1. U.S. SECURITIES AND EXCHANGE COMMISSION
OFFICE OF INSPECTOR GENERAL
SEMIANNUAL REPORT TO CONGRESS
October 1, 2010 - March 31, 2011

2. Organizational Chart Office of Inspector General
Inspector General
Deputy
Inspector General
Counsel to the
Inspector General
Assistant Inspector
Assistant Inspector
General for
2
General for Audits
Investigative
Investigations
Paralegal
Specialist
Senior Senior Audit Audit
Investigator Investigator Manager Manager
Inquiry
Assistant to Specialist
the Inspector
General Senior Senior Audit Audit
Investigator Investigator Manager Manager
Legal
Specialist
Administrative
Officer Audit Audit
Investigator Investigator
Manager Manager
Audit
Editor
Assistant

3. October 1, 2010 - March 31, 2011
OFFICE OF
INSPECTOR
U.S. Securities
and Exchange GENERAL
Commission
SEMIANNUAL
REPORT TO
CONGRESS
MISSION
The mission of the Office of Inspector General (OIG) is to promote the integrity, efficiency,
and effectiveness of the critical programs and operations of the United States Securities and Ex-
change Commission (SEC or Commission). This mission is best achieved by having an effective,
vigorous, and independent office of seasoned and talented professionals who perform the follow-
ing functions:
•
Conducting independent and objec- • Offering expert assistance to improve SEC
tive audits, evaluations, investigations, programs and operations;
and other reviews of SEC programs
and operations; • Communicating timely and useful infor-
mation that facilitates management deci-
• Preventing and detecting fraud, waste, sion making and the achievement of
abuse, and mismanagement in SEC pro- measurable gains; and
grams and operations;
• Keeping the Commission and the Con-
• Identifying vulnerabilities in SEC systems gress fully and currently informed of sig-
and operations and recommending con- nificant issues and developments.
structive solutions;
3

4. 4

5. U.S. Securities and Exchange Commission
SEMIANNUAL
Office of
REPORT TO
Inspector
General CONGRESS
CONTENTS
MESSAGE FROM THE INSPECTOR GENERAL
..............................................................1
MANAGEMENT AND ADMINISTRATION
........................................................................3
Agency Overview
....................................................................................................................3
OIG Staffing
............................................................................................................................3
CONGRESSIONAL TESTIMONY, REQUESTS, AND BRIEFINGS
...................................5
Inspector General Testimony and Related Follow-Up Activities ................................................5
Other Requests and Briefings .................................................................................................9
ADVICE AND ASSISTANCE PROVIDED TO THE AGENCY AND THE GOVERNMENT
ACCOUNTABILITY OFFICE
...........................................................................................11
OIG SEC EMPLOYEE SUGGESTION HOTLINE
............................................................15
Examples of Suggestions Received ......................................................................................17
Office Real Estate Leases ...............................................................................................17
SEC Website and EDGAR Database
...............................................................................17
Receipt of Electronic Documents
....................................................................................17
Notification of Operating Status ......................................................................................18
Referral to Audit Unit
.......................................................................................................18
Examples of Allegations Received
.........................................................................................18
Inappropriate Involvement in Employee’s Time and Attendance
......................................18
Referrals to Investigations Unit ........................................................................................19
COORDINATION WITH OTHER OFFICES OF INSPECTOR GENERAL ........................21
AUDITS AND EVALUATIONS
.........................................................................................23
Overview
...............................................................................................................................23
5

6. Audits .............................................................................................................................23
Evaluations .....................................................................................................................24
Audit Follow-up and Resolution ......................................................................................24
Audits and Evaluations Conducted .......................................................................................24
SEC’s Oversight of the Securities Investor Protection
Corporation’s Activities (Report No. 495)
......................................................................24
The SEC’s Implementation of and Compliance with Homeland
Security Presidential Directive 12 (HSPD-12) (Report No. 481) .....................................28
OCIE Regional Offices’ Referrals to Enforcement (Report No. 493)
.................................32
Audit of the SEC Budget Execution Cycle (Report No. 488) ............................................34
Review of Time-And-Materials and Labor-Hour Contracts (Report No. 487) ....................37
2010 Annual FISMA Executive Summary Report (Report No. 489) ..................................40
Pending Audits and Evaluations ............................................................................................42
Oversight of and Compliance with Conditions and Representations
Related to Exemptive Orders and No-Action Letters ....................................................42
Audit of Alternative Work Arrangements, Overtime Compensation, and
the COOP Program at the SEC ....................................................................................42
Audit of the SEC’s Employee Recognition Program and Retention,
Relocation, and Recruitment Incentives .......................................................................43
2010 Federal Information Security Management Act Assessments .................................43
INVESTIGATIONS ..........................................................................................................45
Overview ...............................................................................................................................45
Investigations and Inquiries Conducted .................................................................................46
Investigation of Failure of an SEC Regional Office to Uncover Fraud
and Inappropriate Conduct on the Part of a
Senior-Level Official (Report No. OIG-533) ...................................................................46
Investigation of Whether a Former Senior Official Violated Conflict-of-Interest
Restrictions in Connection With Employment at a Trading Firm
(Report No. OIG-540) ..................................................................................................50
Improprieties in the Selection and Award of a Sole-Source
Contract (Report No. OIG-523) ....................................................................................51
Abusive and Intimidating Behavior Within a Headquarters Branch
(Report No. OIG-537) ..................................................................................................53
Abuse of Compensatory Time for Travel by a Headquarters Manager and
Ineffective Supervision by Management (Report No. OIG-538) .....................................54
Investigation Concerning the Role of Political Appointees in the
Freedom of Information Act Process (Report No. OIG-543) .........................................55
Unauthorized and Improper Disclosure by a Regional Office
Staff Attorney (Report No. OIG-550) ............................................................................56
Improper Access to SEC Facilities and Computer Systems (Report No. OIG-544) ..........56
Unauthorized Disclosure of Nonpublic Information During an
Active SEC Investigation (Report No. OIG-558) ............................................................58
Improper Comments by a Regional Office Senior Counsel and
Alleged Abuse of Leave by a Regional Office Senior Counsel and
Senior Official (Report No. OIG-545) ............................................................................59
Allegation of Negligence in the Conduct of an Enforcement
Investigation (Report No. OIG-510) ..............................................................................59
6

7. Allegations of Unauthorized Disclosure of Nonpublic Information
(Report Nos. OIG-542, OIG-551, and OIG-552) ...........................................................60
Allegation of Illegal and Unauthorized Disclosure of Employment
Status by Regional Office Senior Official (Report No. OIG-549) ....................................61
Theft by a Headquarters Contractor (Report No. OIG-548) .............................................62
Investigation into Unauthorized Disclosure of Nonpublic
Information (Report No. OIG-546) ................................................................................62
Misuse of Computer Resources and Official Time to
View Pornography (Report No. OIG-547 and PIs 11-05, 11-06, and 11-07) ................63
Other Inquiries Conducted ..............................................................................................65
Failure to Submit a Conflict-of-Interest Letter by Former
Regional Office Senior Official (PI 10-38) ..................................................................65
Falsification of Time and Attendance Records, Abuse of
Telework and Lack of Supervisory Review (PI 10-05) ...............................................66
Improper Travel Expenditures and Lack of
Supervisory Review (PI 09-113) ...............................................................................66
Disclosure of Nonpublic Personnel Information and
Lack of Candor at Headquarters (PI 11-18) .............................................................67
Allegation of Misappropriation of Funds from the SEC Recreation
and Welfare Association (PI 10-50) ..........................................................................68
Inappropriate Use of a Commission Database by a
Headquarters Attorney (PI 10-62) ............................................................................69
Allegation of Conflicts of Interest by Former Regional Office
Senior Attorney (PI 10-53) ........................................................................................69
Complaint of Conflict of Interest in the Awarding of Contracts (PI 09-97) ...................70
Allegations of Improper Relationship Between a Headquarters
Senior Manager and an SEC Contractor (PI 10-33) ..................................................70
Complaints Regarding Procurement Violations (PI 09-02) ..........................................71
Indictment Arising out of Previous OIG Investigation ..............................................................71
Pending Investigations ..........................................................................................................72
Allegations of Conflict of Interest by Former Senior Official (Case No. OIG-560) ..............72
Allegation of Improprieties in the SEC’s Leasing Activities (Case No. OIG-553)
................72
Complaint of Investigative Misconduct by Various
Enforcement Attorneys (Case No. OIG-511) ............................................................73
Allegation of Improper Preferential Treatment (Case No. OIG-559) ..................................73
Allegation of Failure to Investigate at a Regional Office (Case No. OIG-554) ....................74
Allegation of Improper Preferential Treatment and Failure to
Investigate Alleged Obstruction of SEC Investigation at
Regional Office (Case No. OIG-536) .........................................................................74
Allegation of Unauthorized Disclosures (Case No. OIG-555) ............................................74
Allegation of Procurement Violations (Case No. OIG-556) ...............................................74
Complaint of Mismanagement and Inappropriate Use of
Government Funds (Case No. OIG-557) ..................................................................75
REVIEW OF LEGISLATION AND REGULATIONS ..........................................................77
STATUS OF RECOMMENDATIONS WITH NO MANAGEMENT DECISIONS ................79
7

8. REVISED MANAGEMENT DECISIONS .........................................................................79
AGREEMENT WITH SIGNIFICANT MANAGEMENT DECISIONS .................................79
INSTANCES WHERE INFORMATION WAS REFUSED ..................................................79
TABLES
1 List of Reports: Audits and Evaluations ...........................................................81
2 Reports Issued with Costs Questioned or Funds Put to Better Use
(Including Disallowed Costs) ............................................................................83
3 Reports with Recommendations on Which Corrective Action
Has Not Been Completed ...............................................................................85
4 Summary of Investigative Activity .....................................................................95
5 Summary of Complaint Activity ........................................................................97
6 References to Reporting Requirements of the Inspector General Act ...............99
Appendix A: Peer Reviews of OIG Operations
............................................................101
Appendix B: Testimony of H. David Kotz, Inspector General of
the Securities and Exchange Commission, Before the
Subcommittee on Financial Services and General Government,
Committee on Appropriations, U.S. House of Representatives .............103
8

9. Message from the
Inspector General
I am pleased to present this Semiannual Report to Congress on the activities
and accomplishments of the United States (U.S.) Securities and Exchange
Commission (SEC or Commission) Office of Inspector General (OIG) for
the period of October 1, 2010 through March 31, 2011. This report is re-
quired by the Inspector General Act of 1978, as amended, and covers the
work performed by the OIG during the period indicated.
The audits, evaluations, and investigations described in this report illustrate the commitment of
the SEC OIG to promote efficiency and effectiveness in the SEC, as well as the crucial effect and
impact that the SEC OIG has had upon SEC operations.
During this reporting period, we issued several significant audit reports on matters critical to the
SEC’s programs and operations. We conducted a review of the SEC’s oversight of the Securities
Investor Protection Corporation’s (SIPC) activities. While we found that the SEC’s oversight of
SIPC was generally in compliance with the pertinent statute, the Securities Investor Protection Act
(SIPA), our audit determined that significant improvements could be made to enhance the process of
the SEC’s monitoring of SIPC. Specifically, the audit found that the SEC does not inspect SIPC’s
activities in any systematic fashion and last performed a full inspection of SIPC in 2003. We also
found that the SEC lacked adequate written procedures and policies for its oversight of SIPC. We
made 12 recommendations to the agency, which when fully implemented, will enhance the SEC’s
monitoring of SIPC and further ensure that the investing public is afforded adequate protection
against losses caused by the failure of broker-dealers.
We also completed an audit of the SEC’s implementation of and compliance with Homeland
Security Presidential Directive (HSPD) 12. This Directive was signed by President George W. Bush
in August 2004 and required federal agencies to have programs in place to ensure that identification
issued to federal employees and contractors meets a common standard. Our audit found deficiencies
in nearly every aspect of the SEC’s HSPD-12 program, and we determined that the SEC missed vir-
tually all of the deadlines established by Office of Management and Budget (OMB) guidance for
implementation of HSPD-12. Our audit included 25 concrete and specific recommendations to im-
prove the SEC’s HSPD-12 program. SEC management concurred with all of these recommenda-
tions and has already partially implemented several of them. Additionally, we completed several
other audits during the semiannual reporting period, including a review of the processes by which
the Office of Compliance Inspections and Examinations (OCIE) refers potential violations of the
federal securities laws to the Division of Enforcement in the SEC’s regional offices, an audit of the
SEC’s budget execution cycle, a review of certain time-and-materials and labor-hour contracts, and
a review of the SEC’s compliance with the Federal Information Security Management Act (FISMA).
We also had a particularly productive semiannual reporting period for investigations. With only
five investigators, we completed approximately 20 investigations on a myriad of complex and signifi-
cant issues, including the failure to uncover a $554 million Ponzi scheme, improprieties in the SEC’s
Office of Information Technology’s (OIT) acquisition of approximately $1 million of computer
equipment, the alleged violation of post-employment restrictions, the role of political appointees in
1

10. the Freedom of Information Act (FOIA) process, abusive and intimidating conduct in the work-
place, dissemination of false and misleading information regarding an active SEC enforcement
investigation, unauthorized disclosures of nonpublic information, theft of funds, misuse of com-
puter resources, and abuse of compensatory time for travel. We are also actively working on and
finalizing several additional investigations, including an investigation of the facts and circum-
stances surrounding the SEC former General Counsel’s involvement in activities relating to the
Bernard L. Madoff Ponzi scheme in light of a lawsuit brought against him and his brothers by
the trustee appointed in the Madoff liquidation under SIPA for the return of approximately $1.5
million in fictitious profits received from the Ponzi scheme, and an investigation into allegations
that the agency’s leasing activities and related procurements at the Constitution Center and Sta-
tion Place III sites in Washington, D.C., have resulted in significant waste of government funds
and/or violated federal regulations.
This semiannual reporting period has also been a busy one for consultations and briefings
with Congressional offices. We were very active in providing advice to and discussing issues with
Members of Congress and Congressional staff regarding a wide variety of matters affecting the
SEC and the broader financial system, including the implementation and impact of numerous
elements of the Dodd-Frank Wall Street Reform and Consumer Protection Act. On February
10, 2011, I testified before the Subcommittee on Financial Services and General Government,
Committee on Appropriations, U.S. House of Representatives, concerning my Office’s oversight
efforts, including our identification of waste, fraud, and abuse in SEC programs and operations
and matters pertinent to the SEC’s budget and funding levels.
I am also very pleased to report that during the semiannual reporting period, we received
recognition from our peers for our work. The Council of the Inspectors General on Integrity
and Efficiency (CIGIE) selected our investigative team that produced a 457-page report entitled,
Investigation of Failure of the SEC to Uncover Bernard Madoff ’s Ponzi Scheme, issued on
August 31, 2009, for the Gaston L. Gianni, Jr., Better Government Award in recognition of our
“extraordinary efforts in expeditiously conducting this investigation critical to the improvement of
financial regulation and the protection of investors.”
The accomplishments of my Office have been enhanced by the continued support of the
SEC Chairman and Commissioners, as well as the SEC’s management team and employees. I
look forward to sustaining this productive and professional working relationship as we continue to
help the SEC meet its important challenges.
H. David Kotz
Inspector General
2

11. U.S. Securities and Exchange Commission
SEMIANNUAL
REPORT TO
CONGRESS
Office of
Inspector
General
MANAGEMENT AND
ADMINISTRATION
AGENCY OVERVIEW sight Board, alternate trading systems, and
credit rating agencies.
The U.S. SEC’s mission is to protect inves-
tors; maintain fair, orderly, and efficient mar- In order to accomplish its mission most
kets; and facilitate capital formation. The effectively and efficiently, the SEC is organized
SEC strives to promote a market environment into five main divisions (Corporation Finance;
that is worthy of the public’s trust and charac- Enforcement; Investment Management; Trad-
terized by transparency and integrity. The ing and Markets; and Risk, Strategy, and Fi-
SEC’s core values consist of integrity, account- nancial Innovation) and 16 functional offices.
ability, effectiveness, teamwork, fairness, and The Commission’s headquarters is located in
commitment to excellence. The SEC’s goals Washington, D.C., and there are 11 regional
are to foster and enforce compliance with the offices located throughout the country. As of
federal securities laws; establish an effective September 30, 2010, the SEC employed 3,748
regulatory environment; facilitate access to the full-time equivalents (FTEs), consisting of
information investors need to make informed 3,664 permanent and 84 temporary FTEs.
investment decisions; and enhance the Com-
mission’s performance through effective OIG STAFFING
alignment and management of human re-
sources, information, and financial capital. During the reporting period, the OIG
added an investigative specialist, a writer-
SEC staff monitor and regulate a securities editor, and a part-time investigator to the staff,
industry that includes more than 35,000 regis- thereby further increasing its capacity to con-
trants, including over 10,000 public compa- duct its oversight responsibilities.
nies, about 11,500 investment advisers, about
7,800 mutual funds, and about 5,400 broker- In February 2011, K. Shane Breffitt joined
dealers, as well as national securities exchanges the OIG as an investigative specialist. Ms.
and self-regulatory organizations, 600 transfer Breffitt comes to us from the SEC’s Office of
agents, the Municipal Securities Rulemaking Compliance Inspections and Examinations
Board, the Public Company Accounting Over- (OCIE), where she served as a branch chief for
investment adviser and investment company
3

12. examinations. She began her career with the In March 2011, Juliet D. Gardner, who had
SEC in the Los Angeles Regional Office in 1997 worked for the OIG during the previous semi-
and later transferred to the headquarters office annual reporting period on detail from the Of-
in 2005. Ms. Breffitt has a Bachelor’s degree in fice of Investor Education and Advocacy
accounting, is a Certified Public Accountant in (OIEA), officially joined the OIG as an investi-
the State of Virginia, and is a Certified Fraud gator. In OIEA, Ms. Gardner responded to a
Examiner. She is currently pursuing a Master’s wide range of securities-related questions, com-
degree in Economic Crime Management. plaints, and suggestions from investors and in-
dustry professionals worldwide and analyzed
In March 2011, Esther Tepper joined the incoming tips for potential referral to other SEC
OIG as a writer-editor. She was previously a divisions and offices. Ms. Gardner began her
communications analyst in the OIG of the U.S. legal career at the SEC in 1996, in the Division
Department of the Treasury. Before serving at of Enforcement, where she investigated allega-
the Treasury OIG, Ms. Tepper was a communi- tions of market manipulation, insider trading,
cations analyst in the Government Accountabil- financial fraud, and securities offering fraud.
ity Office’s Financial Management and Assur- Ms. Gardner is a 1991 graduate of Wittenberg
ance team. Ms. Tepper’s other federal em- University, where she received a Bachelor of
ployment includes nine years at the Environ- Arts degree in Political Science. Ms. Gardner
mental Protection Agency, where her responsi- received her Juris Doctor degree cum laude from
bilities included managing public outreach ac- Marquette University in 1996.
tivities related to childhood lead poisoning pre-
vention. Ms. Tepper has a Bachelor’s degree in Finally, one of our Senior Investigators,
American Studies from Smith College and a Heidi Steiber, left the OIG for an opportunity
Master’s degree in Business Administration in the private sector.
from the Yale School of Management.
4

13. U.S. Securities and Exchange Commission
SEMIANNUAL
REPORT TO
CONGRESS
Office of
Inspector
General
CONGRESSIONAL TESTIMONY,
REQUESTS, AND BRIEFINGS
During the reporting period, the OIG con- vided a synopsis of the oversight efforts under-
tinued to keep the Congress fully and cur- taken by the OIG during the past few years,
rently informed of the OIG’s investigations, specifically describing several of the significant
audits, and other activities through testimony investigative and audit reports issued by the
and related written follow-up, as well as nu- OIG.
merous meetings and telephonic communica-
tions. These communications primarily con- The IG then provided the Subcommittee
cerned the OIG’s audit and investigative work with information concerning the OIG’s efforts
that has identified waste or misuse of govern- over the past three years to identify waste or
ment funds by the SEC, previous OIG investi- misuse of government funds by the SEC. The
gations that impact investor protection, OIG IG stated that the OIG has issued numerous
efforts to review various aspects of the SEC’s reports identifying waste and inefficiencies, as
implementation of the Dodd-Frank Wall well as inadequate oversight on the part of
Street Reform and Consumer Protection Act various SEC components. The IG reported
(Dodd-Frank Act), and ongoing OIG investi- that a review of the OIG’s audit and investiga-
gative work. The Inspector General’s (IG) tes- tive reports over the past three years revealed
timony and certain other requests and brief- that the two largest areas in which the OIG
ings are discussed in detail below. has identified significant waste and inefficien-
cies have been (1) procurement and contract-
INSPECTOR GENERAL TESTIMONY ing, and (2) costs relating to real property leas-
AND RELATED FOLLOW-UP ing and office moves.
ACTIVITIES
Specifically, the IG noted that, in the pro-
The IG testified before the Subcommittee curement and contracting area, the OIG has
on Financial Services and General Govern- identified numerous deficiencies in the man-
ment of the U.S. House of Representatives agement and oversight of SEC contracts, a
Committee on Appropriations on February lack of written internal policies and proce-
10, 2011, regarding the Fiscal Year (FY) 2012 dures for administering contracts and other
SEC budget. In his testimony, the IG pro- agreements, a failure to maintain adequate
5

14. records and data regarding contracts and The IG then stated that, in certain in-
agreements, and improprieties in the selection stances, it has been and will be necessary for
of vendors and the awarding of contracts. the SEC to incur additional expenses to im-
The IG observed that these failures have led plement the OIG’s recommendations. He
to the cancellation of contracts and the ex- mentioned by way of example the numerous
penditure of funds to reprocure required serv- recommendations made in the OIG’s report
ices. of investigation related to the Bernard Madoff
Ponzi scheme that were designed to reform
The IG further reported that numerous the SEC’s system for handling tips and com-
OIG investigations, audits, and reviews have plaints. He reported that the SEC has im-
revealed significant excessive costs and ineffi- plemented these recommendations, instituting
ciencies in connection with the SEC’s leasing a new Tips, Complaints, and Referrals (TCR)
of real property and the relocation of staff system to ensure that complaints are received
offices. The IG stated that the OIG had and acted upon in a timely and appropriate
found numerous situations in which the SEC manner at a total cost of approximately $21
made excessive payments that could have million. The IG noted that additional fund-
been avoided if appropriate policies and pro- ing will be required to ensure that the SEC
cedures had existed and been followed. The has sufficient resources to implement many of
IG also described the OIG’s finding that SEC the recommendations that have arisen, and
management approved a project to reconfig- will arise, out of the OIG’s audits, reviews,
ure internal office staff space at a significant and investigations.
monetary cost without performing any cost-
benefit analysis of the project prior to its un- Further, the IG reported in his testimony
dertaking. The IG then noted that an OIG that senior officials, particularly those within
survey to the SEC staff affected by the office the SEC’s Office of Information Technology,
moves revealed that they had been satisfied had informed the OIG that they are analyzing
with their workplace locations prior to the the SEC’s operations and functions to identify
project and generally felt the project was a efficiencies and areas in which costs can be
waste of time and money. reduced. The IG specifically mentioned the
plans of the SEC’s new Chief Information
In his testimony, the IG also discussed the Officer to cancel a $2 million information
OIG’s efforts to ensure that its recommenda- technology contract that he found was not
tions are fully implemented, the funding nec- cost-effective. The IG noted that the OIG
essary to implement the OIG’s recommenda- supported and applauded these efforts and
tions, and the identification of efficiencies will continue to encourage this type of ap-
within SEC operations and functions. In par- proach in the future.
ticular, the IG noted that where the OIG has
identified wasteful expenditures and ineffi- In concluding his testimony, the IG ac-
ciencies, the OIG has provided SEC man- knowledged the importance of the SEC’s mis-
agement with detailed descriptions of its find- sion of protecting investors, maintaining fair,
ings, as well as concrete and specific recom- orderly, and efficient markets, and facilitating
mendations to alleviate the problems and con- capital formation, particularly as the nation’s
cerns identified. The IG reported that the securities exchanges mature into global for-
OIG has followed up to ensure that these rec- profit competitors. The IG also pointed out
ommendations have been agreed to and fully the SEC’s responsibility to utilize government
implemented, and that the majority of the funds in an efficient and effective manner and
OIG’s recommendations had been imple- represented that the OIG intends to remain
mented. vigilant to ensure that scarce government re-
6

15. sources are used wisely and cost-effectively part, on its status as a Troubled Asset Relief
and instances of waste and abuse are elimi- Program (TARP) participant, but that the
nated. The full text of the IG’s written testi- OIG did not specifically investigate other in-
mony is contained in Appendix B to this re- stances where the SEC may have treated
port and can also be found at TARP and non-TARP recipients differently.
http://www.sec-oig.gov/Testimony/index.ht In addition, the IG stated that while the OIG
ml. did not determine that the SEC was inappro-
priately lenient toward Bank of America, the
Subsequent to the IG’s February 10, 2011 OIG noted the departure from SEC practice
testimony, the IG received several questions and the inconsistent manner in which the
for the record in connection with the Finan- SEC had acted. Further, the IG advised that,
cial Services and General Government Sub- while the OIG did not conclude that the SEC
committee’s FY 2012 Budget Hearing with was looking out for Bank of America over the
the SEC IG. These questions were received interests of retail investors, the OIG’s report
from the Subcommittee Chairwoman, the did find that the waiver in question allowed
Honorable Jo Ann Emerson (R-Missouri), the Bank of America to issue registration state-
Honorable Barbara Lee (D-California), and ments without SEC review, which could po-
the Honorable Jo Bonner (R-Alabama). The tentially have some impact on retail investors.
topics of these questions included the OIG’s
investigation into the circumstances surround- In response to Representative Lee’s ques-
ing the SEC’s proposed settlement with Bank tions regarding the impact of the continuing
of America that was completed during the resolution on the SEC, the IG noted that sig-
previous semiannual reporting period, the nificant cuts in the SEC’s budget may nega-
impact of the continuing resolution on the tively impact the SEC’s ability to effectively
SEC, the diversity of the OIG’s staff, the implement OIG recommendations and new
OIG’s recruiting and hiring practices, the responsibilities under the Dodd-Frank Act.
OIG’s procurement and contracting with The IG also pointed out that, in certain in-
small and disadvantaged business enterprises, stances, the SEC will have to incur additional
enforcement of acquisition procedures appli- expenses to implement improvements neces-
cable to small and disadvantaged business en- sary for the SEC to continue to perform its
terprises, and investor protections related to critical functions. The IG added that the
Robert Allen Stanford’s alleged Ponzi scheme. SEC must remain vigilant in its mission of
protecting investors and conduct aggressive
The IG provided responses to the ques- oversight, and that it must have the resources
tions for the record on March 18, 2011. In necessary to conduct such oversight, as well as
those responses, the IG answered Chair- access to up-to-date technology. The IG fur-
woman Emerson’s questions pertaining to the ther observed that budget cuts of 13 percent
OIG’s Bank of America investigation, noting or more might make it difficult for the SEC to
that our investigation found that the Commis- accomplish its mission.
sion initially approved a waiver of certain
qualifications for Bank of America in connec- The IG also responded to Representative
tion with the SEC’s first proposed settlement Lee’s questions pertaining to the diversity of
of its action against Bank of America, not- the OIG, its recruitment and hiring practices,
withstanding the fact that the traditional crite- and its procurement and contracting prac-
ria for determining eligibility for such waivers tices. Specifically, the IG provided informa-
were not met. The IG also pointed out that tion showing that as of February 10, 2011, of
the OIG had found that the SEC’s Division of the OIG’s 17 full-time employees, nine were
Corporation Finance had recommended the women (53 percent) and eight were minorities
waiver for Bank of America based, at least in (47 percent). With respect to the OIG’s con-
7

16. tracts, the IG reported that 33 and 40 percent OIG has conducted involving the Fort Worth
of the OIG’s outside contracts were with Office other than the Stanford investigation.
small, disadvantaged businesses that were fe-
male- or minority-owned in 2009 and 2010, In addition to responding to the questions
respectively. for the record, the OIG conducted follow-up
work requested by the Honorable José Ser-
In response to Representative Lee’s ques- rano (D-New York), Ranking Member of the
tion about how the OIG ensures that the SEC Financial Services and General Government
meets all acquisition procedures applicable to Subcommittee, pertaining to the SEC’s in-
small and disadvantaged business enterprises, volvement in U.S. territories and republics.
particularly female- and minority-owned On March 17, 2011, the IG forwarded to
firms, the IG noted that the OIG had recently Ranking Member Serrano the OIG’s report
conducted two audits of the SEC’s acquisition of its review of Commission activities in U.S.
procedures. The IG described the pertinent territories and republics. The OIG’s report
work performed in both of these audits, which set forth the results of the OIG’s research re-
included (1) an audit completed in September garding the SEC’s involvement in U.S. territo-
2009 of all aspects of the SEC’s procurement ries and republics, noting that three SEC of-
and contract management processes and func- fices or divisions, the Office of Compliance
tions, and (2) a follow-up review scrutinizing Inspections and Examinations (OCIE), the
certain time-and-materials and labor-hour Office of Investor Education and Advocacy
contracts, including one contract with a Small (OIEA), and the Division of Enforcement
Business Administration-certified small and (Enforcement), have contacts with investors in
disadvantaged business, to ensure compliance U.S. territories. The OIG’s report also noted
with applicable requirements. that the SEC’s Miami Regional Office has
specific responsibility for the U.S. Virgin Is-
Further, the IG provided answers to sev- lands and Puerto Rico, while the Los Angeles
eral questions from Representative Bonner Regional Office is responsible for Guam, and
that related to investor protection and, in par- the SEC headquarters office assumes primary
ticular, Robert Allen Stanford’s alleged Ponzi responsibility for all other U.S. territories and
scheme. The IG pointed out that in the republics.
OIG’s report of investigation in the Stanford
matter, the OIG found that the SEC’s Fort Specifically with respect to OCIE, the
Worth Enforcement program made no mean- OIG’s report found that OCIE administers
ingful effort to obtain evidence relating to the SEC’s nationwide examination and in-
Stanford’s alleged Ponzi scheme. The IG spection program for registered self-regulatory
added that the OIG’s investigation found that organizations, broker-dealers, transfer agents,
the Fort Worth Enforcement program’s deci- clearing agencies, investment companies, and
sion not to undertake a full and thorough in- investment advisers, and conducts examina-
vestigation of Stanford was due, at least in tions of investment advisers, broker-dealers,
part, to the perception that the Stanford case and transfer agents in U.S. territories. The
was difficult and novel, and not the type of report also noted that OCIE reviews and re-
case favored by the SEC. The IG noted that sponds to investor complaints and has fielded
the OIG recommended that the SEC clarify complaints from investors located in U.S. ter-
its procedures to ensure that the Enforcement ritories and from investors outside the territo-
program makes better decisions in the future ries with respect to subjects located in the ter-
and that the SEC consider the significance of ritories. The OIG then provided detailed sta-
bringing cases that are difficult, but important tistics concerning the number of registrants
for the protection of investors. The IG also and number of examinations OCIE has con-
provided information on investigations the ducted in U.S. territories and republics during
8

17. the past five years. Additionally, the OIG re- against a Florida resident and company for
port provided detailed information concern- operating a multi-million dollar fraudulent
ing a joint broker-dealer/investment adviser pyramid scheme involving investors from
examination conducted by OCIE of a firm Puerto Rico.
located in Puerto Rico that revealed numer-
ous concerns and deficiencies in the firm’s In conclusion, the OIG’s report found that
practices and compliance controls. while the SEC does not maintain a presence
(as in a physical office) in any U.S. territory or
The OIG’s report next provided detailed republic, it does respond to complaints from
information concerning OIEA’s contacts with investors in the territories, conducts examina-
investors located in U.S. territories, showing tions in the territories, and has filed enforce-
over 250 contacts coming from Puerto Rico ment actions involving conduct in or related
alone. The report noted that OIEA con- to U.S. territories. The OIG’s report also
firmed that it had responded appropriately to noted that some U.S. territories are assigned
all contacts from the territories, forwarding to specific regional offices, but many of the
many of them to Enforcement. The OIG territories and all of the republics are not cur-
then provided several examples of the types of rently assigned to any regional office. Based
follow-up work OIEA has completed with re- on its review, the OIG suggested that the SEC
spect to contacts from U.S. territories. reinforce the roles and responsibilities of
headquarters and the regional offices regard-
The OIG’s report also described En- ing investor protection in U.S. territories and
forcement’s involvement with U.S. territories, republics. The OIG further suggested that
noting that Enforcement stated that it obtains OIEA consider performing investor outreach
evidence of possible violations of the federal and education in U.S. territories and republics
securities laws from many sources, including to ensure investors located there have the
investor tips from U.S. territories and repub- knowledge and opportunity to have their con-
lics. The report pointed out that while En- cerns addressed by the SEC.
forcement regularly conducts investigations
into allegations concerning entities and indi- OTHER REQUESTS AND BRIEFINGS
viduals located in U.S. territories, and certain
matters have involved significant numbers of During the reporting period, the IG con-
investors in U.S. territories, a search of public ducted numerous briefings of, and had discus-
Enforcement Litigation Releases revealed only sions with, Members of Congress and Con-
matters related to Puerto Rico. The OIG’s gressional staff concerning a wide variety of
report also noted that effective March 14, issues impacting the SEC and the broader fi-
2011, Enforcement deployed its new TCR nancial system, including the implementation
Intake and Resolution system to capture and and impact of numerous provisions of the
track investor complaints, and simultaneously Dodd-Frank Act. Specifically, on October 21,
launched a TCR website. During the OIG’s 2010, the IG participated in a call with staff
review, Enforcement reported that, since of the U.S. Senate and House of Representa-
2004, it had received six, 18, and two TCRs tives Committees on Appropriations concern-
from individuals located in Guam, Puerto ing the SEC’s budget and the OIG’s budget,
Rico, and the U.S. Virgin Islands, respectively, and whether the OIG had sufficient funds to
and ten and five TCRs where the subject was perform its critical oversight functions. On
located in Puerto Rico and the U.S. Virgin February 17, 2011, the IG met with staff of
Islands, respectively. The OIG’s report also the U.S. House of Representatives Committee
provided an example of an enforcement ac- on Transportation and Infrastructure and its
tion involving conduct in a U.S. territory in Subcommittee on Economic Development,
August 2009, which sought a civil injunction Public Buildings, and Emergency Manage-
9

18. ment, and provided a briefing on the status IG’s views on the main challenges facing the
and progress of the OIG’s ongoing investiga- SEC.
tion into the SEC’s leasing practices and ac-
tivities, including a contract to lease space at Further, shortly after the OIG com-
Constitution Center in Washington, D.C. menced its investigation into the facts and cir-
The IG also briefed the Committee staff on cumstances of the former SEC General
the OIG’s previous audit of the SEC’s real Counsel’s participation in matters pertaining
estate leasing function, as well as other OIG to the Bernard Madoff Ponzi scheme, on
audit and investigative work pertaining to March 15, 2011, the IG, Counsel to the IG,
procurement issues and identified areas of and Assistant Inspector General for Investiga-
waste within the SEC. tions (AIGI) met with the Honorable Darrell
Issa (R-California), Chairman of the U.S.
In addition, on February 24, 2011, the IG House of Representatives Committee on
met with several staff of the U.S. House of Government Oversight and Reform, regard-
Representatives Committee on Financial ing the Committee’s ongoing efforts with re-
Services pertaining to the SEC’s implementa- gard to this matter. The IG, Counsel, and
tion of the Dodd-Frank Act, the OIG’s prior AIGI also met with several majority staff from
report of investigation related to the Robert the Government Oversight and Reform
Allen Stanford alleged Ponzi scheme, and pos- Committee and its Subcommittee on Over-
sible future OIG audit work pertaining to the sight and Investigations, and the Subcommit-
SEC’s economic analysis function and col- tee on Oversight and Investigations of the
laboration with other agencies, as well as U.S. House of Representatives Committee on
other issues of interest to the Committee. On Financial Services, as well as several other
March 3, 2011, the IG briefed staff of the Congressional staff. During this meeting, the
Subcommittee on Oversight and Investiga- IG briefed the staff on the allegations that
tions of the U.S. House of Representatives formed the basis of the investigation the IG
Committee on Government Oversight and was undertaking into these matters. On
Reform regarding a wide variety of issues per- March 17, 2011, the IG participated in a con-
taining to financial management, work force, ference call, which included minority staff
and operations at the SEC, including the re- from the oversight committees, and provided
sults of the OIG’s oversight efforts and the a similar briefing to the one conducted on
March 15, 2011.
10

19. U.S. Securities and Exchange Commission
SEMIANNUAL
REPORT TO
Office of
Inspector
General
CONGRESS
ADVICE AND ASSISTANCE PROVIDED
TO THE AGENCY AND THE
GOVERNMENT ACCOUNTABILITY
OFFICE
During this semiannual reporting period, based upon information obtained during the
the OIG provided advice and assistance to course of OIG investigations and audits.
SEC management on various issues that were
brought to the OIG’s attention during the In addition, OIG investigative staff pro-
course of audits and investigations conducted vided assistance to agency management in
by the Office and otherwise. This advice was connection with an inquiry performed into the
conveyed through written communications, as alleged misappropriation of funds from the
well as in meetings and conversations with SEC Recreation and Welfare Association
agency officials. The advice included com- (SRWA), which is a non-appropriated funding
ments on draft policies and procedures and instrumentality. As is described more fully in
suggestions for improvements in existing poli- the Inquiries Conducted Section of this Re-
cies and procedures. The OIG also collabo- port, the OIG’s inquiry discovered that there
rated with and provided assistance to the Gov- was a lack of controls over the SRWA and, in
ernment Accountability Office (GAO) on mat- particular, that a former employee was the
ters of mutual interest to the GAO and the only signatory on the SRWA’s checking ac-
OIG. count and still maintained the checkbook for
the account. In an effort to assist SEC man-
Specifically, during the reporting period, agement, the OIG obtained possession of the
the IG met with consultants performing an checkbook and arranged for a current SEC
organizational study of the agency that was official to become the signatory on the ac-
required by Section 967 of the Dodd-Frank count. The OIG also made several recom-
Wall Street Reform and Consumer Protection mendations to management in order to en-
Act. The IG also met with a Division of En- hance oversight of the SRWA’s operations, in-
forcement representative regarding the SEC’s cluding that a financial control system be de-
whistleblower program and provided insights veloped and implemented for the SRWA.
as to how that program should be redesigned
11

20. Further, as discussed in the OIG SEC 24-05.01.02.02 (02.0), “LAN and Telephone
Employee Suggestion Hotline Section of this Account Creation, Modification, Termination
Report, the OIG reviewed a suggestion re- and Transfer,” and the accompanying form,
ceived from an SEC employee concerning the “Request for Account Creation, Modification,
need for improvement in the timeliness of no- Termination or Transfer.” Overall, the OIG
tifications to employees of changes in the suggested that the draft Operating Procedure
SEC’s operating status. The OIG’s review of be revised to ensure that it clearly specified the
this suggestion disclosed that the SEC’s notifi- time deadlines for the completion of each of
cation of operating status updates during the assigned duties outlined in the policy to
early 2011 occurred several hours after the ensure that the accounts of users who have
U.S. Office of Personnel Management (OPM) left the SEC are timely disabled and deleted.
had updated Federal agency operating status The OIG also made numerous detailed com-
for the Washington, D.C. metropolitan area ments concerning the clarification of and
due to inclement weather. The OIG’s review consistency in terms used in the policy, the
also determined that the SEC’s Contingency assignment of particular tasks to specific indi-
Plan for Early Dismissal and Closure Days, viduals or positions, and the specification of
SEC Regulation (SECR) 5-15 had not been time deadlines for the performance of specific
updated since March 1998, and that the tasks.
emergency notification system currently being
used by the SEC, the Nōtifind system, could The OIG also reviewed and provided
be used more effectively and consistently to comments on draft Implementing Instruction
provide SEC employees with timely informa- 24-04.02.01 (01.1), “Sensitive Data Protec-
tion about operating status changes. The tion.” Through its comments, the OIG
OIG issued a memorandum to the SEC’s Ex- sought to ensure that the draft Implementing
ecutive Director on March 18, 2011, recom- Instruction fully satisfied recommendations
mending that the Office of the Executive Di- previously made in OIG Report No. 485, As-
rector (OED) revise and update SECR 5-15 sessment of the SEC’s Privacy Program, issued on
and post the revised policy to the SEC’s intra- September 29, 2010, that the Chief Operat-
net site. The OIG’s memorandum also rec- ing Officer implement a policy that all port-
ommended that the OED review and revise able media must be fully secured when not in
its current processes to ensure notifications of use, and that OIT finalize, approve, and im-
operating status changes sent by the SEC are plement its operating procedures for “Hard
provided in a timely manner. The OIG fur- Drive Wiping and Media Destruction.” The
ther suggested that the SEC consider improv- OIG further suggested that the Implementing
ing the current functionality of the Nōtifind Instruction make clear that sensitive informa-
system, surveying SEC staff to determine tion should not be left unattended at any un-
their preferences as to the delivery method for secured locations, specify what consequences
and frequency of weather-related closure and will follow if an employee or contractor fails
delay information, and reminding employees to comply with the clean desk policy, and de-
of their option to designate their preferred scribe the responsibilities of individual em-
communication method through Nōtifind. ployees, contractors, and other users of SEC
computing services, including the responsibil-
In addition, during the reporting period, ity for appropriately protecting, securing, and
the OIG reviewed and submitted comments disposing of sensitive information in accor-
on numerous drafts of Office of Information dance with the Implementing Instruction.
Technology (OIT) policies and procedures. The final Implementing Instruction was is-
For example, the OIG provided extensive sued on February 16, 2011, and incorporated
comments on draft Operating Procedure some of the OIG’s suggestions.
12

21. Similarly, the OIG provided numerous The OIG reviewed and provided com-
suggestions and comments on draft Imple- ments on a draft of an updated version of the
menting Instruction 24-04.04.05 (02.0), “In- SEC OIT “Rules of the Road,” SECR
formation Encryption within the SEC.” In 24-04.A01 (version 7.0), which are intended to
particular, the OIG made several suggestions ensure that agency computing and network
designed to ensure that the Implementing In- resources are used responsibly, safely, and effi-
struction clearly set forth the policies and pro- ciently, thereby maximizing the availability of
cedures for determining whether all data these resources. In its comments, the OIG
placed on portable media must be encrypted suggested that the portion of the Rules of the
in SEC divisions and offices and how users Road discussing the use of social networking
will be notified of these determinations. The be clarified to reflect whether the use of social
OIG’s comments and suggestions were incor- networking sites from Commission computers
porated into the final implementing instruc- is allowed or prohibited and, if allowed, what
tion, “Encrypting Data on Portable Media,” limitations are placed on the use of such sites.
which was issued on December 1, 2010. The OIG also suggested clarifications to the
portion of the Rules of the Road pertaining
Further, the OIG reviewed and provided to the use of e-mail encryption when sending
comments on draft SECR 24-02 (02.0), “In- nonpublic or sensitive data to non-SEC re-
formation Technology Capital Planning and cipients. OIT incorporated the OIG’s com-
Investment Control.” Specifically, the OIG ments into the updated version of the Rules of
suggested that the draft policy should be re- the Road (version 7.0), which was issued on
vised to create an enforcement mechanism to March 16, 2011.
address noncompliance with the Capital
Planning and Investment Control (CPIC) The OIG also reviewed and commented
process, as the OIG had previously recom- on draft SECR 24-10 (01.0), “Electronic and
mended in Report No. 466, Assessment of the Information Technology (EIT) Section 508/
SEC Information Technology Investment Process, is- Accessibility Program.” The OIG made sev-
sued on March 26, 2010. The OIG also sug- eral suggestions for clarification of the draft
gested that the draft policy be revised to spec- regulation, particularly with respect to the
ify what procedures should be followed when identity of “SEC business sponsors” and
violations or circumventions of the CPIC specification of the “necessary technical stan-
process are brought to the attention of the dards.” The OIG subsequently reviewed a
appropriate CPIC governance board, and to second draft of the regulation that incorpo-
provide for the prompt reporting of inten- rated the OIG’s prior comments. The OIG
tional violations to the OIG. The OIG fur- made a few additional suggestions for reor-
ther suggested that the policy specify a process ganizing and revising the second draft of the
and criteria to be followed pertaining to the policy.
granting of exceptions or deviations from the
policy, and include a requirement to maintain In addition to providing advice and assis-
and track all waivers granted. The OIG’s tance to agency management during the re-
comments and suggestions were incorporated porting period, the OIG coordinated with and
into the final regulation, which was issued on provided assistance to the GAO in connection
March 11, 2011. Additionally, the OIG pro- with a variety of matters. For example, the
vided comments on and suggested several im- OIG continued to provide assistance to the
provements to a draft “High-Level Acquisition GAO regarding its ongoing engagement in-
Plan,” Operating Procedure volving the “revolving door” at the SEC (i.e.,
24-02.01.01.02.T02 (version 2.0). SEC staff leaving the agency and then work-
ing for or representing firms regulated by the
SEC). Specifically, the IG met with GAO
13

22. representatives and provided responses to volving door issues and to facilitate coordina-
numerous questions they posed with respect to tion between the GAO and the OIG in this
the OIG’s findings based upon audit and in- area. In addition, the IG participated in a
vestigative work performed in the revolving conference call with GAO staff in connection
door area, the OIG’s views on the potential with a study the GAO is conducting on the
effectiveness of various possible remedial regulation and oversight of financial planners.
measures, actions taken by the agency in re- In that call, the IG provided GAO staff with
sponse to specific OIG recommendations, and his insights gained through the OIG’s previ-
the status of pertinent new or ongoing OIG ous reviews of the SEC’s ability to track ex-
investigations. The IG also participated in a amination findings, as well as tips and com-
conference call with GAO staff to discuss re- plaints provided by the public.
14

23. U.S. Securities and Exchange Commission
SEMIANNUAL
REPORT TO
Office of
Inspector
General
CONGRESS
OIG SEC EMPLOYEE
SUGGESTION HOTLINE
The OIG SEC Employee Suggestion (3) Any recommendations made
Hotline program was established pursuant to or actions taken by the IG in
Section 966 of the Dodd-Frank Wall Street response to substantiated al-
Reform and Consumer Protection Act. Dur- legations received.
ing the reporting period, the OIG prepared
and issued policies and procedures imple- (4) Any action the Commission
menting the employee suggestion hotline pro- has taken in response to sug-
gram. These policies and procedures address gestions or allegations re-
both the receipt and handling of employee ceived.
suggestions, and the non-monetary recogni-
tion for employees whose suggestions or dis- During this six-month reporting period,
closures to the OIG may result or have re- OIG received 17 suggestions and eight allega-
sulted in cost savings to or efficiencies for the tions, for a total of 25 employee hotline con-
Commission. tacts. The OIG analyzed all of the 25 em-
ployee suggestions and allegations received
Section 966 requires the IG to submit an during this six-month period. The informa-
annual report to the Congress describing: tion required to be reported to Congress is set
forth below for the six-month period ending
(1) The nature, number, and po- March 31, 2011:
tential benefits of any sugges-
tions received. In addition, summarized below are several
of the suggestions and allegations received
(2) The nature, number, and se- and analyzed during the reporting period.
riousness of any allegations
received.
15

24. Nature and Potential Benefits of Number
Suggestions*
Increase effectiveness 9
Increase the use of resources or decrease cost 5
Increase efficiency or productivity 4
Nature and Seriousness Number
of Allegations
Mismanagement and/or discrimination 5
Waste of Commission resources 4
Physical harm to person or property 1
Misconduct by an employee 1
Action Taken by OIG in Response to Number
Suggestions or Allegations
Memorandum to, or communication with, agency requesting action be taken 11
Referred to OIG investigations unit 2
Referred to OIG audit unit 1
OIG investigations unit opened preliminary inquiry 1
Researched issue, but no further agency action was deemed necessary
4
Action Taken by Agency in Response to Suggestions or Allegations Number
Referred During the Reporting Period
SEC management took specific 2
action to address the suggestion
The agency decided to secure new technology in response to the 1
suggestion
SEC management launched internal review 1
The suggestion is still under review by the agency 3
SEC management is considering suggestion in context of existing procedures 3
* Suggestions and/or allegations may fall into more than one category and, as such, the numbers listed may be
greater than the total number of suggestions and allegations received.
16

25. EXAMPLES OF SUGGESTIONS to open new satellite offices, not the least of
RECEIVED which would be financial impact, and that the
SEC currently has several long-term leases in
Office Real Estate Leases place that do not expire for many years.
Management also recognized, however, that
An employee suggested that potential cost in situations where the SEC might have leas-
savings could be achieved if expansion needs ing flexibility, it would be appropriate to con-
for SEC offices were met in part by leasing sider satellite offices and other alternatives
satellite offices in suburbs of cities where the when a current lease nears the end of its
SEC maintains offices, rather than by increas- term, or if management were to decide to re-
ing the space leased in business districts of vise business processes in ways that would
those cities. The suggestion stated that this clearly render the implementation cost-
approach might save costs, reduce employee effective. We are awaiting more specific in-
stress and commuting time, and provide an formation from management regarding the
alternate worksite in the event of pandemic or SEC’s consideration of satellite offices.
terrorist events.
SEC Website and EDGAR Database
We believe this suggestion has the poten-
tial for cost savings to the SEC, as well as The OIG received an employee sugges-
other benefits that are not easily measured in tion that the SEC website and the Electronic,
monetary terms. In analyzing this suggestion, Data Gathering, Analysis, and Retrieval
OIG staff reviewed relevant statutes, Execu- (EDGAR) system should be more easily acces-
tive Orders, and guidance from the Comptrol- sible and user-friendly. EDGAR is the feature
ler General, as well as OIG Report No. 484, on the SEC’s website that is most frequently
Real Property Leasing Procurement Process, issued used by the public and, therefore, implement-
on September 30, 2010. We also interviewed ing this suggestion is likely to provide potential
officials from several other governmental benefits by improving the agency’s effective-
agencies and self-regulatory bodies in the fi- ness. After reviewing the suggestion, OIG
nancial industry. We recommended that the staff found that there are several ways in
agency seriously consider this suggestion, not- which the SEC’s website could be enhanced,
ing that the establishment of one or more sat- and made more user-friendly and aesthetically
ellite offices appears to comply with the fed- pleasing. The OIG recommended to man-
eral government’s efforts to reduce the costs, agement that access to the EDGAR database
stress, and pollution of commuting, and that could be improved by displaying the search
other agencies have successfully made exten- link more prominently, and that EDGAR
sive use of satellite offices. Finally, we pointed search results might be more usable if com-
out that the availability of an alternate work monly sought or recent search results were
site or sites in the event of a major catastro- displayed more prominently. Management
phe is an attractive aspect of this employee’s responded to the OIG, indicating that they
suggestion. agreed with the employee’s suggestion and
were taking steps to implement the recom-
Management provided an initial response mended changes.
to the suggestion, noting that the SEC is en-
gaged in several ongoing reviews focused, at Receipt of Electronic Documents
least in part, on some of the issues implicated
in the employee suggestion. Management An employee suggested that the SEC
further noted that there would be a number of could benefit from a better means for sending
considerations to weigh in deciding whether and receiving voluminous documents elec-
17

26. tronically. Specifically, the SEC’s e-mail sys- emergencies. Notifications are sent to em-
tem has size limitations and is burdened when ployees via telephone, e-mail and/or text mes-
large documents are sent or received. It was sage. Since the implementation of Nōtifind in
suggested that providing a service whereby March 2008, notifications were provided in-
large files could be uploaded and downloaded consistently, i.e. through varying methods and
would be beneficial and a good use of re- at various times. The OIG suggested that the
sources. We determined that this suggestion functionality of Nōtifind be reviewed and im-
could potentially improve efficiency and in- provements made, as necessary. Although no
crease the use of resources and recommended official response from management has yet
to the agency that it be considered. been received, we noted that immediate im-
provements were made to the notification sys-
The agency agreed with the underlying tem. Specifically, an e-mail reminder and
premise of the suggestion and, after conduct- brochure regarding the Nōtifind system were
ing an internal analysis, developed what it de- provided to all employees and, when it was
termined to be a cost-effective and efficient necessary to provide information to employees
approach to resolve the concern expressed in regarding a possible government shutdown,
the suggestion. The agency further agreed to notifications to employees were significantly
raise staff awareness of the resources available improved, as employees received notification
for transmitting large documents and provide through all available communication methods.
training as necessary.
Referral to Audit Unit
Notification of Operating Status
The OIG also received a suggestion that
The OIG received an employee sugges- resulted in a referral to the OIG’s audit unit.
tion regarding the need for improvement in This suggestion related to shared offices for
the timeliness of notification of the SEC’s op- employees who telework and was referred to
erating status to employees. The employee the audit unit for inclusion in an ongoing
expressed concern that notifications from the audit involving telework practices and policies
SEC were sent significantly later than those at the SEC.
provided by the U.S. Office of Personnel
Management (OPM) and, at times, after some
employees had already reported to work. An EXAMPLES OF ALLEGATIONS
OIG review of operating status updates for RECEIVED
the Washington, D.C. metropolitan area pro-
vided during January and February 2011 Inappropriate Involvement in
confirmed that notification was consistently Employee’s Time and Attendance
delayed by several hours. After this review of
the operating status updates and discussions The OIG received an allegation that a
with various employees responsible for prepar- non-supervisory employee interfered in work-
ing and disseminating closure or delay notifi- ing relationships between employees and their
cations, we determined that the timeliness and supervisors, overruled senior officers’ approv-
effectiveness of notifications sent from the als of time and attendance, created conflict,
SEC could be improved. and contributed to a lack of trust and declin-
ing morale among staff. Because this allega-
The SEC utilizes Nōtifind, an emergency tion primarily raised concerns that would be
notification system that provides information appropriately addressed by management, the
to employees in the event of inclement details of the allegation were referred to the
weather, office closings, disasters, or other appropriate management officials for immedi-
ate action.
18

27. Upon receipt of the allegation, manage- Referrals to Investigations Unit
ment officials launched an internal review of
the facts and circumstances of the allegation. The OIG received three allegations that
Management determined that it was neces- resulted in referrals to the OIG’s investiga-
sary to retain an outside mediator to meet tions unit. Two of these allegations related to
with the individuals involved and provide rec- waste in leasing of office space and were re-
ommendations to management on the best ferred to the investigations unit for inclusion
course of action to address the situation. The in an ongoing investigation of the SEC’s leas-
OIG was informed that these efforts had been ing activities. The OIG’s investigations unit
completed and the mediator had provided opened a preliminary inquiry concerning the
several recommendations to management, third allegation regarding retaliation against a
which was working with the Office of Human former staff member.
Resources (OHR) to fully implement those
recommendations.
19

28. 20

29. U.S. Securities and Exchange Commission
SEMIANNUAL
REPORT TO
Office of
Inspector
General
CONGRESS
COORDINATION WITH OTHER OFFICES
OF INSPECTOR GENERAL
During this semiannual reporting period, tional opportunities for members of the
the SEC OIG coordinated its activities in a CIGIE community and to assist in ensuring
variety of ways with those of other OIGs, as the development of competent personnel. The
is required by Section 4(a)(4) of the Inspector IG or a senior OIG staff member attended the
General Act of 1978, as amended. Specifi- Professional Development Committee’s
cally, the SEC IG, or a senior OIG staff mem- monthly meetings. The OIG also participated
ber, attended the monthly meetings of the in a survey being conducted by the Suspen-
Council of the Inspectors General on Integrity sion and Debarment Working Group of the
and Efficiency (CIGIE). The SEC IG was CIGIE Investigations Committee. In respond-
also interviewed by consultants performing an ing to that survey, the OIG provided its views
organizational assessment of another OIG, concerning a number of topics related to sus-
who were seeking information about the pension and debarment use, training, and
structure and position classifications within practices.
high-performing OIGs such as the SEC OIG.
The SEC IG provided the consultants valu- In December 2010, the Counsel to the
able information about how to structure an SEC IG received an Award for Leadership
OIG in an effective and efficient manner. In from the Council of Counsels to the Inspector
addition, the SEC IG met with the newly- General (CCIG), which is an informal organi-
confirmed IG of the Federal Housing Finance zation of IG attorneys throughout the federal
Agency (FHFA) to discuss strategies for es- government who meet monthly and coordi-
tablishing an effective OIG. nate and share information. The award rec-
ognized the Counsel to the SEC IG’s exem-
The SEC IG is also a member of the plary leadership as Chair of the CCIG from
CIGIE’s Professional Development Commit- 2008 to 2010. The Counsel to the SEC IG
tee, the purpose of which is to provide educa- also attended the annual meeting of the Fi-
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30. nancial Fraud Enforcement Task Force in De- created by Section 989E of the Dodd-Frank
cember 2010, to which representatives of all Wall Street Reform and Consumer Protection
federal OIGs were invited. Act (Dodd-Frank Act). The CIGFO is chaired
by the IG of the Department of Treasury and
The SEC IG participated in activities de- also composed of the IGs of the Federal Re-
signed to coordinate efforts among the federal serve Board, the Commodity Futures Trading
financial regulatory IGs and strengthen the Commission, the FDIC, the FHFA, the Na-
oversight of the federal financial regulatory tional Credit Union Administration, the SEC,
structure as a whole. For example, the SEC and the TARP. Under the Dodd-Frank Act,
IG served on the Troubled Asset Relief Pro- this Council is required to meet at least quar-
gram (TARP) Inspector General Council, terly to facilitate the sharing of information
along with the Special IG for the TARP, and with a focus on the concerns that may apply
IGs from the Department of the Treasury, the to the broader financial sector and ways to
Board of Governors of the Federal Reserve improve financial oversight. The CIGFO is
System (Federal Reserve Board), the Federal also required to submit an annual report to the
Deposit Insurance Corporation (FDIC), the newly-established Financial Stability Over-
FHFA, the Department of Housing and Urban sight Council and the Congress, which must
Development, the Treasury Inspector General include a section that highlights the concerns
for Tax Administration and the Small Busi- and recommendations of each IG who is a
ness Administration, and the Comptroller member of the CIGFO and a summary of the
General of the United States. general observations of the CIGFO. During
this reporting period, the SEC IG attended the
In addition, the SEC IG participated in the CIGFO’s meetings, and the Deputy Inspector
activities of the Council of Inspectors General General participated in the CIGFO’s confer-
on Financial Oversight (CIGFO), which was ence calls.
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