SEC-OIG Semiannual Report to Congress (Oct. 2010 to Mar. 2011)

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SEC-OIG Semiannual Report to Congress (Oct. 2010 to Mar. 2011)

  1. 1. U.S. SECURITIES AND EXCHANGE COMMISSION OFFICE OF INSPECTOR GENERALSEMIANNUAL REPORT TO CONGRESS October 1, 2010 - March 31, 2011
  2. 2. Organizational Chart Office of Inspector General Inspector General Deputy Inspector General Counsel to the Inspector General Assistant Inspector Assistant Inspector General for2 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. 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
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  5. 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. 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 .................................43INVESTIGATIONS ..........................................................................................................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. 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) ..................................................................75REVIEW OF LEGISLATION AND REGULATIONS ..........................................................77STATUS OF RECOMMENDATIONS WITH NO MANAGEMENT DECISIONS ................79 7
  8. 8. REVISED MANAGEMENT DECISIONS .........................................................................79AGREEMENT WITH SIGNIFICANT MANAGEMENT DECISIONS .................................79INSTANCES WHERE INFORMATION WAS REFUSED ..................................................79TABLES 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 ...............99Appendix A: Peer Reviews of OIG Operations ............................................................101Appendix 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. 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 ofthe SEC OIG to promote efficiency and effectiveness in the SEC, as well as the crucial effect andimpact that the SEC OIG has had upon SEC operations. During this reporting period, we issued several significant audit reports on matters critical to theSEC’s programs and operations. We conducted a review of the SEC’s oversight of the SecuritiesInvestor Protection Corporation’s (SIPC) activities. While we found that the SEC’s oversight ofSIPC 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 ofthe SEC’s monitoring of SIPC. Specifically, the audit found that the SEC does not inspect SIPC’sactivities in any systematic fashion and last performed a full inspection of SIPC in 2003. We alsofound that the SEC lacked adequate written procedures and policies for its oversight of SIPC. Wemade 12 recommendations to the agency, which when fully implemented, will enhance the SEC’smonitoring of SIPC and further ensure that the investing public is afforded adequate protectionagainst losses caused by the failure of broker-dealers. We also completed an audit of the SEC’s implementation of and compliance with HomelandSecurity Presidential Directive (HSPD) 12. This Directive was signed by President George W. Bushin August 2004 and required federal agencies to have programs in place to ensure that identificationissued to federal employees and contractors meets a common standard. Our audit found deficienciesin 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 forimplementation 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 severalother audits during the semiannual reporting period, including a review of the processes by whichthe Office of Compliance Inspections and Examinations (OCIE) refers potential violations of thefederal securities laws to the Division of Enforcement in the SEC’s regional offices, an audit of theSEC’s budget execution cycle, a review of certain time-and-materials and labor-hour contracts, anda 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 onlyfive 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’sOffice of Information Technology’s (OIT) acquisition of approximately $1 million of computerequipment, the alleged violation of post-employment restrictions, the role of political appointees in 1
  10. 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 enforcementinvestigation, 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 andfinalizing several additional investigations, including an investigation of the facts and circum-stances surrounding the SEC former General Counsel’s involvement in activities relating to theBernard L. Madoff Ponzi scheme in light of a lawsuit brought against him and his brothers bythe trustee appointed in the Madoff liquidation under SIPA for the return of approximately $1.5million in fictitious profits received from the Ponzi scheme, and an investigation into allegationsthat 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 fundsand/or violated federal regulations. This semiannual reporting period has also been a busy one for consultations and briefingswith Congressional offices. We were very active in providing advice to and discussing issues withMembers of Congress and Congressional staff regarding a wide variety of matters affecting theSEC and the broader financial system, including the implementation and impact of numerouselements of the Dodd-Frank Wall Street Reform and Consumer Protection Act. On February10, 2011, I testified before the Subcommittee on Financial Services and General Government,Committee on Appropriations, U.S. House of Representatives, concerning my Office’s oversightefforts, including our identification of waste, fraud, and abuse in SEC programs and operationsand matters pertinent to the SEC’s budget and funding levels. I am also very pleased to report that during the semiannual reporting period, we receivedrecognition from our peers for our work. The Council of the Inspectors General on Integrityand 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 onAugust 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 offinancial regulation and the protection of investors.” The accomplishments of my Office have been enhanced by the continued support of theSEC Chairman and Commissioners, as well as the SEC’s management team and employees. Ilook forward to sustaining this productive and professional working relationship as we continue tohelp the SEC meet its important challenges. H. David Kotz Inspector General 2
  11. 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. 12. examinations. She began her career with the In March 2011, Juliet D. Gardner, who hadSEC 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 Advocacyaccounting, 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 aExaminer. 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 SECOIG as a writer-editor. She was previously a divisions and offices. Ms. Gardner began hercommunications analyst in the OIG of the U.S. legal career at the SEC in 1996, in the DivisionDepartment 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 Wittenbergance team. Ms. Tepper’s other federal em- University, where she received a Bachelor ofployment includes nine years at the Environ- Arts degree in Political Science. Ms. Gardnermental Protection Agency, where her responsi- received her Juris Doctor degree cum laude frombilities 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 opportunityMaster’s degree in Business Administration in the private sector.from the Yale School of Management. 4
  13. 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. 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 forof 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. Heto the cancellation of contracts and the ex- mentioned by way of example the numerouspenditure of funds to reprocure required serv- recommendations made in the OIG’s reportices. 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, institutingciencies 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 receivedoffices. The IG stated that the OIG had and acted upon in a timely and appropriatefound numerous situations in which the SEC manner at a total cost of approximately $21made 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 SECcedures had existed and been followed. The has sufficient resources to implement many ofIG also described the OIG’s finding that SEC the recommendations that have arisen, andmanagement 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 testimonydertaking. The IG then noted that an OIG that senior officials, particularly those withinsurvey 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 analyzingwith their workplace locations prior to the the SEC’s operations and functions to identifyproject and generally felt the project was a efficiencies and areas in which costs can bewaste 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 informationOIG’s efforts to ensure that its recommenda- technology contract that he found was nottions are fully implemented, the funding nec- cost-effective. The IG noted that the OIGessary to implement the OIG’s recommenda- supported and applauded these efforts andtions, 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 hasidentified 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 facilitatingmendations to alleviate the problems and con- capital formation, particularly as the nation’scerns 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 outommendations have been agreed to and fully the SEC’s responsibility to utilize governmentimplemented, and that the majority of the funds in an efficient and effective manner andOIG’s recommendations had been imple- represented that the OIG intends to remainmented. vigilant to ensure that scarce government re- 6
  15. 15. sources are used wisely and cost-effectively part, on its status as a Troubled Asset Reliefand instances of waste and abuse are elimi- Program (TARP) participant, but that thenated. 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 treatedport 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 OIGml. 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 practicetestimony, the IG received several questions and the inconsistent manner in which thefor 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 SECcommittee’s FY 2012 Budget Hearing with was looking out for Bank of America over thethe SEC IG. These questions were received interests of retail investors, the OIG’s reportfrom the Subcommittee Chairwoman, the did find that the waiver in question allowedHonorable 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’sinvestigation 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 continuingof 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 effectivelySEC, the diversity of the OIG’s staff, the implement OIG recommendations and newOIG’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 additionalenforcement of acquisition procedures appli- expenses to implement improvements neces-cable to small and disadvantaged business en- sary for the SEC to continue to perform itsterprises, and investor protections related to critical functions. The IG added that theRobert 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 resourcestions for the record on March 18, 2011. In necessary to conduct such oversight, as well asthose 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 percentOIG’s Bank of America investigation, noting or more might make it difficult for the SEC tothat our investigation found that the Commis- accomplish its mission.sion initially approved a waiver of certainqualifications for Bank of America in connec- The IG also responded to Representativetion with the SEC’s first proposed settlement Lee’s questions pertaining to the diversity ofof 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, ofthe OIG had found that the SEC’s Division of the OIG’s 17 full-time employees, nine wereCorporation Finance had recommended the women (53 percent) and eight were minoritieswaiver for Bank of America based, at least in (47 percent). With respect to the OIG’s con- 7
  16. 16. tracts, the IG reported that 33 and 40 percent OIG has conducted involving the Fort Worthof 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 questionsrespectively. 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 thetion about how the OIG ensures that the SEC Financial Services and General Governmentmeets 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 tofirms, the IG noted that the OIG had recently Ranking Member Serrano the OIG’s reportconducted 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 reportwork 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 Compliancetions, and (2) a follow-up review scrutinizing Inspections and Examinations (OCIE), thecertain time-and-materials and labor-hour Office of Investor Education and Advocacycontracts, including one contract with a Small (OIEA), and the Division of EnforcementBusiness Administration-certified small and (Enforcement), have contacts with investors indisadvantaged business, to ensure compliance U.S. territories. The OIG’s report also notedwith 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 Angeleseral questions from Representative Bonner Regional Office is responsible for Guam, andthat related to investor protection and, in par- the SEC headquarters office assumes primaryticular, Robert Allen Stanford’s alleged Ponzi responsibility for all other U.S. territories andscheme. The IG pointed out that in the republics.OIG’s report of investigation in the Stanfordmatter, the OIG found that the SEC’s Fort Specifically with respect to OCIE, theWorth Enforcement program made no mean- OIG’s report found that OCIE administersingful 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-regulatoryadded that the OIG’s investigation found that organizations, broker-dealers, transfer agents,the Fort Worth Enforcement program’s deci- clearing agencies, investment companies, andsion 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.  Thewas 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 fieldedthe 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 registrantsfor 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. 17. the past five years. Additionally, the OIG re- against a Florida resident and company forport provided detailed information concern- operating a multi-million dollar fraudulenting a joint broker-dealer/investment adviser pyramid scheme involving investors fromexamination 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 thatpractices 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 frominformation 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 relatedalone. The report noted that OIEA con- to U.S. territories. The OIG’s report alsofirmed that it had responded appropriately to noted that some U.S. territories are assignedall contacts from the territories, forwarding to specific regional offices, but many of themany 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. Basedfollow-up work OIEA has completed with re- on its review, the OIG suggested that the SECspect 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 andforcement’s involvement with U.S. territories, republics. The OIG further suggested thatnoting that Enforcement stated that it obtains OIEA consider performing investor outreachevidence of possible violations of the federal and education in U.S. territories and republicssecurities laws from many sources, including to ensure investors located there have theinvestor 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 investigationsinto allegations concerning entities and indi- OTHER REQUESTS AND BRIEFINGSviduals located in U.S. territories, and certainmatters 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 ofreport also noted that effective March 14, issues impacting the SEC and the broader fi-2011, Enforcement deployed its new TCR nancial system, including the implementationIntake and Resolution system to capture and and impact of numerous provisions of thetrack 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 staffreview, 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 toand ten and five TCRs where the subject was perform its critical oversight functions. Onlocated in Puerto Rico and the U.S. Virgin February 17, 2011, the IG met with staff ofIslands, respectively. The OIG’s report also the U.S. House of Representatives Committeeprovided an example of an enforcement ac- on Transportation and Infrastructure and itstion 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. 18. ment, and provided a briefing on the status IG’s views on the main challenges facing theand 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 Generalthe OIG’s previous audit of the SEC’s real Counsel’s participation in matters pertainingestate leasing function, as well as other OIG to the Bernard Madoff Ponzi scheme, onaudit 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 onmet 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, andtion of the Dodd-Frank Act, the OIG’s prior AIGI also met with several majority staff fromreport of investigation related to the Robert the Government Oversight and ReformAllen 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 thelaboration with other agencies, as well as U.S. House of Representatives Committee onother issues of interest to the Committee. On Financial Services, as well as several otherMarch 3, 2011, the IG briefed staff of the Congressional staff. During this meeting, theSubcommittee on Oversight and Investiga- IG briefed the staff on the allegations thattions of the U.S. House of Representatives formed the basis of the investigation the IGCommittee on Government Oversight and was undertaking into these matters. OnReform 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 staffand operations at the SEC, including the re- from the oversight committees, and providedsults of the OIG’s oversight efforts and the a similar briefing to the one conducted on March 15, 2011. 10
  19. 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. 20. Further, as discussed in the OIG SEC 24-05.01.02.02 (02.0), “LAN and TelephoneEmployee Suggestion Hotline Section of this Account Creation, Modification, TerminationReport, 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 OIGtifications to employees of changes in the suggested that the draft Operating ProcedureSEC’s operating status. The OIG’s review of be revised to ensure that it clearly specified thethis suggestion disclosed that the SEC’s notifi- time deadlines for the completion of each ofcation of operating status updates during the assigned duties outlined in the policy toearly 2011 occurred several hours after the ensure that the accounts of users who haveU.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 anddue to inclement weather. The OIG’s review consistency in terms used in the policy, thealso 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 ofSEC Regulation (SECR) 5-15 had not been time deadlines for the performance of specificupdated since March 1998, and that the tasks.emergency notification system currently beingused by the SEC, the Nōtifind system, could The OIG also reviewed and providedbe used more effectively and consistently to comments on draft Implementing Instructionprovide 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 OIGOIG issued a memorandum to the SEC’s Ex- sought to ensure that the draft Implementingecutive Director on March 18, 2011, recom- Instruction fully satisfied recommendationsmending 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 onand 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 inits 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 “Hardprovided in a timely manner. The OIG fur- Drive Wiping and Media Destruction.” Thether suggested that the SEC consider improv- OIG further suggested that the Implementinging 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 consequencesand frequency of weather-related closure and will follow if an employee or contractor failsdelay 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, andthe 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 incorporatedcomments on draft Operating Procedure some of the OIG’s suggestions. 12
  21. 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 thementing Instruction 24-04.04.05 (02.0), “In- SEC OIT “Rules of the Road,” SECRformation Encryption within the SEC.” In 24-04.A01 (version 7.0), which are intended toparticular, the OIG made several suggestions ensure that agency computing and networkdesigned 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 ofcedures for determining whether all data these resources. In its comments, the OIGplaced on portable media must be encrypted suggested that the portion of the Rules of thein SEC divisions and offices and how users Road discussing the use of social networkingwill be notified of these determinations. The be clarified to reflect whether the use of socialOIG’s comments and suggestions were incor- networking sites from Commission computersporated into the final implementing instruc- is allowed or prohibited and, if allowed, whattion, “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 sendingcomments 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 ofsuggested that the draft policy should be re- the Road (version 7.0), which was issued onvised to create an enforcement mechanism to March 16, 2011.address noncompliance with the CapitalPlanning and Investment Control (CPIC) The OIG also reviewed and commentedprocess, as the OIG had previously recom- on draft SECR 24-10 (01.0), “Electronic andmended 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 draftgested that the draft policy be revised to spec- regulation, particularly with respect to theify what procedures should be followed when identity of “SEC business sponsors” andviolations or circumventions of the CPIC specification of the “necessary technical stan-process are brought to the attention of the dards.” The OIG subsequently reviewed aappropriate 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 OIGtional 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 theand criteria to be followed pertaining to the policy.granting of exceptions or deviations from thepolicy, 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 andinto the final regulation, which was issued on provided assistance to the GAO in connectionMarch 11, 2011. Additionally, the OIG pro- with a variety of matters. For example, thevided comments on and suggested several im- OIG continued to provide assistance to theprovements 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. 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 thisthe OIG’s findings based upon audit and in- area. In addition, the IG participated in avestigative work performed in the revolving conference call with GAO staff in connectiondoor area, the OIG’s views on the potential with a study the GAO is conducting on theeffectiveness 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 withsponse 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. 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. 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 begreater than the total number of suggestions and allegations received. 16
  25. 25. EXAMPLES OF SUGGESTIONS to open new satellite offices, not the least ofRECEIVED which would be financial impact, and that the SEC currently has several long-term leases inOffice 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 alternativessatellite offices in suburbs of cities where the when a current lease nears the end of itsSEC 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 wouldthose 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 thealternate 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 RetrievalOIG 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 featureler General, as well as OIG Report No. 484, on the SEC’s website that is most frequentlyReal 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 potentialofficials from several other governmental benefits by improving the agency’s effective-agencies and self-regulatory bodies in the fi- ness. After reviewing the suggestion, OIGnancial industry. We recommended that the staff found that there are several ways inagency 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 aestheticallyellite 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 databasestress, and pollution of commuting, and that could be improved by displaying the searchother agencies have successfully made exten- link more prominently, and that EDGARsive 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 weresite or sites in the event of a major catastro- displayed more prominently. Managementphe is an attractive aspect of this employee’s responded to the OIG, indicating that theysuggestion. 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 Documentsleast in part, on some of the issues implicatedin the employee suggestion. Management An employee suggested that the SECfurther noted that there would be a number of could benefit from a better means for sendingconsiderations to weigh in deciding whether and receiving voluminous documents elec- 17
  26. 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 insuggested that providing a service whereby March 2008, notifications were provided in-large files could be uploaded and downloaded consistently, i.e. through varying methods andwould be beneficial and a good use of re- at various times. The OIG suggested that thesources. We determined that this suggestion functionality of Nōtifind be reviewed and im-could potentially improve efficiency and in- provements made, as necessary. Although nocrease the use of resources and recommended official response from management has yetto 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 andpremise of the suggestion and, after conduct- brochure regarding the Nōtifind system wereing an internal analysis, developed what it de- provided to all employees and, when it wastermined to be a cost-effective and efficient necessary to provide information to employeesapproach to resolve the concern expressed in regarding a possible government shutdown,the suggestion. The agency further agreed to notifications to employees were significantlyraise staff awareness of the resources available improved, as employees received notificationfor transmitting large documents and provide through all available communication methods.training as necessary. Referral to Audit UnitNotification 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 forthe timeliness of notification of the SEC’s op- employees who telework and was referred toerating status to employees. The employee the audit unit for inclusion in an ongoingexpressed concern that notifications from the audit involving telework practices and policiesSEC were sent significantly later than those at the SEC.provided by the U.S. Office of PersonnelManagement (OPM) and, at times, after someemployees had already reported to work. An EXAMPLES OF ALLEGATIONSOIG review of operating status updates for RECEIVEDthe Washington, D.C. metropolitan area pro-vided during January and February 2011 Inappropriate Involvement inconfirmed that notification was consistently Employee’s Time and Attendancedelayed by several hours. After this review ofthe operating status updates and discussions The OIG received an allegation that awith various employees responsible for prepar- non-supervisory employee interfered in work-ing and disseminating closure or delay notifi- ing relationships between employees and theircations, 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 benotification system that provides information appropriately addressed by management, theto employees in the event of inclement details of the allegation were referred to theweather, office closings, disasters, or other appropriate management officials for immedi- ate action. 18
  27. 27. Upon receipt of the allegation, manage- Referrals to Investigations Unitment officials launched an internal review ofthe facts and circumstances of the allegation. The OIG received three allegations thatManagement 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 towith 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 inclusioncourse 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 unitcompleted and the mediator had provided opened a preliminary inquiry concerning theseveral recommendations to management, third allegation regarding retaliation against awhich was working with the Office of Human former staff member.Resources (OHR) to fully implement thoserecommendations. 19
  28. 28. 20
  29. 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- 21

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