ADP Acquisition:

SEC Needs To Resolve Key Issues Before Proceeding With Its EDGAR System

IMTEC-87-2: Published: Oct 9, 1986. Publicly Released: Nov 10, 1986.

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In response to a congressional request, GAO evaluated the Securities and Exchange Commission's (SEC) Electronic Data Gathering, Analysis and Retrieval System (EDGAR) to determine whether SEC is ready to proceed with acquisition of an operational system.

Federal securities laws require companies to file an annual report that provides a comprehensive overview of the state of their businesses. EDGAR is designed to automate the filing, processing, and dissemination of these documents. Although SEC initiated a rulemaking process to obtain public comments on the proposed reporting requirements for filers, it will not complete the process until 1987, and will not know the extent of filer opposition to and exemption from the requirements. SEC intends to recover the costs of developing and operating the receipt portion of the system from user fees. Federal law limits fees for furnishing information to no more than the cost of providing the information plus a reasonable contractor profit. GAO believes that SEC should not include its costs in fees to public users, but should finance them through appropriated funds, because financing through user fees would bypass intended congressional oversight and control. The SEC analysis did not include accurate hardware or software development estimates for expanding EDGAR to the operational system environment. In addition, SEC did not base its estimates of the quantitative benefits on economically feasible assumptions and did not demonstrate that the benefits outweigh the estimated costs. Although SEC believes that sufficient qualitative benefits would accrue to filers, investors, and itself, it did not describe how the benefits would accrue. GAO questions the advisability of proceeding with the implementation without the benefit of better cost estimates and benefits.

Matter for Congressional Consideration

  1. Status: Closed - Implemented

    Comments: The SEC Authorization Act of 1987, P.L. 100-181, limits funding for the operational EDGAR system and establishes specific reporting requirements for the project.

    Matter: Congress should satisfy itself that SEC has adequately responded to the issues raised in this report before providing funding for the operational EDGAR system.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: The current requests for proposals (RFP) includes provisions that: (1) allow SEC to extend the filer phase-in period based on the experience of filers; and (2) instruct the current contractor not to incur costs for data tagging until notified by SEC.

    Recommendation: The Chairman, SEC, should not award a contract for the operational EDGAR system until the impact of potential filer exemptions from and opposition to proposed electronic filing requirements has been fully assessed and considered in defining the system.

    Agency Affected: United States Securities and Exchange Commission

  2. Status: Closed - Implemented

    Comments: SEC will fund the total internal processing system, including cost of receipt. This was confirmed in the latest RFP release, dated October 23, 1987. P.L. 100-181 also requires that appropriated funds be the exclusive source of funds for the receipt portion of the system.

    Recommendation: The Chairman, SEC, should not award a contract for the operational EDGAR system until the financing approach for the operational system has been resolved with Congress to provide appropriate funding for SEC internal processing requirements.

    Agency Affected: United States Securities and Exchange Commission

  3. Status: Closed - Implemented

    Comments: SEC completed a cost analysis and provided a further description of EDGAR benefits. In addition, SEC must submit a cost/benefit analysis to Congress on or before award of the operational EDGAR contract.

    Recommendation: The Chairman, SEC, should not award a contract for the operational EDGAR system until a comprehensive cost/benefit analysis that better estimates the total costs of the internal system and its quantitative benefits and adequately describes the qualitative benefits of EDGAR has been completed.

    Agency Affected: United States Securities and Exchange Commission

 

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