In late July, after the corruption at Enron, Worldcom and Tyco had seemingly mortally wounded consumer confidence, and the uproar against corporate crime was reaching its peak, it was convenient for Bush to join the battle cry and come down hard on the corporate villains. Likewise, it was convenient for Congress to pass the Sarbanes-Oxley Act of 2002—also called the “Accounting Reform Act”—reaching out to the victimized common man and calling for the eradication of big business deceit.
The Accounting Reform Act included sweeping measures dealing with financial reporting, conflicts of interest, corporate ethics and the oversight of the accounting profession. It called for increasing the Securities and Exchange Commission (SEC) budget by 77 percent and creating a U.S. accountancy regulatory board. The increased budget was going to be used to hire up to 300 new enforcement and inspection specialists and to begin upgrading information technology, all in an attempt to better protect investors from rampant financial fraud.
When President Bush signed the Accounting Reform Act this summer, he promised to use the new enforcement tools “to the fullest.” He told corporate America, “this law says to every dishonest corporate leader, ‘you’ll be exposed and punished.’” He forgot to mention, however, that once American citizens stopped paying attention, so would he.
While the Act requires a $726 million budget to implement changes, President Bush has decided instead to recommend a funding increase of just 21 percent, to $568 million. This amount is simply not sufficient for the new U.S. accounting regulatory board to operate. Even SEC Chair Harvey Pitt says that the administration’s level of financing will not allow the agency to take on key initiatives. It seems unreasonable that Bush is more than willing to invest tens of billions of dollars to fund a questionable war with Iraq when he cannot seem to scrounge up another $150 million to implement effective corporate reform policy.
The actions of Congress prove no better. A budget stand-off between Congress and the president threatens efforts to crack down on corporate wrongdoing. Congress has not yet funded the SEC for fiscal year 2003, which began Oct. 1, nor has it approved any future funding for the new Public Company Accounting Oversight Board, which the Accounting Reform Act created to monitor the accounting industry. In fact, the House, where appropriations bills originate, has yet to even introduce a bill to fund the SEC for 2003, let alone vote on it.
The Accounting Reform Act allowed for transition funding for the Public Company Accounting Oversight Board to come from unused SEC funds. However, with the president and Congress continuing to argue over budget priorities, the SEC is not likely to have any funds to spare. “The worst case scenario is that [the accounting board] or we will have to slow down if we find the budget is unresolved by early next year,” the agency has said. Without a budget decision from Capital Hill, all this summer’s reform rhetoric will be in vain.
Corporate reform deserves more than lip service from our political officials, and the only way reform policy will become effective is if government agencies are capable of enforcing it. If our government is serious about cracking down on corporate fraud, it needs to finance a budget that will allow real changes to occur.
To send a message to the American people that reforming corporate America was a matter making significant improvements to society—and not just temporarily appeasing angry voters—our government must act promptly.
The scandals of this past year demonstrate the seriousness of the problem and the pressing need for change. And when the public eye was closely monitoring the government’s response, legislators just could not seem to say enough about the need for corporate reform, yet now, when the media is preoccupied with other world affairs, our political leaders just twiddle their thumbs on the issue. Media hype and political convenience should not dictate public policy. With the current question of war looming, it is easy to become preoccupied with the details of our foreign policy plans. Yet we cannot forget to follow through with our domestic priorities.
While the government is partly to blame, the public has a responsibility to keep our legislators in check. We need to remind our representatives that corporate finance reform was not a summer trend, and that the implementation of policy, not simply its formation, is what fosters real change.
Lia C. Larson ’05 is an economics concentrator in Currier House.