GAO-09-376R SEC Management Report 

United States Government Accountability Office

Washington, DC 20548 

April 2, 2009 

The Honorable Mary L. Schapiro 

Chairman 

U.S. Securities and Exchange Commission 

Subject: Management Report: Improvements Needed in SEC’s Internal Controls and 

Accounting Procedures 

Dear Ms. Schapiro: 

On November 14, 2008, we issued our opinion on the U.S. Securities and Exchange 

Commission’s (SEC) fiscal years 2008 and 2007 financial statements. We also issued 

our opinion on the effectiveness of SEC’s internal control over financial reporting 

(including safeguarding of assets) and over compliance as of September 30, 2008, and 

our evaluation of SEC’s compliance with selected provisions of laws and regulations 

during fiscal year 2008.1

 

The purpose of this report is to present issues identified during our fiscal year 2008 

audit of SEC’s internal controls and accounting procedures and to recommend 

actions to address these issues. Accordingly, in this report we are making 19 

recommendations to SEC to strengthen internal controls and accounting procedures. 

These recommendations are in addition to 24 remaining recommendations included 

in prior year audits of SEC’s financial statements that still need to be fully addressed. 

See enclosure I. 

Results in Brief 

As part of our audit of SEC’s fiscal years 2008 and 2007 financial statements, we 

identified three significant deficiencies2

 in internal control, which although not 

material weaknesses,3

 represent deficiencies in the design or operation of internal 

control that could adversely affect SEC’s ability to meet its internal control 

 

1

GAO, Financial Audit: Securities and Exchange Commission’s Financial Statements for Fiscal 

Years 2008 and 2007, GAO-09-173 (Washington, D.C.: Nov. 14, 2008). 2

A significant deficiency is a control deficiency, or combination of deficiencies, that adversely affects 

the entity’s ability to initiate, authorize, record, process, or report financial data reliably in accordance 

with generally accepted accounting principles such that there is more than a remote likelihood that a 

misstatement of the entity’s financial statements that is more than inconsequential will not be 

prevented or detected. 

3

A material weakness is a significant deficiency or combination of significant deficiencies that results 

in more than a remote likelihood that a material misstatement of the financial statements will not be 

prevented or detected. 
objectives. These significant deficiencies concerned controls over (1) information 

security,4

 (2) property and equipment, and (3) accounting for budgetary resources. 

We also identified other internal control issues that, although not considered material 

weaknesses or significant deficiencies, warrant SEC management’s consideration. 

These issues concern 

• documenting accounting procedures, 

• reviewing accounting entries, 

• reporting Freedom of Information Act (FOIA)5

 fees, 

• adding footnote disclosure for disgorgement and penalty6

 activities, 

• estimating allowance for loss amounts for disgorgement and penalty accounts 

receivables, 

• safeguarding cash receipts related to disgorgement and penalty payments, 

• recording disgorgement and penalty transactions in Momentum,7

• processing personnel actions and certifying employees’ time cards, and 

• considering Office of Compliance Inspections and Examinations (OCIE) 

inspection results. 

At the end of our discussion of each of these issues in the following sections, we 

make recommendations for strengthening SEC’s internal controls or accounting 

procedures. In addition, enclosure I provides the status of recommendations from our 

prior audits that were reported as open in our April 1, 2008, management report.8

These recommendations are intended to bring SEC into conformance with the 

standards for internal control9

 to be followed by all federal agencies and to minimize 

the risk of future misstatements in SEC’s financial statements. 

As presented in enclosure I, during fiscal year 2008, SEC took action to fully address 

10 of the 34 recommendations from our prior audits that we had reported as open in 

our April 1, 2008 management report.10

 

 4

The internal control issues concerning information security are discussed in a separate report. 

Information Security: Securities and Exchange Commission Needs to Consistently Implement 

Effective Controls, GAO-09-203 (Washington, D.C.: Mar. 16, 2009). 5

FOIA , codified, as amended, at 5 U.S.C.§ 552, provides the public with a legal right of access to 

information and documents controlled by the U.S. government. The act requires federal agencies to 

make such information and documents available for inspection and copying in response to a public 

disclosure request, unless an applicable exemption applies that partially or fully limits disclosure. 

Under this act, federal agencies are permitted to charge fees to cover the cost of providing the 

information. 6

A disgorgement is the repayment of illegally gained profits (or avoided losses) for distribution to 

harmed investors whenever feasible. A penalty is the monetary payment from a violator of securities 

law that SEC obtains pursuant to statutory authority. A penalty is fundamentally a punitive measure, 

although penalties occasionally can be used to compensate harmed investors. 7

Momentum is a database application used to record some of SEC’s accounting transactions, to 

maintain its general ledger, and to maintain some of the information SEC uses to produce financial 

reports. 8

GAO, Internal Control: Improvements Needed in SEC’s Accounting and Financial Reporting 

Process, GAO-08-461R (Washington, D.C.: Apr. 1, 2008). 9

GAO, Standards for Internal Control in the Federal Government, GAO/AIMD-00-21.3.1 (Washington,

D.C.: November 1999). 10GAO-08-461R. 

Page 2 GAO-09-376R SEC Management Report 
In providing written comments on a draft of this report, the SEC Chairman 

highlighted accomplishments during fiscal year 2008, and expressed her commitment 

to continuing remediation efforts to resolve these control deficiencies. Further, the 

Chairman discussed SEC’s short-term and long-term strategies for addressing the 

three significant deficiencies GAO identified. In order to fully address GAO’s 

recommendations, the Chairman stated that SEC is preparing a corrective action plan 

which builds on SEC’s ongoing efforts initiated in fiscal year 2008. 

 

Scope and Methodology 

As part of our audit of SEC’s fiscal years 2008 and 2007 financial statements, we 

evaluated SEC’s internal controls and tested its compliance with selected provisions 

of laws and regulations. We designed our audit procedures to test relevant controls 

over financial reporting, including those designed to provide reasonable assurance 

that transactions are properly recorded, processed, and summarized to permit the 

preparation of the financial statements in conformity with U.S. generally accepted 

accounting principles, and that assets are safeguarded against loss from unauthorized 

acquisition, use, or disposition. 

 

We requested comments on a draft of this report from the SEC Chairman. SEC’s 

written comments are reprinted in enclosure II. We conducted our audit in 

accordance with U.S. generally accepted government auditing standards and Office of 

Management and Budget (OMB) audit guidance. Further details on our scope and 

methodology are included in our November 2008 report on our audits of SEC’s fiscal 

years 2008 and 2007 financial statements11 and are summarized in enclosure III. 

Property and Equipment 

SEC’s property and equipment consists of general-purpose equipment used by the 

agency, capital improvements made to buildings leased by SEC for office space, and 

internal-use software development costs for projects in development and production. 

During fiscal year 2008, SEC acquired approximately $17 million in property and 

equipment and reported a net property and equipment balance of $84 million at 

September 30, 2008. As with our prior year’s audit, we found continuing concerns 

with SEC’s controls over property and equipment such as ineffective controls related 

to SEC’s property receipt function, errors in amounts capitalized for internal-use 

software projects, and inaccuracies in recorded acquisition costs for property and 

equipment purchases. 

To address our previous audit findings in this area, in fiscal year 2008, SEC 

implemented a new property and equipment subsidiary ledger system that is 

integrated with its general ledger accounting system, and also developed new policies 

and procedures for recording property transactions. However, our testing of property 

and equipment acquisitions processed under this new system found that the controls 

over the receipt and acceptance of assets were not operating effectively, which 

caused errors in SEC’s recording of new property and equipment purchases. These 

control deficiencies resulted from (1) incorrect system design configurations and (2) 

 11GAO-09-173.

Page 3 GAO-09-376R SEC Management Report 
a lack of training on the use of the new system in conjunction with the new 

accounting processes for property and equipment purchases. 

Specifically, the new property and equipment system was intended to link the receipt 

of capitalizable furniture and equipment purchases recorded in the property and 

equipment subsidiary ledger to the general ledger. However, this link was not 

properly configured to automatically post the appropriate accounting entries for 

capitalizing such purchases in SEC’s general ledger. As a result, such acquisitions 

were recorded as expenses instead of as assets to be depreciated over the useful life. 

This system error resulted in unrecorded property and equipment additions and 

overstated expenses. Also, we observed that not all staff involved in the process for 

capitalizing software additions had been fully trained and the document that was 

intended to provide guidance to the staff on how to enter transaction data into the 

new system had not yet been finalized prior to the system’s implementation. A 

contributing factor to these internal control deficiencies was SEC’s decision to 

implement the new property and equipment system in July 2008, late into the fiscal 

year, without sufficient time to fully test the system configurations or train its users 

prior to the end of its fiscal year. 

SEC finalized its guidance and corrected the design configurations in September 

2008, enabling the purchase transactions to automatically post to the proper accounts 

in the general ledger as of the end of the fiscal year. However, SEC personnel 

continued to incorrectly record property and equipment purchases because they 

were still not familiar with the new system processes, resulting in ongoing asset 

capitalization errors. To compensate for the system configuration issues and lack of 

user training on the new processes, SEC performed a labor-intensive reconciliation 

and review of property additions acquired during the fourth quarter of fiscal year 

2008 and made adjusting entries to correct capitalization errors and properly report 

related account balances at September 30, 2008. 

As in our prior year’s audit, during the course of testing fiscal year 2008 property 

additions, we identified many instances of inaccurate amounts capitalized for 

internal-use software projects and in recorded acquisition costs for property and 

equipment purchases. For example, our review found that for 8 of the 10 capitalized 

software additions with related federal employee costs we tested, SEC used an

incorrect salary rate when capitalizing the related federal employee costs. Because 

SEC’s calculation of federal employee costs related to capitalized software amounts 

was not automated, manual spreadsheets were used for the calculation. SEC’s time 

and attendance system, Quicktime, is not currently configured to calculate these 

employee costs through the use of project codes in the system. This calculation error 

resulted in SEC’s overstating assets by approximately $2.3 million at June 30, 2008. 

While SEC recorded an adjusting entry to correct this overstatement at June 30, our 

year-end testing of property and equipment additions continued to identify 

substantive errors resulting from SEC’s continued incorrect calculation of federal 

employee costs. These issues indicate a need for improved oversight and review of 

accounting for property transactions. SEC’s written guidance for property and 

equipment did not include procedures for performing and documenting oversight and 

review processes for these transactions. 

Page 4 GAO-09-376R SEC Management Report 
SEC corrected most of the substantive errors we identified and the remaining 

uncorrected errors did not materially affect the balances reported for property and 

equipment or the corresponding depreciation/amortization expense amounts in SEC’s 

financial statements for fiscal year 2008. However, these continuing conditions, along 

with the issues we found this year with the new system implementation, evidence a 

significant deficiency in internal control over the recording of property and 

equipment that affects the reliability of its related financial statement balances. 

Consistent with Standards for Internal Control in the Federal Government,12 SEC 

should have controls in place to provide reasonable assurance that its financial 

transactions are completely and accurately recorded. Until users are adequately 

trained in using the new property and equipment system and processes, and oversight 

and review processes over accounting for property and equipment transactions are 

strengthened, SEC does not have sufficient assurance that property and equipment 

transactions will be completely, consistently, or accurately recorded or reported. 

To address certain deficiencies discussed here and other internal control deficiencies 

over property and equipment, we reaffirm five open recommendations from our prior 

audits, detailed in enclosure I. 

Recommendations

We also recommend that the Chairman take the following additional actions to 

improve controls over property and equipment: 

(1) Provide training for all appropriate employees on entering and processing 

transactions related to property and equipment purchases in the new property 

and equipment system.

(2) Develop and implement procedures for performing and documenting oversight 

and review processes over property and equipment transactions. 

(3) Develop and implement procedures for the use of project codes in Quicktime 

to automate the calculation of federal employee costs related to capitalized 

software amounts. 

Accounting for Budgetary Resources 

For fiscal year 2008, SEC’s Statement of Budgetary Resources (SBR) reflects 

approximately $916 million in obligations incurred, which represent legal liabilities 

against funds available to SEC to pay for goods and services ordered. At September 

30, 2008, $157 million of those obligations represented undelivered orders for goods 

and services ordered but not yet delivered or received as of that date. SEC’s SBR also 

reports offsetting collections13 of approximately $986 million. These primarily 

represent fees SEC collected from self-regulatory organizations (e.g., stock 

 12GAO/AIMD-00-21.3.1 13Offsetting collections are amounts SEC receives from business-like transactions with the public (e.g., 

fees for filing registration statements), which SEC is authorized to credit to appropriations accounts 

for future obligation. The Securities Act of 1933 (15 U.S.C. § 77a et seq.) and the Securities Exchange

Act of 1934 (15 U.S.C. § 78a et seq.) require SEC to assess certain fees and credit them as offsetting

collections. 

Page 5 GAO-09-376R SEC Management Report 
exchanges and the Financial Industry Regulatory Authority (FINRA))14 and 

registrants

15 that Congress has also appropriated in annual appropriation acts.16 SEC 

offsets its appropriation for the fiscal year using these offsetting collections and then 

sets aside the balance for future years, and reports these amounts as offsetting 

collections temporarily precluded from obligations. 

We identified the same types of problems in SEC’s accounting for these budgetary 

activities this year as we reported for fiscal year 2007. We continued to find many

instances in which SEC (1) recorded invalid obligation-related transactions due to 

incorrect posting configurations in SEC’s general ledger, (2) did not maintain 

documentation of authorizations for downward adjustments to prior-year undelivered 

orders, and (3) recorded obligations prior to having documentary evidence of a 

binding agreement for the goods or services. We also identified two internal control 

deficiencies related to SEC’s accounting for offsetting collections. Specifically, we 

identified (1) revenue-related transactions that were invalid due to additional 

incorrect posting configurations in SEC’s general ledger and (2) incomplete and 

incorrect written procedures for general ledger entries used to account for returning 

appropriated funds to the U.S. Treasury. 

During fiscal year 2008, SEC addressed some problems related to incorrect posting 

configurations in its general ledger; however, several such problems continued. 

Specifically, we found that SEC’s general ledger was not properly configured to post 

the proper accounting entries for upward and downward adjustment transactions. 

SEC corrected this posting-logic configuration error for single-year funds17 during this 

year’s audit. However, the incorrect posting configurations for the bulk of its funds, 

no-year funds,18 were not yet corrected as of September 30, 2008. In fiscal year 2008, 

SEC recorded approximately $83.8 million in adjusting entries to correct transaction 

errors resulting from these incorrect posting configurations. SEC has acknowledged 

this problem and has stated that correcting these remaining posting configuration 

errors is a high priority in fiscal year 2009. 

 14FINRA (a corporation that was formerly known as the National Association of Securities Dealers 

(NASD)) is a self-regulatory organization under the Securities Exchange Act of 1934 and is responsible 

for regulatory oversight of all securities firms that do business with the public; professional training, 

testing, and licensing of registered persons; arbitration and mediation; market regulation by contract 

for the New York Stock Exchange, the NASDAQ Stock Market, Inc., the American Stock Exchange

LLC, and the International Securities Exchange, LLC; and industry utilities, such as Trade Reporting

Facilities and other over-the-counter operations. 15Registrants are corporations that register with the SEC their securities, tender offer, merger, and 

other transactions as required by law under the Securities Act of 1933 and the Securities Exchange Act 

of 1934. 16The 2008 appropriation for SEC appropriated $906 million for SEC’s necessary expenses and further 

required SEC to use the offsetting collections it receives during the year to reduce amounts 

appropriated from the General Fund of the U.S. Treasury. See Financial Services and General

Government Appropriations Act, 2008, Pub. L. No. 110-161, div. D, tit. V, 121 Stat. 1972, 2010 (Dec. 26, 

2007). 17 Single-year funds represent annual budget authority that is available for obligation during only 1

fiscal year or less. 18No-year funds represent budget authority where the appropriation of budget authority or the 

authorization of the appropriation may make all or some portion of the amount available until 

expended. That means that, without further legislation, the funds remain available to incur obligations 

against the appropriation for an indefinite period of time. 

Page 6 GAO-09-376R SEC Management Report 
Downward adjustments to obligations incurred occur as part of SEC’s process for 

monitoring undelivered orders. The purpose of this monitoring is to promptly 

deobligate funds no longer needed so these budgetary resources can be used to fund 

other activities or obligations during the time frame that those funds are available. 

For all 43 statistically selected downward adjustments we tested, we found no 

documentary evidence of review and approval of the transactions. SEC’s written 

instructions for the review of undelivered orders did not provide guidance or 

requirements for documenting review and approval of downward adjustment 

transactions. Consistent with Standards for Internal Control in the Federal 

Government,19 internal control should be clearly documented, and the documentation 

readily available for examination.

During our testing of obligation activity, we identified five instances in which SEC 

recorded obligations prior to the signing (i.e., executing) of a written contract. SEC’s 

administrative control of funds guidance did not clearly document the responsibilities 

of the staff performing obligation-related activities with regard to recording 

obligations in accordance with the recording statute. Recording obligations prior to 

having documentary evidence of a binding agreement for the goods and services is a 

violation of the recording statute,20 and may result in funds being reserved 

unnecessarily and therefore made unavailable for other uses should the agreement 

not materialize. Early recording of obligations also may result in charging incorrect 

fiscal year funds for an agreement executed in a later fiscal year. 

In fiscal year 2007, SEC changed its method of accounting for user fees collected in 

excess of current-year appropriations. However, in fiscal year 2008, we found that 

SEC had not yet implemented a corresponding reconfiguration of its system to post 

offsetting collection transactions as the transactions occurred in accordance with its 

accounting change. These incorrect entries resulted in an overstatement of SEC’s 

total budgetary resources and amounts available for obligation. To compensate for 

this system limitation, SEC performed a manual review of the general ledger activity 

for these transactions and made correcting entries. In fiscal year 2008, SEC made 

adjustments of approximately $983.7 million to properly record these fees in the 

appropriate budgetary accounts. 

 

SEC’s written guidance for funds management details the series of accounting entries 

for recording its offsetting collections and related transactions, including the return 

of appropriated funds to the U.S. Treasury. However, based on our analysis, we 

determined that SEC’s guidance was not complete and included the use of an 

incorrect general ledger account. Specifically, the series of accounting entries 

detailed in SEC’s guidance (1) did not include accounting entries needed to properly 

reflect the balances in the general ledger accounts for “unexpended appropriations 

used” and “expended appropriations” and (2) cited an incorrect general ledger 

account to use for recording the return of appropriated funds to the U.S. Treasury. 

 19GAO/AIMD-00-21.3.1. 20An amount shall be recorded as an obligation of the U.S. government only when supported by 

documentary evidence of a binding agreement between an agency and another person (including an

agency) that is in writing and executed before the end of the period of availability for obligation of the

appropriation. 31 U.S.C. § 1501(a)(1). Under the plain terms of the statute, an oral agreement may not 

be recorded as an obligation. See GAO, Principles of Federal Appropriations Law, vol. 2, 3

rd ed., GAO06-382SP (Washington, D.C.: February 2006), at pages 7-15 for a discussion of these principles. 

Page 7 GAO-09-376R SEC Management Report 
Although the process document was inaccurate, SEC performed a manual review of 

the general ledger activity for these transactions and made adjusting entries to

properly reflect the balances in its general ledger for “unexpended appropriations 

used” and “expended appropriations,” and used the appropriate general ledger 

account for recording the return of appropriated funds to the U.S. Treasury. 

However, incomplete or inaccurate written guidance for accounting for offsetting 

collections can lead to erroneous accounting for the status of SEC’s appropriated 

amounts, particularly in the event of employee turnover, especially because these 

entries occur infrequently rather than routinely. 

Although SEC was able to identify most of the errors and make corresponding 

adjustments, the ineffective processes that caused these errors constitute a 

significant deficiency in SEC’s internal control over recording and reporting 

obligations and revenue, and put SEC at risk that the amounts recorded in the general 

ledger and reported on SEC’s Statement of Budgetary Resources could be misstated 

in the future. 

To address certain deficiencies discussed here and other internal control deficiencies 

over SEC’s accounting for its budgetary activities, we reaffirm four open 

recommendations from our prior audits, detailed in enclosure I. 

Recommendations 

We also recommend that the Chairman take the following additional actions to 

improve SEC’s budgetary accounting controls: 

(4) Develop and implement formal operating procedures for monitoring 

undelivered orders to include guidance for documenting review and approval 

of downward adjustment transactions. 

(5) Correct general ledger configurations to properly record offsetting collections 

as these transactions occur. 

(6) Update the written guidance for funds management to include correct 

accounting entries and use of correct general ledger accounts for recording 

offsetting collections transactions. 

Other Issues 

Although not considered to be significant deficiencies, the following weaknesses also 

warrant management consideration. 

Documenting Accounting Procedures

During this year’s audit, we observed that SEC lacked detailed written procedures for 

several of its accounting processes that precede the general ledger closing process 

and generation of financial statements. We noted the absence of formally approved 

desktop procedures to provide detailed instructions for the tasks to be performed, 

the location of files on the shared network drive, and descriptions of relevant 

spreadsheet formulas. Specifically, we noted a lack of desktop procedures for the 

analysis, calculation, and recording of advances and prepayments; the preparation 

and analysis of the Investments and Fair Funds Summary file; and the preparation of 

Page 8 GAO-09-376R SEC Management Report 
the Journal Voucher Log Master, which is used to create an interface for posting 

certain transactions or adjusting journal entries into the general ledger. SEC’s 

procedures did not provide detailed instructions needed for performing each task, 

including internal control procedures to be followed and the manner for documenting 

the controls associated with the tasks performed. These are elements of detailed 

procedures necessary to ensure continuity of the efficient performance of key 

accounting procedures and timely and reliable financial reporting in the event of 

employee turnover. 

Standards for Internal Control in the Federal Government21 states that management 

is responsible for developing detailed policies, procedures, and practices to fit the 

agency’s operations and to ensure that they are built into and are an integral part of 

operations to meet the agency’s objectives. One such objective is timely and reliable 

financial reporting. Moreover, the standards state that internal control should be 

clearly documented and the documentation readily available for examination. The 

documentation should appear in management directives, administrative policies, or 

operating manuals and may be in paper or electronic form. All documentation and 

records should be properly managed and maintained. 

Recommendation

We recommend that the Chairman take the following action to improve controls over 

accounting procedures that precede the general ledger closing process and 

generation of financial statements: 

(7) Develop and implement a desktop procedures manual that provides detailed 

instructions for performing each key accounting process preceding the general 

ledger closing process; the associated internal control to be followed for each 

step, as applicable; and the manner for documenting compliance with these 

controls. 

 

Reviewing Accounting Entries

SEC uses journal vouchers (JV) for recording transactions and making, correcting, or 

adjusting entries. During our audit, we noted many instances of undocumented or 

ineffective supervisory review of accounting entries. Our interim control testing of 45 

statistically selected JVs recorded during the 9 months ended June 30, 2008, identified 

32 instances in which individual JVs lacked documentation of supervisory review and 

approval. In addition, while reviewing JVs related to undelivered orders, we noted 

that the reviewer of one JV did not detect an error in the approval documentation 

during the review. Specifically, we noted that the summary JV entry sheet had an 

incorrect amount and that it was signed by a preparer, reviewer, and approver. 

Although the correct amount was recorded in the general ledger, this error is 

evidence of a lack of a thorough and complete review. SEC’s written guidance for JVs 

did not include descriptions of the steps to be performed and the documentation

required for supervisory-level review. 

 21GAO/AIMD-00-21.3.1. 

Page 9 GAO-09-376R SEC Management Report 
We also found instances in which the documentation supporting certain JVs that 

were reviewed, approved, and posted in the general ledger contained errors that were 

not detected as part of the JV review process. For example, our test of property and 

equipment transactions identified spreadsheet formula errors for capitalizing staff 

costs for certain internal-use software. The monthly reported Capitalized Costs for 

Federal Staff was recorded using a quarterly rate for all full-time equivalents (FTE) 

instead of a monthly rate. We brought these errors to SEC’s attention and SEC made 

a $2.3 million correcting entry. This correcting entry was recorded using a new 

mechanism for recording activity in the general ledger—the standard voucher (SV) 

entry—which was implemented when SEC upgraded its general ledger system late in 

fiscal year 2008. However, we noted errors in SEC’s correcting entry and an 

additional FTE calculation error, which were not detected during the review process. 

Moreover, SEC has not prepared written guidance for when to use SV or JV entries. 

Consistent with Standards for Internal Control in the Federal Government,

22 SEC 

should have controls in place to provide reasonable assurance that its financial 

transactions are recorded completely and accurately. 

Recommendations

We recommend that the Chairman take the following actions to improve controls 

over accounting entries: 

(8) Develop and implement written procedures for the preparation and review of 

accounting entries to include descriptions of the steps to be performed and the 

documentation required for supervisory-level review of all supporting

documentation. 

(9) Develop and implement written procedures providing guidance for when to 

use JV or SV entries. 

Reporting FOIA Fees

In fiscal year 2008, SEC collected approximately $94,000 in fees from the public for 

providing information under FOIA. Because the fees collected were for payment of 

services that SEC provided, these fees are exchange revenues. We noted, however, 

that SEC did not account for and report these fees as exchange revenues and instead 

reported the activity in its fiscal year 2008 Statement of Custodial Activity as part of 

Total Custodial Revenue due to an incorrect interpretation of federal accounting 

principles. We noted that SEC’s Balance Sheet Compilation Methodology specifies 

that FOIA fees should be reported as custodial liabilities. Although the amount was 

not material, such reporting was nevertheless inconsistent with U.S. generally 

accepted accounting principles (GAAP) and federal financial reporting requirements. 

Specifically, Statement of Federal Financial Accounting Standards No. 7, Accounting 

for Revenue and Other Financing Sources and Concepts for Reconciling Budgetary 

and Financial Accounting, states that exchange revenues arise when a government 

entity provides goods and services to the public or to another government entity for a 

price.23 In addition, OMB Circular No. A-136, Financial Reporting Requirements, 

requires federal entities to report the full amount of exchange revenue on the 

 22GAO/AIMD-00-21.3.1. 23Para. 2.

Page 10 GAO-09-376R SEC Management Report 
Statement of Net Cost or a supplementary schedule, regardless of whether the entity 

is permitted to retain the revenues in whole or in part. Any portion of exchange 

revenue that cannot be retained by the entity is reported as a transfer-out on the 

Statement of Changes in Net Position.24

 

Recommendation

We recommend that the Chairman take the following action to improve SEC’s 

reporting for FOIA fees: 

(10) Develop and implement procedures to account for the receipt of FOIA fees 

in accordance with GAAP and federal financial reporting requirements. 

Adding Footnote Disclosure for Disgorgement and Penalty Activities

In fiscal year 2008, SEC changed its method of presentation for the receipt, 

accounting, and disposition of all disgorgement-related assets stemming from actions 

against violators of federal securities laws. Historically, SEC treated disgorgementrelated receivables as custodial activity and the collection and investment of 

disgorgements and penalties as fiduciary activity. Beginning in fiscal year 2008, SEC 

treated all activity related to disgorgement and penalties as non-entity assets under 

control of SEC with an equal and offsetting liability on the balance sheet. As of 

September 30, 2008, SEC reported a liability for disgorgement and penalties balance 

of $3.1 billion. As a result of this reporting change, we noted that the source and 

disposition of SEC’s disgorgement and penalty activities were no longer disclosed in 

the financial statement footnotes as they had been in previous years. 

According to the Federal Accounting Standards Advisory Board’s (FASAB) Concept 

Statement No. 1, “financial reporting should be reliable; to be reliable, financial 

reporting needs to be comprehensive. Nothing material should be omitted from the 

information necessary to represent faithfully the underlying events and conditions, 

nor should anything be included that would likely cause the information to be 

misleading to the intended report user.” Although there is no specific requirement for 

reporting the source and disposition of disgorgement and penalty activities, this is a 

significant and material SEC activity and, therefore, disclosure of these activities 

would result in more comprehensive and transparent financial reporting. 

Recommendation

We recommend that the Chairman take the following action to improve disclosure of 

SEC’s disgorgement- and penalty-related activities: 

(11) Develop procedures for including in the footnotes to the financial statements 

disclosure and explanations about the source and disposition of SEC’s 

disgorgement and penalty activities. 

 24Section II.4.4.4, Earned Revenues. 

Page 11 GAO-09-376R SEC Management Report 
Estimating Allowance for Loss Amounts for Disgorgement and Penalty Accounts 

Receivables

In fiscal year 2008, we noted significant improvements in SEC’s process for recording 

disgorgement and penalty transactions. However, our audit work in fiscal year 2008 

identified issues that raise overall concerns about SEC’s methodology for establishing 

a reasonable allowance for loss on uncollectible disgorgement and penalty 

receivables. SEC bases the allowance for uncollectible amounts and the related 

provision for estimated losses for disgorgement and penalty accounts receivable on a 

collectibility analysis. Specifically, on a quarterly basis, SEC’s Office of Financial 

Management (OFM) identifies the largest, “top 25,” debts for review by the Division of 

Enforcement (Enforcement). The top 25 debts made up about 80 percent of the net 

accounts receivable balance during fiscal year 2008. Enforcement makes a 

determination as to the collectibility of each debt so that an appropriate allowance 

amount can be applied against the receivable and communicates this determination 

to OFM. For the remaining accounts receivable balances, OFM applies a percentage, 

based on historical collection data, to reflect the balances at their estimated net 

realizable value. At September 30, 2008, SEC reported a gross receivable balance of 

$434 million with an offsetting allowance of $346 million for disgorgement and 

penalties receivable. 

During our review of the allowance for loss on disgorgement and penalty accounts 

receivable at June 30, 2008, we identified instances in which the amount of allowance 

fluctuated widely when the debt was identified as a top 25 debt in one quarter and 

then dropped from the top 25 debt list in another quarter. For example, we noted 

three debts that were listed in the top 25 debt list at March 31, 2008, with a collective 

receivable balance of $5.7 million. Enforcement had recommended a total allowance 

amount of $5.3 million for these debts, resulting in a net receivable balance of 

$400,000. At June 30, 2008, each of the three debts had fallen below the top 25 

threshold and was removed from the top 25 debt list. Because the debts were no

longer included in the top 25 debt list, OFM calculated a total allowance amount of 

$1.6 million for the three debts, based on the historical collection percentage. This 

change in the allowance calculation for these three debts resulted in an increase in 

the net receivable balance of $3.7 million at June 30, 2008. 

This type of fluctuation raises concern about the continued reasonableness of SEC’s 

allowance methodology for disgorgement and penalty accounts receivable. Statement 

of Federal Financial Accounting Standards No. 1, Accounting for Selected Assets and 

Liabilities, states “the allowance for uncollectible amounts should be reestimated on 

each annual financial reporting date and when information indicates that the latest 

estimate is no longer correct.” The standard further states, “to determine the loss 

allowance on a group basis, receivables should be separated into groups of 

homogeneous accounts with similar risk characteristics.” SEC’s current allowance 

methodology for its group analysis does not further separate the debts into any 

subgroups, such as aging of the receivables. 

During our review of the allowance for loss on disgorgement and penalty accounts 

receivable, we also identified instances in which SEC did not consistently implement 

its current methodology. For example, we identified a debt that was erroneously 

omitted from the top 25 debt list at December 31, 2007. Instead, OFM calculated an 

Page 12 GAO-09-376R SEC Management Report 
allowance of $1.2 million for this debt based on the historical collection percentage. 

This debt then appeared on the top 25 debt list at March 31, 2008, and was forwarded 

to Enforcement for review. Although Enforcement assessed this debt as fully 

collectible, OFM continued to apply a $1.2 million allowance against the debt at 

March 31, 2008. 

Enforcement’s review of the collectibility of the top 25 debts is a key process for 

establishing a reasonable allowance for loss against the most significant 

disgorgement and penalties receivable balances. However, OFM’s inconsistent 

implementation of the allowance methodology, specifically the use of Enforcement’s 

collectibility assessments, puts SEC at risk that the process may not operate 

effectively and may result in a misstated net receivable balance. 

Recommendations 

We recommend that the Chairman take the following actions to improve SEC’s 

processes and controls over estimating collectibility for disgorgement and penalty 

accounts receivable: 

(12) Develop and implement procedures specifying how the collectibility 

assessments provided by Enforcement will be used by OFM, to include 

documentation requirements for instances in which an allowance amount 

other than Enforcement’s assessment is recorded. 

(13) Reevaluate the reasonableness of the methodology used for calculating the 

allowance for loss on disgorgement and penalty accounts receivable,

specifically evaluating whether the methodology should be revised to 

separate debts into risk-based groups when calculating the historical 

collection percentage and considering the effect of debts moving in and out 

of the top 25 debt list. 

Safeguarding Cash Receipts Related to Disgorgement and Penalty Payments

SEC receives checks for the payment of disgorgement and penalties as well as for 

other activities. Defendants required to pay disgorgement and penalty amounts are 

instructed to mail or hand deliver checks to SEC’s Operations Center located in

Alexandria, Virginia. During our review of SEC’s cash receipt process at the 

Operations Center, we noted that SEC did not have sufficient safeguarding 

procedures over checks received, making the checks highly susceptible to 

misappropriation. Specifically, during our observation of the handling of the mail, we 

noted that the mail room was unsecured, the mail bins were not adequately 

safeguarded, and mail to be delivered to SEC’s OFM was not placed in a locked bag.

According to Standards for Internal Control in the Federal Government,

25 an agency 

must establish physical control to secure and safeguard vulnerable assets including 

security for and limited access to assets such as cash. 

 25GAO/AIMD-00-21.3.1. 

Page 13 GAO-09-376R SEC Management Report 
Recommendation

We recommend that the Chairman take the following action to ensure the 

safeguarding of disgorgement and penalty receipts: 

(14) Develop and implement improved safeguarding procedures within SEC’s 

Operations Center for checks received or establish a lockbox for the 

submission of checks to OFM and instruct defendants to mail checks to the 

lockbox. 

Recording Disgorgement and Penalty Transactions in Momentum

During fiscal year 2008, SEC upgraded its Momentum financial reporting system and 

implemented a new system module to automate and integrate accounts receivable 

transactions for disgorgement and penalties with the general ledger. Concurrent with 

the upgrade, SEC established and began using certain transaction codes in 

Momentum to record activity associated with receivable activity such as collections, 

write-offs, terminations, and discharges of disgorgement receivables. However, 

during our fourth quarter testing of disgorgement and penalty collections, we noted 

instances in which transaction information (such as document number, document 

title, and check number) was not entered consistently in accordance with SEC’s 

written guidance. SEC’s Accounts Receivable Procedures Guide provides guidance 

for entering transaction information into Momentum. However, these procedures 

were not being consistently implemented. Consistent with Standards for Internal 

Control in the Federal Government,

26 SEC should have controls in place to provide 

reasonable assurance that its financial transactions are recorded completely and 

accurately.

These instances of SEC staff not consistently following existing guidance in this area 

indicate that SEC staff could benefit from additional training on the proper use of the 

new system module and proper supervisory review of disgorgement and penalty 

transactions entered into Momentum. Although the issues did not result in a 

substantive misstatement of the collections amount at year-end, the errors did

necessitate a time-consuming and labor-intensive reconciliation process. Without 

consistent recording of transactions, the risk is increased that disgorgement and 

penalty transactions are not completely and accurately recorded. 

Recommendations 

We recommend that the Chairman take the following actions to improve SEC’s 

controls over recording disgorgement and penalty transactions: 

(15) Provide training to staff on the proper use of the new system module and the 

proper procedures for recording disgorgement and penalty transactions in 

Momentum. 

(16) Modify existing guidance to provide for a timely and documented 

supervisory review of all disgorgement and penalty transactions entered in 

 26GAO/AIMD-00-21.3.1. 

Page 14 GAO-09-376R SEC Management Report 
Momentum to ensure that transactions are entered completely and 

accurately. 

Processing Personnel Actions and Certifying Employees’ Time Cards

During our fiscal year 2008 audit, we identified issues related to SEC’s 

implementation of its policies over the processing of personnel actions and 

certification of employees’ time cards. Specifically, we found that a Standard Form-50 

(SF-50), Notification of Personnel Action, was not approved until 5 weeks after the 

effective separation date. Without adequate controls over the processing of 

separation actions, SEC is at risk that erroneous payroll expenses will be incurred. 

We also found numerous instances in which the SF-50s did not include the signature 

of the authorizing official. Specifically, we found that 42 percent of the SF-50s we 

reviewed did not include the signature of the Director of the Office of Human 

Resources. Without proper approval of personnel actions, SEC is at risk that 

unauthorized payroll actions will be processed. Moreover, as we have consistently 

found in our prior audits of SEC,27 we found instances in which employee time cards 

were improperly certified by lower-level employees. Although SEC implemented 

Quicktime in fiscal year 2008, the system has not been configured to prevent lowerlevel employees from approving higher-level employees’ time cards. Standards for 

Internal Control in the Federal Government28 state that internal control activities 

help ensure that management’s directives are carried out, that these control activities 

occur at all levels and functions of the entity, and that they include a wide range of 

diverse activities such as approvals and authorizations, among others. 

To address certain deficiencies discussed here and other internal control deficiencies 

over SEC’s payroll controls, we reaffirm three open recommendations from our prior 

audits, detailed in enclosure I. 

Recommendations 

We also recommend that the Chairman take the following additional actions to 

improve its controls over payroll processing: 

(17) Develop procedures for implementing management’s policy on the 

authorization and validation of personnel actions and the timely processing 

of such actions. 

(18) Configure Quicktime to preclude lower-level employees from approving 

higher-level employees’ time cards. 

Considering OCIE Inspection Results

SEC collects securities transaction fees paid by self-regulatory organizations (SRO) 

(e.g., stock exchanges and FINRA) to SEC for stock transactions. According to 

Section 31 of the Securities Exchange Act of 1934 (Exchange Act), SRO transaction 

 27GAO-08-461R. 28GAO/AIMD-00-21.3.1. 

Page 15 GAO-09-376R SEC Management Report 
fees are payable to SEC twice a year. 29 SEC calculates the fees due and bills the SROs 

based on actual transaction volume reported on a monthly basis by the SROs to SEC. 

Securities transaction-fee revenue totaled $795 million in fiscal year 2008. 

SEC’s OCIE conducts annual inspections of SROs to monitor compliance with the 

Exchange Act. In its 2008 FINRA Section 31 Inspection Report, OCIE noted that on 

September 26, 2008, FINRA paid SEC a settled amount of unpaid Section 31 fees 

totaling $12.2 million. This settled amount represented underreported Section 31 fees 

for the years 2004 through 2007. OCIE also reported on other fee-reporting errors 

identified by FINRA, resulting in an additional underpayment of at most $3.75 million, 

although the precise amount was not yet known at September 30, 2008. Our 

discussion with OFM officials informed us that OFM does not consider the impact of 

OCIE inspection results on the related accounts and reported revenue in the agency 

financial statements. In addition, SEC’s written guidance for recording Section 31 

fees did not include procedures for the review and consideration of OCIE inspection 

results. 

Consistent with Standards for Internal Control in the Federal Government,

30 SEC 

should have controls in place to provide reasonable assurance that its financial 

transactions are recorded completely and accurately. Although the underpayment 

amounts identified in the current-year inspection report did not materially affect the 

financial statements at September 30, 2008, future OCIE inspection results could have 

a significant or material effect on the balances presented in the financial statements. 

Without proper consideration of the results of the OCIE inspections, the risk is 

increased that the balances presented in the financial statements may be 

misreported. 

Recommendation

We recommend that the Chairman take the following action to improve SEC’s 

controls over securities transaction-fee revenue: 

(19) Develop and implement procedures for the review and consideration of 

OCIE inspection results by OFM as part of its process for recording Section 

31 fees. 

 

Agency Comments 

In providing written comments on a draft of this report, the SEC Chairman stated her 

commitment to continuing remediation efforts to resolve the control deficiencies 

GAO identified. The SEC Chairman reported several actions SEC took during fiscal 

year 2008 toward remediation of the deficiencies, including upgrading SEC’s core 

financial system. The SEC Chairman stated that SEC will continue to address the 

three significant deficiencies by employing both short-term strategies expected to be 

completed this fiscal year and long-term strategies expected to be completed in fiscal 

year 2010. Specifically, the SEC Chairman cited the short-term strategies to develop 

 29Securities Exchange Act of 1934, § 31(d), codified, as amended, at 15 U.S.C. § 78ee; as implemented 

in 17 C.F.R. § 240.31 (Section 31 transaction fees). 30GAO/AIMD-00-21.3.1. 

Page 16 GAO-09-376R SEC Management Report 
or improve process documentation, overlay manual processes with additional 

compensating controls as needed, implement standard general ledger (SGL) 

compliant posting models, and implement process improvements to enhance 

efficiencies and effectiveness of internal controls and monitor performance. Further, 

the SEC Chairman cited the long-term solution is an automated, fully integrated 

financial management system that will eliminate manual processes, minimize reliance 

on detective controls, and comply with SGL requirements at the transaction level. In 

order to fully address GAO’s recommendations, the SEC Chairman stated that SEC is 

preparing a corrective action plan which builds on SEC’s ongoing efforts initiated in 

fiscal year 2008. The SEC Chairman also stated that SEC is finalizing a position paper 

on the treatment of FOIA fee revenues. We will evaluate the effectiveness of SEC’s 

actions, strategies, and plans during our fiscal year 2009 audit. 

SEC’s written comments are reprinted in enclosure II of this report. 

- - - - 

This report contains recommendations to you. The head of a federal agency is 

required by 31 U.S.C. § 720 to submit a written statement on actions taken on the 

recommendations to the Senate Committee on Homeland Security and Governmental 

Affairs and the House Committee on Oversight and Government Reform not later 

than 60 days from the date of this report. A written statement also must be sent to the 

House and Senate Committees on Appropriations with your agency’s first request for 

appropriations made more than 60 days after the date of this report. 

This report is intended for use by SEC management. We are sending copies of this 

report to the Chairman and Ranking Members of the Senate Committee on Banking, 

Housing, and Urban Affairs; the Senate Committee on Homeland Security and 

Governmental Affairs; the House Committee on Financial Services; and the House 

Committee on Oversight and Government Reform. We are also sending copies to the 

Secretary of the Treasury, the Director of the Office of Management and Budget, and 

other interested parties. In addition, this report is available at no charge on GAO’s 

Web site at http://www.gao.gov. 

We acknowledge and appreciate the cooperation and assistance provided by SEC 

management and staff during our audit of SEC’s fiscal years 2008 and 2007 financial 

statements. If you have any questions about this report or need assistance in 

addressing these issues, please contact me at (202) 512-9471 or franzelj@gao.gov. 

Page 17 GAO-09-376R SEC Management Report 
Contact points for our Offices of Congressional Relations and Public Affairs may be 

found on the last page of this report. 

Sincerely yours, 

Jeanette M. Franzel 

Managing Director 

Financial Management and Assurance 

Page 18 GAO-09-376R SEC Management Report 
Enclosure I

Status of Recommendations from Prior Audits Reported as Open in GAO’s 

2007 Management Report31

Status of 

recommendation 

Audit area/recommendation Closed Open

GAO-05-691R and GAO-05-693-R

Disgorgement and penalties 

1. Implement a system that is integrated with the 

accounting system or that provides the necessary 

input to the accounting system to facilitate timely, 

accurate, and efficient recording and reporting of 

disgorgement and penalty activity. 

X

2. Implement controls so that the ongoing activities 

involving disgorgements and penalties are properly, 

accurately, and timely recorded in the accounting 

system. 

X

3. Develop and implement written policies covering 

the procedures, documentation, systems, and 

responsible personnel involved in recording and 

reporting disgorgement and penalty financial 

information. The written procedures should also 

address quality control and managerial review 

responsibilities and documentation of such a 

review. 

X

Financial statement preparation and reporting 

4. Develop or acquire an integrated financial 

management system to provide timely and accurate 

recording of financial data for financial reporting 

and management decision making. 

X

Property and equipment leases 

5. Review all existing leases for property and 

equipment to determine if they should be 

capitalized or expensed and make any necessary 

adjustments to the related general ledger balances. 

X

6. Develop policies and procedures to properly 

account for future property and equipment leases 

on an ongoing basis. 

X

Closing recommendation to address Federal Managers’ Financial Integrity 

Act weaknesses 

7. Require documented support and review of SEC’s 

corrective actions to provide evidence that actions 

taken in response to audit recommendations fully 

correct identified deficiencies prior to closing out 

the audit issues in the tracking system. 

X

 31GAO-08-461R.

Page 19 GAO-09-376R SEC Management Report 
Status of 

recommendation 

Audit area/recommendation Closed Open

GAO-06-459R

Disgorgement and penalties

 Develop, document in writing, and implement 

comprehensive policies, procedures, and controls 

over disgorgement and penalty transactions that 

include the following (see items 1-4).

1. An accounting policy for disgorgements and 

penalties that will provide SEC management with 

reasonable assurance that the subsidiary ledger for 

disgorgement/penalty receivables is accurate and 

complete. 

X

2. The type of documentation and procedures needed 

to record the termination or waiver of a debt and 

the proper notification and communication for 

approved terminations and waivers, such that 

management has assurance that only valid and 

approved terminations are recorded. 

X

3. The recording of activity by case for fiduciary 

balances, including monthly reconciliations and 

management review, to ensure that balances by 

case are accurate. 

X

4. The initiation, recording, and monitoring of 

investments, including the monthly reconciliation of 

investment activity, to provide assurance that these 

fiduciary amounts are accurate and complete. 

X

Responsibilities of contracting officer’s technical 

representative (COTR)

5. Clarify guidance regarding policies and procedures 

(as described in SECR 10-8 and SECR 10-15) for the 

COTR’s responsibilities and take actions to help 

ensure existing policies and procedures are being 

followed consistently.

X 

Internal review of filing fee calculations

6. Take action to help ensure that its policy on

recalculating fee-bearing filing amounts is 

consistently followed.

X 

7. Take action to help ensure that the recalculation of 

the required filing fees is clearly documented. X 

Page 20 GAO-09-376R SEC Management Report 
Status of 

recommendation 

Audit area/recommendation Closed Open

GAO-07-482R

Property and equipment 

1. Include, in its updated property management 

policies, detailed procedures for recording proper 

acquisition costs and dates in its asset-tracking 

system, and take steps to ensure that these 

procedures are being consistently implemented. 

X

2. Implement procedures requiring periodic 

comparisons of related details in disbursement and 

property/equipment subsidiary records to identify 

any unrecorded purchases that satisfy established 

capitalization criteria.

X

3. Implement procedures to ensure that internal use 

software project managers have a complete and 

consistent understanding of the requirements that 

should govern compilation of cost data submitted 

for capitalization, including consideration of joint 

Office of Information Technology and Office of 

Financial Management (OFM) training to software 

project managers on the requirements of applicable 

generally accepted accounting principles. 

X

4. Implement procedures whereby OFM staff routinely 

review capitalized amounts for software projects 

against supporting documentation to provide 

additional assurance that the recorded amounts are 

accurate and complete.

X

Payroll system access, approval of time and attendance records, and 

process documentation 

5. Evaluate the overall effectiveness of its actions 

taken in response to our findings regarding payroll 

and personnel action processing, when fully 

implemented, to determine whether any 

modifications, additional actions, or both are 

needed. 

X

Comparison of furniture and equipment received and ordered 

6. Retain, in its updated property management policy, 

a procedure to document comparison of quantity 

and type of item received with the corresponding 

purchase order, and take actions to ensure that the 

comparisons are being consistently documented. 

X

Page 21 GAO-09-376R SEC Management Report 
Status of 

recommendation 

Audit area/recommendation Closed Open

GAO-08-461R

Period-end financial reporting process 

1. Integrate subsystems that process significant 

accounting data with the general ledger. X

2. Until subsystems are fully integrated, develop and 

implement documented data reliability checks for 

data extracted from nonintegrated subsidiary 

systems, including spreadsheets. These data 

reliability checks should include supervisory 

review. 

X

3. Prepare written procedures which describe 

explicitly the steps required to accomplish and 

document each significant activity in the general 

ledger closing process and in the generation of the 

financial statements, including related disclosures. 

X

Disgorgement and penalties accounts receivable

4. Develop and implement controls over the 

calculation of disgorgement and penalties accounts 

receivable, including the reliability of data 

downloaded from Phoenix and the accuracy of 

spreadsheet cell formulas and related 

methodologies. 

X

Accounting for transaction fee revenue 

5. Establish and implement detailed written 

procedures for recording transaction fee revenue 

and the related receivable, including procedures for 

recognizing data received after the balance sheet 

date but prior to issuance of the financial 

statements. 

X 

Preparing financial statement disclosures 

6. Establish and implement detailed written 

procedures for the preparation and review of the 

financial statement disclosures, including the 

comparison of financial statement disclosure 

amounts to related information presented in the 

current and previous year financial statements and 

Management’s Discussion and Analysis. 

X 

Property and equipment 

7. Establish and implement controls over invoiced 

property costs and dates to ensure that property 

and equipment acquisitions are accurately recorded 

in the relevant subsidiary ledgers for personal 

property, leasehold improvement, and software. 

X

Page 22 GAO-09-376R SEC Management Report 
Status of 

recommendation 

Audit area/recommendation Closed Open

8. Establish and implement controls to ensure proper 

calculation of depreciation and amortization of 

additions to existing items over the remaining 

useful lives of the associated items. 

X

Accounting for budgetary resources

9. Correct general ledger system configurations to 

properly account for upward and downward 

adjustments of prior-years’ undelivered orders in 

accordance with the U.S. Standard General Ledger. 

X

10. Establish and implement controls over obligationrelated entries (including original obligations, 

corrections, and deobligations) to ensure the use of 

correct U.S. Standard General Ledger accounts 

and the recording of correct amounts. 

X

11. Clarify administrative control of funds guidance and 

document the responsibilities of the staff 

performing obligation-related activities with regard 

to recording obligations in accordance with the 

recording statute. 

X

12. Establish and implement controls to ensure that 

SEC staff adheres to existing policies and 

procedures to prevent violations of the recording 

statute. 

X

Certification of employees’ time cards, documentation of monitoring of 

time card certification, and approval of personnel actions 

13. Establish and implement procedures for 

documenting evidence of monitoring of time card 

certifications and include procedures to document 

any identified exceptions. 

X

14. Segregate key responsibilities over the approval of 

personnel actions so that no one individual 

approves his own personnel action. 

X

Source: GAO.

Note: Recommendations from GAO-05-691R, GAO-05-693R, GAO-06-459R, GAO-07-482R, and GAO-08-

461R.

Page 23 GAO-09-376R SEC Management Report 
Enclosure II 

Comments from the U.S. Securities and Exchange Commission 

Page 24 GAO-09-376R SEC Management Report 
Page 25 GAO-09-376R SEC Management Report 
Page 26 GAO-09-376R SEC Management Report 
Enclosure III 

Summary of Audit Scope and Methodology32

To fulfill our responsibilities as auditor of the financial statements of the Securities 

and Exchange Commission (SEC), we did the following: 

• Examined, on a test basis, evidence supporting the amounts and disclosures in the 

financial statements. 

• Assessed the accounting principles used and significant estimates made by SEC 

management. 

• Evaluated the overall presentation of the financial statements. 

• Obtained an understanding of SEC and its operations, including its internal 

control related to financial reporting and compliance with laws and regulations. 

• Tested relevant internal controls over financial reporting and compliance with 

applicable laws and regulations, and evaluated the design and operating 

effectiveness of SEC’s internal control. 

• Considered SEC’s process for evaluating and reporting on internal control and 

financial management systems under the Federal Managers’ Financial Integrity 

Act of 1982. 

• Tested compliance with selected provisions of the following laws and their related 

regulations: the Securities Exchange Act of 1934, as amended; the Securities Act 

of 1933, as amended; the Antideficiency Act; the Debt Collection Improvement 

Act; laws governing the pay and allowance system for SEC employees; the Prompt 

Payment Act; and the Federal Employees’ Retirement System Act of 1986. 

We requested comments on a draft of this report from the SEC Chairman. We 

received written comments from SEC and summarized the comments in our report. 

We conducted our audit in accordance with U.S. generally accepted government 

auditing standards and OMB audit guidance. 

(194773) 

 32For a further, more detailed explanation of our audit scope and methodology, see the discussion in 

our related financial audit report (GAO-09-173). 

Page 27 GAO-09-376R SEC Management Report 
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