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Cox Testifies on Fiscal 2007 Appropriations Request

SEC Chairman Christopher Cox testified before the House Appropriations subcommittee on the measures he has taken since arriving at the SEC to address the financial problems caused by the building of new facilities and the material weaknesses in internal controls identified by the GAO. Cox said that, given the current budgetary environment, he believes the SEC's budget request of $904.8 million is appropriate, modest and justifiable.

In prepared remarks, Cox noted that when he arrived at the SEC, he faced the challenge of the $48.7 million in unbudgeted expenses associated with the building of the new headquarters in Washington, DC and offices in New York and Boston. Cox said he funded the entire amount out of the SEC's fiscal 2005 and 2006 budgets to avoid the costs of long-term financing and to start fiscal 2007 with all of its resources devoted to the SEC's core mission of protecting investors.

Cox reported that the SEC has strengthened its process for developing facilities-related budget estimates and for overseeing construction and lease improvement activities. The SEC has developed a system to detect errors in budget estimates and to streamline the budget formulation process. New positions were created in the SEC's Office of Administrative Services and a new budget and analysis branch was created in the Office of Financial Management. The SEC also redistributed some of the duties among its facilities management staff.

Cox advised that, since his arrival, he has made it a top priority to address the internal control weaknesses identified by the GAO. The weaknesses were found in the recording and reporting of disgorgements and penalties, in information security, and in the preparation and reporting of financial statements. Cox believes that the weaknesses can be eliminated by the end of fiscal 2006.

Cox asked for more flexibility with respect to the SEC's budget resources, including his authority to weigh the benefits of increases in employee pay against the expense of increased attrition in mission-critical programs. He noted that about 67% of the SEC's budget is dedicated to personnel costs. Cox would also like to give the heads of the regional and district offices more flexibility in deciding how to manage the resources within their offices to ensure the maximum benefit to taxpayers. He said he would like to work with the subcommittee to develop a more streamlined but comprehensive approval framework for other reprogramming funds.

Cox said the $110 million in the budget that is allocated for information technology is a conservative figure, given his priority of relying on information technology to improve the quality and timeliness of disclosure to investors. He said it is a near-certainty that the securities markets will continue to expand faster than the SEC's resources, so it is imperative to use those resources as efficiently as possible.

Cox also provided a status report on the Office of Global Security Risk, which is now fully staffed. The office monitors filings for global security risks and evaluates companies' disclosure. The Division of Corporation Finance reviews company filings to see whether their disclosure indicates material contacts with countries that have been identified as sponsors of terrorism. The Office of Global Security Risk reviews filings referred to it by the Corporation Finance staff and also performs independent reviews. Cox said the office last year issued comments to 137 companies. He believes the office is well positioned to perform its vitally important responsibilities.