The message from the Government Accountability Office to the Securities and Exchange Commission: practice what you preach. A new, 176-page report from the government watchdog faults the agency for “a significant deficiency" in its internal controls over financial reporting.

The GAO auditor’s report evaluated fiscal year 2013 and 2014 financial statements filed by the SEC and its Investor Protection Fund. As part of the SEC’s whistleblower program, rewards are draw from the IPF for tipsters who provide actionable information that assists an enforcement action. On a positive note, the report says, financial statements were “presented fairly, in all material respects, in accordance with U.S. generally accepted accounting principles.” During the fiscal year 2014 audit, however, GAO auditors identified both continuing and new deficiencies in the SEC’s internal control over disgorgement and penalty transactions. The report says they constituted “a significant deficiency in SEC’s internal control over financial reporting.”

Similar deficiencies were also detected in prior years and flagged to the attention of SEC management. Although the Commission acted to address some of these issues, the latest review uncovered new issues that, combined with remaining deficiencies, “are important enough to merit the attention of those charged with governance of SEC.”

As part of its enforcement efforts, the SEC issues administers judgments ordering, among other things, disgorgement, civil monetary penalties, and interest against those who violate federal securities laws. When SEC collects these funds on behalf of harmed investors or for payment to the general fund of the Treasury Department, it records an accounts receivable for the amount owed, accompanied by an equal and offsetting liability to reflect the amounts payable to the harmed investors or to the Treasury. In fiscal year 2014, the SEC recorded approximately $3.7 billion of new disgorgement and penalty accounts receivables.

During this year’s audit, the GAO found continuing deficiencies related to insufficient procedures for ensuring funds availability before transferring disgorgement and penalty-related funds to the Treasury; ineffective monitoring to ensure that all cases that should be recorded as receivables are timely identified; and insufficient safeguards and controls at service providers that collect SEC cash receipts.

Auditors also found that the SEC’s controls were not effective in ensuring that disgorgement and penalty transactions were recorded timely and accurately in its general ledger and there were not procedures to consistently detect and correct errors promptly. Instead, as individual errors were found and brought to its attention, SEC would investigate further to identify any similar issues. These ad hoc reviews led to the identification and correction of additional errors.

The errors were largely caused by ineffective policies or procedures for tracking and recording accounts receivable transactions; a lack of consistent information sharing between theSEC's Office of Financial Management and the Division of Enforcement; and ineffective implementation of existing policies.

The identified problems did not materially affect the SEC’s fiscal year 2014 financial statements, but the GAO warned that misstatements may occur in other financial information reported by SEC and not be prevented, detected and corrected in a timely fashion.