Audit of the SEC Budget 

Execution Cycle 

March 29, 2011 

Report No. 488 

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Audit of the SEC Budget Execution Cycle March 29, 2011 

Report No. 488 

Page i 

To: Kenneth A. Johnson, Chief Financial Officer, Office of Financial 

Management (OFM) 

From: H. David Kotz, Inspector General, Office of Inspector General (OI

MEMORANDUM 

March 29, 2011 

Subject: Audit of the SEC Budget Execution Cycle, Report No. 488 

"'#~

This memorandum transmits the U.S. Securities and Exchange Commission OIG's 

final report detailing the results on our audit of the SEC's budget execution cycle. 

This audit was conducted as part of our continuous effort to assess management of 

the Commission's programs and operations and as a part of our annual audit plan. 

The final report contains nine recommendations which if fully implemented should 

strengthen OFM's budget operations. OFM concurred with all the recommendations. 

Your written response to the draft report is included in Appendix VI. 

Within the next 45 days, please provide the OIG with a written corrective action plan 

that is designed to address the recommendations. The corrective action plan should 

include information such as the responsible offiCial/point of contact, timeframes for 

completing required actions, and milestones identifying how you will address the 

recommendations. 

Should you have any questions regarding this report, please do not hesitate to 

contact me. We appreciate the courtesy and cooperation that you and your staff 

extended to our auditor and contractors during this audit. 

Attachment 

cc; Kayla J. Gillan, Deputy Chief of Staff, Office of the Chairman 

Luis A. Aguilar, Commissioner 

Troy A. Paredes, Commissioner 

Elisse B. Walter, Commissioner 

Jeffery Heslop, Chief Operating Officer, Office of the Chief Operations 

Officer 

Mark Cahn, General Counsel, Office of the General Counsel 

Diego T. Ruiz, Executive Director, Office of the Executive Director 

Diane Galvin, Assistant Director, Planning and Budget Office, Office of 

Financial Management 

UN ITED STATES 

SECURITIES AND EXCHANGE COMMISSION 

WASHINGTON . D .C . 20S49 
Audit of the SEC Budget Execution Cycle 

Executive Summary 

Background. The Securities and Exchange Commission (SEC or Commission) 

Office of Inspector General (OIG) contracted with Acuity Consulting, Inc. (Acuity), 

to conduct an audit of the SEC’s budget execution processes and to identify 

potential areas for improvement. 

The mission of the SEC is to protect investors, maintain fair, orderly, and efficient 

markets, and facilitate capital formation. To fulfill its mission, the SEC is financed 

through an annual general fund appropriation that is enacted by Congress that 

may remain available until expended and through occasional supplemental 

appropriations that are available for a specific period of time. 

During fiscal years (FY) 2009 and 2010, and as in other FYs, the SEC’s annual 

general fund appropriation consisted of a “Salaries and Expenses” account within 

the President’s Budget. In FYs 2009 and 2010, the SEC obligated over $966 

million and $1.1 billion, respectively, against the funds available. Pursuant to 

P.L. 111-32, enacted on June 24, 2009, the SEC received a supplemental 

appropriation of $10 million that was available for FYs 2009 and 2010 with the 

stated purpose of “investigation of securities fraud.” 

The SEC has various headquarters functions that are located in the Washington, 

D.C, area, including the Office of Financial Management (OFM), which 

administers the agency’s financial management and budget functions. 

Organizationally, OFM has reporting responsibilities to the Office of the Executive 

Director (OED) for budget formulation and budget execution functions and to the 

Office of Chief Operating Officer for the finance, accounting, and treasury 

operation functions. OFM is headed by the Associate Executive Director 

(Finance), who also serves as the SEC’s Chief Financial Officer. OFM is 

organized into two primary offices: (1) the Finance and Accounting Office, which 

is responsible for accounting policies, procedures, and operations, and (2) the 

Planning and Budget Office, which is responsible for the formulation and 

execution of the SEC’s budget. The OFM Planning and Budget Office consists of 

two branches: (1) Budget, Formulation and Execution, and (2) Performance and 

Planning. 

The SEC uses two software applications for the budget development and budget 

execution processes. The Budget and Program Performance Analysis System 

(BPPAS) is an activity-based costing/performance-based budgeting system 

software application that the SEC uses for the budget planning and formulation 

process and for developing the annual operating budget. BPPAS downloads and 

Audit of the SEC Budget Execution Cycle March 29, 2011 

Report No. 488 

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Audit of the SEC Budget Execution Cycle March 29, 2011 

Report No. 488 

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updates appropriation, apportionment, allocation, suballocation,1

 and budget 

transfers data to Momentum, the SEC’s core financial system of record, at 

varying levels of detail. Obligation data in BPPAS is updated by uploads of 

obligation data from the Momentum system, which is used to record all of the 

SEC’s budget execution and accounting transactions. The Momentum system 

further maintains the Commission-wide general ledger and produces the financial 

and external reports that are submitted periodically to the U.S. Department of the 

Treasury (Treasury) and other Federal entities. 

The SEC budget process consists of formulation, submission, approval, 

execution, and reporting. The budget execution process, which is the focus of 

this audit, includes the enactment of an appropriation, obtaining the Office of 

Management and Budget’s (OMB) approval of an apportionment (i.e., a plan to 

spend resources that identifies amounts legally available for obligations and 

expenditures), and making allocations and suballocations to the SEC’s various 

offices and divisions. After apportionment, OFM staff load the funding allocations 

as reflected in BPPAS to Momentum, and these amounts are then available for 

commitment and obligations. 

The Government Accountability Office (GAO) reported in GAO Report No.10-

250, SEC’s Financial Statements for Fiscal Years 2009 and 2008, that since its 

2007 audit of the SEC, there were several repeat control deficiencies within the 

SEC, including “ineffective processes and related documentation concerning 

budgetary transactions.” Further, in GAO Report No.11-202, SEC’s Financial 

Statements for Fiscal Years 2010 and 2009, GAO reaffirmed the following three 

open recommendations reported in prior audit reports: (1) correcting general 

ledger system configurations for upward and downward adjustments of prioryears’ undelivered orders, (2) clarifying administrative control of funds guidance 

for staff performing obligation activities, and (3) establishing and implementing 

controls related to the recording statute. 

Objectives. The overall objective of the audit was to determine whether 

sufficient management controls over the SEC’s budget execution processes were 

in place and operating effectively. 

Results. The audit identified a number of control deficiencies concerning the 

SEC’s budget execution processes. Specifically, the audit found that the SEC 

may have violated the Purpose Statute, 31 U.S.C. § 1301, during the period a 

supplemental appropriation was available for obligation due to inconsistent 

appropriations selection on contract modifications for information technology (IT) 

1

 An “apportionment” is “[a] distribution made by OMB of amounts available for obligation in an appropriation 

or fund account into amounts available for specified time periods, activities, projects, objects or 

combinations thereof.” SEC-R 14-1, Administrative Control of Funds, § 2.b. An “allotment” is “authority to 

incur obligations within a specified amount . . . ,” and a “suballotment” is a “subdivision of an allotment.” 

SEC-R 14-1, Administrative Control of Funds, § 2.c. The SEC uses allocations and suballocations, rather 

than allotments and suballotments. 
Audit of the SEC Budget Execution Cycle March 29, 2011 

Report No. 488 

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acquisitions and expert witness fee services. In the course of our fieldwork, we 

noted the inconsistent citing of appropriations for contract modifications related to 

certain IT projects and expert witness fee services once an appropriation had 

been selected for the initial contract. Specifically, we identified eight contracts 

that inconsistently cited appropriations once the initial appropriation was 

selected; of these eight contracts, six initially cited the supplemental 

appropriation, while subsequent contract modifications cited the SEC’s general 

appropriation. 

In accordance with guidance found in GAO’s Principles of Federal Appropriations 

Law (Red Book), when two appropriations are available for the same purpose, an 

agency is required to select one appropriation and continue to use that 

appropriation consistently throughout its availability, unless the statutory 

language clearly demonstrates congressional intent to make one appropriation 

available to supplement or increase a different appropriation for the same type of 

work. We found no express language in the act containing the supplemental 

appropriation that clearly demonstrated congressional intent to have both 

appropriations available for the same type of work, as was the situation in a prior 

Comptroller General decision. As a result of the SEC’s failure to select and use 

one appropriation consistently for particular IT projects and expert witness fees, 

the SEC may have violated the Purpose Statute during the period when the 

supplemental appropriation was available for obligation. In addition, we 

determined that the SEC may have violated the Antideficiency Act, 31 U.S.C. § 

1341(a), as the supplemental appropriation no longer has sufficient funds to 

accommodate adjustment of the potential Purpose Statute violation. In 

discussions with OFM, we were informed that management’s position is that the 

SEC did not violate the Purpose Statute because it believed that the exception to 

the requirement to select and use one appropriation applied. We consulted with 

and were advised by GAO that a formal opinion was appropriate to resolve this 

matter. Accordingly, we are recommending that the SEC request an opinion on 

the matter from the Comptroller General. 

In addition, the audit found that a senior budget analyst in OFM inactivated the 

Momentum financial system budgetary controls to facilitate the processing of 

payroll transactions. We found no evidence that senior or executive 

management authorized the budget analyst’s inactivation of Momentum budget 

document controls. The inactivation of Momentum budget document controls 

allowed the sum of the allocation amounts issued in FY 2010 to exceed the FY 

2010 apportionment. We determined that the fact that the SEC’s allocations 

exceeded the apportionment was contrary to both OMB guidance and the SEC’s 

Administrative Control of Funds Regulation, SEC-R 14-1. Moreover, the 

inactivation of budget controls by OFM staff could lead to a violation of the 

Antideficiency Act, 31 U.S.C. § 1517(a). 

Further, the audit found that the BPPAS system is configured to track only one 

appropriation symbol. As a result, the SEC does not have full visibility of its 
Audit of the SEC Budget Execution Cycle March 29, 2011 

Report No. 488 

Page v 

budgetary authority and the purposes for which it is used. Effective in FY 2012, 

under Section 991 of the Dodd-Frank Wall Street Reform and Consumer 

Protection Act (Dodd-Frank Act), Congress has established a separate 

appropriation titled “Securities and Exchange Commission Reserve Fund,” in 

addition to the Commission’s annual general appropriation. In an environment of 

multiple appropriations, the SEC needs to have BPPAS configured to accept 

more than one appropriation to avoid an increased level of manual override 

activity and mitigate the increased effort required to support congressional 

reporting requirements under the Dodd-Frank Act. In the absence of full visibility 

of purpose and use of funds, the SEC may be at risk of future Purpose Statute 

and Antideficiency Act violations related to the separate “Securities and 

Exchange Commission Reserve Fund” appropriation established under the 

Dodd-Frank Act. 

The audit also found that OFM does not have a formal budgetary training 

program to ensure that its personnel with budgetary responsibilities are 

appropriately trained and are aware of the requirements associated with their job 

functions. Instead, OFM budgetary personnel learn via on-the-job training and 

rely on informal materials such as handwritten notes. We learned that although 

the SEC is preparing for the release of a new training system, there is no current 

plan to offer budget training through this new system. 

In addition, the audit identified a deficiency in the design of internal controls in 

that OFM does not require written authorization of reprogramming and 

realignment actions between two-digit Budget Object Classes. Further, OFM’s 

reprogramming and realignment actions are subject to a diminished audit trail 

and a lack of timely monitoring throughout the year of budget execution. As a 

result, the SEC has an increased risk of exceeding established Appropriations 

Act reprogramming thresholds during the year of execution. 

Summary of Recommendations. In order to improve internal controls over the 

budget execution process, we are recommending that 

(1) OFM, in consultation with OGC, request a formal opinion 

from the Comptroller General as to whether the SEC violated 

the Purpose Statute, and as a consequence the 

Antideficiency Act, by charging certain costs of information 

technology projects and expert witness fees to both the 

general and supplemental appropriations; 

(2) OFM, in consultation with the OED and OGC, establish 

policies and guidance on how to fund expenditures where 

there are multiple appropriations available for the same 

purpose; 
Audit of the SEC Budget Execution Cycle March 29, 2011 

Report No. 488 

Page vi 

(3) OFM complete a risk reassessment and include the 

inactivation of Momentum budget controls as a high-risk 

area in the OFM Reference Guide 01-06, General Guidance: 

Override of Internal Control; 

(4) OFM revise the Internal Control Override Template included 

in OFM Reference Guide 01-06, General Guidance: 

Override of Internal Control, to include a section for follow-up 

actions to ensure financial integrity or statutory compliance 

and ensure that significant overriding of financial controls be 

required to be approved by senior-level officials; 

(5) OFM formally document its allotments as required by 

Appendix H of OMB Circular A-11 to evidence the transfer of 

legal responsibility for funds to the recipient; 

(6) OFM initiate a review of the BPPAS capability to 

accommodate multiple appropriations; 

(7) OFM, in consultation with the Office of Human Resources, 

develop and establish a formal, ongoing SEC-focused 

budgetary training program; 

(8) OFM revise the current reprogramming and realignment 

procedures to require that the Budget Officer or the Assistant 

Director, Planning and Budget, approve all reprogramming 

and realignment actions that cross two-digit Budget Object 

Classes in writing; and 

(9) OFM establish a process to sufficiently and accurately track 

reprogramming and realignment activities in one central location. 
Audit of the SEC Budget Execution Cycle March 29, 2011 

Report No. 488 

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TABLE OF CONTENTS

Executive Summary .......................

Table of Contents ..........................

Background and Objectives ...

Background ........................

Objectives ...........................

....................................................................... ii 

..................................................................... vii 

....................................................................... 1 

....................................................................... 1 

....................................................................... 5 

Findings and Recommendations.................................................................. 6 

Finding 1: By Alternating Between Two Separate Appropriations, the SEC 

May Have Violated the Purpose Statute and, as a 

Consequence, the Antideficiency Act ...................................... 6 

Recommendation 1 ............................................................. 10 

Recommendation 2 ............................................................. 10 

Finding 2: The SEC Inactivated Momentum Budgetary Controls to 

Facilitate Processing Payroll Transactions, Which Could Lead 

to a Violation of the Antideficiency Act .................................. 11 

Recommendation 3 ............................................................. 14 

Recommendation 4 ............................................................. 14 

Recommendation 5 ............................................................. 15 

Finding 3: The SEC’s BPPAS System Is Not Configured to Accept More 

Than One Appropriation ........................................................ 15 

Recommendation 6 ............................................................. 17 

Finding 4: OFM Does Not Have a Formal Budgetary Training Program .. 17 

Recommendation 7 ............................................................. 18 

Finding 5: OFM Does Not Require Written Authorization of 

Reprogramming and Realignment Actions Between Budget 

Object Classes ...................................................................... 19 

Recommendation 8 ............................................................. 20 

Finding 6: Reprogramming and Realignment of Funds Are Not Sufficiently 

Tracked by OFM .................................................................... 20 

Recommendation 9 ............................................................. 23 

Tables

Table 1: FY 2009 Quarterly Budget Reports. ...

..

..

....................................... 12 

....................................... 12 

....................................... 13 

Table 2: FY 2010 Quarterly Budget Reports ..

Table 3: Budget Documents Reviewed ..........
Audit of the SEC Budget Execution Cycle March 29, 2011 

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Appendices

Appendix I: Acronyms/Abbreviations. .....................................

Appendix II: Scope and Methodology ......................................

Appendix III: Criteria .................................................................

Appendix IV: List of Recommendations ....................................

Appendix V: Schedule of Potential Purpose Statute Violations 

Appendix VI: Management’s Comments ...................................

Appendix VII: OIG Response to Management’s Comments ......

............... 24 

............... 25 

............... 28 

............... 30 

............... 32 

............... 33 

............... 36 
Background and Objectives 

Background 

Based on the Office of Inspector General’s (OIG) annual audit plan, OIG 

contracted the professional services of Acuity Consulting, Inc. (Acuity), to 

conduct an audit of the SEC’s budget execution processes. The mission of the 

Securities and Exchange Commission (SEC or Commission) is to protect 

investors; maintain fair, orderly, and efficient markets; and facilitate capital 

formation. To fulfill its mission, the SEC is financed through an annual general 

fund appropriation enacted by Congress that may remain available until 

expended (“no-year” funds), and through occasional supplemental appropriations 

that are available for a specific period of time. 

During fiscal years (FY) 2009 and 2010, and as in other FYs, the SEC’s annual 

general fund appropriation consisted of a “Salaries and Expenses” account within 

the President’s Budget. Each Appropriations Act required the SEC to offset its 

annual general fund appropriation against the exchange and filing fees the SEC 

collected from corporate registrants so as to result in a final general fund 

appropriation estimated at not more than $0. Further, each Appropriations Act 

provided that the appropriation of such offsetting collections shall be available 

until it is expended for necessary expenses. The purpose of this type of general 

fund appropriation is to ensure that there are sufficient budgetary resources for 

obligations at the beginning of a FY, while ultimately financing the obligations 

with exchange and filing fees that the SEC collects. In FY 2009 and FY 2010, 

the SEC obligated over $966 million and over $1.1 billion, respectively, 

representing legal liabilities against funds that were available to the SEC to pay 

for the goods and services that were ordered. 

Pursuant to P.L. 111-32, enacted on June 24, 2009, the SEC received a 

supplemental appropriation of $10 million that was available for obligations in 

FYs 2009 and 2010 with the stated purpose of “investigation of securities fraud.” 

This supplemental appropriation was not subject to financing through offsetting 

collections, and is similar to the SEC’s annual general fund appropriation. 

The SEC has18 offices, 11 regional offices, and 5 divisions within its offices that 

are responsible for fulfilling the SEC’s mission. The 5 divisions are located both 

at the SEC’s headquarters and in its 11 regional offices. The SEC has various 

headquarters functions that are located in the Washington, D.C., area, including 

the Office of Financial Management (OFM), which administers the agency’s 

financial management and budget functions. 

Organizationally, OFM has reporting responsibilities to the Office of the Executive 

Director (OED) for the budget formulation and budget execution functions and to 

Audit of the SEC Budget Execution Cycle March 29, 2011 

Report No. 488 

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Audit of the SEC Budget Execution Cycle March 29, 2011 

Report No. 488 

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the Office of Chief Operating Officer for the finance, accounting, and treasury 

operation functions. OFM is headed by the Associate Executive Director 

(Finance), who also serves as the SEC’s Chief Financial Officer (CFO). OFM is 

organized under two primary offices: (1) the Finance and Accounting Office, 

which is responsible for accounting policies, procedures, and operations, and (2) 

the Planning and Budget Office, which is responsible for the formulation and 

execution of the SEC’s budget. 

Overseen by an Assistant Director, the OFM Planning and Budget Office consists 

of two branches: (1) Budget, Formulation and Execution, and (2) Performance 

and Planning. The Budget, Formulation and Execution Branch consists of seven 

individuals: one budget officer, one management analyst, four budget analysts, 

and one budget technician. 

The SEC uses two software applications for the budget development and budget 

execution processes. The Budget and Program Performance Analysis System 

(BPPAS) is an activity-based costing/performance-based budgeting system 

software application that the SEC uses for the budget planning and formulation 

process and for developing the annual operating budget. BPPAS downloads and 

updates appropriation, apportionment, allocation, suballocation, and budget 

transfers data to Momentum, the SEC’s core financial system of record, at 

varying levels of detail. Obligation data in BPPAS is updated by uploads of 

obligation data from Momentum. The Momentum system (Version 6.1.5) is used 

to record all SEC budget execution and accounting transactions. The system 

further maintains the Commission-wide general ledger and produces the financial 

and external reports that are submitted periodically to the U.S. Department of the 

Treasury (Treasury) and other Federal entities. 

The SEC uses a “participatory” budget formulation process in that funding is 

requested by the SEC’s constituent offices and is allocated through BPPAS. The 

SEC’s budget formulation process begins about 20 months prior to the start of 

the FY, when the SEC begins to prepare its annual authorization request to 

Congress. The authorization request, which is due to the Financial Services 

Committee, U.S. House of Representatives, and the Banking, Housing, and 

Urban Affairs Committee, U.S. Senate, by May 15 of each year, typically covers 

a two-year period that includes the upcoming year and the year thereafter. 

During the budget authorization development process, OFM contacts all SEC 

offices and divisions for staffing and resource requests that are to be submitted 

through BPPAS. 

OFM summarizes the staffing and resource requests and presents them to the 

Executive Director (ED). The ED’s changes are integrated into the requests for 

staffing and resource decisions and are then presented by the ED to the SEC 

Chairman. OFM, along with the Office of General Counsel (OGC) and the 

Chairman’s staff, drafts an authorization request that is based on the Chairman’s 

decisions. Generally, the staffing and resource levels approved by the Chairman 
Audit of the SEC Budget Execution Cycle March 29, 2011 

Report No. 488 

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for the SEC’s authorization request serve as the upper bounds for the amounts 

the Commission will consider for its upcoming budget submission to the Office of 

Management and Budget (OMB). 

Concurrent with the process outlined above, BPPAS consolidates budget 

submissions and produces a master budget spreadsheet (referred to in BPPAS 

as the “crosswalk”) that is based on the non-personnel resource requests of the 

SEC’s offices/divisions. OFM uses this spreadsheet to “price out” the SEC’s 

proposed budget, which means adjusting the offices/divisions’ requested 

amounts for inflation and other economic assumptions provided by OMB, 

conversion/annualization of positions into full-time equivalents, making 

adjustments for pay raises, and incorporating costs associated with program 

increases. 

Once the budget submission is approved by OMB, OFM adjusts the crosswalk to 

reflect the revised resource levels. OFM then opens a “congressional 

justification” in BPPAS for the SEC’s offices/divisions to update their narratives 

and workload to reflect the agreed-upon funding levels for submission as part of 

the President’s budget to the Congress. 

Subsequent to the submission of the President’s budget, the CFO issues an 

“Operating Budget Call” letter that contains guidance and the due dates for 

submitting fund allocation requests and the related justifications. Fund allocation 

requests, by Budget Object Class (BOC), are submitted through BPPAS from the 

originating organization (office/division) to OFM’s Planning and Budget Office. A 

BOC is a method for identifying the specific purpose for which the funds are 

being used. Certain funding requests (e.g., travel, IT equipment) are submitted 

through a “consolidating organization” (e.g., Division of Enforcement, Office of 

Administrative Services, Office of Information Technology, Office of Human 

Resources) prior to being submitted to the Planning and Budget Office. Pay and 

benefits costs are centrally calculated within OFM’s Planning and Budget Office. 

The fund allocation requests are reviewed within BPPAS by assigned budget 

analysts, leaders within OFM, the CFO, and the ED. The ED may consult with the 

Chairman’s staff prior to approving the operating budgets. BPPAS data reflects: 

• Originating organization request, 

• Consolidating organization request, 

• Requesting organization (either originating organization or consolidating 

organization) justifications for the funds, 

• OFM recommendations (with justifications or calculations), and 

• Decision. 

Upon approval of the fund allocation requests, OFM requests that originating 

organizations provide a quarterly breakdown of their approved funding. The 

quarterly breakdown supports the basis for the apportionment request to OMB. 
Audit of the SEC Budget Execution Cycle March 29, 2011 

Report No. 488 

Page 4 

In the absence of specifically requested quarterly breakdowns, BPPAS uses a 25 

percent default value for each quarter. 

The SEC’s budget execution process begins with enactment of the SEC’s 

appropriation. Pursuant to OMB Circular A-11, an apportionment is a plan that is 

approved by OMB to spend resources provided by an annual Appropriations Act, 

a Supplemental Appropriations Act, a continuing resolution, or a permanent law 

(mandatory appropriation). The apportionment identifies amounts that are legally 

available for obligations and expenditures. It further specifies and limits the 

obligations that can be incurred and the expenditures that can be made (or 

makes other limitations, as appropriate) for specified time periods, programs, 

activities, projects, objects, or any combination thereof. An apportioned amount 

may be further subdivided by an agency into allotments, suballotments, and 

allocations. Allotments are the formally documented assignment of legal 

responsibility for the subdivision of apportioned funds made by heads of 

agencies. Suballotments are a subdivision of an allotment and also carry formal 

assignment of legal responsibility for the funds. Further administrative 

subdivisions of suballotments that do not transfer legal responsibility for funds 

are allowances, allocations, and suballocations. 

Within the SEC, funding is subdivided and is then issued to the Commission’s 

offices/divisions through the use of allocations and suballocations directly from 

the apportionment. Once funding is apportioned, the funding allocations as 

reflected in BPPAS are loaded into Momentum by OFM staff and are then 

available for commitments and obligations. 

The Government Accountability Office (GAO) reported in GAO Report No.10-

250, SEC’s Financial Statements for Fiscal Years 2009 and 2008, that since its 

2007 audit of the SEC, GAO had identified several repeat control deficiencies, 

including the SEC’s “ineffective processes and related documentation concerning 

budgetary transactions.” Further, in GAO Report No.11-202, SEC’s Financial 

Statements for Fiscal Years 2010 and 2009, three open recommendations 

reported in prior audit reports were reaffirmed. These recommendations related 

to (1) correcting general ledger system configurations for upward and downward 

adjustments of prior years’ undelivered orders, (2) clarifying administrative 

control of funds guidance for staff performing obligation activities, and (3) 

establishing and implementing controls related to the recording statute. 

As a result of the continuing deficiencies with respect to OFM’s budget execution 

process, and in accordance with the SEC OIG’s annual audit plan, Acuity was 

hired by way of a competitive contract to conduct this engagement. 
Audit of the SEC Budget Execution Cycle March 29, 2011 

Report No. 488 

Page 5 

Objectives 

The OIG contracted the professional audit services of Acuity to identify potential 

areas for improvement with regard to the Commission’s budget execution 

processes. The overall objective of the audit was to determine whether sufficient 

management controls over the SEC’s budget execution processes were in place 

and were operating effectively. 

Acuity’s additional objectives were as follows: 

• Examine the various lines of authority and responsibility with regard to 

Commission budget decisions (e.g., which individuals are making budget 

decisions and if these individuals are properly trained, permitted to make 

these decisions by law). 

• Examine the Commission’s processes for administrative division and 

subdivision of funds. 

• Examine the policies and procedures in place to ensure appropriate 

spending of approved budgets (e.g., ensuring that there are no 

Antideficiency Act violations). 

• Examine the SEC’s policies and procedures for monitoring obligations 

incurred to ensure that apportionments and allotments are not exceeded. 

• Test contractor gaps and deficiencies with respect to non-payroll 

obligations, de-obligation reviews, and contract closeout procedures. 
Findings and Recommendations 

Finding 1: By Alternating Between Two 

Separate Appropriations, the SEC May Have 

Violated the Purpose Statute and, as a 

Consequence, the Antideficiency Act

The SEC may have violated the Purpose Statute during the 

period the supplemental appropriation was available for 

obligation due to inconsistent appropriations selection on 

contract modifications for information technology acquisitions 

and expert witness fee services. Because there were 

insufficient funds to accommodate adjustment of the 

potential Purpose Statute violations, the SEC may have also 

violated the Antideficiency Act. 

Federal agencies are required to comply with the content of various 

appropriations acts and obligate funds only for the purposes for which the 

appropriation was enacted, as provided in 31 U.S.C. § 1301, commonly referred 

to as the Purpose Statute: 

Appropriations shall be applied only to the objects for which the 

appropriations were made except as otherwise provided by 

law.

2

Federal agencies are provided additional guidance in accordance with the 

Purpose Statute under the GAO Principles of Federal Appropriations Law (Red 

Book), Chapter 2.B.2.b, for instances in which multiple appropriations are 

available: 

Where two appropriations are available for the same purpose, 

the agency may select which one to charge for the expenditure 

in question. Once that election has been made, the agency 

must continue to use the same appropriation for that purpose 

unless the agency at the beginning of the fiscal year informs the 

Congress of its intent to change for the next fiscal year.

3

This guidance on multiple available appropriations is supported by the U.S. 

Comptroller General’s decision in the matter of Unsubstantiated DOE Travel 

Payments, GAO-RCED-96-58R (Washington, D.C., Dec. 28, 1995). 

 

2

 Purpose Statute, op. cit., 1301 (a). 

3

 GAO, Principles of Federal Appropriations Law, Third Edition, p. 2-23. 

Audit of the SEC Budget Execution Cycle March 29, 2011 

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Audit of the SEC Budget Execution Cycle March 29, 2011 

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Further, the following exception to the rule is provided in Red Book Chapter 

2.B.2b: 

Of course, where statutory language clearly demonstrates 

congressional intent to make one appropriation available to 

supplement or increase a different appropriation for the 

same type of work, both appropriations are available.4

The exception to the rule is supported by the U.S. Comptroller General’s decision 

in the matter of Funding for Army Repair Projects, B-272191 (Nov. 4, 1997). In 

this decision, the Army was not required to make an election between two 

appropriation accounts available for major repair and minor construction projects 

during fiscal year 1993 because Congress had specifically authorized the use of 

both accounts for such projects in section 301 of P.L. 103-35. As a result, the 

Army was permitted to use Operations and Maintenance funds for property 

maintenance and repair work in Germany even though Real Property 

Maintenance, Defense funds were available for the same work. 

The SEC is financed through an annual general appropriation of funds enacted 

by Congress that may remain available until expended based on “no-year” funds 

that are used to fund the Commission’s necessary expenses in fulfilling its 

mission of protecting investors, maintaining fair, orderly, and efficient markets, 

and facilitating capital formation. These expenses include payroll and related 

expenses, travel, printing, information technology (IT), and other equipment 

purchases and services. Further, as part of the appropriations language in each 

FY’s appropriations act, the SEC is required to offset its appropriations through 

offsetting collections.5,6

 Treasury has designated the SEC’s annual general 

appropriation with the Treasury Appropriation Fund Symbol (TAFS) of 

“50X0100.” 

Pursuant to P.L. 111-32, enacted on June 24, 2009, the SEC received a 

supplemental appropriation of $10 million for FYs 2009 and 2010 for the stated 

purpose of “investigation of securities fraud.”7

 Unlike the SEC’s general annual 

appropriation, the supplemental appropriation was not subject to financing 

through offsetting collections. Treasury designated the supplemental 

appropriation with a separate, distinct TAFS of “5009/100100.” This supplemental 

appropriation is referred to and designated in OFM’s core financial accounting 

system as the “M0100” appropriation. 

During our fieldwork, we found that OFM did not develop and publish clear 

funding guidance on the use of the supplemental appropriation for non4

 Ibid, p. 2-23. 

5

 2009 Omnibus Appropriations Act, P.L. 111-8, p. 148. 

6

 2010 Consolidated Appropriations Act, P.L. 111-17, p. 164. 

7

 2009 Supplemental Appropriations Act, P.L. 111-32, p. 21. The full text of this provision stated as follows: 

“For an additional amount for necessary expenses for the Securities and Exchange Commission, 

$10,000,000, to remain available until September 30, 2010, for investigation of securities fraud.” 
Audit of the SEC Budget Execution Cycle March 29, 2011 

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information technology expenditures. The only written guidance we found was a 

memorandum dated July 23, 2009, from the OED that listed several IT projects 

for which funds could be obligated using the “M0100” appropriation. 

As implemented by SEC management, the separate “M0100” appropriation was 

used for three main purposes: 

• compensation costs, 

• investigations-related IT costs, and 

• expert witness fees and litigation support costs. 

Our audit obtained the following information with regard to each of these 

categories: 

i. Compensation Costs – SEC employees were individually identified by name 

with their respective compensation costs charged 100 percent to the “M0100” 

appropriation. 

ii. Investigations-Related IT Costs – Guidance provided in the July 23, 2009, 

OED memorandum8

 identified IT projects supporting the investigation of 

securities fraud as the following: 

• Document Imaging Operation & Maintenance, 

• Tips & Complaint System, 

• Native File Searching for Investigations System, 

• Forensic Tools, Maintenance & Supplies System, 

• Automated Blue Sheet Analysis System, and 

• Electronic Documents 2.0 Project. 

iii. Expert Witness Fees and Litigation Support Costs – During our fieldwork, we 

were informed that management direction and practice for non-payroll 

expenditures were to use the “M0100” appropriation first and to the extent 

available, since both the time available for execution and the amount 

appropriated were limited. 

In the course of our fieldwork, we noted the inconsistent citing of appropriations 

for contract modifications related to certain IT projects and expert witness fee 

services once the appropriation had been selected for the initial contract. This 

practice primarily related to the “M0100” appropriation cited on the initial contract 

with subsequent contract modifications citing the “X0100” appropriation. We also 

noted some instances where the initial contract cited the “X0100” appropriation 

with subsequent contract modifications citing the “M0100” appropriation. 

In accordance with the Red Book Chapter 2.B.2.b guidance, when two 

appropriations are available for the same purpose, an agency is required to 

 

8

 “Use of Funds from 2009 Supplemental Appropriation,” Memorandum, June 23, 2009. 
Audit of the SEC Budget Execution Cycle March 29, 2011 

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select one appropriation and continue to use that appropriation consistently 

throughout its availability, unless the statutory language clearly demonstrates 

congressional intent to make one appropriation available to supplement or 

increase a different appropriation for the same type of work. Congress did not 

expressly state in P.L. 111-32 that the additional appropriation was intended to 

increase or supplement another appropriation, as was the case in the matter of 

Funding for Army Repair Projects, B-272191 (Nov. 4, 1997). 

We identified and reviewed 12 contracts totaling $18,058,198 that cited both the 

“M0100” and “X0100” appropriations during FY 2009 and FY 2010. Of these 12 

contracts, we identified 8 contracts that inconsistently cited an appropriation once 

the initial cite had been selected. Six of these 8 contracts were for certain IT 

projects and expert witness fees and initially cited the “M0100” appropriation in 

FY 2009; however, subsequent contract modifications cited the “X0100” 

appropriation. The remaining 2 of the 8 contracts we identified were for expert 

witness fees and initially cited the “X0100” appropriation in FY 2009; subsequent 

contract modifications, however, cited the “M0100” appropriation. Further details 

on the 8 contracts are provided in Appendix V. 

As a result of the SEC’s failure to adhere to the Red Book Chapter 2.B.2.b9

regarding selecting an appropriation and continuing to use that appropriation 

consistently throughout its availability, the SEC may have violated the Purpose 

Statute10 during the period when the supplemental “M0100” appropriation was 

available for obligation. Further, as explained in the Red Book, Chapter 6.C.2.d, 

a violation of the Purpose Act may sometimes result in a violation of the 

Antideficiency Act: 

Where . . . no other funds were authorized to be used for 

the purpose in question (or where those authorized were 

already obligated), both 31 U.S.C. § 1301(a) and § 1341(a) 

have been violated. In addition, we would consider an 

Antideficiency Act violation to have occurred where an 

expenditure was improperly charged and the appropriate 

fund source, although available at the time, was 

subsequently obligated, making readjustment of accounts 

impossible. 11

At the end of FY 2010, $106,521 was available for obligation from the “M0100” 

appropriation. The net effect of adjusting the potential Purpose Statute violations 

would require additional obligations of $1,425,333 from the “M0100” 

appropriation instead of the “X0100” appropriation. Accordingly, as defined in 

GAO Red Book Chapter 6.C.2.d,12 we determined that the SEC may have 

9

 GAO Red Book, op. cit., p. 2-23. 

10 Purpose Statute, op. cit., 1301(a). 11 GAO Red Book, op. cit., p. 6-79. 12 Ibid, p. 6-79. 
Audit of the SEC Budget Execution Cycle March 29, 2011 

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violated the Antideficiency Act13 as the supplemental “M0100” appropriation does 

not currently have sufficient funds to accommodate adjustment of the potential 

Purpose Statute violations. Although sufficient funds existed at the time of the 

error, they have since been obligated and/or expended. 

In discussions with OFM, we were informed that management’s position is that 

the SEC did not violate the Purpose Statute because the exception to the rule 

cited in Red Book Chapter 2.B.2b. applied to the SEC’s general and 

supplemental appropriations during FYs 2009 and 2010. The OIG in subsequent 

conversations with GAO staff members was notified that a formal opinion was 

appropriate to resolve this matter. Accordingly, we are recommending that an 

opinion be requested from the Comptroller General. 

Recommendation 1: 

The Office of Financial Management, in consultation with the Office of 

General Counsel, should request a formal opinion from the Comptroller 

General as to whether the Commission violated the Purpose Statute, and as 

a consequence the Antideficiency Act, by charging certain costs of 

information technology projects and expert witness fees to both the general 

and supplemental appropriations. 

Management Comments. OFM concurred with the recommendation. See 

Appendix VI for management’s full comments. 

OIG Analysis. We are pleased that OFM concurred with this 

recommendation. 

Recommendation 2: 

The Office of Financial Management, in consultation with the Office of the 

Executive Director and the Office of General Counsel, should establish 

policies and guidance on how to fund expenditures where there are multiple 

appropriations available for the same purpose. 

Management Comments. OFM concurred with the recommendation. See 

Appendix VI for management’s full comments. 

OIG Analysis. We are pleased that OFM concurred with this 

recommendation. 

13 Antideficiency Act, 31 USC 1517. 
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Finding 2: The SEC Inactivated Momentum 

Budgetary Controls to Facilitate Processing 

Payroll Transactions, Which Could Lead to a 

Violation of the Antideficiency Act 

A senior budget analyst in OFM inactivated the Momentum 

budgetary controls to facilitate processing payroll 

transactions. The inactivation of these budgetary controls 

could lead to the SEC’s violating the Antideficiency Act. 

Pursuant to OMB Circular A-123, management is responsible for establishing and 

maintaining internal control to achieve the objectives for effective and efficient 

operations, reliable financial reporting, and compliance with applicable laws and 

regulations.14 Further, guidance is provided to Federal agencies on the 

President’s Budget process and the basic laws that regulate the preparation, 

submission, and execution of the budget through OMB Circular A-11. In 

particular, Part 4 of OMB Circular A-11 contains instructions on the budget 

execution process to include guidance on the apportionment and reapportionment 

process, reporting on budget execution and budgetary resources, and a checklist 

for fund control regulations (Appendix H) that agencies must comply with in their 

respective administrative control of funds regulation. 

Pursuant to Appendix H, Checklist for Fund Control Regulations, each Federal 

agency’s management is responsible for ensuring the integrity of its agency’s 

administrative control of funds. According to Appendix H, Section 11, an 

agency’s administrative control of funds regulation is required to include a policy 

that the sum of: 

• Allotment amounts issued will not exceed the apportionment, and 

• Suballotment amounts issued will not exceed the allotment amount. 

Further, Section 4 of Appendix H provides, “Your regulation must specify that 

violations of allotments and suballotments are violations of the Antideficiency 

Act.” 15

Pursuant to the SEC’s Administrative Control of Funds Regulation, SEC-R 14-1, 

the following are cited as restrictions: 

• The sum of the allotments issued shall not exceed the apportionment. 

• The sum of suballotments issued shall not exceed the allotment amount. 

• The sum of allowances issued shall not exceed the sum of the allotments. 

14 OMB Circular A-123, Management's Responsibility for Internal Control. 15 OMB Circular A-11, Appendix H, p. 2. 
Audit of the SEC Budget Execution Cycle March 29, 2011 

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Under current SEC practice, allowances (also referred to as allocations) are 

issued to the SEC’s offices/divisions by fiscal quarter and BOC. A BOC identifies 

the specific purpose for which funds are being used by a Federal agency. 

Despite referencing the subdivision of funds in the SEC’s Administrative Control 

of Funds Regulation, SEC-R 14-1, OFM has not formally documented its 

allotments or suballotments, as required by Appendix H, to evidence the transfer 

of legal responsibility of funds to recipients. 

The SEC’s core financial system of record is the Momentum system (Version 

6.1.5). The application is used to record all the SEC’s budget execution and 

accounting transactions, maintain the agency’s Commission-wide general ledger, 

and produce the financial and external reports that are periodically submitted to 

Treasury and other Federal entities. The subdivisions of funds maintained in the 

Momentum system are (1) apportionment, (2) allocation level, and (3) 

suballocation level. 

During our fieldwork, we compiled and reviewed the SEC’s FY 2009 and FY 

2010 Quarterly Budget Reports from Momentum for each subdivision of funds 

level, as identified in Tables 1 and 2. 

Table 1: FY 2009 Quarterly Budget Reports 

FY 2009: 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr Total 

Apportionment $240,215,085 $239,954,490 $270,647,332 $209,183,093 $960,000,000

Allocation $240,014,086 $239,977,606 $270,542,267 $209,104,835 $959,638,794

Suballocation $239,902,358 $240,001,294 $270,647,017 $209,310,360 $959,861,029

Source: Momentum. 

Table 2: FY 2010 Quarterly Budget Reports

FY 2010: 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr Total 

Apportionment $277,750,000 $412,839,397 $263,296,391 $157,114,212 $1,111,000,000

Allocation $277,908,320 $412,838,768 $263,299,391 $157,105,290 $1,111,151,769

Suballocation $277,759,535 $412,837,684 $263,296,391 $157,106,390 $1,111,000,000

Source: Momentum. 

We noted discrepancies between the subdivision of funds levels for each fiscal 

year. For FY 2009, for example, we found that the total suballocation amount of 

$959,861,029 exceeded the total allocation amount of $959,638,794. Further, for 

FY 2010, we found that the total allocation amount of $1,111,151,769 exceeded 

the total apportionment amount of $1,111,000,000. Upon further research into 

the FY 2010 subdivision of funds discrepancy, the following five budget 

documents, as shown in Table 3, were identified as the root cause of the issue:16 

 

16 A budget document is a mechanism within Momentum to add (i.e., positive action) or reduce (i.e., 

negative action) funds at each of the subdivision of funds levels. 
Audit of the SEC Budget Execution Cycle March 29, 2011 

Report No. 488 

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Table 3: Budget Documents Reviewed 

Document No. Process Date 

 

Purpose Amount

AA/SEC-1-136 Sept. 30, 2010 

AC/SEC-10-152 Oct. 22, 2010 

AC/SEC10-163 Oct. 22, 2010 

AC/SEC-10-179 Nov. 3, 2010 

AC/SEC-10-198 Dec. 1, 2010 

Travel/Transportation 

Payroll Awards 

Payroll 

Payroll 

Payroll 

$ 3,000 

148,785 

1,084 

-100 

-1,000

Net Effect of Budget Document Changes $151,769 

Source: OIG Generated. 

The Momentum application has budgetary controls designed to mitigate the risk 

of funding overallocation and are activated through a set value of “Reject” (i.e.,

attempts to exceed a given budget level will be rejected by the application) 

following the importation of budget document transactions from BPPAS. SEC 

personnel are prevented from exceeding a given budget level unless the 

application budgetary controls are changed directly within Momentum. 

Our audit found that certain designated OFM budget staff are empowered to 

process budget documents directly into the Momentum application. Currently, 

OFM has granted Momentum system rights to the two OFM senior budget 

analysts that, among other things, permit the analysts to override Momentum’s 

budgetary controls. 

During our research into the FY 2010 subdivision of funds discrepancy, we were 

advised that a senior budget analyst had overridden the Momentum budgetary 

controls to facilitate the processing of several budget documents directly into 

Momentum. Despite being requested, no evidence was provided to support the 

senior or executive management authorization of the inactivation of Momentum 

budget document controls. The inactivation of Momentum budget document 

controls allowed the sum of the allocation amounts that were issued to exceed 

the FY 2010 apportionment. 

On September 16, 2010, OFM management established OFM Reference Guide 

01-06, General Guidance: Override of Internal Control, to address the lack of 

formal policies or procedures for managing the risk of fraud and the override of 

internal controls. The guide describes the SEC’s actions and processes 

designed to establish a positive ethical environment and to address the risk of 

fraud and override of internal controls, and the methods to monitor and report 

instances of override of internal control. 

Our review of OFM Reference Guide 01-06 noted that the document’s effective 

date preceded the budget document processing dates when the Momentum 

budgetary controls were overridden. Further, we found that no budget execution 

controls were identified as high-risk and included in the baseline risk assessment 

completed by the Risk Assessment team as referenced in OFM Reference Guide 

01-06 and, therefore, the Reference Guide was not applicable to the override of 

the Momentum budgetary controls by OFM’s budget staff. Moreover, while OFM 
Audit of the SEC Budget Execution Cycle March 29, 2011 

Report No. 488 

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Reference Guide 01-06 provides a methodology for logging an override of 

internal control, there is no requirement to document follow-up actions to ensure 

financial integrity or statutory compliance. 

The override of the Momentum budgetary controls by the OFM senior budget 

analyst allowed the sum of the allocation amounts to exceed the FY2010 

apportionment. OMB Circular A-11, Appendix H, refers to the fact that violations 

of allotments are violations of the Antideficiency Act. The SEC utilizes 

allocations in lieu of allotments and, accordingly, the fact that the SEC’s 

allocation exceeded its apportionment was inconsistent with the requirements of 

OMB Circular A-11, Appendix H, and SEC-R 14-1. Moreover, the override of the 

Momentum budgetary controls could lead to a situation in which obligations or 

expenditures exceed the apportionment, in violation of the Antideficiency Act.17 

Recommendation 3: 

The Office of Financial Management should complete a risk reassessment 

and include the inactivation of Momentum budget controls as a high-risk area 

in OFM Reference Guide 01-06, General Guidance: Override of Internal 

Control. 

Management Comments. OFM concurred with the recommendation. See 

Appendix VI for management’s full comments. 

OIG Analysis. We are pleased that OFM concurred with this 

recommendation. 

Recommendation 4: 

The Office of Financial Management should revise the Internal Control 

Override Template included in OFM Reference Guide 01-06, General 

Guidance: Override of Internal Control, to include a section for follow-up 

actions to ensure financial integrity or statutory compliance and ensure that 

significant overriding of financial controls be required to be approved by 

senior-level officials. 

Management Comments. OFM concurred with the recommendation. See 

Appendix VI for management’s full comments. 

OIG Analysis. We are pleased that OFM concurred with this 

recommendation. 

17 Antideficiency Act, 31 USC 1517(a). 
Audit of the SEC Budget Execution Cycle March 29, 2011 

Report No. 488 

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Recommendation 5: 

The Office of Financial Management should formally document its allotments 

as required by Appendix H of Office of Management and Budget Circular A11 to evidence the transfer of legal responsibility of funds to the recipient. 

Management Comments. OFM concurred with the recommendation. See 

Appendix VI for management’s full comments. 

OIG Analysis. We are pleased that OFM concurred with this 

recommendation. 

Finding 3: The SEC’s BPPAS System Is Not 

Configured to Accept More Than One 

Appropriation 

The BPPAS system is not configured to accept more than 

one Treasury Appropriation Fund Symbol (TAFS). As a 

result, the SEC does not have a full view of its budgetary 

authority and the purposes for which it is used.

The SEC’s BPPAS is an activity-based costing/performance-based budgeting 

application that electronically facilitates the annual budget formulation and 

management of budget authority for the Commission. 

BPPAS serves as the original point of entry for all SEC budgetary information in 

the year of budget execution and acts a feeder system to the Momentum 

application (Version 6.1.5), the SEC’s core financial system of record. Budgetary 

transactions are exchanged between BPPAS and Momentum through an 

automated two-way interface. 

During the year of budget execution, appropriated funds are allocated to SEC 

offices/divisions through BPPAS. Further, budget authority reprogramming and 

realignment actions are also requested and approved through the BPPAS 

application. Budgetary information in BPPAS is utilized as a baseline for 

comparison to financial plans during the SEC semi-annual financial reviews of 

budget execution. 

For FY 2009 and FY 2010, the SEC was funded by multiple appropriations. As 

noted previously, the SEC is normally financed through an annual general 

appropriation of funds enacted by Congress that may remain available until 

expended (“no-year” funds) to fund the Commission’s necessary expenses in 

fulfilling its mission. These expenses include payroll and related expenses, 
Audit of the SEC Budget Execution Cycle March 29, 2011 

Report No. 488 

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travel, printing, IT, and other equipment purchases and services. Further, as part 

of the appropriations language in each FY’s appropriations act, the SEC is 

required to offset its appropriations through offsetting collections. 18,19 The 

Treasury has designated the SEC annual general appropriation with the TAFS 

“50X0100.” 

Pursuant to P.L. 111-32, enacted on June 24, 2009, the SEC received a 

supplemental appropriation of $10 million for FYs 2009 and 2010 for the stated 

purpose of “investigation of securities fraud.” 20 The supplemental appropriation 

was not subject to financing through offsetting collections as is required for the 

SEC’s general annual appropriation. Further, Treasury designated the 

supplemental appropriation with the separate and distinct TAFS of 

“5009/100100,” which is referred to and designated in the SEC core financial 

accounting system as the “M0100” appropriation. 

Our fieldwork found that BPPAS is configured to track only one appropriation 

symbol. Current OFM management practice for budgetary transactions of 

appropriations other than the annual general appropriation requires direct data 

entry into the Momentum core financial system of record through manual 

override of established budgetary controls. Momentum has an inherent limitation 

in the informational detail that can be stored within the application for the purpose 

and use of authorized funds (i.e., narrative justification). 

Effective FY 2012, under Section 991 of the Dodd-Frank Wall Street Reform and 

Consumer Protection Act (Dodd-Frank Act), Congress has established a 

separate appropriation titled “Securities and Exchange Commission Reserve 

Fund” in addition to the Commission’s annual general appropriation. This fund is 

to be financed through registration fee collections with a balance that cannot 

exceed $100 million. In accordance with the Act, 

The Commission may obligate amounts in the Reserve Fund, not to 

exceed a total of $100,000,000 in any one fiscal year, as the Commission 

determines is necessary to carry out the functions of the Commission. 

Any amounts in the reserve fund shall remain available until expended. 

Not later than 10 days after the date on which the Commission obligates 

amounts under this paragraph, the Commission shall notify Congress of 

the date, amount, and purpose of the obligation. 21

In an environment of multiple appropriations, the SEC needs to have BPPAS 

configured to accept more than one appropriation to avoid an increased level of 

manual override activity and mitigate the increased effort required to support 

congressional reporting requirements under the Dodd-Frank Act. Without full 

18 P.L. 111-8, op. cit. p. 148. 19 P.L. 111-17, op. cit. p. 164. 20 P.L. 111-32, op. cit. p. 21. 21 Dodd-Frank Act, Sec. 991(e)(1)(3). 
Audit of the SEC Budget Execution Cycle March 29, 2011 

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visibility of the purpose and use of funds, the SEC may be at risk of future 

Purpose Statute and Antideficiency Act violations related to the separate 

“Securities and Exchange Commission Reserve Fund” appropriation established 

under the Dodd-Frank Act. 

Recommendation 6: 

The Office of Financial Management should initiate a review of the Budget 

and Program Performance Analysis System’s capability to accommodate 

multiple appropriations. 

Management Comments. OFM concurred with the recommendation. See 

Appendix VI for management’s full comments. 

OIG Analysis. We are pleased that OFM concurred with this 

recommendation. 

Finding 4: OFM Does Not Have a Formal 

Budgetary Training Program 

OFM does not have a formal ongoing budgetary training 

program to ensure that all personnel with budgetary

responsibilities are appropriately aware of the requirements 

associated with their job functions.

We noted while conducting interviews of SEC personnel with varying budgetary 

responsibilities that OFM lacks a formal SEC-focused training program for 

individuals with budgetary responsibilities. In particular, we made the following 

observations in OFM: 

• Personnel have typically acquired their budgetary knowledge and skills 

through on-the-job training that was passed on by senior 

peers/supervisory employees. This has been a common experience 

regardless of the individual’s Federal agency background and was not 

specific to the SEC. 

• On-the-job training materials consist of personal, handwritten steps or 

notes on a notebook, steno pad, etc. 

• Knowledge of career path training courses to enhance employees’ skill 

sets are subject to being communicated through an informal peer network. 

• Junior personnel are aware of how to perform specific tasks, but they lack 

awareness of the compliance purpose behind their task (e.g., avoidance of 

Antideficiency Act violations). 
Audit of the SEC Budget Execution Cycle March 29, 2011 

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Reliance on on-the-job training increases the risk that budgetary personnel may 

be introduced to inconsistent and bad practices by senior peers or supervisory 

personnel who also acquired their knowledge and skills through on-the-job 

training. Tasks are at risk of being performed on a rote basis by junior 

employees who may not have a clear understanding of the purpose and function 

of their work. 

Formal training can strengthen the analytical, planning, and implementation skills 

of employees with budget execution responsibilities. OPM has determined that 

continuous investment in training and development is essential for improving the 

performance of the Federal workforce and enhancing the services provided by 

the Federal government. Further, availability of training and development is 

essential to attract and retain a knowledgeable and skilled workforce. 22

The SEC is currently in the process of preparing for the release of its new Office 

of Human Resources Plateau system, which consists of two components: the 

Learning Management System (LMS) and the Performance Management 

Information System (PMIS). While the LMS and PMIS modules are intended to 

eventually be applied on an agency-wide basis, there is no current plan related to 

budgetary training offerings and performance management of budget execution 

positions. 

Recommendation 7: 

The Office of Financial Management, in consultation with the Office of Human 

Resources, should develop and establish a formal, ongoing Securities and 

Exchange Commission–focused budgetary training program. 

Management Comments. OFM concurred with the recommendation. See 

Appendix VI for management’s full comments. 

OIG Analysis. We are pleased that OFM concurred with this 

recommendation. 

 

22 Office of Personnel Management, Training and Development Policy Webpage. 
Audit of the SEC Budget Execution Cycle March 29, 2011 

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Finding 5: OFM Does Not Require Written 

Authorization of Reprogramming and 

Realignment Actions Between Budget Object 

Classes 

OFM does not require written authorization of 

reprogramming and realignment actions between Budget 

Object Classes. As a result, OFM has a control deficiency in 

the design of internal control for reprogramming and 

realignment actions. 

Pursuant to OMB Circular A-123, management is responsible for establishing 

and maintaining internal control to achieve the objectives of effective and efficient 

operations, reliable financial reporting, and compliance with applicable laws and 

regulations.23 

Further, OMB Circular A-11 provides guidance to Federal agencies on the 

President’s Budget process and the basic laws that regulate the preparation, 

submission, and execution of the budget. In particular, Part 4 of OMB Circular A11 contains instructions on budget execution, including guidance on the 

apportionment and reapportionment process, guidance on reporting on budget 

execution and budgetary resources, and a checklist for fund control regulations 

(Appendix H) that each agency must comply with in its respective administrative 

control of funds regulation. 

In Section 10 of Appendix H, Checklist for Fund Control Regulations, each 

Federal agency’s management is responsible for describing the agency’s 

procedures for requesting apportionment of funds. While not required, the 

agency may opt to include general guidance covering apportionment action in 

connection with supplemental appropriations, reprogramming of funds, and 

transfer of funds between accounts. 

Our review of the SEC’s Administrative Control of Funds Regulation (SEC-R 14-

1) noted that paragraph 9.d (6) provides the following: 

Changes to allotments, suballotments, and allowances will 

occur only when approved by the CFO, or designee. 

Changes will be made to reflect supplemental appropriations 

and reprogramming. 

During our fieldwork and discussion with OFM management, we noted that 

current management practice requires the approval of the Budget Officer or 

23 OMB Circular A-123, op. cit. 
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Assistant Director, Planning and Budget, or higher for any reprogramming and/or 

realignment actions between different BOCs. A BOC identifies the specific 

purpose for which the funds are being used by a federal agency. 

We judgmentally selected and tested 45 reprogramming and realignment actions 

taken from FY 2009 and FY 2010. Our testing found that 3 of the 45 

reprogramming actions could not be verified as having been approved in 

accordance with current management practice (i.e., approved by the Budget 

Officer or Assistant Director, Planning and Budget). Upon further request for 

supporting documentation evidencing appropriate approval by the Budget Officer 

or Assistant Director, Planning and Budget, we were advised that current 

management practice for authorization of reprogramming and realignment 

actions between BOCs may be provided orally. In the absence of evidence for 

the authorization (e.g., emails, memoranda), we could not verify that the three 

reprogramming actions were processed in accordance with the SEC’s 

Administrative Control of Funds Regulation. Therefore, we determined that this 

matter represents a control deficiency in the design of OFM‘s internal controls. 

Recommendation 8: 

The Office of Financial Management should revise the current reprogramming 

and realignment procedures to require that the Budget Officer or the Assistant 

Director, Planning and Budget, approve in writing all reprogramming and 

realignment actions that cross two-digit Budget Object Classes. 

Management Comments. OFM concurred with the recommendation. See 

Appendix VI for management’s full comments. 

OIG Analysis. We are pleased that OFM concurred with this 

recommendation. 

Finding 6: Reprogramming and Realignment of 

Funds Are Not Sufficiently Tracked by OFM 

SEC reprogramming and realignment actions are subject to 

a diminished audit trail and a lack of timely monitoring 

throughout the year of budget execution. As a result, the 

SEC has an increased risk of exceeding established 

Appropriations Act reprogramming thresholds during the 

year of execution. 

Reprogramming is defined as “the use of funds for purposes other than those 

originally contemplated at the time of appropriation.” This definition is 

supported in the GAO decision in the matter of Budget Programming, B-
Audit of the SEC Budget Execution Cycle March 29, 2011 

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223474 (Washington, D.C., July 16, 1986). Realignment is a reallocation of 

funds, such as between SEC offices/divisions, usually for the same purpose 

(i.e., with the same BOC). However, in practice, the terms are used 

interchangeably. 

Each fiscal year, Section 608 of the relevant appropriations act (P.L. 111-8 for 

2009, P.L. 111-117 for FY 2010), provides the SEC with additional authority to 

reprogram or realign the appropriated funds for emergent requirements subject to 

certain limits. These limits are as follows: 

[None of the funds] shall be available for obligation or 

expenditure through a reprogramming of funds that: (1) 

creates a new program; (2) eliminates a program, project, or 

activity; (3) increases funds or personnel for any program, 

project, or activity for which funds have been denied or 

restricted by the Congress; (4) proposes to use funds 

directed for a specific activity by either the House or Senate 

Committees on Appropriations for a different purpose; (5) 

augments existing programs, projects, or activities in excess 

of $5,000,000 or 10 percent, whichever is less; (6) reduces 

existing programs, projects, or activities by $5,000,000 or 10 

percent, whichever is less; or (7) creates or reorganizes 

offices, programs, or activities unless prior approval is 

received from the Committees on Appropriations of the 

House of Representatives and the Senate.24,25

In accordance with each enacted appropriations act, reprogramming actions in 

excess of the established reprogramming thresholds (lesser of $5 million or 10 

percent) must receive prior approval by the Committees on Appropriations of the 

House of Representatives and the Senate. Once approved, these 

reprogrammed funds re-establish the SEC’s baseline for reprogramming 

activities. 

During the year of budget execution, OFM current management practice is for 

realignment and reprogramming actions to be initiated through BPPAS. As 

applicable, realignment and reprogramming actions during a year of execution 

may be initiated through either of the following BPPAS processes: (1) Budget 

IntraAgency Transfer, for daily operational realignment and reprogramming 

actions, or (2) Financial Review Process, for reprogramming and realignment 

actions included in the initial fund allocation, mid-year review, and end-year 

financial review. 

24 P.L. 111-8, Div. D, Sec. 608, p. 152. 25 P.L. 111-117, Div. C, Sec. 608, p. 169. 
Audit of the SEC Budget Execution Cycle March 29, 2011 

Report No. 488 

Page 22 

 

Post-fiscal-year-end reprogramming and realignment actions are processed 

directly into the Momentum system and are not initiated through BPPAS. 

We could not identify detailed transactions in BPPAS for the following FY 2010 

reprogramming and realignment actions: 

• $1,280,500 realigned from BOC 32 (Buildings and Alterations) after the 

initial baseline for reprogramming was established. 

• “Prior approval” reprogrammings for: 

o $4 million on May 27 (with further information provided on June 

11) from BOCs 11 and 12 (Pay and Benefits) to BOCs 25 and 

31 (Other Services and Equipment), 

o $7.5 million on July 16 from BOCs 11 and 12 to BOCs 25 and 

31. 

• Mid-year review. 

• End-year financial review. 

We found during our fieldwork that OFM does not retain detailed reprogramming 

and realignment actions in a common data table in either the BPPAS or 

Momentum applications: 

• Daily operational realignment and reprogramming actions processed 

through the Budget IntraAgency Transfer process are retained in detail in 

a separate Budget IntraAgency Transfers log within BPPAS. 

• Financial review actions are compiled and stored on a four-digit summary 

net change basis in a separate Financial Review data table within BPPAS. 

• Post-fiscal-year-end reprogramming and realignment actions are 

processed directly into the Momentum system. Momentum has an 

inherent limitation in the informational detail that can be stored within the 

application concerning the purpose and use of authorized funds (i.e., 

narrative justification). 

Each appropriations act directs the SEC to submit a report to Congress not later 

than 60 days after its enactment.26,27 The report, delineated by BOC, establishes 

the baseline for reprogramming and discloses to Congress amounts requested in the 

President’s Budget, the appropriation actions taken by Congress, and any initial 

realignments. 

OFM management monitors the enacted reprogramming thresholds through a 

password-protected Reprogramming Limitations Tracking spreadsheet that is 

maintained by a senior budget analyst. However, we found that the SEC’s first 

Reprogramming Limitations Tracking worksheets were not produced for FY 2009 

and FY 2010 until July 24, 2009, and July 9, 2010, respectively. In addition, we 

26 P.L. 111-8, op. cit., p. 152. 27 P.L. 111-117, op. cit., p. 169. 
Audit of the SEC Budget Execution Cycle March 29, 2011 

Report No. 488 

Page 23 

found that each FY’s first Reprogramming Limitations Tracking worksheet failed 

to provide an appropriate audit trail of individual reprogramming actions prior to 

the worksheet date. Subsequent discussion with OFM management indicated 

that the current OFM management practice is to not update the Reprogramming 

Limitations Tracking worksheet after the close of each FY, due to the expiration 

of the reprogramming limitations. The purpose of maintaining a complete tracking 

of reprogramming/ realignment actions, even subsequent to the fiscal year end, 

is to provide information to management regarding completed actions that may 

influence future budget decisions and also provides a complete audit trail of a 

fiscal year’s budget activity. 

The diminished audit trail for reprogramming and realignment actions processed 

through BPPAS and the lack of timely and complete Reprogramming Limitations 

Tracking worksheets increase the SEC’s risk of exceeding established 

reprogramming thresholds during the year of budget execution. 

While we acknowledge that there is no statutory penalty for exceeding 

reprogramming thresholds, Congress may react negatively to such a violation by 

reducing or entirely removing the SEC’s reprogramming authority, resulting in a 

loss of flexibility in the use of funds. 

Recommendation 9: 

The Office of Financial Management should establish a process to sufficiently 

and accurately track reprogramming/realignment activities in one central 

location. 

Management Comments. OFM concurred with the recommendation. See 

Appendix VI for management’s full comments. 

OIG Analysis. We are pleased that OFM concurred with this 

recommendation. 

 
Appendix I 

Acronyms/Abbreviations

BOC Budget Object Class 

BPPAS Budget and Program Performance Analysis 

System 

CFO Chief Financial Officer 

CFR Code of Federal Regulations 

COSO Committee of Sponsoring Organizations of the 

Treadway Commission 

FAM Financial Audit Manual 

GAO Government Accountability Office 

IT Information Technology 

LMS Learning Management System 

OAS Office of Administrative Services 

OED Office of Executive Director 

OFM Office of Financial Management 

OGC Office of General Counsel 

OIG Office of Inspector General 

OMB Office of Management and Budget 

PCIE President’s Council on Integrity and Efficiency 

PMIS Performance Management Information System 

SEC or Commission U.S. Securities and Exchange Commission 

SEC-R SEC Administrative Regulation 

TAFS Treasury Appropriation Fund Symbol 

USC United States Code 

Audit of the SEC Budget Execution Cycle March 29, 2011 

Report No. 488 

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Appendix II 

Scope and Methodology 

This performance audit was conducted in accordance with generally accepted 

government auditing standards. Those standards require that we plan and 

perform the audit to obtain sufficient, appropriate evidence to provide a 

reasonable basis for our findings and conclusions based on our audit objectives. 

We determined that the evidence obtained provides a reasonable basis for our 

findings and conclusions based on our audit objectives. 

Scope. OIG contracted with Acuity to conduct a performance audit and identify 

potential areas for improvement with regard to the Commission’s budget 

execution processes. The overall objective of the audit was to determine 

whether sufficient management controls over the SEC’s budget execution 

processes were in place and were operating effectively. The scope of the audit 

covered the SEC’s budget execution activities for FYs 2009 and 2010 and 

included examining the following: 

• The various lines of authority and responsibility with regard to 

Commission budget decisions 

• The Commission’s processes for administrative division and subdivision 

of funds 

• The policies and procedures in place to ensure appropriate spending of 

approved budgets 

• The SEC’s policies and procedures for monitoring obligations incurred to 

ensure that apportionments and allotments are not exceeded 

Additional work conducted included testing gaps and deficiencies in budget 

execution activities with respect to non-payroll obligations, de-obligation reviews, 

and contract closeout procedures. Acuity conducted its fieldwork from August 

2010 to February 2011. 

Methodology. To meet the overall objective of determining whether sufficient 

management controls over the SEC’s budget execution processes were in place 

and were operating effectively and appropriately, the Acuity team discharged its 

professional responsibilities and adopted a top-down, risk-based approach to 

plan the audit. In the audit plan, consideration was given to risks that might 

affect the audit’s objectives, operations, and resources. 

Further, additional considerations were given to identify sufficient, appropriate 

audit evidence and to establish a basis for determining the timing and extent of 

Acuity’s testing activities. Where appropriate, Acuity reviewed and relied upon 

workpapers and testing completed during the OMB Circular A-123 review in 

Audit of the SEC Budget Execution Cycle March 29, 2011 

Report No. 488 

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Appendix II 

Audit of the SEC Budget Execution Cycle March 29, 2011 

Report No. 488 

Page 26 

 

October 2010. As applicable, Acuity used of technology-based audit tools and 

other data analysis techniques. 

In order to accomplish the audit objectives, Acuity conducted interviews with 

selected personnel with budgetary responsibilities. Our purpose was to assess 

whether SEC personnel had the necessary technical competency, skills, and 

appropriate empowerment to discharge their budget decision responsibilities and 

to ensure compliance with all applicable regulations and legislation. 

In addition, Acuity gathered information to determine whether the SEC clearly 

communicates the necessary core competencies to Budget Execution Cycle 

personnel with budget decision responsibilities and provides a formal, SECfocused budgetary training program for its personnel. 

Further, in order to accomplish our audit objectives we reviewed the SEC policies 

and procedures pertaining to ensuring appropriate spending of approved 

budgets, monitoring obligations incurred to ensure that apportionments and 

allotments are not exceeded, and administrative division and subdivision of 

funds. 

Our audit objectives also included evaluating the design of the Commission’s 

processes and related Budget Execution internal control activities. The 

evaluation of internal controls and design effectiveness was measured against 

the budget control objectives identified in the GAO/President’s Council on 

Integrity and Efficiency (PCIE) Financial Audit Manual (FAM). 28

In addition to evaluating the design effectiveness of internal controls, we deemed 

that effective controls must operate as designed. We conducted tests of key 

applications, processes, and controls to ensure that they functioned effectively 

and aligned with management’s assertion of the controls. Our testing further 

included reviewing select gaps that were identified by OFM’s contractor and 

deficiencies in budget execution activities with respect to non-payroll obligations, 

de-obligation reviews, and contract closeout procedures. 

Internal Controls. The July 2007 revision of GAO Government Auditing 

Standards, effective January 1, 2008, includes the requirement to understand 

internal controls that are significant within the context of the audit objectives. The 

revised standards indirectly refer to internal control guidance contained in 

Internal Control – Integrated Framework (COSO Report), published by the 

Committee of Sponsoring Organizations of the Treadway Commission (COSO). 

The COSO report provides the framework for organizations to design, implement, 

and evaluate controls that will facilitate compliance with Federal laws, 

regulations, and program compliance requirements. To ensure that the SEC 

continues its standard of excellence and transparency in reporting, the COSO 

28 GAO/PCIE Financial Audit Manual, Volume I, GAO-08-585G, p. 395 F-1. 
Appendix II 

Audit of the SEC Budget Execution Cycle March 29, 2011 

Report No. 488 

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Integrated Framework, as supported by GAO, is the framework that the SEC’s 

control activities were measured against for this audit. 

To facilitate our understanding of applicable Budget Execution Cycle process 

controls, Acuity compiled information in the GAO audit accounting cycle 

memoranda, FY 2010 OMB Circular A-123 risk control matrices, current policies 

and procedures, memoranda, and other applicable documentation provided by 

management into a process narrative document. 

We reviewed the management control activities as they pertained to the audit 

objectives and assessed the budget execution cycle’s structure key controls and 

design effectiveness. 

Sampling. The sampling methodology employed was a combination of 

statistical and judgmental techniques as applicable to the respective key controls. 

Statistical and judgmental sample sizes were established in accordance with the 

GAO/PCIE FAM. Select SEC offices/divisions (e.g., the Fort Worth Regional 

Office) were subject to specific sampling to address additional fraud risk that was 

found during our initial survey fieldwork. 

Judgmental sampling techniques were employed where the use of statistical 

sampling was not the appropriate technique or where evidence was readily 

available from another source that provided a more accurate basis or had greater 

evidentiary value. Judgmental sample sizes were determined after giving 

consideration to the type of control (i.e., manual or automated), frequency of 

control, complexity of the control, and professional judgment. 

Further, we specifically identified and tested a universe of 12 contracts that cited 

both the “M0100” and “X0100” appropriations during the period in scope. The 

supporting contracts and respective modifications were reviewed to assess the 

propriety of compliance with the Purpose Statute. 

Statistically based sampling techniques were applied against two separate 

universes of obligation and de-obligation transactions that occurred between 

October 1, 2008, and September 30, 2010. Statistically selected dollar-unit, or 

monetary-unit, samples were selected for dual testing purposes and compiled 

through the use of IDEA software. 
Appendix III 

Criteria 

31 United States Code 

§ 1301(a) The Purpose Statute. Governs the use of appropriated funds. 

§ 1341(a) The Antideficiency Act. Governs limitations, exceptions, and 

penalties on obligations in excess of or advance of appropriations 

or allocations. 

§ 1517 The Antideficiency Act. Governs limitations, exceptions, and 

reports on obligations in excess of apportionments. 

FY 2009 Consolidated Appropriations Act (Public Law 111-8), Division D, 

Section 608. Provides guidance on the amount of enacted funding, 

reprogramming limitations, and submission of a baseline report to Congress. 

FY 2009 Supplemental Appropriations Act (Public Law 111-32), Division D, 

Section 608. Provides guidance on the amount and purpose of enacted 

supplemental funding and restrictions. 

FY2010 Consolidated Appropriations Act (Public Law 111-117), Division C, 

Section 608. Provides guidance on the enacted funding, reprogramming 

limitations, and submission of a baseline report to the Congress. 

Office of Management and Budget Circular A-11, Preparation, Submission 

and Execution of the Budget, July 2010, Part 4 and Appendix H. Provides 

guidance on apportionment and budget execution and content of regulations 

governing administrative control of funds. 

Government Accountability Office Principles of Federal Appropriations Law

(Red Book), Third Edition, Volume I, Chapter 2.B.2.b. Provides guidance on 

the appropriate treatment for two appropriations available for the same purpose. 

Volume II, Chapter 6.C.2.d, provides guidance on specific appropriation 

limitations/purpose violations. 

Budget and Accounting Procedures Act of 1950. Directs the Comptroller 

General, in consultation with the Director of OMB and the Secretary of the 

Treasury, to prescribe accounting principles, standards, and related 

requirements. 

Federal Financial Management Improvement Act of 1996. Mandates that 

Federal financial systems provide accurate, reliable, and timely financial 

management information to Federal managers.

Audit of the SEC Budget Execution Cycle March 29, 2011 

Report No. 488 

 Page 28 
Appendix III 

Audit of the SEC Budget Execution Cycle March 29, 2011 

Report No. 488 

 Page 29 

OMB Circular A-127 (Issued September 2009). Establishes the requirements 

for Federal financial management systems. 

SEC Administrative Regulation 30-1 (Issued June 1996). Prescribes 

procedures for establishment, maintenance, and evaluation of management 

controls. 

SEC Administrative Regulation 14-1 (Revised August 18, 2010). Establishes 

the policies and procedures for administrative control of funds. 
Appendix IV 

List of Recommendations 

Recommendation 1: 

The Office of Financial Management, in consultation with the Office of General 

Counsel, should request a formal opinion from the Comptroller General as to 

whether the Commission violated the Purpose Statute, and as a consequence 

the Antideficiency Act, by charging certain costs of information technology 

projects and expert witness fees to both the general and supplemental 

appropriations. 

Recommendation 2: 

The Office of Financial Management, in consultation with the Office of the 

Executive Director and the Office of General Counsel, should establish policies 

and guidance on how to fund expenditures where there are multiple 

appropriations available for the same purpose. 

Recommendation 3: 

The Office of Financial Management should complete a risk reassessment and 

include the inactivation of Momentum budget controls as a high-risk area in the 

OFM Reference Guide 01-06, General Guidance: Override of Internal Control. 

Recommendation 4: 

The Office of Financial Management should revise the Internal Control Override 

Template included in OFM Reference Guide 01-06, General Guidance: Override 

of Internal Control, to include a section for follow-up actions to ensure financial 

integrity or statutory compliance and ensure that significant overriding of financial 

controls be required to be approved by senior-level officials. 

Recommendation 5: 

The Office of Financial Management should formally document its allotments as 

required by Appendix H of Office of Management and Budget Circular A-11 to 

evidence the transfer of legal responsibility of funds to the recipient. 

Audit of the SEC Budget Execution Cycle March 29, 2011 

Report No. 488 

 Page 30 
Appendix IV 

Audit of the SEC Budget Execution Cycle March 29, 2011 

Report No. 488 

 Page 31 

Recommendation 6: 

The Office of Financial Management should initiate a review of the Budget and 

Program Performance Analysis System’s capability to accommodate multiple 

appropriations. 

Recommendation 7: 

The Office of Financial Management, in consultation with the Office of Human 

Resources, should develop and establish a formal, ongoing Securities and 

Exchange Commission–focused budgetary training program. 

Recommendation 8: 

The Office of Financial Management should revise the current reprogramming 

and realignment procedures to require that the Budget Officer or the Assistant 

Director, Planning and Budget, approve in writing all reprogramming and 

realignment actions that cross two-digit Budget Object Classes. 

Recommendation 9: 

The Office of Financial Management should establish a process to sufficiently 

and accurately track reprogramming/realignment activities in one central location. 
Appendix V 

Schedule of Potential Purpose Statute Violations . 

M0100 X0100 Grand Total

FY09/10 2510 $129,675.00 $129,675.00

4201 $116.29 $116.29

FY10 2510 $48,000.00 $48,000.00 $48,000.00

4201 $8.18 $8.18 $8.18

OA SECHQ1-10-C-0056 Total $129,791.29 $48,008.18 $177,799.47 $0.00 $48,008.18

FY09 2510 $84,000.00 $84,000.00FY09/10 2510 $62,500.00 $62,500.00 $62,500.00FY10 2510 $88,000.00 $88,000.00

PC SECHQ1-08-C-8325 Total $62,500.00 $172,000.00 $234,500.00 $62,500.00 $0.00

FY09/10 2510 $10,000.00 $10,000.00FY10 2510 $30,000.00 $30,000.00 $30,000.00

OA SECHQ1-10-C-0116 Total $10,000.00 $30,000.00 $40,000.00 $0.00 $30,000.00

FY09/10 2570 $131,500.00 $131,500.00FY10 2570 $131,500.00 $131,500.00 $131,500.00

PC SECHQ1-08-P-8316 Total $131,500.00 $131,500.00 $263,000.00 $0.00 $131,500.00

FY09/10 3121 $144,255.82 $144,255.82

4201 $66.16 $66.16

FY10 3121 $51,036.59 $51,036.59 $51,036.59

4201 $112.39 $112.39 $112.39

OA SECHQ1-09-CALL-A0009 Total $144,321.98 $51,148.98 $195,470.96 $0.00 $51,148.98

FY09 2510 $20,000.00 $20,000.00FY09/10 2510 $14,577.50 $14,577.50 $14,577.00

PC SEC08-09-C-0370 Total $14,577.50 $20,000.00 $34,577.50 $14,577.00 $0.00

FY09/10 2414 $664,657.18 $664,657.18

4201 $160.13 $160.13

FY10 2414 $1,150,000.00 $1,150,000.00 $1,150,000.00

4201 $265.60 $265.60 $265.60

PC SECHQ1-05-A-0379-TO-0027 Total $664,817.31 $1,150,265.60 $1,815,082.91 $0.00 $1,150,265.60

FY09/10 3120 $214,997.82 $214,997.82 $0.00

4201 $165.25 $165.25 $0.00

FY10 2526 $91,450.20 $91,450.20 $91,450.20

4201 $37.43 $37.43 $37.43

OA SECHQ1-10-C-0028 Total $215,163.07 $91,487.63 $306,650.70 $0.00 $91,487.63

E EXCEPTIONS $77,077.00 $1,502,410.39

$1,425,333.39

Incorrect 

Obligation 

from M0100 Notes

OA SECHQ1-10-C-0056 Expert Witness, requesting 

additional funds for additional testimony and for the attendant travel. In addition, the staff intends to ask Ms. Hoffman's team for some assistance with preparation of the pre-trial order in this case which is 

BERDON , LLPTOTAL PURPOSE STATUTNET

due mid-March.

Incorrect 

Obligation 

from "X0100" DOC NO Momentum Contract Description

Moment. 

OBL FY BOC

Case No 05-cv-480-MSK.Original Obligation cited "M0100".Amendment originally cited "M0100", but recorded in Momentum as "X0100".Amendment in process to amend contract to cite "X0100".Same case number.

Appropriation

No specific cases identified for contract amendments.Original contract in FY08 cited "X0100".Amendment P00001 cited "X0100";Amendment P00002 cited "M0100" for same CLIN;Amendment P00003 cited "X0100" for same CLIN.

OA SECHQ1-10-C-0116 HO-09429 ITMO AOL-Time Warner; 

SEC v Leslie; EW-The Focal Point; SEC Staff - Richard Hong; Total contract value = $40K ($10K to be funded in FY-10; $30K will be f

Vendor

FOCAL POINT, LLC, THE

unded with FY-11).

PC SECHQ1-08-C-8325 HO-09429 ITMO AOL Time Warner; 

EW-Lee Seidler; Staff- Richard Hong; Contract CP estimated @ $105K;Labor $100KODCs $5K 

Case no 07-3444JF, SEC v. Leslie, et al.CLIN 0001 split funded between "M0100" and "X0100".Original contract in FY08 cited "X0100".First option renewal in FY09 cited "M0100".Second option renewal cited "X0100".OED guidance memo states use "M0100" for Blue Sheet Analysis program.Momentum shows obligation for contract of 9/20/09 as "M0100";Contract document cites "X0100";Subsequent contract amendments cite "X0100"Original contract cited "X0100" for case on NewCentury Corp.Amendment for increase in ceiling price (+$14,577) cited "M0100" for same case, sameCLIN.

PC SEC08-09-C-0370 Expert Paul Regan in New Century 

(LA-3349).

C PC SECHQ1-08-P-8316 Award

NC OA SECHQ1-09-CALL-A0009 Automated Blue Sheet Analysis. 

Project Automated Blue Sheet Analysis

PC SECHQ1-05-A-0379-TO-0027 Modify SECHQ1-05-A-0379- 

Ongoing Paper Doc CaptureProject: Document Imaging O&MLine Item: Ongoing Paper Document CaptureSS

OED guidance memo states use "M0100" for document imaging operation & maintenance. Original contract (8/17/2009) cited "X0100".Amendment P00001 (8/19/2009) changed citedappropriation from "X0100" to "M0100".All subsequent amendements and deobligations cited "X0100" but shared CLINs.OED guidance memo states use "M0100" for Native File Searching program.CLINs 0001AA and 0001AB split funded between "M0100" (re: IT software & hardware) and "X0100" (re: System Tech & Project Manager services) for different BOCs.Remainder of contract cited "M0100".

C OA SECHQ1-10-C-0028 Project: Native File Searching for 

Investigations. Line Item: NUIX Pilot DME. Megan Steighner 10/28/2009 M0100 Funds

DR. LEE SEIDLERGUIDANCE SOFTWARE INGUIDENT TECHNOLOGIES IHEMMING MORSE INCLABAT/ANDERSON, INC.NUIX NORTH AMERICAN IN

Audit of the SEC Budget Execution Cycle March 29, 2011 

Report No. 488 

 Page 32 
Appendix VI 

Management’s Comments 

M E M O R A N D U M 

March 25, 2011 

TO: H. David Kotz 

 Inspector General 

 

FROM: Kenneth A. Johnson /s/ 

 Chief Financial Officer 

 Office of Financial Management 

SUBJECT: Office of Financial Management (OFM) Management Response to 

Draft Report No. 488, Audit of the SEC Budget Execution Cycle

Thank you for the opportunity to review and respond to the Office of Inspector General’s 

Draft Report No. 488, entitled Audit of the SEC Budget Execution Cycle. We concur with the 

nine recommendations presented in the report and have begun taking appropriate steps to 

implement them.

Recommendation 1:

OFM concurs. OFM and the Office of the General Counsel (OGC) have studied the issue 

of whether charging certain costs to both: a) the general appropriations available during 

fiscal years 2009 and 2010; and b) the Supplemental Appropriations Act, 2009, P.L. 111-

32 (June 24, 2009) violated the Purpose Statute. We believe no such violation took place, 

because of the guidance provided in Chapter 2 of the GAO Redbook, “Specific versus

General Appropriations,” section b. “Two Appropriations Available for Same Purpose,” 

which states: “Of course, where statutory language clearly demonstrates congressional 

intent to make one appropriation available to supplement or increase a different 

appropriation for the same type of work, both appropriations are available.” Both the 

Supplemental Appropriation and the accompanying Conference Report make clear that 

the Supplemental Appropriation was to provide an “additional” amount for investigations 

of securities fraud. Accordingly, our view is that the agency’s use of the Supplemental 

Appropriation did not violate the Purpose Statute or the Anti-Deficiency Act. 

We appreciate your discussion of this viewpoint in your report, and concur with the 

recommendation that the agency reach out to the Government Accountability Office to 

request a formal opinion from the Comptroller General. OFM and OGC already have 

initiated that process. 

Audit of the SEC Budget Execution Cycle March 29, 2011 

Report No. 488 

Page 33 
Audit of the SEC Budget Execution Cycle March 29, 2011 

Report No. 488 

Page 34

Recommendation 2:

OFM concurs. OFM, in consultation with the Office of the Executive Director and OGC, 

will establish policies and guidance on the use of multiple appropriations available for the 

same purpose. 

Recommendation 3:

OFM concurs. A risk reassessment will be completed and OFM Reference Guide 01-06, 

General Guidance: Override of Internal Control, will be updated to include inactivation 

of Momentum budget controls as a high-risk area. 

Recommendation 4:

OFM concurs. The Internal Control Override Template included in OFM Reference 

Guide 001-06, General Guidance: Override of Internal Control, will be revised to 

include a section for follow-up actions to ensure financial integrity/statutory compliance 

and that senior-level officials approve significant overrides of financial controls. 

Recommendation 5:

OFM concurs. In accordance with Appendix H of OMB Circular A-11, Preparation, 

Submission and Execution of the Budget, and the delegation authority in section 3c(2) of 

SEC-R 14-1, Administrative Control of Funds, the Chief Financial Officer will formally 

issue allotments. This will evidence the transfer of legal responsibility to the Budget 

Officer. 

Recommendation 6:

OFM concurs. OFM will review the Budget and Program Performance Analysis 

System’s (BPPAS) capability to accommodate multiple appropriations. 
Audit of the SEC Budget Execution Cycle March 29, 2011 

Report No. 488 

Page 35

Recommendation 7:

OFM concurs. Within overall agency funding constraints, OFM, in consultation with the 

Office of Human Resources, will develop a formal budget training program based on the 

budget execution standard operating procedures. 

Recommendation 8:

OFM concurs. The budget execution operating procedures will be updated to ensure all 

reprogramming and realignment actions that cross two-digit budget object classes will be 

approved in writing by the appropriate officials. 

Recommendation 9:

OFM concurs. OFM will update its budget execution operating procedures to incorporate 

steps for tracking reprogramming and realignment activities in one central location. 
Appendix VII 

OIG Response to Management’s Comments 

OFM concurred with all of the report’s nine recommendations and indicated that 

it would take action to implement the recommendations. We believe that OFM’s 

proposed actions are responsive to our findings, and we are pleased that it has 

already initiated actions to implement some of the recommendations. The full 

implementation by OFM of all of the OIG’s recommendations will result in 

significant improvements to the SEC’s budget execution processes. 

Audit of the SEC Budget Execution Cycle March 29, 2011 

Report No. 488 

Page 36 
Audit Requests and Ideas 

The Office of Inspector General welcomes your input. If you would like to 

request an audit in the future or have an audit idea, please contact us at 

U.S. Securities and Exchange Commission 

Office of Inspector General 

Attn: Assistant Inspector General, Audits (Audit Request/Idea) 

100 F Street, N.E. 

Washington D.C. 20549-2736 

Tel. #: 202-551-6061 

Fax #: 202-772-9265 

Email: oig@sec.gov 

Hotline 

To report fraud, waste, abuse, and mismanagement at the SEC, 

contact the Office of Inspector General at: 

Phone: 877.442.0854 

Web-Based Hotline Complaint Form: 

www.reportlineweb.com/sec_oig