SEC was created in 1934 to protect investors and maintain the integrity of the securities market. To accomplish its mission, the agency established four strategic goals: (1) to enforce compliance with federal securities laws, (2) to sustain an effective and flexible regulatory environment, (3) to encourage and promote informed investment decision making, and (4) to maximize the use of SEC’s resources. CFTC, established in 1974, performs a comparable role in the futures industry. Its primary mission is to protect market users and the public from fraud, manipulation, and abusive practices related to the sale of commodity futures and options and to foster open, competitive, and financially sound commodity futures and options markets. CFTC has set three strategic goals to support its mission: (1) to ensure the economic vitality of the commodity futures and option markets; (2) to protect market users and the public; and (3) to ensure market integrity in order to foster open, competitive, and financially sound markets. Both SEC and CFTC are independent agencies that have five-member presidentially-appointed commissions that are led by chairmen who are designated by the President. SEC and CFTC’s headquarters are located in Washington, D.C.; SEC has a combination of 11 regional and district offices; CFTC has 5 regional offices. In keeping with its mission, each agency has a regulatory responsibility to protect investors by ensuring the integrity of the securities and commodity futures markets. Once SEC or CFTC staff conducts an investigation and determines that a person or company has violated the law and should be charged, the agency authorizes a civil suit against the alleged violator in federal district court or a proceeding before an administrative law judge. On finding that a defendant has violated securities or futures laws, the court or the administrative law judge can issue a judgment ordering sanctions such as CMPs, disgorgement, and/or restitution. However, the agencies may decide not to seek disgorgement or restitution because it is found to be unwarranted—for example, if a violator did not make a profit from the illegal activity. Table 1 provides more information on some of the remedies available to a federal district court or an administrative law judge. SEC and CFTC both have collection programs and designated staff to track, collect, and manage CMPs and disgorgement or restitution orders. Specifically, as shown in figure 1, staff in SEC’s Division of Enforcement (Enforcement) use the Case Activity Tracking System (CATS) to track investigations, enforcement actions, and matters under inquiry (issues that have the potential to turn into investigations). When a case has been delinquent for at least 10 days, SEC and CFTC staff can send a demand letter to a violator. The Debt Collection Improvement Act of 1996 (DCIA) requires all federal agencies, including SEC and CFTC, to refer non-tax debt more than 180 days delinquent to the Secretary of the Treasury for purposes of centralized administrative offset. Once such a referral is received, Treasury’s FMS activates the Treasury Offset Program (TOP), under which outstanding debts, including amounts due to SEC or CFTC as a result of judgments or settlement agreements, are collected by the withholding of federal payments that the government owes the debtor, such as tax refunds. During its collection efforts, FMS may negotiate compromise offers with debtors unable to pay the entire amount of a judgment and may accept less than the full amount if doing so is the only way to ensure that the violator pays at least some of the debt owed. SEC and CFTC must approve such offers for violators under their purview and may reject an offer or ask for further information if the supporting documentation is not satisfactory. In general, when a disgorgement fund is established, SEC attorneys can propose appointing a receiver to develop and administer a distribution plan to facilitate the collection of disgorgement and, in the case of Fair Funds, both CMPs and disgorgement, and the distribution of those funds to harmed investors. Receivers act independently of SEC and defendants in conducting their prescribed duties. They have primary responsibility for establishing the distribution plan, including a description of the actions that will be taken to identify harmed investors, and for ensuring that the appropriate taxes are deducted from the monies collected. Before Congress passed SOX, SEC could return only funds collected from disgorgement to persons who had suffered financial harm from securities violations. However, Section 308 (a) of the act allows SEC to add CMPs to disgorgement funds. Section 308 (c) of the act also requires SEC to report on the approaches the agency used, before the Fair Fund provision, to (1) provide compensation to harmed investors and (2) to improve the collection rates for CMPs and disgorgement, in order to establish a benchmark for further action. Our previous reports contained two recommendations that remained open related to SEC’s tracking of collection data. First, in 2002, we recommended that SEC develop appropriate procedures to ensure the accuracy and timeliness of information maintained in the Disgorgement Payment Tracking System (DPTS), which was the tracking system SEC used at the time to monitor disgorgement that had been ordered, waived, or collected. Second, in 2003, we recommended that SEC take the steps necessary to implement an action plan to replace DPTS with a new and improved collection tracking system. SEC has made progress in addressing these two recommendations by discontinuing its use of DPTS, modifying CATS to capture financial information, and establishing an improved procedure for entering data into CATS. Nevertheless, our fiscal year 2004 audit of SEC’s financial statements disclosed inadequate internal controls over its reporting of penalty and disgorgement transactions. SEC plans to address this finding by strengthening its policies and its internal controls over existing processes. In addition, we found, and SEC agreed that opportunities exist to improve CATS’s usefulness. The agency is in the process of upgrading CATS to address the needs of a broader range of users, but the project is in its early stages. Agency staff estimate that it will not be fully complete until 2008. In 2002, we reported that weaknesses in SEC’s procedures for entering and updating data in DPTS resulted in the system containing unreliable data. Our 2002 review of a sample of 57 enforcement cases found that 18 cases, or approximately 32 percent, contained at least one error in the amount of disgorgement ordered, waived, or collected, or in the status of the case or of the individual violators. We found that the sources used as a basis for entering data into DPTS did not always provide the most accurate information. For example, we reported that staff in SEC’s Office of the Secretary, who were responsible for entering data into DPTS, relied heavily on SEC litigation releases that, according to the staff, did not contain all the details of a disgorgement order. The staff also said that they did not independently verify the information in the litigation releases. In January 2003, an independent accountant confirmed that information in DPTS was not current and complete and reported that the system could not be relied upon for financial accounting and reporting purposes. As of October 2003, SEC discontinued its use of DPTS. SEC began using CATS to capture the financial information that DTPS had tracked. This change was part of larger modifications to CATS made in response to a legislative requirement that SEC prepare audited financial statements for submission to Congress and the Office of Management and Budget (OMB). SEC modified CATS by adding fields to capture the necessary financial data—such as the amount of CMPs and disgorgement ordered, collected, and distributed—and established a policy of entering data on the amount of disgorgement and CMPs only if valid supporting documentation was available. SEC staff said they began collecting original source documents—copies of signed and stamped final judgments, administrative orders, and court dockets—from SEC’s headquarters, regional, and district offices. SEC staff also told us that they entered financial data only for those cases with an open enforcement action as of October 1, 2002, the beginning of fiscal year 2003. As of February 2005, SEC staff said that they had entered data on almost all of the approximately 4,500 enforcement cases, which involved over 12,000 defendants and respondents that met SEC’s criterion. We reviewed a sample of 45 cases tracked in CATS and determined that SEC had complied with its policy for improving data entry, which is consistent with our previous recommendation. Specifically, we found supporting source documents for each of the 45 case files we reviewed and were able to compare information from the source documents with the data in CATS (as reflected in a March 2005 printout). However, our comparison identified one $300,000 discrepancy on the amount of disgorgement ordered and entered in CATS. Although SEC has made progress in improving the reliability of CATS collection data, in May 2005, we reported that SEC had inadequate controls over its penalty and disgorgement activities, which increased the risk that such activities would not be completely, accurately, and properly recorded and reported for management’s use in decision making. In response to our findings, SEC stated that the agency plans to strengthen internal controls and policies over its existing recording and reporting process and has begun a multiyear project to upgrade CATS. During this review, we found—and SEC agrees—that opportunities exist to further improve CATS’s usefulness for key system users, including attorneys, case management specialists, and collection monitors in Enforcement. Specifically, we found that CATS does not allow the attorneys in Enforcement to perform customized searches or generate tailored reports on the status of their cases. According to SEC staff, certain search and reporting capabilities are available to a handful of management level staff in the division but not to attorneys, who constitute the bulk of the division’s workforce.