December was not a marquee month for the Treasury Department or Homeland Security. The final month of 2008 witnessed a pair of massive breaches of competence from two units under the auspices of each - the Securities and Exchange Commission and the Secret Service.Inexplicably, those charged with protecting the president allowed a venomous anti-U.S. Iraqi to throw not one, but two shoes at President Bush during a visit to Baghdad.

The fact that some mushwit got a free toss of one shoe is embarrassing enough, but the fact that he had ample time to pry off and toss the other one should be grounds enough for a top-down round of dismissals.

Then there's the infuriating case of the SEC.

By now, most readers are familiar with the shocking revelation of how former Nasdaq chairman Bernie Madoff allegedly scammed his clients out of $50 billion, in what eventually may turn out to be the largest fraud in American business annals. What's more shocking is that the SEC had apparently failed to heed warnings nine years before that Madoff's company was little more than a giant Ponzi scheme. In fact, the commission on occasion had consulted him for market advice - it was Madoff's own sons who turned him in.

Madoff's firm did, in fact, have an auditor, Friehling & Horowitz, but it was a three-person matchbox in Rockland County, N.Y. - certainly not a firm imbued with the resources necessary to conduct a diligent and efficient audit of a company with billions under management. That strange audit dichotomy apparently didn't pique the curiosity of the SEC, or even the New York State Society of CPAs, where the firm's managing partner, David G. Friehling, was the former president of its Rockland County chapter, as well as an occasional contributor to the society's paper, The Trusted Professional.

SEC Chairman Christopher Cox, who at press time was to be replaced by Obama appointee Mary Schapiro, admitted what everyone else seemed to already know: that the SEC had received "credible and specific allegations regarding Mr. Madoff's financial wrongdoing," but did not "respond aggressively."

It's no secret that Cox has seen intense criticism during his tenure - some deserved and some not - but there's little doubt he has to shoulder at least some of the blame in this fiasco.

But there's plenty to go around. Nine years, if my math is correct, would put us back to the era when Arthur Levitt chaired the regulator, and apparently the warnings raised little concern under his successors, Harvey Pitt and William Donaldson.

Lastly, some of the blame has to be levied against the investors themselves, as many foolishly abandoned any sense of responsibility or oversight and simply handed over millions.

Yet such is the damage to the SEC's credibility, and to that of other watchdogs ostensibly established to prevent these types of scandals, that it is inarguably in need of a top-down overhaul.

Ms. Schapiro will not lack for repair projects.

Register or login for access to this item and much more

All Accounting Today content is archived after seven days.

Community members receive:
  • All recent and archived articles
  • Conference offers and updates
  • A full menu of enewsletter options
  • Web seminars, white papers, ebooks

Don't have an account? Register for Free Unlimited Access