GAO-06-61R SEC Project Management 

United States Government Accountability Office

Washington, DC 20548 

October 20, 2005 

The Honorable Frank R. Wolf 

Chairman 

Subcommittee on Science, the Departments of State, 

 Justice, and Commerce, and Related Agencies 

Committee on Appropriations 

House of Representatives 

Subject: U.S. Securities and Exchange Commission: Building Project Management 

and Related Budget Planning 

Dear Mr. Wolf: 

You asked us to provide a briefing on the facilities management and budgeting issues 

of the U.S. Securities and Exchange Commission (SEC) that SEC disclosed to your 

subcommittee in May 2005, which resulted in SEC’s requesting a reprogramming of 

approximately $48 million of 2005 and 2006 funds. The reprogramming was 

requested to cover unbudgeted costs related to the construction of new facilities in 

Washington, D.C., and the improvement of new leased facilities in New York City and 

Boston. Specifically, our objectives were to provide information on (1) the amount of 

funding for these projects that was not planned; (2) the reasons for the change in 

budgeted amounts; (3) the related actions taken by SEC since this budgeting issue 

was uncovered; and (4) any corrective actions to prevent this issue from recurring. 

In order to meet these objectives, we interviewed SEC personnel and reviewed 

supporting documents. We conducted our work from July through August 2005 in 

accordance with U.S. generally accepted government auditing standards. We 

requested comments from the SEC Chairman or his designee. On August 30, 2005, we 

briefed the staff of your subcommittee on the preliminary results of our review. The 

briefing slides discussed at that meeting are included as enclosure I and written 

comments from SEC’s Chairman have been reprinted as enclosure II. 

Results in Brief 

In May 2005, the SEC disclosed to your subcommittee that it had identified 

unbudgeted costs of approximately $48 million attributable to misestimates and 

omissions of budget costs associated with the construction of its new facilities in 

Washington, D.C. and improvements in its new leased facilities New York City and 

Boston. SEC estimates that the impact on its 2005 and 2006 budgets for construction 

costs is $20.2 million and $28.5 million, respectively, for a total of $48.7 million. On 
Page 2 GAO-06-61R SEC Project Management 

June 7, 2005, SEC requested a reprogramming of 2005 funds among object classes to 

address construction-related needs associated with these offices. 

Our work identified the following as the primary causes of the misestimates and 

omissions of amounts in SEC’s budget submission: (1) ineffective management 

controls over budget formulation and review for these projects; (2) an inadequate 

administrative infrastructure; and (3) the nature of these facilities projects. 

SEC has taken several actions, as detailed in the enclosed briefing slides, to address 

its facilities project management and budget problems. In addition, we are 

recommending that the Chairman of the SEC direct the Executive Director to take 

the following additional actions: 

 establish accountability at both the staff and management levels for the 

reasonableness of budget estimates submitted during the budget formulation 

process; 

 establish regular reporting and review procedures related to the three 

construction projects, and any future projects, to ensure that management is 

promptly informed when changes or problems occur with estimates; 

 improve communication and consultation with operating units and staff regarding 

space and property needs; 

 evaluate options for budget and facilities management activities in terms of 

number of staff and expertise needed; and 

 complete hiring for new positions in the Office of Administrative Services and 

Office of Financial Management. 

In commenting on a draft of this report, the SEC Chairman agreed with the 

conclusions and recommendations in the draft report and included information on 

actions taken and planned in this area. The complete text of SEC’s response is 

included in enclosure II. 

We are sending copies of this report to the Ranking Minority Member of your 

subcommittee. We are also sending copies to the Senate Committee on 

Appropriations, Subcommittee on Commerce, Justice, and Science, and other 

interested congressional committees. 

This letter will also be available on GAO’s home page at http://www.gao.gov. 

If you have any questions, please contact me at (202) 512-9471 or by e-mail at 

franzelj@gao.gov. Key contributors to this letter were Cheryl Clark, 

Kimberley McGatlin, and Maxine Hattery. 

Sincerely yours, 

Jeanette M. Franzel 

Director 

Financial Management and Assurance 

Enclosures 
Enclosure I 

Page 3 GAO-06-61R SEC Project Management 

SEC Facilities Project Management and 

Related Budget Planning

Briefing for the staff of the Subcommittee on Science, the 

Departments of State, Justice, and Commerce, and 

Related Agencies, House Committee on Appropriations

August 30, 2005
Enclosure I 

Page 4 GAO-06-61R SEC Project Management 

2

Background

In May 2005, the Securities and Exchange Commission 

(SEC) informed Congress that it had identified unbudgeted 

costs of approximately $48 million related to construction of 

its two new building facilities in Washington, D.C. (Station 

Place One and Station Place Two), and improvements in its 

new leased offices in New York City and Boston. 

On June 7, 2005, SEC requested a reprogramming of funds 

among object classes to address construction-related needs 

associated with Station Place One and Two and certain 

costs associated with improvements in the new leased 

offices in Boston and New York City.
Enclosure I 

Page 5 GAO-06-61R SEC Project Management 

3

Objective, Scope, and Methodology

 Our objectives were to determine 

1. the amount of funding for these projects that was not 

initially planned; 

2. the reasons for the change in budgeted amounts; 

3. the related actions taken by SEC since this budgeting 

problem was uncovered; and 

4. any corrective actions to prevent this problem from 

recurring. 

 We obtained information to address these objectives 

primarily through interviews with SEC personnel, and 

through review of corroborating documents.
Enclosure I 

Page 6 GAO-06-61R SEC Project Management 

4

Condition

 Budget amounts

• did not include improvement costs for its newly leased office space in New York City for budget years 2005 and 

2006; and

• included unrealistically low costs for improvements in the new Boston office and construction costs for Station 

Place Two. 

 Estimates for Boston were based on a rule-of-thumb 

amount that had not been updated annually and was not adjusted for current labor and materials costs.

 Estimates for Station Place Two had not been 

updated in 18 months and therefore did not reflect 

increased costs for construction materials, security, 

and technology.
Enclosure I 

Page 7 GAO-06-61R SEC Project Management 

5

 SEC estimates that the impact on the 2005 and 2006 

budgets for construction and lease improvement costs is 

$20.2 million and $28.5 million, respectively, for a total of 

$48.7 million.
Enclosure I 

Page 8 GAO-06-61R SEC Project Management 

6

Budget: Construction and Lease Improvement Costs

Note: $5 million in New York City original 2005 operating budget is for 

the buyout of the previous New York lease.

Total $22.20 $42.40 ($20.20) $4 $32.50 ($28.50)

Boston 2.60 4.00 (1.40) 0 0 0.00 

New York City 5.00 17.00 (12.00) 0 16.00 (16.00)

Total Station Place $14.60 $21.40 ($6.80) $4 $16.50 ($12.50)

One and Two

Station Place Two 8.60 14.60 (6.00) 3 15.50 (12.50)

Station Place One $6.00 $6.80 ($0.80) $1 $1 $0 

2006 

difference

Updated 

2006 

budget 

(June 2005)

President’s 

Proposed 

FY 2006 

operating 

budget 

(as of 

February 

2005)

2005 

difference

Updated 

2005 budget

(June 2005)

FY 2005 

operating 

budget

( as of 

December 

2004)

(Dollars in millions)
Enclosure I 

Page 9 GAO-06-61R SEC Project Management 

7

Causes of Facilities and Budget Problems

 Ineffective management controls 

 Inadequate administrative infrastructure

 Nature of the facilities projects
Enclosure I 

Page 10 GAO-06-61R SEC Project Management 

8

Ineffective Management Controls

 Lack of oversight and quality assurance over project 

management and budget planning for these projects

 Lack of internal controls, including reporting and 

accountability mechanisms, over budget estimates

• Reliance on amounts in budget requests without proper 

review and analysis

• Project managers not held accountable for providing 

accurate and complete estimates
Enclosure I 

Page 11 GAO-06-61R SEC Project Management 

9

Ineffective Management Control (continued)

 Personnel problems and staff vacancies were not 

addressed timely.

 Inadequate consultation with key divisions and 

commissioners regarding space needs and 

accommodations resulted in change orders and additional 

costs.
Enclosure I 

Page 12 GAO-06-61R SEC Project Management 

10

Inadequate Administrative Infrastructure

 Insufficient institutional expertise and resources in facilities

project management

• Construction of building is not a typical SEC operating 

activity. 

 Leases and improved lease-held space were more 

typical for SEC.

 Concurrent lease expirations overtaxed facilities 

management staff.
Enclosure I 

Page 13 GAO-06-61R SEC Project Management 

11

Inadequate Administrative Infrastructure

(continued)

 Key management positions over the construction projects 

and related budget process were restructured and positions 

left vacant.

• Human Resources (HR) and Office of Administrative 

Services (OAS) had been one combined office but was 

split into two separate offices.

• The executive heading the combined office was 

reassigned to another position.

 As a result, there was a five month vacancy of an 

executive position in OAS during the budget 

formulation process.
Enclosure I 

Page 14 GAO-06-61R SEC Project Management 

12

Inadequate Administrative Infrastructure

(continued)

 OFM did not have sufficient staff to perform budget analysis, 

• placed too much reliance on OAS for budget estimates, 

and

• focused heavily on financial statement audit.

 Construction project managers were overwhelmed by

• heavy workload and insufficient SEC infrastructure for 

handling construction projects of this size.
Enclosure I 

Page 15 GAO-06-61R SEC Project Management 

13

Inadequate Administrative Infrastructure

(continued)

 Growth in financial, budget, and administrative demands of 

SEC overall was not met with commensurate changes in the 

administrative infrastructure.

• SEC grew from 2,936 staff in 2001 to 3,871 staff in 2005.

• SEC’s appropriations went from $413 million in 2001 to 

$888 million in 2005.

 During the period of rapid SEC growth, OAS and OHR 

staff decreased from 146 staff in 2001 to 143 staff in 

2005.
Enclosure I 

Page 16 GAO-06-61R SEC Project Management 

14

Nature of Facilities Projects

 For construction and lease improvements in general, building and

lease improvement costs are estimates until construction and 

improvements are complete.

• In our experience of reviewing construction projects, we have 

found that original estimates are necessarily based on 

incomplete information and need to be continually updated. 

 SEC’s 2005 and 2006 original budget figures did not include

- changes in building codes (Station Place One);

- environmental factors (New York);

- increase in construction and improvement materials (Boston 

and Station Place Two);

- additional security needs after 9/11/2001(Station Place One 

and Two);

- “lessons learned” from building Station Place One (Station 

Place Two); and

- aesthetics similar to Station Place One (Station Place Two).
Enclosure I 

Page 17 GAO-06-61R SEC Project Management 

15

Nature of Facilities Projects (continued)

 A high level of experience and expertise is needed to 

handle the complexity and unpredictability of construction 

and to produce reliable estimates based on the best 

information available at the time of the estimate
Enclosure I 

Page 18 GAO-06-61R SEC Project Management 

16

Actions Taken by SEC to Address Facilities 

Management and Budget Problems

 New head of OAS has budgeting and construction 

experience

 Improved communication between OFM and OAS regarding 

budget formulation

 Increased staffing of day-to-day management of 

construction projects

 Created several new budgeting and project oversight 

positions in OAS

 Instituted a budget analysis branch 
Enclosure I 

Page 19 GAO-06-61R SEC Project Management 

17

Actions Taken by SEC to Address Project 

Management and Budget Problems (continued)

 New automated budget system was approved and is in 

planning: SEC expects the new system to 

• free-up staff for analysis and

• detect abnormalities.

 Program areas have been asked to provide more support 

for their budget estimates and their estimates are to 

receive closer scrutiny by OFM.

 Three staff members previously involved in managing and 

overseeing the construction and lease improvement 

projects have been replaced.
Enclosure I 

Page 20 GAO-06-61R SEC Project Management 

18

Actions Taken by SEC to Address Project 

Management and Budget Problems (continued)

 Commitment from Chairman

• August 10, 2005, message to all SEC staff cited the 

budget issue as one of SEC’s top priorities.

 Cost estimates for all three projects have been updated 

based on recent information and included in SEC’s budget.

 Project management for the three projects has been 

restructured and is receiving increased SEC management 

oversight.
Enclosure I 

Page 21 GAO-06-61R SEC Project Management 

19

Additional Actions Needed

We recommend that the Chairman of SEC direct the 

Executive Director to:

 Establish accountability at both the staff and management 

levels for the reasonableness of budget estimates submitted 

during the budget formulation process.

 Establish regular reporting and review procedures related to 

the three construction and lease improvement projects, and 

any future projects, to ensure that management is promptly 

informed when changes or problems occur with estimates.
Enclosure I 

Page 22 GAO-06-61R SEC Project Management 

20

Additional Actions Needed (continued)

 Improve communication and consultation with operating 

units and staff regarding space and property needs.

 Evaluate options for budget and facilities management 

activities in terms of numbers of staff and expertise needed.

 Complete hiring of new positions in OAS and OFM.
Enclosure I 

Page 23 GAO-06-61R SEC Project Management 

21

Timeline of Events

(194559)

June Reprogramming: Final request letter sent to appropriations subcommittee

The SEC budget issue was reported in press 

Reprogramming: draft of request sent to appropriations subcommittee 

Conference call by MEO and ED with appropriations subcommittee staff

2005 & 2006 Budget Impact meeting: MEO, ED, and staff from OFM discuss the overall picture and proposals for addressing 

the shortfalls

May “How did this happen” meeting of Managing Executive Officer (MEO), Executive Director (ED), and staff from OAS and OFM

March New York: lease signed for 3 World Financial Center

Several meetings of directors and staff held to study the facilities budget problems

February-March Facilities budget problems surface in preparation for mid-year comparison of actual to budget costs, magnitude unknown

January Heads of OAS and Office of Human Resources hired to fill vacancy created by removal of OAPM head in August 2004

2005 – Calendar Year

Budget staff analyze Office of Administrative Services (OAS) 2005 rent numbers 

SEC FY 2005 appropriations enacted

December Budget: FY 2005 requests due back to Office of Financial Management (OFM)

November Budget: memo from SEC Executive Director begins 2005 operating budget cycle

August Head of Office of Administrative and Personnel Management (OAPM) removed from position

Midyear Budget: regular financial review

Summer/Fall New York: decision to leave Woolworth Building/negotiations begin on 3 World Financial Center

March Boston: new lease signed

2004 – Calendar Year
Enclosure II 

Page 24 GAO-06-61R SEC Project Management 

(194559) 
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