Securities and Exchange Commission

Management Report to Accompany the

Semiannual Report of the Inspector General

for the period April 1, 2013 through September 30, 2013

_____________________________________

November 2013
U.S. SECURITIES AND EXCHANGE COMMISSION 

MANAGEMENT REPORT TO ACCOMPANY THE 

SEMIANNUAL REPORT OF THE INSPECTOR GENERAL 

(April 1, 2013 – September 30, 2013) 

 

Section 5(b) of the Inspector General Act of 1978, as amended, requires the 

Commission to transmit to the appropriate committees or subcommittees of the U.S. 

Congress a Management Report, containing certain statistical tables and any comments 

deemed appropriate, to accompany the Office of Inspector General’s (OIG’s) Semiannual 

Report. This Management Report presents the required information for the reporting 

period of April 1, 2013 through September 30, 2013. 

I. OVERVIEW OF SEC AUDIT FOLLOW-UP ACTIVITIES 

The SEC’s audit follow-up efforts continue to play a significant role in the 

effective management of the agency’s operations and the accomplishment of its mission. 

During the six-month period ending September 30, 2013, SEC divisions and offices 

closed 62 recommendations with the OIG’s concurrence. Further, OIG was reviewing 

management’s closure requests and documentation for three additional recommendations 

at period-end. 

 

SEC divisions and offices closed the following 12 OIG reports during the period: 

 Assessment of the SEC’s Bounty Program (Report No. 474, Mar. 29, 2010) 

 Compliance with Exemptive Orders (Report No. 482, June 29, 2011) 

 Review of the SEC’s Section 13(f) Reporting Requirements (Report No. 480, 

Sept. 27, 2010) 

 Review of Alternative Work Arrangements, Overtime Compensation, and 

COOP-Related Activities at the SEC (Report No. 491, Sept. 28, 2011) 

 The SEC’s Continuity of Operations Program (Report No. 502, Apr. 23, 

2012) 

 SEC’s Records Management Practices (Report No. 505, Sept. 30, 2012) 

 Evaluation of the SEC’s Whistleblower Program (Report No. 511, Jan. 18, 

2013) 

 Audit of SEC’s Controls over Support Service, Expert and Consulting Service 

Contracts (Report No. 513, Mar. 29, 2013)
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 Implementation of the Current Guidance on Economic Analysis in SEC 

Rulemaking (Report No. 516, June 6, 2013) 

 Failure to Timely Investigate Allegations of Financial Fraud (Report of 

Investigation No. OIG-505, Feb. 26, 2010) 

 OIT Contract Employees Given Access to SEC Buildings and Computer 

Systems for Several Weeks Before Background Investigation Clearance

(Report of Investigation No. OIG-544, Jan. 20, 2011) 

 Investigation into Misuse of Resources and Violations of IT Security Policy 

within the Division of Trading and Markets (Report of Investigation No. OIG557, Nov. 19, 2012) 

The Office of the Chief Operating Officer (OCOO) is responsible for the agency’s 

systems of audit follow-up, resolution, and corrective action. During the reporting 

period, the OCOO held regular meetings with select SEC offices to ensure timeliness of 

resolution decisions and corrective actions and received regular progress reports from all 

SEC divisions and offices with open audit recommendations. The OCOO also maintained 

continuous liaison with the Office of the Inspector General to facilitate the resolution and 

closure process. 

II. RECOMMENDATIONS IDENTIFIED BY OIG AS MOST IMPORTANT 

AND URGENT 

 The “Congressional Requests and Briefings” section of the OIG’s Semiannual 

Report references a June 28, 2013 letter from the OIG to the House Committee on Oversight 

and Government Reform that identifies “the three open and unimplemented 

recommendations that the SEC OIG considered to be the most important and urgent.” A 

brief description of the status of each recommendation follows. 

 The Office of Information Technology (OIT) and Office of Security Services’ 

Personnel Security Branch should take immediate measures to determine 

whether every OIT employee and contractor currently working, or to begin 

work, at the SEC has been properly cleared by a background investigation and 

issued an official SEC badge. (Report of Investigation No. OIG-544, Failure to 

Complete Background Investigation Clearance before Giving Access to SEC 

Buildings and Computer Systems (Jan. 20, 2011)) 

Status: The Offices of Information Technology and Security Services 

completed final action during the reporting period, and on September 27, 2013, 

the recommendation was closed with the OIG’s concurrence. 

 The Chair’s Office, in coordination with the Office of General Counsel (OGC) 

and the Division of Economic and Risk Analysis (DERA), should issue—to 

SEC rule-writing divisions, DERA, and OGC—written operating procedures for 

economic analysis that implement the Current Guidance on Economic Analysis 
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in SEC Rulemakings. (Report No. 516, Implementation of the Guidance on 

Economic Analysis in SEC Rulemakings (June 6, 2013)) 

Status: The Chair’s Office issued written operating procedures for 

implementing economic analysis in August 2013. In September 2013, the 

recommendation was closed with the OIG’s concurrence. 

 In consultation with the rulemaking divisions, develop a general outline of 

economic considerations that discusses the substantive requirements for 

economic analysis in rule releases. Topics covered should include defining a 

baseline, explaining any quantification in the release, or explaining the reasons 

why benefits or costs (or both) could not be quantified. Create a checklist that 

rule-writing teams can use when drafting rule releases. The checklist should 

identify which elements of the “Current Guidance on Economic Analysis in SEC 

Rulemaking” must be included in public documents and which elements are 

recommended for inclusion in public documents, but are not required. (Report 

No. 518, Use of the Current Guidance on Economic Analysis in SEC 

Rulemaking (June 6, 2013)) 

Status: The Division of Economic and Risk Analysis has started the process of 

developing training materials regarding economic analysis in SEC rulemakings. 

These materials will include a general outline of economic considerations and a 

checklist of potential economic considerations to be used by rule-writing teams. 

The target completion date is December 2013. 

III. REPORTS WITH MONETARY SAVINGS 

Sections 5(b)(2) and (3) of the Inspector General Act require the SEC 

Management Report to include statistical tables summarizing the progress that the agency 

has made in responding to audit reports, inspection reports, and evaluation reports 

containing “disallowed costs” and “recommendations that funds be put to better use.” 

Disallowed Costs. Whenever OIG questions whether costs incurred by the 

agency are necessary, supported by adequate documentation, or in accordance with law, 

regulation, or contracts governing the use of funds, SEC management will review the 

facts and determine whether such costs should be officially disallowed. If the SEC 

agrees that such costs should not be charged to the government, the agency will then take 

appropriate action, such as commencing collection efforts to recover the disallowed costs. 

Funds Put to Better Use. Whenever OIG recommends specific dollar amounts 

that it believes can be saved by improving the efficiency of agency operations, SEC 

management will review the facts and determine whether to implement such 

recommendations. “Funds put to better use” refers to the specific dollar value of cost 

savings that the SEC has agreed can and should be implemented through appropriate 

corrective action. 
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Table 1 (below) presents the required information on audit, inspection, and 

evaluation reports with disallowed costs or recommendations that funds be put to better 

use. The SEC began and ended the period with no open reports with monetary findings. 

Table 1: Status of Final Action on Audit, Inspection, and 

Evaluation Reports with Disallowed Costs or Funds Put to Better Use 

Audit, Inspection, and Evaluation Reports Number

Dollar Value of 

Disallowed 

Costs 

Dollar Value 

of Funds Put 

to Better Use 

A. For which final action had not been taken by the 

beginning of the reporting period (4/1/13) 0 $0 $0 

B. On which management decisions were made 

during the reporting period (4/1/13 –9/30/13) 0 $0 $0 

C. For which final action was taken during the 

reporting period 0 $0 $0 

(i) Dollar value of disallowed costs that 

were recovered through collection, 

offsets, property in lieu of cash, or 

otherwise 0 $0 $0 

(ii) Dollar value of disallowed costs that 

were written off by management 0 $0 $0 

(iii) Dollar value of recommendations that 

management has subsequently 

concluded should not or could not be 

implemented or completed 0 $0 $0 

D. For which no final action has been taken by the 

end of the reporting period (9/30/13) 0 $0 $0 

IV. REPORTS MORE THAN ONE YEAR OLD WITH PENDING 

CORRECTIVE ACTION 

 Section 5(b)(4) of the Inspector General Act requires the SEC Management 

Report to include a statement with respect to audit reports on which management 

decisions have been made but final action has not been taken, other than audit reports on 

which a management decision was made within the preceding year. Table 2 (on the 

following page) presents the required information. The table lists 5 audits and 2 other 

reports that contain a total of 75 recommendations. As of September 30, 2013, 

management had closed 64 (85%) recommendations with OIG’s concurrence. 
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Table 2: Audits and Other Reports Open More Than One Year 

(Reporting Period April 1, 2013 through September 30, 2013) 

Report No./Title 

Report 

Date 

Funds Put 

to Better 

Use 

Disallowed 

Costs Status of Final Action 

485, Assessment of the SEC’s Privacy Program (Audit) 

9/29/10 $0 $0 Nineteen of twenty recommendations from this report h

addressing the remaining recommendation by transitionintegrating a new object-level auditing package into netimplementing new policy. Two major projects have beremaining efforts are expected to be completed in June 

489, Federal Information Security Management Act (FISMA) 2010 Assessment (Audit) 

3/3/11 $0 $0 Seven of eight recommendations from this report have b

integration of HSPD-12 access cards has presented chalwide. The SEC actively participates with an inter-agento solving the associated problems and finding a workabof Information Technology expects to have a working pcalendar year-end, with a target of full deployment by J

492, Employee Recognition Program (Audit) 

8/2/11 $0 $0 Eighteen of nineteen recommendations from this report 

Management is continuing negotiations with the Union recommendation. 

497, Continuous Monitoring (Audit) 

8/11/11 $0 $0 Eleven of thirteen recommendations from this audit hav

action was delayed on the remaining recommendations its data centers. In addition, a move from physical systeenvironment has changed the nature of the solution. This first quarter FY 2014. 

501, Federal Information Security Management Act 2011 Assessment (Audit) 

2/2/12 $0 $0 Nine of thirteen recommendations have been closed, an

submitted two more recommendations to OIG for a closperiod ended. One of the two remaining recommendatiopen recommendation in audit 489 discussed above. Thaddressed as part of a comprehensive OIT security polictarget completion date is June 2014. 

PI-09-05, Access Card Readers in Regional Offices (Investigative Memorandum) 

2/22/10 $0 $0 The SEC and the NTEU have reached an impasse in neg

their differences, the SEC and NTEU have agreed to endirected by the Federal Mediation and Conciliation Serv

ROI-551, Allegations of Unauthorized Disclosure of Non-Public Information (Report of Investigation) 

3/30/11 $0 $0 System components have been procured and are being s

installation, testing and deployment by January 2014. 
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V. EMPLOYEE SUGGESTIONS 

Section 966 of the Dodd-Frank Act requires that the OIG establish an employee suggestion 

program, consider suggestions, and recommend appropriate action. With respect to the suggestions 

discussed in the OIG’s Semiannual Report (i.e., update certain SEC information systems, create a 

centralized database of electronic communications that the Office of Compliance Inspections and 

Examinations requests and receives during examinations, and telephone replacement and online 

reporting process), as of September 30, 2013, management was considering each suggestion and 

working to meet the OIG’s requested October/November response due date.