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Tougher Financial Police

August 15, 2002



This week is a first test, of sorts, of just how tough the federal government's new measures against financial fraud are likely to be. Yesterday was the deadline for the top officers of most large US corporations to certify with the Securities and Exchange Commission the accuracy of their books.

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So far the process hasn't yielded any new revelations of fraudulent accounting. But the SEC has lots of work ahead as it plows through the certifications and posts them on its website so the public can have a look.

Any company that finds it needs to restate its financial status will get quick attention from the agency. Alert investors are likely just to dump that company's stock. Companies that failed to meet the deadline will come under a cloud of suspicion.

On the positive side, most companies appear likely to certify their financial results without a hitch. That could boost investor confidence.

The certification requirement was designed by the SEC to stress its determination to police corporate behavior at a time when Enron, WorldCom, and other corporate scandals have heightened public concern. It's a visible way to say "Financial accountability has arrived in the corner office."

Follow-up, however, is all important. Can the SEC move ahead with muscular enforcement – not only in pursuing any cases that may arise from certification, but in implementing the whole accounting-reform package recently signed into law?

The agency long has been underfunded and understaffed. That's changing, thanks largely to the reform law. It includes a 66 percent hike in the SEC's budget, to $776 million. That'll underwrite a larger staff of investigators. Though welcome, the budget increase pales when compared to the huge growth in the volume of stock trading the agency is supposed to keep an eye on.

Still, a more activist SEC is what's needed – to keep business in line and to reassure the investing public. It's good that a start has been made.

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