May 25, 2011

SEC Inspector Finds Agency Wasted $1 Million In 2008

Securities and Exchange Commission (SEC) Inspector General David Kotz said the SEC wasted $1 million on virtual data storage it bought in 2008.

The agency was forced to renege on a plan to rent 900,000 square feet of office space because it failed to secure additional funding from Congress.

The findings could add extra fuel to the Republican's fire as they seek to deny the SEC of funding to implement the Dodd-Frank financial overhaul law.

The SEC has asked Congress to boost its budget by $222 million to $1.407 billion for 2012.

Kotz investigated the SEC's acquisition of data storage technology in the December report.

Reuters reported that Kotz found a number of problems, from the equipment itself to the procurement process, which occurred in the summer of 2008.

The investigation said that an Apple inc. salesman convinced the agency that Cloverleaf Communications' virtual storage could provide a cheaper solution to the agency's data storage and backup woes.

Kotz said the SEC violated federal contracting procedures by securing a no-bid contract with Cloverleaf, which is a company the SEC had no experience with.  Kotz said the contract actually proved "to be more expensive than other, better-known and less risky alternatives."

According to Reuters, he found the SEC improperly shared budget information with Apple and made purchases before getting proper approval and before performing reviews.

SEC spokesman John Nester said the agency agrees with Kotz's findings and is "taking steps to improve our policies and controls over purchases of information technology solutions, including pre-purchase review by management's technology and business oversight committees."

Kotz said the SEC found more problems when it tried to use the equipment, in which it "quickly went downhill from there."

Reuters also reported that when SEC staff wanted to bring the problems to the attention of a supervisor, staff told Kotz the supervisor said "this information doesn't leave this room" and then got up and left the room.


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