U.S. SECURITIES AND EXCHANGE COMMISSION 

2011 

Report and Certification ofInternal Supervisory Controls 

Introduction 

On July 21,2010, President Obama signed into law the Dodd-Frank Wall Street Reform 

and Consumer Protection Act (the "Act"). Section 961 ofthe Act requires that not later 

than 90 days after the end of each fiscal year, the Securities and Exchange Commission 

("SEC" or "Commission") shall report to the Senate Committee on Banking, Housing, and 

Urban Affairs and the House Committee on Financial Services on the supervisory controls 

over the conduct by the Commission of examinations ofregistered entities,l enforcement 

investigations, and review of corporate financial securities filings. This report is being 

submitted for the Commission's fiscal year ending September 30, 2011. 

Background 

The SEC's mission is to protect investors; maintain fair, orderly, and efficient markets; and 

facilitate capital formation. Although the SEC's functional responsibilities are organized 

among five divisions and 18 offices, the scope ofthe activities covered in Section 961 fall 

principally under the purview of: the Office ofCompliance Inspections and Examinations 

("OCIE"), the Division ofEnforcement ("Enforcement"), and the Division of Corporation 

Finance ("Corporation Finance"). Therefore, in the context ofthis report, references to 

"the Commission's internal supervisory controls" or "internal supervisory controls ofthe 

Commission" relate to the relevant internal supervisory controls ofOCIE, Enforcement 

and Corporation Finance. 

OCIE principally administers the examination program for SEC-registered entities 

including, among others, self-regulatory organizations, broker-dealers, transfer agents, 

clearing agencies, nationally recognized statistical rating organizations, investment 

companies, and investment advisers. The Office conducts examinations to foster 

1 References to "examinations" within this report refer to both examinations and inspections conducted by 

the Office of Compliance Inspections and Examinations. 
compliance with the securities laws, to detect violations ofthe law, to identify risks and to 

inform policy. Enforcement is principally responsible for assisting the Commission in 

executing its law enforcement function by, among other things, conducting investigations 

ofpotential securities law violations; recommending, in appropriate circumstances, that 

the Commission institute civil actions in federal court or before an administrative law 

judge; and prosecuting cases on behalf ofthe Commission. Finally, Corporation Finance 

is principally responsible for selectively reviewing the disclosure documents that relate to 

the offer and sale ofsecurities in registered transactions and which publicly-held 

companies file with the Commission. Through Corporation Finance's review process, the 

Division provides comments on where it believes publicly-held companies can improve or 

enhance their compliance with the disclosure requirements ofthe federal securities laws. 

Staffing within OCIE and Enforcement consists of attorneys, accountants, examiners, 

subject matter experts, and other employees located both in the Washington, D.C. office 

and in 11 regional offices located throughout the country. The majority ofthe SEC's 

other offices and divisions, including Corporation Finance, are exclusively located in 

Washington, DC. 

This report describes the scope and methodology used to evaluate the internal supervisory 

controls and relevant procedures applicable to the OCIE, Enforcement, and Corporation 

Finance staffthat performs examinations ofregistered entities, enforcement 

investigations, and reviews of corporate financial securities filings, respectively. 

Furthermore, the report describes whether any significant deficiencies in these controls or 

procedures have been identified to exist as ofthe end ofthe fiscal year. The report also 

includes a description ofthe inherent limitations ofprocedures applicable to staff, 

supervisory controls, and the evaluation process. Finally, the report includes an 

assessment of control and procedure effectiveness, the Certification of Supervisory 

Controls that is required by the Act, and the status ofthe Comptroller General's review 

pursuant to Section 961 ( e) ofthe Act. 

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Internal Supervisory Controls and Procedures Applicable to Staff 

Section 961(b)(I) of the Act requires the assessment ofboth the internal supervisory 

controls and procedures of the Commission applicable to the staff of the Commission who 

perform examinations of registered entities (i.e., OCIE), enforcement investigations (i.e., 

Enforcement), and reviews of corporate financial securities filings (i.e., Corporation 

Finance). Neither "internal supervisory controls" nor "procedures applicable to staff' are 

defined terms in the Act. F or purposes of this report and the attached certification, 

"procedures applicable to staff' refers to the established "day-to-day" procedures to be 

followed by the employees charged with these functions. "Internal supervisory controls" 

refers to the processes established by management of each respective office or division for 

monitoring that the "procedures applicable to staff' are performed consistently with 

competence and integrity, and also remain reasonable, adequate, and current. 

Scope and Methodology 

1. Overview 

The Directors ofOCIE, Enforcement, and Corporation Finance, each with the assistance of 

his or her supervisory staff and other office or division personnel, evaluated the 

effectiveness of internal supervisory controls and relevant procedures applicable to staff 

during the 90-day period ending on the final day of the fiscal year ended September 30, 

2011. Upon completion ofthe evaluation, each Director signed a certification concerning 

the adequacy of the Commission's internal supervisory controls with respect to his or her 

office or division. 

To facilitate an effective, efficient, and consistent approach to the evaluations, the agency 

established a working group consisting of Senior Officers and staff from OCIE, 

Enforcement, Corporation Finance, and the Offices ofthe Chief Operating Officer and of 

the General Counsel. Additionally, the working group, as needed, obtained input from 

other divisions or offices within the agency. The working group met and communicated 

regularly to discuss the development and implementation of the project plans that were 

prepared by each of the relevant divisions and office. 

OCIE, Enforcement, and Corporation Finance engaged in a "top-down, risk based" 

consideration of their functional responsibilities, focusing on assessing whether their 

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respective objective of conducting examinations, investigations, or reviews of corporate 

financial securities filings with professional competence and integrity had been 

consistently met during the 90-day period subject to evaluation. This approach involved 

identifying risks to achieving such objectives, determining whether controls exist to 

address those risks, and gathering information about the operation ofthe controls included 

in the evaluation. The procedures for collecting information to evaluate the effectiveness 

ofinternal supervisory controls consisted principally of interviews, observation, process 

walkthroughs, inspection of documents, self-assessments (including the use of 

sub-certifications), and through the application ofjudgment, as appropriate. 

In addition, relevant members ofthe working group reviewed and considered background 

material that included the 20 I 0 review ofthe internal supervisory controls pursuant to the 

requirements of Section 961 ofDodd-Frank, the Federal Manager's Financial Integrity Act 

(FMFIA) assurance statements for fiscal years 2010 and 2011, results of an agency-wide 

review of entity level controls, and recent Office of Inspector General and Government 

Accountability Office findings. Finally, the working group reviewed any deficiencies 

identified by assessing their impact on the evaluation ofthe design and operating 

effectiveness ofinternal supervisory controls, including making the determination of 

whether any such deficiencies were considered significant, either individually or in the 

aggregate. OCIE, Enforcement, and Corporation Finance provided summary information 

for such determination and for the evaluation as a whole to the respective office or division 

director in order to support the relevant assertions within the certification. 

2. Examinations and Investigations 

To assess the effectiveness of internal supervisory controls over examinations and 

investigations and the procedures applicable to the staff performing such functions, OelE 

and Enforcement developed separate assessment teams that included members ofthe 

working group, senior managers, and other staff with extensive experience in conducting 

examinations or investigations. The assessment team for each function identified and 

evaluated the key risks and related controls that are important to the function's ability to 

consistently conduct examinations or investigations with professional competence and 

integrity, which included the identification ofany control design or control implementation 

gaps. 

The evaluation also included an identification ofthe information technology ("IT") 

systems used to track examinations and investigations. The assessment teams evaluated 

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how the IT systems are used to support key supervisory controls and the procedures 

applicable to staff. 

The assessment teams for examinations and investigations coordinated their efforts and 

conducted structured interviews with Home and Regional Office Senior Officers2 and 

other staffwith the,goal of obtaining their assistance and support in the identification and 

description of controls and their implementation, and the operating effectiveness ofthose 

controls. These communications afforded opportunities for Senior Officers to discuss the 

controls with the assessment teams and develop views about their application. 

This process was closely coordinated with the annual Management Assurance statement 

process performed for FMFIA purposes and utilized the sub-certification prepared for the 

FMFIA assurance statement, due to the concurrent nature ofthe identified risks, controls 

and gaps. The sub-certifications were provided to the Directors of OCIE and 

Enforcement, along with key background materials, to support the assertions in the 

certification required by Section 961(c)(2) ofthe Act. 

3. Reviews ofCorporate Financial Securities Filings 

To assess the effectiveness of internal supervisory controls over reviews of corporate 

financial securities filings and the procedures applicable to the staff conducting those 

reviews, Corporation Finance established an assessment team that included members of 

the working group, senior management, and other staff members. The assessment team 

identified and evaluated the key risks and related controls that are important to Corporation 

Finance's ability to consistently conduct reviews with professional competence and 

integrity, which included the identification ofany control design or control implementation 

gaps. 

The evaluation also included identification ofthe information technology systems 

used to track filing reviews. The assessment team evaluated how the IT systems are 

used to support key supervisory procedures and the procedures applicable to staff 

including standards for data input and access rights and privileges. 

2 The Regional Office Directors and Home Office Senior Officers within ocm and Enforcement have 

supervisory responsibility for staff in their respective offices; accordingly, evaluations of internal 

supervisory controls over examinations and investigations required the coordinated participation of the 

Home and Regional Offices. 

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The evaluation included the support and assistance ofthe Corporation Finance Senior 

Officers and other staff responsible for the reviews of corporate financial securities 

filings. This assistance included identifying and describing controls and their 

implementation and the operating effectiveness ofthose controls. The Senior 

Officers discussed the controls and how they applied them with the assessment team. 

This process built upon the annual Management Assurance statement process 

performed for FMFIA purposes. The assessment team provided the Director with 

key background materials to support the assertions in the certification required by 

Section 961 (c)(2) ofthe Act. 

Inherent Limitations 

All control systems, including internal supervisory controls, are subject to inherent 

limitations. No matter how well-conceived and operated, an internal control system 

cannot provide absolute assurance regarding the achievement of objectives, nor can an 

evaluation of an internal control system provide absolute assurance that significant 

deficiencies will be identified. Also, projections of any evaluation of effectiveness to 

future periods are subject to the risk that internal supervisory controls may become 

inadequate because of changes in conditions, or that the degree of compliance with the 

policies or procedures may deteriorate. 

Because ofthe nature, including breadth, ofthe Commission's examination, investigation, 

and review of corporate financial securities filings functions, as well as limitations on 

resources, management and staff within the relevant Office and Divisions must exercise 

judgment in conducting examinations ofregistered entities, enforcement investigations, 

and reviews of corporate financial securities filings. As such, controls are inherently 

designed to allow for the application ofjudgment in decision-making. There may be 

instances where judgments made in good faith are in hindsight deemed inappropriate. 

The evaluations ofinternal supervisory controls and procedures applicable to staff covered 

by this report for the Commission's fiscal year ending September 30, 2011 represent the 

second evaluation conducted pursuant to the requirements of Section 961 ofthe Act. 

Further assessment ofthe approach taken in 2011 may result in improvements to the 

effectiveness and efficiency ofthe efforts in 2012. 

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Despite the limitations described above, it is our belief that the evaluations ofthe 

Commission's internal supervisory controls and procedures applicable to staff provide a 

reasonable and justifiable basis for the conclusions expressed in this report. 

Significant Deficiencies 

Section 961 (c)(2)(D) requires each respective Director ofOCIE, Enforcement, and 

Corporation Finance certify that he or she has disclosed to the Commission any significant 

deficiencies in the design or operation ofinternal supervisory controls that could adversely 

affect the ability ofthe Division or Office to consistently conduct inspections, or 

investigations, or reviews of corporate financial securities filings with professional 

competence and integrity. Under the terms of Reorganization Plan No. 10 of 1950, the 

executive and administrative functions ofthe Commission are transferred to the Chairman 

ofthe Commission, including, among other functions, the appointment and supervision of 

personnel employed under the Commission. 3 Accordingly, the Director of each 

respective Division or Office should make any required disclosures to the Chairman ofthe 

Commission. To make this clear, the attached certification states that the respective 

directors have "disclosed to the Chairman ofthe Commission any significant deficiencies 

in the design or operation ofinternal supervisory controls ...." A copy ofthis report is also 

being provided to each Commissioner. 

As part ofthe evaluations described above, the respective OCIE, Enforcement, and 

Corporation Finance assessment teams evaluated their findings to determine whether any 

deficiencies existed as of September 30, 2011. The severity of all deficiencies identified 

was evaluated to determine whether any, either individually or in the aggregate, constituted 

a significant deficiency. Upon completion ofthis process, no significant deficiencies in 

internal supervisory controls were identified as of September 30,2011. 

Neither "deficiency" nor "significant deficiency" are defined terms in the Act. For 

purposes of making the determinations described above, a deficiency was found to exist 

when the design or operation of a control did not allow the respective office or division 

staffto consistently conduct examinations, investigations, or reviews ofcorporate financial 

securities filings. Any deficiencies, or combinations of deficiencies, in internal 

supervisory controls that would have been important enough to merit attention by the 

Chairman ofthe Commission would have been deemed to represent a "significant 

deficiency.,,4 In this context, "important enough to merit attention by the Chairman ofthe 

3 15 F.R. 3175, 64 Stat. 1265, Section l(a). 


4 This description of a significant deficiency contemplates the requirement in the Act for significant 


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Commission" means a deficiency that significantly inhibits the respective office or 

division from achieving the overall goals established by senior management for 

consistently conducting examinations, investigations, or reviews of corporate financial 

securities filings. 

Assessment of Effectiveness 

Based on the results ofthe evaluations described above, as of September 30, 2011, the 

internal supervisory controls ofthe Commission with respect to OCIE examinations, 

Enforcement investigations, and Corporation Finance filing reviews are effective, and the 

procedures ofthe Commission applicable to the OCIE, Enforcement, and Corporation 

Finance staffwho perform examinations ofregistered entities, enforcement investigations, 

and reviews of corporate financial securities filings, respectively, are effective. 

Certification of Internal Supervisory Controls 

See Exhibit A - Section 961 (c)(2) Certification 

Summary of Review by the Comptroller General 

Section 961 (e) ofthe Act requires a review by the Comptroller General ofthe United States 

ofthe adequacy and effectiveness ofthe Commission's internal supervisory control 

structure and procedures not less frequently than once every three years. Section 

961(b)(3) ofthe Act requires this report to contain a summary ofthe Comptroller General's 

review. The Comptroller General did not carry out aJreview under Section 961(e) for 

fiscal year ending September 30,2011. 

deficiencies to be disclosed to the Commission and, by analogy, the definition of significant deficiency in 

Commission rules relative to internal control over financial reporting (i.e., a deficiency, or a combination 

of deficiencies, in internal control over financial reporting that is less severe than a material weakness, yet 

important enough to merit attention by those responsible for oversight of the registrant's financial 

reporting). See Rule 1-02(a)(4) of Regulation S-X [17 CFR 210.1-02(a)(4)]. 

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Exhibit A 

SECTION 961(c)(2) CERTIFICATION 

Pursuant to the requirements ofSection 961 (c)(2) ofthe Dodd-Frank Wall Street Refonn and Consumer 

Protection Act, I hereby certify that: 

1. I am directly responsible for establishing and maintaining the internal supervisory controls ofthe 

Division or Office ofwhich I am the head. 

2. I am knowledgeable about the internal supervisory controls ofthe Division or Office ofwhich I am the 

head. 

3. I have evaluated the effectiveness during the 90-day period ending on the final day ofthe fiscal year 

ended September 30, 2011 ofthe internal supervisory controls ofthe Division or Office ofwhich I am the 

head. 

4. I have disclosed to the Commission any significant deficiencies in the design or operation ofinternal 

supervisory controls identified as a result ofthe evaluation described above that could adversely affect the 

ability to consistently conduct with professional competence and integrity, respectively: 

(a) inspections and examinations by the Office ofCompliance Inspections and Examinations, 

(b) investigations by the Division ofEnforcement, or 

(c) reviews ofcorporate financial securities filings by the Division ofCorporation Finance. 

This certification concerning the adequacy ofthe Commission's internal supervisory controls is based on 

the review described in the accompanying report ofthe internal supervisory controls and procedures 

applicable to the staff that perfonns the duties described above within the Division or Office ofwhich I am 

the head and is accurate to the best ofmy knowledge and belief This review was perfonned with the 

assistance ofmy supervisory staff and other personnel within my Division or Office. 

With Respect to 

Inspections and 

Examinations: 

Name:~i Florio Date 

Title: Director 

Office of Compliance Inspections and Examinations 

With Respect to 

Investigations: Nam?td;;/~=· Date 12-)j-/1/

Title: Director Division 


ofEnforcement 


Reviews 

With Respect 

ofCorp. 

to ~,~~

Name: Meredith B. Cross Date Financial Securities 

Title: Director Filings: Division of Corporation Finance 

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