2019 Report and Certification of Internal Supervisory Controls 

Introduction 

Section 961 of the Dodd-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 U.S. Senate Committee on Banking, 

Housing, and Urban Affairs and the U.S. House Committee on Financial Services on the internal 

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, 2019. 

Backgr~und 

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 23 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 of this 

report, references to "the Commission's internal supervisory controls" or "internal supervisory 

controls of the Commission" relate to the relevant internal supervisory controls of OCIE, 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, 

municipal advisors, investment companies, and investment advisers. OCIE 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 

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 upon the hiring of its Director 

and was immediately staffed with a reassigned examination team from OCIE and a reassigned 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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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. OCR's staff is comprised of similarly diverse professionals who are located in 

Washington, D.C. and the New York Regional Office. The majority of the SEC's other offices 

and divisions, including Corporation Finance, are located exclusively in Washington, D.C. 

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 staff that 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 by the evaluation 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 96l(b)(l) of the Act requires the assessment of both the Commission's internal 

supervisory controls and 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 established "day-to-day" procedures to be followed by the employees within 

the applicable programs. "Internal supervisory controls" refer to the processes established by 

management to monitor that the procedures applicable to staff are consistently being performed 

according to policy and procedures, and also remain reasonable, adequate, and current. 

Scope and Methodology 

1. 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 controls in place during the entire fiscal year and the 

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

final day of the fiscal year ending on September 30, 2019. Upon completion of the evaluation, 

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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 staff from OCIE, OCR, Enforcement, Corporation 

Finance, and the Office of the Chief Operating Officer. Additionally, the working group, as 

needed, obtained input from Senior Officers in OCIE, OCR, Enforcement, and Corporation 

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

communicated regularly to discuss the execution of each division's or office's assessment and to 

ensure a consistent methodology for conducting the Section 961 assessment corresponding with 

relevant government-wide internal controls standards and guidance. 

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

consideration of their functional responsibilities, focusing on assessing whether their respective 

objectives of consistently conducting examinations, investigations, or reviews of corporate 

financial securities filings in accordance with adopted policies and procedures were 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 

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 review of the internal supervisory controls pursuant to the 

requirements of Section 961 of the Act, the Federal Managers' Financial Integrity Act 

("FMFIA") assurance statements for fiscal year 2019, and recent Office of Inspector General 

("OIG") and GAO findings. 

Finally, the divisions and offices reviewed any deficiencies identified to determine whether 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 utilized assessment staff that included members of the working group, senior 

managers, and other staff with experience in conducting examinations or investigations, as 

applicable. The assessment staff, along with senior staff and officers, for each function identified 

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

consistently conduct examinations or investigations according to policies and procedures, which 

included the identification of any deficiencies in control design or operating effectiveness. 

In the case of OCIE and Enforcement, the evaluation also included an identification of the 

information technology ("IT") systems used to track examinations and investigations and an 

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

applicable to staff. In the case of OCR, the assessment staff reviews and tests supervisory 

controls within its examination system. 

The assessment staff for examinations and investigations corresponded with Home and Regional 

Office Senior Officers3 and other staff to help ensure appropriate identification and description 

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

of the internal supervisory controls that were determined to be designed appropriately. The staff 

used a combination of statistical, random, and judgmental sampling techniques to select samples 

for validating operational effectiveness, as applicable. The staff obtained and documented 

evidence to support the effective operation of supervisory controls. 

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

performed for FMFIA and leveraged much of the work conducted for that process. 

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 Office of Risk and Strategy that identifies and evaluates risks 

and related controls that are important to Corporation Finance's ability to consistently conduct 

reviews according to policies and procedures, which included the identification of any 

deficiencies in control design or operating effectiveness. 

The evaluation is performed by staff with significant experience performing reviews of 

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

supervisory controls, the team designed and executed tests of 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 of 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 

internal supervisory controls may become inadequate because of changes in conditions, or that 

the degree of compliance with the policies or procedures may deteriorate. 

3 The Regional Office Directors and Home Office Senior Officers within OCIE 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. The OCR Director has supervisory responsibility for 

OCR staff. 

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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 staff within 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, 2019 represent the ninth 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 2019 to improve the effectiveness and 

efficiency of the efforts going forward. The results of GAO's review under Section 96l(e) of the 

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 96l(c)(2)(D) requires each respective Director of OCIE, 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. 

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, 2019. 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 

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

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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 Res.nits 

Based on the results of the evaluations described above, as of September 30, 2019, the internal 

supervisory controls and procedures of the Commission with respect to OCIE and OCR 

examinations, Enforcement investigations, and Corporation Finance reviews of corporate 

financial securities filings were effective for the 90-day period ending on the final day of the 

fiscal year ending on September 30, 2019, 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, were effective for the same period. 

Certification of Internal Supervisory Controls 

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

Summary of Review by the GAO 

Section 96l(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 initiated its third triennial review under Section 961 ( e) in December 2018 and will 

release its report, "Systematically Assessing Staff Procedures and Enhancing Control Design 

Would Strengthen Oversight Activities" (GAO-20-115) shortly. The report concludes that SEC's 

framework included elements covering each of the five components of internal control----control 

environment, risk assessment, control activities, information and communication, and 

monitoring. The report notes, however, that SEC does not have written policies or guidance to 

ensure that staff systematically assesses the effectiveness of procedures applicable to staff who 

perform examinations of registered entities, enforcement investigations, and reviews of corporate 

securities filings. The report also states that all the SEC controls GAO evaluated were designed 

consistent with standards, and a majority operated as intended. 

The GAO had the following recommendations to the SEC: (i) The Chairman should direct the 

Directors of the Division of Corporation Finance, Division of Enforcement, Office of 

Compliance Inspections and Examinations, and Office of Credit Ratings to develop written 

policies and processes to systematically assess the effectiveness of staff procedures and (ii) the 

Directors of the Division of Corporation Finance, Division of Enforcement, Office of 

Compliance Inspections and Examinations, and Office of Credit Ratings should ensure that all 

internal supervisory controls include documentation requirements, detailed procedures, identified 

follow-up actions, implementation time frames, and assignment of control execution 

responsibility, in accordance with SEC guidance and federal internal control standards for 

implementing control activities through documented policies. 

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The Directors of each of the offices and divisions has already begun to implement these 

recommendations in fiscal year 2020. 

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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 Conswner 

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, 2019 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. 

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With Respect to Inspections and Examinations: 

N."ne: Peter ~ riscoll / ,-,?_,,;7' 

S1gnatureo~0 /;?' 

Date: / <- -I I .,, I o/ 

Title: Director 

Office of Compliance Inspections and Examinations 

Name: Jessica S. Kane 

Signature: ~ 5 ~ 0 

Date: / J- (// I - :}-v f 1 

Title: Director 

Office of Credit Ratings 

With Respect to Reviews of Corporate Financial Securities Filings: 

N_ame: ~-il~ian)1/ JJnmazi -- S1gnatwe. ~(::-~~·~i=~=--==----- 7 ~ Date: 

Title: Director 

Division of Corporation Finance 

With Respect to Investigations: 

Signature: 

Date: I ;i.( l'- l 7YP L 

Title: Co-Director 

Division of Enforcement 

N_ame: Steven P~~;?;,? J 

Signature: ~/!( (~L 

Date: /z_,., /!-/1 

Title: Co-Direttor 

Division of Enforcement 

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