A congressional subcommittee yesterday labeled the Securities and Exchange Commission's $10 million electronic filing pilot project a "glorified microfiche" and charged that the system was overdue and over budget and will not meet its promised objectives.
SEC Chairman John S. R. Shad, a Reagan appointee, denied the complaints and called the day-long hearing, conducted by Rep. John D. Dingell (D-Mich.), unfair and partisan. In a heated exchange, Dingell interrupted Shad and told him the composition of the subcommittee on oversight and investigations was "none of your business."
The focus of the subcommittee attack was EDGAR, the acronym for the SEC's electronic data gathering, analysis and retrieval system. When the system becomes fully operational at the end of 1988, all publicly held companies will be able to send their filings electronically to the SEC's computer at a projected savings of hundreds of millions of dollars a year in paperwork. Eventually investors, brokers and others will be able to retrieve and analyze the data for a fee, and the SEC will be able to spot which companies need further review.
Just six months old, EDGAR's pilot project was criticized by the General Accounting Office, which found that:
* Three fundamental functions -- tagging of data for quick retrieval, automated trouble spotting, and development of financial profiles or ratio calculations -- have been eliminated or significantly cut back from the pilot system. The SEC said they had simply been postponed.
* Without a written contract modification, a computer was upgraded at a cost of $290,000, and the failure to follow competitive procedures led to a 30 percent increase in the cost of hardware. The SEC said it was the task of the pilot program to identify needed hardware, so it would have been impossible to issue separate contracts for it.
* Mitre Corp., which was hired to make monthly written technological evaluations of the project, made a single written report before being told by the SEC to give oral advice. This followed a disagreement between Mitre and Arthur Andersen & Co., the Big Eight accounting firm, over work carried out by Andersen, the primary contractor.
SEC Deputy Executive Director Kenneth A. Fogash explained that he believed Mitre's reviews should start after the pilot project began, not at the outset. Under cross examination by Dingell, Fogash admitted he had exceeded his authority by changing Mitre's role without formally amending the contract.
Another criticism involved the small number of bids four and the selection of Andersen, which also audits many companies that report to the SEC. Rep. Gerry Sikorski (D-Minn.) maintained that knowledge of EDGAR, including what triggers an SEC review, gives Andersen an advantage over its competitors. Shad said that safeguards were built into the system and that use of such information would result in sanctions against Andersen.