Looking for Trouble: The SEC Upgrades Technology to Be a Better Watchdog
The CIO at the U.S. Securities and Exchange Commission is putting the finishing touches on a sweeping plan to transform the paper-burdened and IT-challenged agency into an adept high-tech consumer and revamp business processes to keep tabs on the more than 18 million pages of financial documents it receives each year from more than 12,000 companies.
In the job for just seven months, Corey Booth has a key role in SEC Chairman William Donaldson's top priority: becoming more proactive in protecting investors and maintaining fair and efficient markets by overseeing SEC-registered companies' financial practices. The agency's five-year strategic plan, approved in July and posted on its Web site earlier this month, admits that for too long the commission has been reacting to market problems rather than anticipating them.
"Our chairman has made a very big deal about the fact that we need to look around the corner more effectively," says Booth, a boyish-faced 34-year-old who made the leap to the government sector from McKinsey & Co., where he was an associate principal in the consulting firm's Chicago office, working with large financial-services companies on IT issues. Booth, who reports to Donaldson, stepped into a role that had been vacant for about a year and a half, since the departure of Michael Bartell, who's now CIO at the Federal Deposit Insurance Corp. Booth says he was looking for a chance to put into practice the ideas he'd formulated with clients as a consultant. "Corey is a great problem solver, which is one of the reasons he was successful at McKinsey and which is why I think he'll be successful in this new role," says Celia Huber, a principal in McKinsey's Pittsburgh office, who has known Booth about five years.
He'll need that skill. Booth has taken the IT reins at an agency that has suffered embarrassing failures over the past couple of years, notably the accounting scandal that led to the collapse of energy-trading company Enron. The U.S. Senate charged the agency with failing to review Enron's financial reports. It's those kinds of meltdowns, and the consequent loss of investor confidence, that Booth and everyone at the SEC are aiming to avoid.
Booth's IT objectives range from improving security to implementing mobile technologies in order to enable a virtual workforce. But the three top items on his list--electronic-information discovery, workflow and content management, and new data-tagging formats--all relate to the agency's ability to use state-of-the-art analytical tools to catch accounting and securities irregularities before they become major problems and to better manage their investigations.
"We were asked by Congress to be more effective," says Booth, who has an MBA from Stanford Business School. The Sarbanes-Oxley Act requires the SEC to review the filings of a third of companies registered with it each year. Congress boosted the SEC's budget about 40% in fiscal 2003 to $716.4 million from $514 million in fiscal 2002 so the agency could hire more accountants, examiners, and other staff. But, Booth says, "It's very clear that staffing will only go so far. The rest has to come from business and technology improvements."
In fiscal 2004, $120 million of the agency's $811.5 million budget is going toward IT operations (excluding salaries and related expenses), almost three times as much as was spent on IT in 2001. "There's really no other way for the SEC to improve other than with technology," says Bill Cline, managing partner for global capital markets at consulting firm Accenture. "The only alternative is to add lots of people, and I think that's a losing proposition."
By the end of September, the agency expects to complete converting most of the stacks of paper documents related to investigations under way to an electronic format using document-imaging and optical character-recognition software. Most companies under investigation submit paper documents to the SEC, so every time an investigation begins, trucks full of these files pull up to the massive concrete and glass SEC building in downtown Washington to unload the stuff.
The SEC also must review data in a number of different electronic formats, including E-mails, which Booth says often contain "all the smoking guns." Without a cohesive, advanced system for accessing and searching documents related to an investigation, attorneys and examiners can spend months poring over evidence to find examples and make certain connections.
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