Securities Law, NYSE, NASDAQ & OTC Markets Listings & Compliance

The SEC’s Inspector General Calls for Overhaul of CorpFin’s Disclosure Review Process

The U.S. Securities and Exchange Commission’s Office of Inspector General (OIG) has released a critical audit evaluating how the Division of Corporation Finance (“CorpFin”) conducts its disclosure review program. The report highlights procedural gaps, incomplete guidance, and inadequate documentation practices that could compromise the SEC’s ability to effectively oversee public company filings. For public companies, securities lawyers, and compliance officers, the OIG’s findings are more than bureaucratic housekeeping—they may reshape how the SEC selects and scrutinizes issuers’ filings in 2025 and beyond.

Overview: Why the OIG Report Matters

The Division of Corporation Finance is responsible for reviewing the filings of thousands of issuers to ensure compliance with the Securities Act of 1933 and the Exchange Act of 1934. Its review process influences disclosure quality, investor protection, and overall market integrity. The Inspector General’s audit was designed to determine: (1) whether CorpFin employs a risk-based approach to identify which filings to review; and (2) whether it complies with Section 408 of the Sarbanes-Oxley Act, requiring review of each issuer’s financial statements at least once every three years. The audit’s results were striking—revealing outdated procedures, incomplete documentation, and a lack of transparency in how filings are selected and scoped for review.

Key Deficiencies Identified by the Inspector General

Inadequate Documentation for Review Selection: CorpFin often failed to record its rationale for selecting or scoping annual report reviews, weakening transparency and accountability.

Draft Guidance from 2017 Still Unfinalized: CorpFin’s internal manual governing review selection remains in draft form since 2017, omitting key statutory factors.

Unclear Compliance with Sarbanes-Oxley Mandates: The audit questioned whether CorpFin’s current processes ensure each issuer’s financial statements are reviewed within the statutory three-year period.

Fragmented Technology Infrastructure: CorpFin utilizes multiple systems for its disclosure review process, resulting in inefficiencies and inconsistent data.

Lack of Resource-Based Prioritization: CorpFin lacks a contingency plan to prioritize reviews during resource shortages or surges in filings.

The OIG’s Five Core Recommendations

Broader Implications for Issuers and Practitioners

• Enhanced Transparency Means Fewer Surprises

• Greater Internal Accountability at the SEC

• Potential for Accelerated Review Cycles

• Impact on Disclosure Trends

Context: Section 408 of the Sarbanes-Oxley Act

Section 408 requires the SEC to review each issuer’s disclosures at least once every three years, considering factors such as market capitalization, financial restatements, volatility, stock performance, and sector-specific risks. By neglecting to codify these statutory factors in its draft manual, CorpFin risks non-compliance with statutory law.

Technology Modernization: A Critical Next Step

Automation and IT consolidation are strategic necessities. The SEC’s disclosure review program relies on multiple legacy systems that don’t communicate seamlessly. Unifying those systems would reduce manual errors, improve tracking, and allow risk-based algorithms to identify outlier issuers.

Legal and Policy Takeaways for Public Companies

• Expect sharper SEC reviews with more structured comment letters.

• Maintain robust disclosure controls and documentation.

• Anticipate technology-assisted oversight.

• Monitor when CorpFin finalizes Section 408 guidance.

• Engage proactively with SEC staff during reviews.

The Road Ahead: Rebuilding Confidence in Disclosure Oversight

The OIG’s audit underscores the need for modernization and procedural discipline at the SEC. The recommendations—if implemented effectively—could strengthen public trust and improve internal compliance. However, without adequate resources or investment, even well-intentioned reforms may falter.

Conclusion

The SEC’s Inspector General Report marks a pivotal moment for the Division of Corporation Finance. While the audit exposes weaknesses, it also outlines a blueprint for modernization—anchored in transparency, risk-based oversight, and technological advancement. For issuers and securities practitioners, the message is clear: expect a more consistent, data-driven, and tightly controlled SEC review environment going forward.

If you have questions about this article or would like to speak with a Securities Attorney, Hamilton & Associates Law Group, P.A. is ready to help. Our Founder, Brenda Hamilton, is a nationally known and recognized securities attorney with over two decades of experience assisting issuers worldwide with going public on the Nasdaq, NYSE, and OTC Markets. Since 1998, Ms. Hamilton has been a leading voice in corporate and securities law, representing both domestic and international clients across diverse industries and jurisdictions. Whether you are taking your company public, raising capital, navigating regulatory challenges, or entering new markets, Brenda Hamilton and her team deliver the experience, strategic insight, and results-driven representation you need to succeed.

To speak with a Securities Attorney, please contact Brenda Hamilton at 200 E Palmetto Rd, Suite 103, Boca Raton, Florida, (561) 416-8956, or by email at [email protected].

Hamilton & Associates | Securities Attorneys
Brenda Hamilton, Securities Attorney
200 E Palmetto Rd, Suite 103
Boca Raton, Florida 33432
Telephone: (561) 416-8956
Facsimile: (561) 416-2855
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