UNITED STATES 

SECURITIES AND EXCHANGE COMMISSION 

WASHINGTON , D.C. 20549 

2014 Report and Certification of Internal Supervisory Controls 

Introduction 

Section 961 ofDodd-Frank Wall Street Reform and Consumer Protection Act (the "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 of registered entities, 1 

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

being submitted for the Commission's fiscal year ending September 30, 2014. 

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 22 offices, the scope of the activities covered in Section 961 fall principally 

under the purview of: the Office of Compliance Inspections and Examinations ("OCIE"), the 

Office of Credit Ratings ("OCR"),2 the Division of Enforcement ("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, OCR, 

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, 

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

Office of Compliance Inspections and Examinations or the Office of Credit Ratings. 

2 The,Act also mandated the creation of OCR, which was established in June 2012, from a reassigned examination 

team from OCIE and the realignment of the monitoring team from the Division of Trading and Markets. The 

certification mandated by Section 961 of the Act is required for the "Director of the Division of Enforcement, the 

Director of the Division of Corporation Finance, and the Director of the Office of Compliance Inspections and 

Examinations (or the head of any successor division or office)." The SEC has determined that OCR should be 

considered a successor of OCIE and therefore subject to the reporting certification of Section 961. 

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municipal advisors, investment companies, and investment advisers. The Office conducts 

examinations to foster compliance with the securities laws, to detect violations of the law, to 

identify risks and to inform policy. OCR is responsible for conducting examinations and 

monitoring the activities of Nationally Recognized Statistical Rating Organizations to assess and 

promote compliance with statutory and Commission requirements. Enforcement is principally 

responsible for assisting the Commission in executing its law enforcement function by, among 

other things, conducting investigations of potential 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 of the Commission. Finally, 

Corporation Finance is principally responsible for selectively reviewing the disclosure 

documents that relate to the offer and sale of securities 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 companies can improve or 

enhance their compliance with the disclosure requirements of the 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. OCR's staff is divided between the SEC 

headquarters and the New York Regional Office. The majority ofthe SEC's other offices and 

divisions, including Corporation Finance, are located exclusively in Washington, DC. 

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

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

Finance staffthat perform examinations of registered entities, enforcement investigations, and 

reviews of corporate financial securities filings. Furthermore, the report describes whether any 

significant deficiencies in these controls or procedures have been identified to exist as of the end 

of the fiscal year. The report also includes a description of the inherent limitations of procedures 

applicable to staff, internal 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 of the Comptroller General's review pursuant 

to Section 961 (e) of the Act. 

Internal Supervisory Controls and Procedures Applicable to Staff 

Section 961(b)(1) of the Act requires the assessment ofboth the internal supervisory controls and 

Commission procedures applicable to the Commission staff who perform examinations of 

registered entities (i.e., OCIE and OCR), enforcement investigations (i.e., Enforcement), and 

reviews of corporate financial securities filings (i.e., Corporation Finance). The terms "internal 

supervisory controls" and "procedures applicable to staff' are not defined in the Act. For 

purposes of this report and the attached certification, "procedures applicable to staff' refer to the 

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established "day-to-day" procedures to be followed by the employees charged with these 

functions. "Internal supervisory controls" refer to the processes established by management of 

each respective office or division for monitoring that the "procedures applicable to staff' are 

performed consistently with professional competence and integrity, and also remain reasonable, 

adequate, and current. 

Scope and Methodology 

I. Overview 

The Directors of OCIE, OCR, 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. The internal 

supervisory control review encompassed internal controls in place during the entire fiscal year 

and the assurance of those controls encompassed the 90-day period ending on the final day of 

the fiscal year ending on September 30, 2014. 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, OCR, 

Enforcement, Corporation Finance, and the Offices ofthe Chief Operating Officer and 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 offices and to ensure a consistent methodology for conducting the 

Section 961 assessment corresponding with relevant government-wide internal controls 

standards and guidance. This methodology was revised in 2013 to incorporate a Government 

Accountability Office ("GAO") recommendation that the SEC's internal supervisory controls 

have clearly defined activities and clear and readily available documentation demonstrating 

execution of those activities. 

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

consideration of their functional responsibilities, focusing on assessing whether their 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 evaluating the 

operating effectiveness of the controls included in the evaluation. The procedures for collecting 

information to evaluate the effectiveness of internal supervisory controls consisted principally of 

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interviews, observation, process walkthroughs, inspection of documents, self-assessments 

(including the use of sub-certifications), and through the application of judgment, as appropriate. 

In addition, relevant members of the working group reviewed and considered background 

material that included the 2013 review of the internal supervisory controls pursuant to the 

requirements of Section 961 ofthe Act, the Federal Managers' Financial Integrity Act (FMFIA) 

assurance statements for fiscal year 2014, results of an agency-wide review of entity-level 

controls, and recent Office oflnspector General ("OIG") and GAO findings. 

Finally, the divisions and offices reviewed any deficiencies identified by assessing their impact 

on the evaluation of the design and operating effectiveness of internal supervisory controls, 

including making the determination of whether any such deficiencies were considered 

significant, either individually or in the aggregate. OCIE, OCR, 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, OCIE, OCR, and 

Enforcement developed separate assessment teams that included members of the 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 risks and 

related key controls that are important to the function's ability to consistently conduct 

examinations or investigations with professional competence and integrity, which included the 

identification of any deficiencies in control design or operating effectiveness. 

The evaluation also included an identification of the information technology ("IT") systems used 

to track examinations and investigations. The assessment teams evaluated 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 Officers3 and other staff 

with the goal of obtaining their assistance and support in the identification and description of 

controls. In order to assess the effectiveness of supervisory controls, the teams designed tests 

around the key internal supervisory controls that were determined to be designed appropriately. 

3 The Regional Office Directors and Home Office Senior Officers within OCIE, OCR, 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 teams used a combination of statistical, random, and judgmental sampling techniques to 

select samples for validating operational effectiveness. The teams obtained and documented 

evidence to support the effective operation of key supervisory controls. 

This process was closely coordinated with the annual Management Assurance statement process 

performed for FMFIA purposes and used the sub-certification prepared for the FMFIA assurance 

statement, due to the concurrent nature of the 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) 

of the Act. 

3. Reviews of Corporate 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 senior management and other 

staff members. The assessment team identified and evaluated risks and related key controls that 

are important to Corporation Finance's ability to consistently conduct reviews with professional 

competence and integrity, which included the identification of any deficiencies in control design 

or operating effectiveness. 

The evaluation included the assistance ofthe Disclosure Standards Office, which is staffed 

with permanent managers and rotators with significant experience performing reviews of 

corporate financial securities filings. In order to assess the effectiveness of supervisory 

controls, the team designed and executed tests of key internal supervisory controls during 

an interim period and the year-end that included a combination of random and judgmental 

sampling techniques to select samples for validating operational effectiveness. The team 

obtained and documented evidence to support the effective operation ofkey supervisory 

controls. 

This process built upon the annual Management Assurance statement process performed for 

FMFIA purposes. 

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 

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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 of the nature, including breadth, of the Commission's examination, investigation, and 

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

management and staffwithin the relevant offices and divisions must exercise judgment in 

conducting examinations of registered entities, enforcement investigations, and reviews of 

corporate financial securities filings. As such, controls are inherently designed to allow for the 

application of judgment in decision-making. There may be instances where judgments made in 

good faith are in hindsight deemed inappropriate. 

The evaluations of internal supervisory controls and procedures applicable to staff covered by 

this report for the Commission's fiscal year ending September 30, 2014 represent the fifth time 

such evaluations have been conducted pursuant to the requirements of Section 961 of the Act. 

The SEC will continue to enhance the approach taken in 2014 to improve the effectiveness and 

efficiency ofthe efforts going forward. The results of GAO's review under Section 961(e) ofthe 

Act may also result in adjustments to the process in future years. 

Despite the limitations described above, it is our belief that the evaluations of the 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 and any successor offices, such as OCR, to certify that he or she has disclosed to the 

Commission any significant deficiencies in the design or operation of internal supervisory 

controls that could adversely affect the ability of the applicable 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 of the Commission are transferred to the Chairman of 

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

personnel employed under the Commission.4 Accordingly, the Director of each respective 

Division or Office should make any required disclosures to the Chairman of the Commission. 

To make this clear, the attached certification states that the respective Directors have "disclosed 

to the Chairman of the Commission any significant deficiencies in the design or operation of 

internal supervisory controls .... " A copy of this report is also being provided to each 

Commissioner. 

4 15 F.R. 3175,64 Stat. 1265, Section !(a). 

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As part of the evaluations described above, the respective OCIE, OCR, Enforcement, and 

Corporation Finance assessment teams evaluated their findings to determine whether any 

deficiencies existed as of September 30, 2014. The severity of all deficiencies identified was 

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

significant deficiency. Upon completion of this process, no significant deficiencies in internal 

supervisory controls were identified. 

For purposes of making the determinations described above, a "significant deficiency" meriting 

the attention by the Chairman of the Commission, is any deficiency, or combination of 

deficiencies, in internal supervisory controls that 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 with professional 

competence and integrity. 

Summary of Assessment Results 

Based on the results ofthe evaluations described above, as of September 30, 2014, the internal 

supervisory controls of the Commission with respect to OCIE and OCR examinations, 

Enforcement investigations, and Corporation Finance reviews of corporate financial securities 

filings are effective, and the procedures of the Commission applicable to the OCIE, OCR, 

Enforcement, and Corporation Finance staff who perform examinations of registered 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 GAO 

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

the adequacy and effectiveness of the Commission's internal supervisory control structure and 

procedures not less frequently than once every three years. Section 961(b)(3) of the Act requires 

this report to contain a summary of the GAO's review. 

The GAO began a review under Section 961(e) in March 2012 and released its report in April 

2013, "Continued Management Attention Would Strengthen Internal Supervisory Controls" 

(GA0-13-314). The report concluded that the agency's overall internal control framework to 

implement Section 961 of the Act meets GAO's standards, including identifying and assessing 

internal controls and reporting the results of testing to SEC management and Congress. 

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In the engagement, GAO selected and tested a sample of internal supervisory controls from the 

list of existing operating controls for the fiscal year ending September 30, 2011 ("2011 reporting 

cycle"). The 2011 reporting cycle, in fact, was the first year that the SEC conducted testing of 

the internal supervisory controls identified by Section 961. During this first year of detailed 

testing, OCIE, Enforcement, and Corporation Finance identified a number of deficiencies 

requiring corrective action and management attention, although SEC management determined 

that none of these deficiencies rose to the level of a significant deficiency. The GAO's report 

reached a similar conclusion with respect to the 2011 reporting cycle and notes that the SEC has 

already taken, or is taking steps, to address nearly all the deficiencies identified by GAO. Since 

many of these deficiencies had already been identified by OCIE, Enforcement, and Corporation 

Finance during their 2011 testing, corrective action in many cases was already underway or 

completed at the time that GAO conducted its testing. 

Building on the procedures that GAO performed on the 2011 reporting cycle, OCIE, 

Enforcement, and Corporation Finance conducted additional testing on the effectiveness of 

internal supervisory controls for the 90-day period ending September 30, 2012 ("2012 reporting 

cycle"). While GAO was not in a position to evaluate the results of the assessment of internal 

supervisory controls for the 2012 reporting cycle, SEC management did not identify any 

significant deficiencies during this testing. The results of this assessment were reported to 

Congress in December 2012. 

Subsequent to the completion of GAO's report in April2013, SEC management in fiscal year 

2013 prepared a corrective action plan to identify the actions that had been taken, or would be 

taken, to address the specific deficiencies identified by the GAO. To address the report's 

recommendation, the offices revised their documented procedures to more clearly specify how 

each of the offices would evaluate the design of internal supervisory controls to ensure that such 

controls have clearly defined activities and clear and readily available documentation 

demonstrating execution of those activities. Following the completion of these corrective 

actions, in April2014 SEC management submitted a closure request to the GAO along with the 

supporting documentation. GAO has responded that it will evaluate closing the recommendation 

during its upcoming engagement it expects will begin in the spring of2015. 

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Exhibit A 

SECTION 961(c)(2) CERTIFICATION 

Pursuant to the requirements of Section 961(c)(2) of the Dodd-Frank Wall Street Reform and Consumer 

Protection Act, I hereby certify that: 

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

Division or Office of which I am the head. 

2. I am knowledgeable about the internal supervisory controls of the Division or Office of which I am the 

head. 

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

ended September 30,2014 of the internal supervisory controls of the Division or Office of which I am 

the head. 

4. I have disclosed to the Chairman of the Commission any significant deficiencies in the design or 

operation of internal supervisory controls identified as a result of the 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 of Compliance Inspections and Examinations and 

its successor office, the Office of Credit Ratings, 

(b) investigations by the Division of Enforcement, or 

(c) reviews of corporate financial securities filings by the Division of Corporation Finance. 

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

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

applicable to the staff that performs the duties described above within the Division or Office of which I 

am the head and is accurate to the best of my knowledge and belie£ This review was performed with the 

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

With Respect to Inspections and Examinations: 

Title: D' ec r l-z/ (w ( 1 ~ 

Office of Compliance Inspections and Examinations 

s;; ~ c;g-=> ::::::::::> 

Name: Thomas J. Butler -

Date: ll-/ r\ / ~~ 

Title: Director 

Office of Credit Ratings 

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With Respect to Reviews of Corp. Financial Securities Filings: 

~ d~,,_._ Name: k~h Hig;~? Date: I zj1~/;'( 

Title: Director 

Division of Corporation Finance 

arne: Andrew Ceres 

Date: {l. / t1{•-< 

Title: Ditector 

Division of Enforcement 

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