	SEC Plans to Spend Most of Its Budgetary Increase on Staffing and Information Technology

In March 2002, we reported that SEC’s workload and staffing imbalances  had challenged SEC’s ability to protect investors and maintain the integrity  of securities markets. We also reported  that SEC tended to develop its annual budget request based on the  previous year’s appropriation rather than on what it would actually need  to fulfill its mission. A Significant Portion of SEC’s Budget Increase Has Been Allocated to New Staff Positions

SEC’s planned allocations appear to be consistent with the Sarbanes-Oxley  Act, which mandated that the $776 million authorization be used to:  fund pay parity, allowing SEC to set salaries for certain staff positions  at levels comparable to those at other federal financial regulators;  fund information technology, security enhancements, and recovery and  mitigation activities in light of the terrorist attacks of September 11,  2001; and  fund no fewer than 200 additional professional staff to increase  oversight of auditors and audit services in order to improve SEC’s  investigative and disciplinary efforts as well as additional professional  support staff necessary to strengthen existing program areas. For example, between 2002 and 2004, the full  disclosure program is slated to receive the largest percentage increase in  positions  39 percent. This  new legislation is designed to enable SEC to expedite the hiring of  accountants, economists, and examiners so that the agency can more  quickly fill the 842 positions created. SEC’s lack of a current  strategic plan may also affect other aspects of SEC’s operations as  strategic plans are the starting point for each agency’s performance  measurement efforts and should provide the basis for strategic human  capital planning. As stated in SEC’s 2000 plan, “Our strategic plan is a  living document, one that must be continually reexamined and modified to  assure it remains responsive and relevant in an ever-changing  environment.” In addition to the changing external environment, a number  of internal processes and organizational efforts within SEC hinge on SEC  completing a new strategic plan, including developing more outcome- oriented performance measures to gauge the effectiveness of its regulatory  operations in fulfilling its statutory mission and formalizing its strategic  human capital plan. An Agencywide Strategic Plan is Vital to a Strategic Human Capital Plan

We are also reviewing the status of SEC’s strategic human capital  planning. We also identified a number of nonpay issues that  threatened to impair SEC’s ability to carry out its mission and thus  warranted SEC management’s attention. However,  we have found that SEC has not yet developed a formal strategic human  capital plan that articulates how it intends to align its human capital  approaches with its organizational goals. Although SEC has begun to take  a number of important steps aimed at addressing its operational and  human capital challenges, additional work is needed to ensure that it has  appropriately positioned itself to operate more efficiently and effectively  in the 21st century.
Why GAO Did This Study

In February 2003, the Securities and Exchange Commission (SEC) received the largest budget increase in the history of the agency. The increased funding was designed to better position SEC to address serious issues identified in the Sarbanes-Oxley Act and to better enable SEC to address numerous operational and human capital management challenges discussed in the GAO report entitled SEC Operations: Increased Workload Creates Challenges (GAO-02-302). To help ensure that SEC spends its budgetary resources in an efficient and effective manner, GAO was asked to review the SEC's efforts to address the issues raised in the 2002 report and to report on how SEC intends to utilize its new budgetary resources. GAO's final report on these matters is expected to be completed this Fall. This testimony provides requested information on the status of SEC's current spending plan and preliminary observations on SEC's strategic and human capital planning efforts.

What GAO Found

In GAO's 2002 operations report, GAO identified a number of operational challenges facing SEC stemming from an increasing workload (e.g., filings, applications, and examinations) and staffing imbalances that threatened to impair SEC's ability to fulfill its mission. SEC's workload had grown at a much higher rate than its staffing since the mid- 1990s. In response to congressional concerns involving a number of highprofile corporate failures and accounting scandals, SEC's funding was increased 45 percent in 2003. SEC plans to spend most of its 2003 and 2004 budget increases to fund 842 new staff positions and double its information technology budget. However, given the late appropriation and hiring challenges, SEC has to date filled few of these positions, and it is unlikely that SEC will be able to utilize all of its 2003 funds. GAO also found that SEC recognizes the need to develop a new strategic plan and that such a plan is a vital component of its staff allocation and human capital planning processes. A new strategic plan is also vital to SEC's ability to develop performance-oriented, outcome-based performance measures. GAO found that while SEC has not updated its strategic plan, it has begun efforts to overhaul its performance measures to make them more outcome-oriented. This effort seems premature given its lack of a new strategic plan. Moreover, while GAO found that SEC has completed certain aspects of a strategic human capital plan, including development of a new pay structure comparable to other federal financial regulators, greater flexibility to expedite the hiring of certain critically needed professions, plans for more training, and implementation of agencywide-worklife programs, the lack of a new strategic plan inhibits SEC's ability to develop a formal human capital plan.