I once interviewed a former employee of the Carter administration whose job consisted of gradually eliminating a minor $10 million government program. And to ensure that happened he was given a budget of $20 million.
Trust me, you can’t make this stuff up, particularly when Washington is involved.
But lately in this climate of corporate reform and new oversight, we’ve been receiving regular doses of sanity from Capitol Hill.
As evidence, you need look no further than the recent rulings handed down by the Securities and Exchange Commission mandating that companies adopt stiffer policies on internal controls.
Last week, the financial watchdog voted unanimously to force chief executives to comment on the effectiveness (or, I’ll assume, ineffectiveness), of their companies' internal controls and procedures as a path to reliable financial reporting — something which seems, at least in the public’s perception, to be in dangerously short supply.
Not exactly what I would call prescient legislation, but certainly necessary.
The rules, which are scheduled to take effect in mid-2004, require corporate managers and executives to evaluate their respective internal controls, have them reviewed by outside auditors, and report any and all problems to their shareholders.
Not to state the obvious, but if you’re an investor in a company with sieve-like internal controls, it would probably be a good thing to know if you’re planning to use that money to retire.
The rules adoption was basically the SEC’s response to orders from Congress following the accounting debacles at Enron and WorldCom that said “Hey folks, we want and need tighter internal controls.”
And it’s going to cost SEC companies big time – both in man-hours and eventually in dollars. The SEC predicts that individual companies will spend nearly 400 additional hours the first year evaluating the effectiveness or laxness of their internal controls.
But veering from an earlier SEC proposal, companies breathed a collective sigh of relief that they won’t have to undergo internal controls evaluation each quarter.
And smaller companies and those overseas that have dealings in some way shape or form with U.S. financial markets have been given until April 15, 2005, to get with the program.
One SEC commissioner proclaimed that the movement was “long overdue.”
Let’s see greater disclosure, tighter controls and increased transparency in financial reporting.
The lament you hear is that of a few thousand Enron shareholders who wish said rules had been in place about two years ago.
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