The Securities and Exchange Commission is hoping to prevent Òanother EnronÓ with new software. SEC chairman Harvey Pitt has publicly vowed to identify corporate fraud as his organizationÕs top priority now that EnronÕs very public implosion has soured many investors from Wall Street to Main Street. The SEC has been Òbeset by staff shortagesÓ and needs technological help in reviewing the records of over 12,000 publicly-traded US corporations.
Alan Beller, the SECÕs corporation-finance director, told Bloomberg News that the new software will be designed and implemented over a twelve-month period. The goal of the SECÕs software is to review company reports for potential risk factors such as debt, cash flow, disciplinary history and the use of off-balance sheet partnerships. The software will systematically hunt down funny business in company reports and automatically raise red flags for the SEC to investigate. The initiative to develop the software will be headed by Mr. Beller and partly funded by the extra $20 million appropriated by Congress and the Bush Administration for the SEC.
Allow me to automatically raise a few red flags on this idea of the SEC blowing tens (if not hundreds) of millions of hard-earned American tax dollars on this software boondoggle:
1) In February, the SEC chief accountant Lynn Turner told a Senate committee that the new Federal budget didnÕt give them the pay raises they wanted. ÒPay parity for SEC workers without full funding is a broken promise to the dedicated public servants at the Commission,Ó said Turner, who noted that 280 jobs at the SEC were vacant because the pay was so low. SEC Chairman Harvey Pitt told the Senate that he estimated that fully funding the pay raise would cost $80 million When I see the phrase Òdedicated public servantsÓ next to $80 million for pay raises, the first thing I worry about is more money for less work. How well has the extra funding for airline security worked out since those workers all became Federal employees?
2) The $20 million appropriation allows the SEC to hire 100 new workers, one-third of who will be involved in this new software project. That works out to paying 100 new workers $200,000 yearly salaries minus overhead costs. I donÕt know what the overhead costs of running the SEC is, but I know that there are 2,800 total employees and they have 280 openings. Even if it was $150,000 a year, that salary would be okay with most high tech professionals currently out of a job. Of course, this begs the question of will the 100 new workers be added to the 280? If thatÕs the case, expect the SEC to cry for more money.
3) Why develop some kind of new risk assessment and accounting software for the government when there are already applications out there that do a darn fine job? Intuit Software has become famous for the small business stalwart ÒQuickenÓ accounting software suite, but they also have enterprise-level accounting software the SEC could modify for this use. Dun & Bradstreet has offered Risk Assessment Manager (RAM) for years for businesses to make credit decisions. D&BÕs newest version, called eRAM, is web-based and cross-platform. D&BÕs eRAM even has a software development kit that would allow the SEC to modify eRAM for the task if they so desired. Of course, D&B would probably be more than happy to provide the SEC assistance in configuring eRAM to root out accounting irregularities.
The most important thing to remember is that the SEC is apparently not doing their job very well period. Not Òthe SEC will do a better job with more moneyÓ and not Òif only the SEC had better tools to use,Ó but we must remember that the SEC is doing a relatively bad job right now. Throwing more money at the SEC in the hopes of avoiding Òanother EnronÓ is questionable. Arthur Andersen in an effort to save face had to fire many of their employees and take a serious monetary hit because of the Enron scandal; they didnÕt throw more money at the IT infrastructure and pay the liars on their staff more in the hopes that thatÕs all they needed to be honest.
The bottom line is the bottom line: You donÕt give a pay raise to your companyÕs worst slacker in the hopes that he will straighten up and fly right with more cash in his pocket.
Email me with your comments on this or any other tech-related issue.
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