U.S. securities regulators are much better at levying financial penalties on behalf of investors than they are about ensuring the money is actually paid out to them, according to a new report from the U.S. Government Accountability Office

The report finds that between 2002 and April 2005, the Securities and Exchange Commission has dealt with 75 cases that ordered more than $4.8 billion in disgorgement and civil monetary penalties that were designated to be returned to harmed investors. Yet the GAO found that, although the SEC has collected money for 73 of the 75 cases they identified, “approximately US$60 million from only three cases have been distributed to harmed investors, and funds totaling about $25 million from only one other case were being readied for distribution.”

According to the SEC, the report notes, distribution is often a lengthy process that can be further complicated by external factors such as a pending criminal indictment on the violator. But, the GAO also found that the SEC lacked a reliable method by which to identify and collect data on these sorts of cases involving restitution. It has taken action to address this issue, but efforts are still in their early stages.

The GAO says that the SEC has taken positive steps to improve its tracking of collection data, such as discontinuing its use of an unreliable tracking system, modifying its existing Case Activity Tracking System to capture financial data, and establishing a policy for improved data entry, in response to previous recommendations.

However, the GAO also identified additional actions that SEC can take to enhance CATS’s usefulness for key users, such as attorneys, collection monitors, and case management specialists in the Division of Enforcement. SEC is currently addressing this issue through a multiyear effort to comprehensively upgrade CATS, it noted. Agency officials estimate that the upgrade, which will be completed in phases, will be fully complete in 2008.

The SEC has also addressed some previous recommendations made to strengthen management of its collection program, such as increasing its collection staff and referring eligible delinquent cases to the Department of the Treasury’s Financial Management Service on a timely basis. However, the GAO says that the SEC must take further steps to address other recommendations designed to enhance management’s evaluation of program performance.

During this review, GAO identified new issues that warrant SEC management attention. “For example, although SEC has increased the number of staff devoted to collection efforts, the agency has neither developed a method to ensure that adequate and consistent supervision is provided to them, nor has it formally assessed whether its additional resources are being used effectively,” it notes. “[The] SEC also has not developed a procedure by which to ensure that two key units, both responsible for tracking collection activity, are effectively communicating and coordinating with one another.”