SEC to require fraud control assurances
boston.com
By Carrie Johnson, Washington Post, 5/27/2003
he Securities and Exchange Commission plans to vote today to require executives of public companies to attest that their firms have controls in place to detect accounting mistakes and fraud.
The rule will require managers to evaluate whether they have adequate rules to prevent employees from committing fraud and to sign off on the rules as part of an annual report filed with the SEC.
Congress, in the Sarbanes-Oxley Act last year, directed the SEC to address the problem of lax financial controls at public companies. SEC officials declined to comment on the rules before they are released.
Faulty internal controls, or the failure of companies to issue and follow clear rules about how financial statements are prepared, were cited by regulators in several major accounting frauds, including those at Rite Aid Corp. and WorldCom Inc.
''Internal controls can be a significant deterrent to management fraud,'' said Douglas R. Carmichael, chief auditor of the new federal accounting oversight board. ''They're not a foolproof solution, but they have a lot of potential for improving the situation.''
Securities lawyers noted, however, that internal controls cannot prevent all frauds.
The American Institute of Certified Public Accountants, a trade group, praised the planned rule.
This story ran on page C4 of the Boston Globe on 5/27/2003.
© Copyright 2003 Globe Newspaper Company.
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