entire Commission staff. The total SEC authorization under CIPA would amount to $876 million for fiscal 2003.

Further Reading On Auditor Independence And Oversight

Proposed Federal Legislation To Establish Accounting Independence and Oversight

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