Statement on Consideration of 2008 Budget

I want to start by thanking Bill Wiggins and his staff, Derek Kuiper and Yoss Missaghian, for all their hard work on the budget. This has not been an easy process. And yet you’ve consistently maintained a positive, constructive attitude. Thank you.

I am going to vote in favor of sending this budget to the SEC, but it’s not without some difficulty. Two concerns stand out and are worth noting. The first is the fact that, for the first time in our history, and before we accomplish what is necessary to fulfill our statutory mandate, the budget will constrain our staffing. I don’t believe that constraint is called for. I understand that there has been some frustration that, in the past, we’ve consistently set targets for hiring, particularly in inspections, that we haven’t been able to meet. Of course, these hiring shortfalls have only resulted in an accumulated underspend, which we’ve applied to reducing the next year’s budget. It’s not a reason to limit staffing now that we are finally making some progress.

Indeed, the cap placed on inspections hiring today is less than the goal we established in 2006 for inspectors, which I am more convinced than ever is necessary and appropriate given how limited our inspections coverage is. Although we’ve finally seen some softening in the employment market for experienced accountants in the past two months, the proposed budget for 2008 only provides for hiring 8 more inspectors. That will take us to 260 inspectors, which is less than the 282 goal we set in the 2006 budget. As I’ve said before, I believe our inspections are having an immensely important effect on the auditing firms, both in helping to foster a renewed focus on protecting investor interests as well as in focusing auditors on improvements necessary in the conduct of individual audits. These changes have not been welcome to everyone. There are some who long for the old days when audits were less robust. There’s no doubt in my mind, though, that stronger audits make stronger markets, enhancing investor protection from financial reporting failures and lowering the net costs of raising capital.

Today’s proposal also reduces planned growth in enforcement, which I think is inadvisable. We have a very small enforcement group of 14 lawyers and 11 accountants. They are an outstanding group of professionals, but they are insufficient to cover the beat of the global auditing firms that employ thousands, and tens of thousands, each.

My second concern relates to IT. After staffing, IT is the second largest budget driver. At this time, our IT strategy is in transition. From my perspective, we do not have a long-term strategy that will actually fulfill the needs of the organization. I had a similar concern last year. I’d hoped that my concern would be satisfied during the year, but it wasn’t. In the meantime, we’ve lost our CIO and several IT staff. Marc Stewart, who has been with us from our earliest days, has admirably worked to help shape staff requests into viable projects. But it will take considerable work to re-establish a long-term strategy and rebuild the IT department necessary to execute that strategy. In light of our staffing constraints, efficiencies achievable through effective use of IT will be even more critical.

I am confident in the quality and good faith of the work of the budget office. It’s obvious we need the staff that would be funded by this budget. In fact, we need more. Therefore I feel I have little choice but to ask for the amount proposed.