A recent GAO report, (No. 03-339), on the selection process of Public Company Accounting Oversight Board (PCAOB) members is a searing indictment of the SEC. Newspaper coverage at the time indicated some of the problems including the SEC Chief Accountant's failure to alert Commission members, other than Chairman Harvey Pitt, about William Webster's role as head of the audit committee for U.S. Technologies.

But a thorough reading of the report reveals that doesn't even begin to scratch the surface. The GAO concludes, "The overall process that emerged was neither consistent nor effective and changed and evolved over time." It finds that there was a breakdown of the selection and vetting (examining the suitability) process attributable to a number of factors including an inability to agree to a formal process, insufficient communications between SEC staff and the Commissioners, and a lack of articulated selection criteria. The final slate of candidates wasn't even chosen until the eve of the Commission's vote.

Specifically, the SEC also failed to fully utilize its own internal technologies to investigate the candidates. Basically, the candidates were expected to bring up any issues that might potentially affect their fitness to serve. Interestingly, background checks weren't done prior to the vote and Commission members were told of that fact just before the vote. Although the timetables of Sarbanes-Oxley are ridiculous, the report shows that the SEC was completely inept in performing a rather simple task of selecting PCAOB five members. The GAO made a number of obvious recommendations for improvement of the process.

It doesn't take a rocket scientist to come with the recommendations.

The jury is obviously out on the incoming SEC chair and the new upper-level SEC staff. But, with all that the SEC has on its plate, accountants had better hope that they have some experience in building rockets. Doing damage to the initial selection process of (PCAOB) members is one thing, but goofing up on the oversight of public company accounting and corporate reform is another much more serious matter.

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