a

GAO

United States Government Accountability Office

Report to Congressional Requesters

July 2004 SECURITIES AND 

EXCHANGE 

COMMISSION

Review of Fiscal Year 

2003 and 2004 Budget 

Allocations

GAO-04-818
www.gao.gov/cgi-bin/getrpt?GAO-04-818.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact Orice Wiliams 

at (202) 512-5837 or williamso@gao.gov. 

Highlights of GAO-04-818, a report to 

congressional committees 

July 2004

SECURITIES AND EXCHANGE 

COMMISSION 

Review of Fiscal Year 2003 and 2004 

Budget Allocations 

Congress addressed SEC’s human capital and workload challenges with a 

significant increase to SEC’s appropriations for fiscal year 2003. SEC used 

over half of that increase to fund over 800 new positions primarily within its 

financial disclosure, enforcement, and examination areas. Although these 

allocations appear consistent with legislative directions, they were made 

without the benefit of an updated agencywide strategic plan, which was not 

approved until July 9, 2004. Although SEC received more flexible pay and 

hiring authority, SEC continues to face challenges filling critical vacancies, 

such as accountants. Officials cite competition from the private sector as a 

major factor. 

SEC’s information technology (IT) budget increased from $46.6 million in 

fiscal year 2002 to over $100 million in fiscal year 2003. It increased another 

20 percent to $120 million in fiscal year 2004. SEC used most of these large 

increases for maintenance and infrastructure needs, compared with new 

technology initiatives. Also, SEC’s Office of Inspector General (OIG) issued 

a report detailing its concerns, which we share, about the decision-making 

process for IT capital investments. OIG made several recommendations to 

improve this process, and SEC staff have begun to take actions to address 

some of them. 

SEC commented that our review of its activities acknowledged the progress 

the agency has made and provided additional information about its activities 

since March. 

SEC Budget Time Line (Key Dates), Fiscal Years 2002-2004 (dollars in millions) 

Fiscal

year 2004

Nov. 2001

PL 107-77 

Commerce/ 

Justice/State 

Appropriations 

for fiscal year 

2002

$437

July 2002

President 

signs 

PL 107-204 

SarbanesOxley Act, 

authorizing

$776

Aug. 2002

President signs 

PL 107-206 

supplemental

appropriations 

for fiscal year 

2002

$30.9

Sept. 2002

SEC submits 

fiscal year 

2004 request 

to OMB

$841.5

Sept. 2003

SEC submits 

fiscal year 

2005 request 

to OMB

$913

Jan. 2004 

President 

signs PL 

108-199 

Consolidated 

Appropriations 

for fiscal year 

2004

$811.5

Feb. 2003

President 

signs 

PL 108-7 

Consolidated 

Appropriations 

for fiscal year 

2003

$716

Enacted legislation

Source: GAO.

Fiscal

year 2002

Fiscal

year 2003

This report responds to a statement 

in the Conference Report on the 

Securities and Exchange 

Commission’s (SEC) fiscal year 

2004 appropriations directing GAO 

to study SEC’s allocation of its 

increased funding for fiscal years 

2003 and 2004. Historically, SEC 

has faced high staff turnover rates, 

long stretches of unfilled staff 

positions, and growing resource 

needs. Additionally, the agency has 

faced significant needs in its 

information technology area. In 

response to these trends and 

several high-profile corporate 

failures and financial scandals, 

Congress approved significant 

increases in SEC’s appropriations 

to help improve oversight and 

increase public confidence in 

financial markets. This report 

builds on several reports GAO has 

issued on these issues. 

GAO was asked to review SEC’s (1) 

allocation of its fiscal year 2003 and

2004 funds and (2) use of its 

information technology funding in 

fiscal year 2003 and its plan for 

2004. 
Page i GAO-04-818 SEC Budget Allocation Mandate 

Letter 1

Results in Brief 2

Background 4

Budget Increases Have Funded New Staff Positions, but Many 

Remain Unfilled 7

SEC Allocated Majority of Information Technology Budget to 

System Maintenance and Infrastructure; Concerns Exist about 

Investment Decision-Making Process 15

Observations 20

Agency Comments and Our Evaluation 21

Appendix I Scope and Methodology 23 

Appendix II Comments from the Securities and Exchange 

Commission 24 

Tables 

Table 1: End-of-Year Obligations for Fiscal Years 2002 through 2004 

by Major SEC Divisions and Offices 8

Table 2: Allocation of 842 New Positions among Divisions/Offices 9

Table 3: Change in SEC Vacancies between September 2003 and 

March 2004 13

Figures 

Figure 1: SEC Budget Time Line (Key Dates), Fiscal Years 2002-

2004 (dollars in millions) 7

Figure 2: SEC’s Allocation of Fiscal Years 2003 and 2004 

Information Technology Budget (dollars in millions) 16

Contents 
Page ii GAO-04-818 SEC Budget Allocation Mandate 

Abbreviations 

CCA Clinger-Cohen Act of 1996 

CIO chief information officer 

EDGAR Electronic Data Gathering Analysis and Retrieval 

IOC Information Officers Council 

IT information technology 

ITCPC Information Technology Capital Planning Committee 

OCA Office of Chief Accountant 

OCIE Office of Compliance Inspections and Examinations 

OIG Office of Inspector General 

OIT Office of Information Technology 

SEC Securities and Exchange Commission 

This is a work of the U.S. government and is not subject to copyright protection in the 

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Page 1 GAO-04-818 SEC Budget Allocation Mandate 

July 23, 2004 

The Honorable Judd Gregg 

Chairman 

The Honorable Ernest F. Hollings 

Ranking Minority Member 

Subcommittee on Commerce, Justice, 

 State, and the Judiciary 

Committee on Appropriations 

United States Senate 

The Honorable Frank R. Wolf 

Chairman 

The Honorable Jose E. Serrano 

Ranking Minority Member 

Subcommittee on Commerce, Justice, 

 State, the Judiciary, and Related Agencies 

Committee on Appropriations 

House of Representatives 

This report responds to a statement in the Conference Report on the 

Securities and Exchange Commission’s (SEC) fiscal year 2004 

appropriations directing GAO to study SEC’s allocation of funding 

increases provided in its fiscal year 2003 and 2004 budgets.1

 As a result of 

several high-profile corporate failures, major financial statement 

accounting frauds, and mutual fund scandals, Congress increased SEC’s 

budget to improve SEC’s oversight of financial markets to help restore 

public confidence and protect investors. The Sarbanes-Oxley Act of 2002 

(Sarbanes-Oxley) was enacted to protect investors by improving the 

accuracy and reliability of corporate disclosures made pursuant to the 

securities laws, and for other purposes.2

 Sarbanes-Oxley authorized a 

significant increase in SEC’s fiscal year 2003 appropriations to increase 

human capital resources and to improve the agency’s technology. In fiscal 

 1

H. R. Conf. Rep. No. 108-401, the Conference Report for H.R. 2673, Making Appropriations 

for Agricultural, Rural Development, Food and Drug Administration, and Related Agencies 

for the Fiscal Year Ending September 30, 2004, and Other Purposes. 

2

Pub. L. No. 107-204. 

United States Government Accountability Office

Washington, DC 20548 
Page 2 GAO-04-818 SEC Budget Allocation Mandate 

year 2003, SEC received a 45 percent increase in its appropriations, and 

the act required SEC to efficiently and effectively use these funds. 

Our objectives were to review (1) SEC’s allocation of its fiscal year 2003 

funds and its plans for allocating funds in fiscal year 2004 and (2) SEC’s 

use of its information technology (IT) funding in fiscal year 2003 and its 

plans for IT spending in fiscal year 2004. In addressing these objectives, we 

obtained and analyzed detailed information from SEC on its budget 

allocations and IT decision-making process for fiscal years 2003 and 2004. 

We also interviewed SEC officials to obtain their views on SEC’s budget 

and IT decision-making processes. We performed limited data reliability 

testing of SEC’s budget data by interviewing knowledgeable agency budget 

officials and comparing the data with other published budget data. Based 

on this analysis, we determined that they were sufficiently reliable for the 

purpose of this report. Finally, we relied on relevant GAO and SEC Office 

of Inspector General (OIG) reports on SEC’s budget and IT decisionmaking process. We conducted our work from February to July 2004 in 

accordance with generally accepted government auditing standards. A 

complete description of our methodology can be found in appendix I. 

In fiscal year 2003, SEC used the majority of its increased appropriations 

to fund over 800 new positions, primarily in its divisions and offices 

responsible for financial disclosure reviews, enforcement activities, and 

examinations. In 2004, SEC continued to use this approach. Specifically, 

SEC allocated 175, 194, and 275 new positions among its financial 

disclosure, enforcement, and examination areas, respectively. Although 

these allocations appear generally consistent with Sarbanes-Oxley 

directions, they were made without the benefit of an updated strategic 

plan that outlines the agency’s priorities—a tool that could be used as a 

guide for ensuring that SEC is deploying its resources across the agency in 

the most efficient way to achieve the most effective outcomes. 

Subsequently, the commission approved SEC’s new strategic plan on 

July 9, 2004. In addition, SEC used a portion of the fiscal year 2003 

appropriations to fund its new pay parity authority, which allowed the 

agency to pay staff commensurate with other federal financial regulators. 

According to SEC officials, this additional flexibility has helped SEC to 

recruit and retain staff. However, SEC faces ongoing challenges filling 

many of the newly created positions, particularly accountants, due to 

competition from the private sector. According to SEC officials, operating 

Results in Brief 
Page 3 GAO-04-818 SEC Budget Allocation Mandate 

under continuing resolutions for more than one-third of fiscal year 2003 

also affected SEC’s ability to fill its new positions within the fiscal year.3

 At 

the end of the second quarter of fiscal year 2004, many vacancies still 

remain. 

A notable portion of SEC’s appropriations in fiscal year 2003 was used to 

increase the agency’s IT budget. Specifically, SEC increased its IT budget 

117 percent from $46.6 million in fiscal year 2002 to approximately $100 

million in fiscal year 2003. In fiscal year 2004, SEC increased its IT budget 

an additional 20 percent, to $120 million. SEC continues to use most of 

SEC’s IT budget to fund hardware and software maintenance and 

infrastructure needs.4

 Specifically, in fiscal year 2003, approximately 

76 percent of SEC’s IT budget was used to fund these needs, and a planned 

70 percent has been budgeted for these needs in fiscal year 2004. As a 

result, only a small portion of SEC’s IT budget is being used to fund new 

technology initiatives, such as providing for the online filing of ownership 

reports, or allowing securities transactions to be routed directly from 

clearing brokers to SEC. Separately, in a March 2004 report, SEC’s OIG 

raised concerns about SEC’s IT capital investment decision-making 

process. Specifically, among other things, OIG was concerned about the 

lack of a single agencywide IT budget-related control process and that the 

process was not in full compliance with applicable laws and regulations. 

In addition, OIG highlighted the agency’s need to finalize its IT strategic 

plan in order to establish sound criteria for making and evaluating IT 

investment decisions. OIG made a number of recommendations, including 

formalizing charters, roles, and responsibilities for the councils involved in 

the decision-making process and improving the strategic planning for IT 

investments. Based on our previous work and review of the OIG’s findings, 

GAO shares some of the OIG’s concerns and agrees with the 

recommendations. SEC staff have begun to take steps to address some of 

the OIG’s recommendations. 

This report makes no recommendations. We received written comments 

on a draft of this report that are reprinted in appendix II. SEC commented 

 3

SEC also operated under a continuing resolution for the first quarter of fiscal year 2004. 

4

In this report, we use “software and hardware maintenance” to refer to OMB Circular A-11 

terminology for “steady state,” which means maintenance and operation costs at current 

capability and performance level—including costs for personnel, maintenance of existing 

information systems, corrective software maintenance, voice and data communications 

maintenance, and replacement of broken IT equipment. “Infrastructure needs” refers to 

laptop, monitor, and server upgrades. 
Page 4 GAO-04-818 SEC Budget Allocation Mandate 

that our review of SEC activities acknowledged the progress the agency 

has made and provided additional information about its activities since 

March. The comments are discussed in greater detail at the end of this 

report. 

Created by Congress in 1934, SEC’s primary mission is to protect 

investors; maintain fair, honest, and efficient securities markets; and 

facilitate capital formation. To fund its operations, SEC collects fees that 

are deposited into a special SEC appropriations account to be used as 

offsetting collections. These fees are charged to (1) public companies for 

the registration of stocks and bonds for sale to investors, (2) national 

securities exchanges and national securities associations when registered 

securities and security futures are sold on or off exchanges through any 

member of such an association, and (3) persons filing proxy solicitations 

for mergers, consolidations, acquisitions, or sales of a public company’s 

assets. In carrying out its mission, the agency has established four major 

goals: (1) promote and enforce compliance with federal securities laws, 

(2) sustain a flexible and effective regulatory environment, (3) promote 

informed investment decision making, and (4) maximize its use of 

resources. SEC works to achieve these goals through its various divisions 

and offices. GAO has issued a number of reports and testimonies 

addressing SEC’s staffing and workload and certain aspects of its human 

capital and budget challenges.5

As of September 30, 2003, SEC had 3,208 staff working in four divisions 

and 18 offices in Washington, D.C., and in 11 regional and district offices. 

Of these, approximately 44 percent were attorneys, 22 percent were 

accountants or financial analysts, and 6 percent were investigators or 

examiners. The remaining 28 percent included other professional, 

technical, administrative, and clerical staff. 

 5

U.S. General Accounting Office, Securities and Exchange Commission: Human Capital 

Challenges Require Management Attention, GAO-01-947 (Washington, D.C.: Sept. 17, 

2001); SEC Operations: Increased Workload Creates Challenges, GAO-02-302 (Washington, 

D.C.: Mar. 5, 2002); U.S. General Accounting Office, Securities and Exchange 

Commission: Preliminary Observations on SEC’s Spending and Strategic Planning, 

GAO-03-969T (Washington, D.C.: July 23, 2003); and U.S. General Accounting Office, SEC 

Operations: Oversight of Mutual Fund Industry Presents Management Challenges, 

GAO-04-584T (Washington, D.C.: Apr. 20, 2004). 

Background 

Organizational Overview 
Page 5 GAO-04-818 SEC Budget Allocation Mandate 

SEC oversees the activities of a variety of key market participants. In 2003, 

SEC was responsible for overseeing 13 registered exchanges, the over-thecounter market, approximately 70 alternative trading systems, 11 

registered clearing agencies, about 6,800 registered broker-dealers 

employing over 700,000 registered representatives, almost 8,000 transfer 

agents, over 5,000 investment companies, and approximately 8,000 

registered investment advisers. In addition, over 17,000 companies that 

have issued securities filed annual reports with SEC. SEC’s oversight 

includes rule making, surveilling the markets, interpreting laws and 

regulations, reviewing corporate filings, processing applications, 

conducting inspections and examinations, and determining compliance 

with federal securities laws. 

In our previous reports on SEC, we found that SEC faced high staff 

turnover, ongoing vacancies, and increasing resource needs. Specifically, 

in our September 2001 report, we noted that over 1,000 employees, or 

about one-third of SEC staff, left the agency from fiscal years 1998 to 2000, 

and that 280 positions remained unfilled in September 2001. In our March 

2002 report, we stated that since 1996, SEC’s staff resources had not 

grown commensurate with its workload. We noted that SEC tended to 

develop its annual budget request based on the previous year’s 

appropriation rather than on what it would actually need to fulfill its 

mission. The result was that the modest growth in staff resources in the 

1990s at SEC was insufficient to manage its workload. In addition, we 

reported that additional funding was necessary to meet SEC’s IT needs. 

Like the rest of the government, SEC’s challenges in the area of IT 

continue to increase, and SEC staff must have the necessary tools to 

successfully meet the agency’s increasing demands. 

Changes in the securities markets contributed to the increase in SEC’s 

workload. U.S. capital markets have experienced substantial growth in the 

last two decades. The increased volume of shares traded in the U.S. stock 

market in this period and an array of new products and market 

participants have led to increasing demands on SEC’s regulatory capacity. 

The 1990s also witnessed tremendous growth in the internationalization of 

the U.S. securities market. In addition, many more individuals became 

investors in the U.S. stock market through buying shares in mutual funds. 

This further elevated SEC’s importance as a regulator. 

SEC Staffing and Workload 

Issues 
Page 6 GAO-04-818 SEC Budget Allocation Mandate 

SEC’s staff issues and a series of corporate failures and accounting 

scandals, including the bankruptcies of Enron in December 2001 and 

WorldCom in July 2002, caught Congress’s attention and raised significant 

concern about SEC’s ability to effectively carry out its mission. Congress 

recognized SEC’s challenges and enacted a number of legislative changes 

to address them, including 

• the Investor and Capital Markets Fee Relief Act,6 which rationalized SEC’s 

fee structure and exempted SEC from general federal pay restrictions and 

provided the agency with pay parity—the authority necessary to bring 

salaries in line with those of other federal financial regulators. 

• Sarbanes-Oxley, which authorized appropriations of $776 million to the 

agency in the fiscal year 2003 budget. SEC increased its initial fiscal year 

2003 budget request of $466 million to $769 million in part because of the 

level authorized in Sarbanes-Oxley. The Consolidated Appropriations 

Resolution, 2003, in which Congress appropriated $716 million to the 

agency for fiscal year 2003, directed the additional funding to be used in 

certain areas. First, it directed SEC to fund pay parity, which at that time 

had not yet been fully implemented. Sarbanes-Oxley also directed that 

the new funding be used to fund information technology, security 

enhancements, and recovery and mitigation activities in light of the 

terrorist attacks of September 11, 2001. In addition, SEC was directed to 

fund no fewer than 200 additional professional staff positions to 

strengthen existing program areas, and to increase its oversight of auditors 

and audit services. Figure 1 shows the change in SEC’s budget between 

fiscal years 2002 and 2004. 

• the Accountant, Compliance and Enforcement Staffing Act of 2003,7 which 

provided SEC with relief from competitive hiring requirements for certain 

positions. The legislation was intended to enable SEC to expedite the 

hiring of accountants, economists, and examiners so that the agency could 

more quickly fill new positions, including those created after SarbanesOxley. 

 6

Pub. L. No. 107-123, 115 Stat. 2390, January 16, 2002. 

7

Pub. L. No. 108-44, 117 Stat. 842, July 3, 2003. 

Congress Takes Action to 

Address SEC’s Human 

Capital and Budget 

Challenges 
Page 7 GAO-04-818 SEC Budget Allocation Mandate 

Figure 1: SEC Budget Time Line (Key Dates), Fiscal Years 2002-2004 (dollars in millions) 

SEC used much of its fiscal year 2003 increased appropriations to fund 

over 842 new staff positions.8

 SEC’s financial disclosure, enforcement, and 

examinations areas received most of the newly funded positions. Among 

the divisions receiving the largest increases were the Divisions of 

Enforcement, Corporation Finance, and the Office of the Chief Accountant 

(OCA), which received double-digit increases to their budgets in 2003 and 

are expected to receive even greater increases in 2004. In addition, SEC 

used part of its fiscal year 2003 appropriations to fund pay parity for 

existing staff, which gave the agency additional flexibility to recruit and 

retain staff. However, many of these newly funded positions remain 

unfilled because SEC continues to face hiring challenges for certain 

positions. Officials say that while certain laws have helped speed up the 

hiring process, they are facing increased competition from the private 

sector. 

 8

Information presented throughout this report on SEC’s staffing, resources, budget, and 

other operations relates to fiscal years, unless otherwise noted. 

Budget Increases 

Have Funded New 

Staff Positions, but 

Many Remain Unfilled 

Fiscal year 2003 Fiscal year 2004

Nov. 2001

PL 107-77 

Commerce/ 

Justice/State 

Appropriations 

for fiscal year 

2002

$437

July 2002

President 

signs 

PL 107-204 

SarbanesOxley Act, 

authorizing 

$776

Aug. 2002

President signs 

PL 107-206 

supplemental

appropriations 

for fiscal year 

2002

$30.9

Sept. 2002

SEC submits 

fiscal year 

2004 request 

to OMB

$841.5

Sept. 2003

SEC submits 

fiscal year 

2005 request 

to OMB

$913

Jan. 2004 

President 

signs PL 

108-199 

Consolidated 

Appropriations 

for fiscal year 

2004

$811.5

Feb. 2003

President 

signs PL 

108-7 

Consolidated 

Appropriations 

for fiscal year 

2003

$716

Enacted legislation

Source: GAO.

Fiscal year 2002
Page 8 GAO-04-818 SEC Budget Allocation Mandate 

SEC used its increased appropriations between 2002 and 2004 in its 

financial disclosure, enforcement, and examination areas primarily to fund 

new positions. As shown in table 1, the offices and divisions showing the 

largest increases in spending between 2002 and 2003 were the Divisions of 

Enforcement and Corporation Finance, regional offices, OCA, and IT.9

Between 2003 and 2004, the areas expected to receive the largest increases 

in spending are OCA, the Divisions of Corporation Finance and 

Enforcement, regional offices, IT, and the Office of Compliance 

Inspections and Examinations (OCIE).10

Table 1: End-of-Year Obligations for Fiscal Years 2002 through 2004 by Major SEC Divisions and Offices 

Division/office 

End-of-year 

obligations, 2002

End-of-year 

obligations, 

2003

Percent growth 

between 2002 

and 2003

Projected end-ofyear obligations, 

2004a

Percent growth 

between 2003 

and 2004

Chief Accountant $4,004,259 $4,998,684 25 $7,759,000 55

General Counsel 15,118,938 16,230,693 7 18,684,900 15

Corporation Finance 37,704,685 44,009,378 17 61,251,700 39

Enforcement 52,554,845 64,235,116 22 80,738,800 26

Market Regulation 17,777,002 19,362,597 9 23,029,900 19

Office of Compliance Inspections 

and Examinations 11,613,439 13,289,962 14 19,589,300 47

Investment Management 20,943,172 23,418,447 12 26,042,000 11

Information Technology 47,644,458 88,284,822 85 132,854,400 50

Regional/district officesb 141,631,580 169,522,290 20 225,567,400 33

Otherc 139,185,781 176,933,191 27 215,982,600 22

Total $488,178,159 $620,285,180 $811,500,000

Source: SEC. 

a

Projected end-of-year obligations as of May 2004. These figures are subject to revision during the 

remainder of the year. 

b

The regional and district offices provide support primarily to the Divisions of Enforcement and OCIE. 

c

Other includes mission-support related functions as well as smaller SEC offices including 

Administrative and Personnel Management, and Office of Investor Education and Assistance. Other 

also includes salaries and benefits for IT employees. 

 9

Spending as determined by total dollars obligated, or the amounts committed for spending. 

10As determined by comparing end-of-year obligations for fiscal year 2003 with projected 

end-of-year obligations for fiscal year 2004, which are subject to revision. 

Budgetary Resources Were 

Focused on New Staff 

Positions for Financial 

Disclosure, Enforcement, 

and Examination Activities 
Page 9 GAO-04-818 SEC Budget Allocation Mandate 

As we reported in July 2003, SEC made its allocation decisions without the 

benefit of an updated strategic plan.11 In lieu of using an updated strategic 

plan, it appears that a special study of SEC operations has provided a basis 

for SEC in determining the need for 842 new positions in 2003. In 2002 the 

former Chairman directed SEC staff to conduct an internal study of SEC’s 

current operations, workload, resource allocations, methods for assigning 

and managing work, and measures of performance, productivity, and 

quality of effort. Soon after the current Chairman joined SEC in February 

2003, he asked that the division and office heads prepare analyses to 

justify their staffing requests. This included the total number of staff 

needed to accomplish each division/office’s objectives, the organizational 

changes needed to accommodate the new staff being requested, and a 

breakdown of the types of staff being requested by profession. In addition, 

an SEC official said that the Chairman ultimately approved each division’s 

and office’s justification to arrive at the final allocation for the 842 new 

positions. Table 2 shows SEC’s final allocation of the 842 new positions 

among divisions/offices. 

Table 2: Allocation of 842 New Positions among Divisions/Offices 

Division/office Number of new positions

Chief Accountant 20

Corporation Finance 175

Enforcement 83

Market Regulation 34

Office of Compliance Inspections and Examinations 42

Investment Management 15

Information Technology 30

Regional/District Offices 345

Othera98

Total 842

Source: SEC. 

a

Other includes mission-support-related functions as well as smaller SEC offices, including General 

Counsel, Administrative and Personnel Management, and Office of Investor Education and 

Assistance. 

 11GAO-03-969T. 
Page 10 GAO-04-818 SEC Budget Allocation Mandate 

SEC’s staff allocations appear generally consistent with legislative 

expectations and what is known about SEC’s current operating 

environment. However, because SEC’s staff positions were allocated 

without the benefit of an updated strategic plan, it will be difficult for SEC 

to assess the appropriateness or effectiveness of the use of its much larger 

budget. Since 2002 we have reported that although SEC had a strategic 

plan and had periodically adjusted staffing to fulfill basic obligations, the 

agency traditionally had not engaged in a systematic re-evaluation of its 

programs and activities in light of current and emerging challenges.12 We 

further noted that with a current strategic plan that identifies the agency’s 

key mission-related goals and outlines the agency’s priorities, SEC could 

better determine and deploy resources needed to fulfill its mission. In 

response to our concerns and the significant budget increase in fiscal year 

2003, the current SEC chairman instructed SEC staff to draft a new 

strategic plan. SEC’s new strategic plan was approved by the commission 

on July 9, 2004. 

SEC plans to use the majority of its additional staff resources within the 

Division of Corporation Finance, OCA, Division of Enforcement, and OCIE 

in order to enhance its regulatory and oversight activities. 

Between 2002 and 2003, Corporation Finance and OCA’s spending 

increased 17 percent and 25 percent, respectively, and planned spending is 

expected to increase by 39 percent and 55 percent in 2004. Both 

Corporation Finance and OCA administer SEC’s full disclosure program. 

These programs are responsible for ensuring that investors are provided 

with material information from reporting public companies. They also help 

to deter fraud and misrepresentation in public offerings, trading, voting, 

and tendering of securities. As shown in table 2, Corporation Finance, 

which is responsible for reviewing corporate disclosures of public 

companies such as initial stock offerings and quarterly financial 

statements in order to monitor and enhance compliance with disclosure 

and accounting requirements, received funding for 175 new accountants 

and attorneys. This increase in the number of staff was due primarily to a 

Sarbanes-Oxley requirement for SEC to conduct reviews of reporting 

public companies once every three years or approximately one-third of all 

reporting public companies per year. According to budget estimate 

documents, SEC was able to review only 23 percent of all reporting issuers 

in 2003, thus falling short of its mandated goal of 33 percent. 

 12GAO-02-302, GAO-03-969T, and GAO-04-584T. 

Corporation Finance and OCA
Page 11 GAO-04-818 SEC Budget Allocation Mandate 

OCA received funding for 20 new positions. OCA is responsible for 

establishing and enforcing accounting and auditing policy in order to 

enhance transparency, relevance, and reliability of financial reporting and 

to improve the professional performance of public company auditors. 

According to an SEC official, these new positions would assist with OCA’s 

increased responsibility to oversee activities associated with the newly 

created Public Company Accounting Oversight Board, which is expected 

to be heavily involved in the quality review process and development and 

interpretation of auditing standards, among other things. 

Division of Enforcement spending increased 22 percent in 2003 and is 

projected to increase an additional 26 percent in 2004. The division 

analyzes information from diverse sources that may indicate past or 

immediate violations of federal securities laws, investigates possible 

violations of federal securities laws, recommends SEC action when 

appropriate in federal court or before an administrative law judge, and 

negotiates settlements on behalf of SEC. Of the SEC’s 842 new positions, 

the division was authorized to hire 83 staff in Washington, D.C., and 111 

positions in SEC’s regional and district offices. According to SEC budget 

documentation, staffing will increase in the division by approximately 19 

percent over 2003 levels in order to help implement Sarbanes-Oxley. The 

additional positions will add to the program’s accounting and litigation 

efforts, as well as investigative and surveillance activities. Division of 

Enforcement officials told us that the division has reorganized staff in its 

Office of Chief Counsel by functional lines rather than by geographical 

location. The functional lines include investment adviser and mutual 

funds, broker-dealers and markets, and corporate accounting. The intent 

of this reorganization is to increase the staff’s subject matter expertise and 

better detect emerging issues. 

Between 2003 and 2004 OCIE’s spending is expected to increase by 47 

percent. OCIE is responsible for administering SEC’s nationwide 

examination and inspection program for self-regulatory organizations, 

broker-dealers, transfer agents, investment companies, and investment 

advisers. Similar to the Division of Enforcement, OCIE staff is primarily 

located in Washington, D.C., and SEC’s 11 regional and district offices. 

OCIE was allocated 42 new positions for Washington, D.C., and 

approximately 233 new positions among SEC’s 11 regional and district 

offices, for a total of 275 new positions. According to information provided 

by SEC, the additional staff would allow SEC to implement a new riskbased inspection program of the riskiest investment advisers and to allow 

SEC to have more frequent oversight of internal controls of large brokerDivision of Enforcement 

Office of Compliance 

Inspections and Examinations 
Page 12 GAO-04-818 SEC Budget Allocation Mandate 

dealers, a greater on-site presence, and more frequent inspections of selfregulatory organization surveillance and disciplinary systems. 

In addition to funding new positions, SEC used part of its increased 

appropriations to fund pay parity. Sarbanes-Oxley authorized $102.7 

million for increases associated with pay parity. However, SEC officials 

said they could not provide the specific amounts that were allocated to 

fund pay parity in 2003 for two reasons.13 First, in May 2002, acting on its 

new compensation authority, SEC implemented a new system that 

established a pay structure more comparable with other federal financial 

regulators. This new pay structure increased base pay for attorneys, 

accountants, and examiners to levels similar to those of other federal 

financial services regulators. More specifically, the structure of this new 

system consists of 20 grade levels, some with 31 steps. This new system 

has also provided additional compensation based on performance and has 

established new pay categories to compensate staff in supervisory 

positions. Second, a large number of employees came on board in 2003 

under the new pay structure that had already incorporated pay parity. As a 

result, SEC officials said it would be difficult to segregate the funding 

amounts associated with the new pay structure and salaries for new 

employees from the actual amounts used to fund pay parity. 

SEC continues to face agencywide challenges in hiring and retaining 

sufficient numbers of quality staff to achieve its mission. As shown in table 

3, between September 2003 and March 2004, SEC filled 328 of 782 

vacancies, which amounted to a 42 percent decrease in the number of 

vacancies within that time. The regional/district offices made the most 

progress in hiring, decreasing their vacancies 72 percent by filling 210 out 

of 294 vacant positions. The Division of Corporation Finance appears to 

face the most difficulty in filling its vacancies, filling only 56 out of the 193 

vacant positions between September 2003 and March 2004. According to 

an SEC official, Corporation Finance has continued to focus on its hiring 

efforts and as of March 31, 2004, the division had 41 pending hires 

scheduled to come on board by August 2004, of which 29 were 

accountants and the remaining 12 were attorneys. Further, the official said 

the division’s goal is to hire as many qualified certified public accountants 

 13SEC officials said that in order to implement pay parity in May 2002, they used $24.8 

million in reprogrammed funds from 2001 carryover balances. 

Budgetary Resources Were 

Also Used to Fund Pay 

Parity 

SEC Continues to Face 

Challenges in Hiring for 

Certain Positions 
Page 13 GAO-04-818 SEC Budget Allocation Mandate 

as soon as possible, with a goal of having 250 accountants within the 

division. The remaining staff will be attorneys and legal staff for support in 

providing information to the public, and other functions not requiring an 

attorney. 

Table 3: Change in SEC Vacancies between September 2003 and March 2004 

Division/office September 2003 March 2004 

Vacancies 

filled

Percent 

change

Enforcement 73 58 15 -21

Corporation Finance 193 137 56 -29

Market Regulation 31 31 0 0

Investment 

Management 23 17 6 -26

OCIE 44 20 24 -55

Chief Accountant 28 19 9 -32

Information 

Technology 34 32 2 - 6

Regions/districts 294 84 210 -72

Other 62 56 6 -10

Total 782 454 328 -42

Source: GAO Analysis of SEC data. 

Note: The data do not reflect any pending hires and exclude unallocated positions held by the 

Chairman’s office. 

As we reported in July 2003, SEC was able to expedite hiring under the 

Accountant, Compliance and Enforcement Staffing Act of 2003. SEC staff 

told us that bypassing competitive processes has helped them hire 

individuals for accountant, compliance examiner, and economist positions 

more quickly. However, officials in the Corporation Finance, Investment 

Management, and Enforcement divisions said they still face considerable 

difficulty in hiring accountants. This is due to competition from the private 

sector—resulting from public companies needing to comply with 

Sarbanes-Oxley requirements—as well as from competition with the 

Public Company Accounting Oversight Board. An official from the 

Division of Corporation Finance told us that they had retained the services 

of a national recruiting firm in order to recruit accountants. 

In addition, SEC officials explained that operating under a continuing 

resolution in fiscal year 2003 and the timing of SEC’s new hiring authority 

did not allow much time for recruiting activities before the end of the year. 

Given the late appropriation and hiring challenges in 2003, SEC had 
Page 14 GAO-04-818 SEC Budget Allocation Mandate 

difficulties filling its new positions and was unable to spend $120 million 

of its increased appropriations during 2003. In the fiscal year 2004 

appropriations act, this unobligated balance was appropriated to SEC for 

use in 2004. Similarly, SEC budget documents reported that $20 million 

would carry over from 2004 into the 2005 budget. According to an SEC 

official, the $20 million carryover included in the 2005 budget represents 

106 new positions requested for 2005, in anticipation of bringing those new 

employees on board in 2005 or subsequent years. 

As of June 2004, SEC has yet to staff its new Office of Global Security 

Risk. In the Conference Report on the 2004 appropriations legislation, SEC 

was directed to establish an Office of Global Security Risk within the 

Division of Corporation Finance. This was due in part to concerns that 

American investors may be unknowingly investing in companies with ties 

to countries that sponsor terrorism and countries linked to human rights 

violations. According to language in the Conference Report, a company’s 

association with sponsors of terrorism and human rights abuses, no matter 

how large or small, can have a material adverse effect on a public 

company’s operations, financial condition, earnings, and stock prices. As a 

means of protecting American investors’ savings and to disclose these 

business relationships to investors, this office is required, among other 

things, to (1) establish a process by which the SEC identifies all companies 

on U.S. exchanges operating in State Department-designated terroristsponsoring states, (2) ensure that all companies sold on U.S. exchanges 

operating in State Department-designated terrorist-sponsoring states are 

disclosing such activities to investors, and (3) coordinate with other 

government agencies to ensure the sharing of relevant information across 

the federal government. In addition, SEC was directed to provide Congress 

with quarterly reports on the activities of the Office of Global Security 

Risk. According to an SEC official, in May 2004 SEC filled the Chief 

position for the office. The next steps will be for the Chief to begin the 

process of developing plans for the office, including staffing needs. 

According to SEC, it plans to provide its first report to the Subcommittee 

on Commerce, Justice, State, the Judiciary, and Related Agencies, House 

Committee on Appropriations, by late July. 
Page 15 GAO-04-818 SEC Budget Allocation Mandate 

Sarbanes-Oxley directed SEC to provide additional funding for IT in 2003, 

with the general goal of improving operational efficiency. SEC continued 

to use most of the additional funding to address hardware and software 

maintenance and technology infrastructure needs. The remaining portion 

of the agency’s IT resources was used to fund new mission-related 

initiatives. With regard to SEC’s decision-making process for IT capital 

investment, SEC’s OIG has recently issued a report stating that while SEC 

has made progress in establishing an IT investment process that complies 

with applicable laws and regulations, and incorporates best practices from 

the public and private sectors, the process is not in full compliance with 

applicable laws and regulations. Further, the OIG report pointed out that 

SEC has not finalized its IT strategic plan. 

We reported in March 2002 that SEC’s IT systems and funding gaps were 

contributing to inefficiencies at the agency.14 SEC officials at the time 

stated that SEC’s 2002 IT budget of $46.6 million had been used primarily 

for hardware and software maintenance and technology infrastructure 

needs, and that additional funding was needed for capital improvements 

such as a nationwide network to support the examination and inspection 

functions. Similarly, in 2004 officials said they needed to spend most of the 

funding to upgrade SEC’s IT infrastructure to support new mission-related 

IT programs. Sarbanes-Oxley highlighted the importance of improving 

SEC’s technological capabilities by authorizing SEC to increase its IT 

budget. As a result, SEC’s 2003 IT budget was increased by over 100 

percent, to $100.9 million. In 2004, SEC’s IT budget was increased again to 

$120.5 million, or another 20 percent. 

SEC’s IT budget is under the purview of both its Office of Information 

Technology (OIT) and a separate council of senior staff from the major 

program divisions and offices. OIT is responsible for managing costs 

associated with ongoing operations and maintenance, application and 

infrastructure upgrades, and enhancements to existing systems. SEC’s 

Information Officers Council (IOC) and the Information Technology 

Capital Planning Committee (ITCPC) manage the remainder of its IT 

budget, which consists of new technology initiatives requested by SEC’s 

program offices. 

 14GAO-02-302. 

SEC Allocated 

Majority of 

Information 

Technology Budget to 

System Maintenance 

and Infrastructure; 

Concerns Exist about 

Investment DecisionMaking Process 

SEC Continues to Allocate 

the Majority of Its 

Information Technology 

Budget to Hardware and 

Software Maintenance and 

Technology Infrastructure 

Needs 
Page 16 GAO-04-818 SEC Budget Allocation Mandate 

With a significant increase in its IT budget, SEC continues to allocate the 

majority of these resources to fund hardware and software maintenance 

and infrastructure needs. As shown in figure 2, in 2003, about 76 percent, 

or $68.2 million, of SEC’s IT budget went to hardware and software 

maintenance and infrastructure needs, and a planned 70 percent, or $84.1 

million, is budgeted for the same needs in 2004. Approximately 24 percent, 

or $21.4 million, of SEC’s IT budget in 2003 was used to fund new IT 

initiativesprojects that have the potential to improve the efficiency of 

SEC’s operationsand a planned 30 percent, or $36.4 million, is planned 

for 2004. In addition, figure 2 also shows that while most of the funding for 

new technology initiatives went to mission officessuch as the Division of 

Enforcement and OCIE—a notable amount of funding also went to 

mission-support offices, such as the Office of Economic Analysis and the 

Office of Filings and Information Services. Specifically, in 2003 

approximately $14 million went to fund projects in mission offices, and 

$7.3 million was used to fund projects in mission-support offices. 

Figure 2: SEC’s Allocation of Fiscal Years 2003 and 2004 Information Technology Budget (dollars in millions) 

New

IT initiatives

Technology

infrastructure

upgrades

Hardware

and software

maintenance

Source: GAO analysis of SEC data.

24%

34%

42%

$21.4

$30.8

$37.4

Total IT

funding $89.6

Total IT

funding $120.5

New

IT initiatives

Technology

infrastructure

upgrades

Hardware

and software

maintenance

30%

28%

42% $36.4

$33.6

$50.5

Fiscal year 2003 Fiscal year 2004
Page 17 GAO-04-818 SEC Budget Allocation Mandate 

Of the $21.4 million of SEC’s IT budget allocated to new technology 

initiatives in 2003, SEC funded 40 separate IT projects. As of May 2004, 

SEC is scheduled to fund six additional IT projects. A number of these 

new initiatives provide for the electronic filing of reports, documents, and 

information, which had previously been paper-based. For example, one 

project provides for the electronic filing of ownership reports through the 

EDGAR (Electronic Data Gathering Analysis and Retrieval) system, a 

specific requirement of Sarbanes-Oxley.15 Other projects provide for the 

electronic filing of materials from transfer agents, self-regulatory 

organizations, alternative trading systems, and broker-dealers. In addition, 

some of the projects are designed to improve SEC’s ability to review and 

analyze large amounts of data. For example, one project would establish 

an improved framework for the gathering, formatting, and analyzing of 

information collected by OCIE. Currently, the gathering and analysis of 

information in OCIE is burdened by data collection in a variety of formats. 

This makes it difficult and time consuming to combine the data sets into 

one in order to conduct analysis. 

In addition, SEC continued to fund a number of its multiyear IT initiatives, 

including 

• Electronic Document Management System. Officials stated that the 

document management and imaging initiative is currently being piloted in 

Division of Enforcement offices in Washington, D.C., Boston, Philadelphia, 

New York, and Chicago and that electronic imaging has been completed 

for approximately 50 percent of all documents in Washington and 25 

percent of all documents in New York. They stated that for the remaining 

pilot offices, documents would continue to be reviewed to determine what 

should be imaged. The officials noted that the pilot should be completed 

by the early fall of 2004. 

• EDGAR Modernization. SEC has taken a first step toward making EDGAR 

a database with more analytical capabilities for end users. SEC officials 

stated that within the last year, SEC established the capability for EDGAR 

to accept certain data from users in a structured format. According to SEC 

officials, SEC’s Chairman established a task force to look into data 

 15EDGAR is a database system through which public companies electronically file 

registration statements, periodic reports, and other forms to SEC. Sarbanes-Oxley now 

requires directors, executive officers, and shareholders who own 10 percent or more of a 

public company to report to SEC their holdings and transactions in the securities of their 

companies. These filings are referred to as ownership reports. 
Page 18 GAO-04-818 SEC Budget Allocation Mandate 

tagging, which would allow users to retrieve information from EDGAR in 

order to conduct trend analysis. The task force is expected to report by 

the end of July 2004 on how to proceed. 

• Disaster Recovery. SEC officials stated they have made progress in 

addressing business continuity planning efforts related to disaster 

recovery. Officials stated they have established alternative data centers 

and continuity planning sites, have upgraded the network to prevent the 

possibility of a single point of failure in the network, and are currently 

building a facility to allow senior staff to move off site in the event of a 

disaster. 

• Telecommuting. SEC officials stated that SEC’s capacity for 

telecommuting continues to improve across the agency. These officials 

stated that due to improved dial-up and wireless connection access, SEC 

employees’ remote access to certain software applications has improved 

with the deployment of new laptops in the Division of Enforcement 

offices. 

In the summer of 2001, SEC began revising its IT capital investment 

decision-making process. The revisions were based on recommendations 

in an audit report issued by SEC’s OIG in August 2001 that reviewed SEC’s 

IT capital investment decision-making process in order to improve 

communication between OIT and SEC staff.16 Beginning in 2002, SEC 

developed a new decision-making process for IT investments, with SEC’s 

IOC and ITCPC responsible for managing the portion of SEC’s IT budget 

related to new technology initiatives. Specifically, IOC, which includes 

program office senior staff familiar with both the business and IT needs 

within their programs, receives and evaluates specific IT investment 

proposals submitted by SEC’s divisions and program offices. Based on 

their review, IOC makes recommendations regarding which projects 

should be approved for funding. These recommendations are forwarded to 

ITCPC, a more senior council of division directors and program office 

heads, for final funding decisions. 

Although SEC has taken steps to develop a formal decision-making 

process for IT investments, in a 2004 follow-up report, OIG raised 

 16SEC Office of Inspector General, Information Technology Decision-Making Process, 

Report No. 334, (Washington, D.C., Aug. 28, 2001). 

SEC’s Office of Inspector 

General Raised Concerns 

about SEC’s Information 

Technology Capital 

Investment DecisionMaking Process 
Page 19 GAO-04-818 SEC Budget Allocation Mandate 

concerns about the current state of this process.17 According to the OIG 

report, OIG evaluated SEC’s compliance with the Clinger-Cohen Act of 

1996 (CCA) by applying GAO’s IT Investment Management Framework for 

Assessing and Improving Process Maturity (IT IM Maturity Model).18 In 

general, GAO’s framework includes standards for the selection, control, 

and evaluation of federal information technology investments, in 

accordance with the fundamental IT governance mandates of the CCA.19

OIG found that SEC has made progress in establishing an IT investment 

process that complies with applicable laws and regulations and 

incorporates best practices from the public and private sectors. However, 

OIG also identified some concerns. For example, OIG found that SEC’s 

process still did not meet the minimum criteria of GAO’s IT IM Maturity 

Model because SEC had not assigned specific responsibility or delegated 

appropriate authority for establishing a compliant and effective decisionmaking process in order to strengthen the governance over the process. 

Based on this review, OIG concluded, and we generally agree, that the lack 

of clearly defined and formally approved IT governance policies, criteria, 

and procedures resulted in an undisciplined IT investment decisionmaking process subject to broad interpretation by SEC management, 

which lacked auditable and enforceable standards and controls. 

OIG made a number of recommendations to address SEC’s IT investment 

decision-making governance issues, including (1) the development of a 

work plan for implementing the OIG’s recommendations; (2) formalizing 

charters, roles, and responsibilities for the Chief Information Officer 

(CIO), IOC, ITCPC, and other relevant IT governance bodies, including 

delegating to the CIO sufficient authority to effectively administer, control, 

implement, and enforce the IT capital planning responsibilities; (3) 

revising the project funding process and associated investment thresholds 

and criteria; (4) improving the strategic planning for IT investments, which 

includes finalizing an IT specific strategic plan that establishes the 

strategic direction for IT capital planning and tactical operations within 

SEC and establishing a single agencywide IT control process and structure 

 17SEC Office of Inspector General, Information Technology Capital Investment DecisionMaking Follow-up. Audit No. 365, (Washington D.C., Mar. 29, 2004). 

18See http://www.gao.gov/special.pubs/ai10123.pdf. 

19The Clinger-Cohen Act of 1996 was enacted to address federal information technology 

management. It requires federal agencies to focus on the results achieved through 

information technology investments while also streamlining the information technology 

acquisition process. 
Page 20 GAO-04-818 SEC Budget Allocation Mandate 

for the entire IT budget to select, prioritize, and fund all IT investments to 

be managed by IOC and ITCPC; (5) linking IT project planning with SEC’s 

enterprise architecture; (6) improving the tracking of IT projects in 

progress; and (7) supporting IOC and ITCPC with adequate staff.20

SEC has taken steps to implement some of the recommendations 

contained in the OIG’s report. According to SEC officials, staff are in the 

process of formalizing the charters, roles, and responsibilities for the CIO, 

IOC, ITCPC, and other relevant governance bodies by reviewing the 

pertinent legislation, Office of Management and Budget requirements, and 

other relevant guidance. Further, the SEC Chairman recently delegated to 

the CIO the necessary authority to issue and enforce agencywide IT policy 

and regulations, and to implement the recommendations in the OIG report. 

In addition, SEC officials stated that starting with the 2004 IT budget, SEC 

will establish a single agencywide IT control process and structure for the 

entire IT budget, managed by IOC and ITCPC, to select, prioritize, and 

fund all IT investments. 

SEC officials have articulated a preliminary plan to respond to the 

remaining OIG recommendations. SEC officials stated that their ability to 

respond to the OIG’s recommendation depends on how quickly they can 

hire the staff responsible for managing the capital planning process. Most 

importantly, the Senior Program Manager position for the project 

management/capital planning groupwho will be responsible for seeing 

that the OIG’s recommendations are responded tois currently vacant. 

Therefore, officials stated that they would most likely be able to address 

25 percent to 33 percent of the OIG’s recommendations by the end of fiscal 

year 2004. 

Since Congress increased SEC’s budget to improve the agency’s oversight 

of financial markets in fiscal year 2003, SEC has made significant progress 

in hiring staff and is continuing its efforts to fill the remaining vacancies. 

The number of vacancies appears reasonable, given that SEC had to 

contend with competition from the private sector and a continuing 

resolution that limited the time SEC had for recruiting. SEC has also taken 

steps to improve its information technology by using the increased funding 

 20GAO describes enterprise architecture as an organization’s operations in both interrelated 

business processes and business rules, information needs and flows, and work location and 

users as well as hardware, software, data, communications, and security attributes and 

performance standards. 

Observations 
Page 21 GAO-04-818 SEC Budget Allocation Mandate 

to augment its budget for technologyand, in turn, upgrade its 

infrastructureand by continuing to address the OIG’s concerns about the 

agency’s decision-making process on IT spending. Although SEC’s staff 

allocations appear to be consistent with Sarbanes-Oxley, these allocations 

were made without the benefit of a strategic plan. As we have previously 

noted and the SEC Chairman has agreed, a comprehensive strategic plan 

could provide SEC management with a basis for determining whether 

SEC’s resource level and allocations, as well as its processes and 

organizational structure, are tied to the mission and goals of the agency. 

Subsequently, SEC completed updating its strategic plan on July 9, 2004. 

SEC provided written comments on a draft of this report that are reprinted 

in appendix II. SEC commented that while more work remains, our review 

of SEC activities acknowledged the progress the agency has made within a 

constrained time frame. As discussed in its letter, the SEC has taken a 

number of actions to address some of the issues raised in our report. First, 

since March, SEC has made additional progress hiring about 130 new 

employees, and approximately 130 others have committed to start with 

SEC before the end of the fiscal year. SEC anticipates that by the end of 

the fiscal year, it will be able to reduce the vacancy level to its normal 

attrition. 

Second, we are pleased that the Commission has recently approved the 

agency’s strategic plan for fiscal years 2004-2009. This strategic plan could 

serve as a basis to guide SEC in using its additional resources effectively 

and for its congressional overseers to evaluate SEC’s progress in fulfilling 

its mission and meeting its goals. We look forward to reviewing and 

commenting on this updated strategic plan as part of our ongoing review 

of SEC’s operations. 

Third, SEC noted that in the past few months, it has imaged, and made 

available electronically, investigatory materials formerly available only in 

paper throughout headquarters and regional and district offices. SEC also 

acknowledged it is “keenly aware” of the need to respond promptly and 

comprehensively to concerns raised by the SEC OIG and GAO and to 

ensure that its IT resources are used wisely and effectively. We continue to 

believe that leveraging information technology will effectively support 

SEC’s activities, and we are encouraged by the agency’s ongoing efforts. 

Finally, SEC reiterated the steps it has taken in launching the Office of 

Global Security Risk. SEC noted that it plans to provide the first quarterly 

report to the Subcommittee on Commerce, Justice, State, the Judiciary, 

Agency Comments 

and Our Evaluation 
Page 22 GAO-04-818 SEC Budget Allocation Mandate 

and Related Agencies, House Committee on Appropriations, by late July. 

SEC officials also provided us with some technical comments, which we 

incorporated as appropriate. 

We are sending copies of this report to the Chairman and Ranking 

Minority Member of the Senate Committee on Governmental Affairs; the 

Chairman and Ranking Minority Member of the House Committee on 

Government Reform; and the Chairman and Ranking Minority Member of 

the Subcommittee on Government Efficiency and Financial Management, 

House Committee on Government Reform. We are also sending copies to 

the Chairman of SEC and will make copies available to others upon 

request. The report is also available at no charge on the GAO Web site at 

http://www.gao.gov. 

Please contact me or Karen C. Tremba at (202) 512-8678 if you or your 

staff have any questions concerning this report. Toayoa D. Aldridge, James 

Lawrence, David Pittman, and Marc Molino made key contributions to this 

report. 

Orice M. Williams, Acting Director 

Financial Markets and Community Investment 
Appendix I: Scope and Methodology 

Page 23 GAO-04-818 SEC Budget Allocation Mandate 

To describe budget and staff allocations, we collected budgetary data for 

the major Securities and Exchange Commission (SEC) divisions and 

offices from SEC’s Office of the Controller and staffing data for the major 

offices and divisions from the SEC payroll system. We also obtained 

information from SEC’s annual budget request and internal memos 

regarding staff allocations. We interviewed Office of the Executive 

Director officials to obtain information on SEC’s process for distributing 

positions and corroborated this information using existing GAO work, 

including interviews with officials from various SEC divisions and offices. 

We performed limited data reliability testing of SEC budget data by 

interviewing knowledgeable agency budget officials and comparing the 

data with other published budget data. Based on this analysis, we 

determined that the data were sufficiently reliable for the purpose of this 

report. 

To describe SEC’s allocation of funding for information technology (IT), 

we analyzed documents from the Information Officers 

Council/Information Technology Capital Planning Committee (IOC/ITCPC) 

proceedings. The various documents included project requests from 

program offices, meeting minutes, project approval memoranda (including 

funding amounts), and Office of Information Technology (OIT) budget 

documents. We verified IOC/ITCPC information by interviewing OIT 

officials in order to corroborate our findings. We relied on SEC’s Office of 

Inspector General (OIG) to describe the process for making IT 

investments and the related problems identified within this process. In 

addition, we reviewed the SEC OIG’s evaluation of SEC’s IT capital 

investment decision-making process using GAO’s IT Investment 

Management Framework. We also relied on previous GAO work on SEC’s 

IT systems. 

We conducted our work from February 2004 to July 2004 in accordance 

with generally accepted government auditing standards. 

Appendix I: Scope and Methodology 
Appendix II: Comments from the Securities 

and Exchange Commission 

Page 24 GAO-04-818 SEC Budget Allocation Mandate 

Appendix II: Comments from the Securities 

and Exchange Commission 
Appendix II: Comments from the Securities 

and Exchange Commission 

Page 25 GAO-04-818 SEC Budget Allocation Mandate 
Appendix II: Comments from the Securities 

and Exchange Commission 

Page 26 GAO-04-818 SEC Budget Allocation Mandate (250189) 
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