Why Government Needs Sarbanes-Oxley - and its Penalties

This past week a $31 million property tax refund scam conducted by members of the Washington DC Office of Tax and Revenue was revealed by the FBI. The scam has been running for at least the past seven years, and allegedly involved two tax office employees (so far) and their families. The perpetrators were so unconcerned about getting caught, they sent a phony $346,700 check to a fictitious company named "Bilkemor LLC."

The employees were able to get away with the scam because their activities weren't supervised, nor extensively if at all audited. A "breakdown of internal controls" were blamed by DC officials - something that Sarbanes-Oxley reviews of computer system controls would have made much more difficult. The District's CFO hasn't resigned, and has indicated that he sees no reason to do so. Basically, he stated that it wasn't his fault, that he has already fired the wayward employees' managers, and that it wasn't a big deal anyway, since it didn't materially affect the District's finances: "It is important to emphasize that this unfortunate incident does not compromise the financial stability and viability of the District."

Public corporations would love to operate under that definition of materiality. If the CFO or CEO were in the same position of utter and absolute ignorance of their company's finances, they would be fired, sued by shareholders, and face possible criminal charges. I guess shareholder money is more important to protect than that of taxpayers.

This week, the Security and Exchange Commission (SEC) also admitted once again that it still couldn't meet Sarbanes-Oxley requirements either - more than a bit ironic for the agency whose job is to administer it to public companies and punish those who transgress its requirements. No one at the SEC is losing their job because of material weaknesses found there either, it appears.

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