SEC Staffing and Workload Issues

In our previous reports on SEC, we found that SEC faced high staff  turnover, ongoing vacancies, and increasing resource needs. Congress Takes Action to Address SEC’s Human Capital and Budget Challenges

SEC’s staff issues and a series of corporate failures and accounting  scandals, including the bankruptcies of Enron in December 2001 and  WorldCom in July 2002, caught Congress’s attention and raised significant  concern about SEC’s ability to effectively carry out its mission. Budget Increases Have Funded New Staff Positions, but Many Remain Unfilled

SEC used much of its fiscal year 2003 increased appropriations to fund  over 842 new staff positions. Officials say that while certain laws have helped speed up the  hiring process, they are facing increased competition from the private  sector. Budgetary Resources Were Focused on New Staff Positions for Financial Disclosure, Enforcement, and Examination Activities

SEC used its increased appropriations between 2002 and 2004 in its  financial disclosure, enforcement, and examination areas primarily to fund  new positions. In the fiscal year 2004  appropriations act, this unobligated balance was appropriated to SEC for  use in 2004. SEC Continues to Allocate the Majority of Its Information Technology Budget to Hardware and Software Maintenance and Technology Infrastructure Needs

We reported in March 2002 that SEC’s IT systems and funding gaps were  contributing to inefficiencies at the agency. As a result, SEC’s 2003 IT budget was increased by over 100  percent, to $100.9 million. In 2004, SEC’s IT budget was increased again to  $120.5 million, or another 20 percent. OIG made a number of recommendations to address SEC’s IT investment  decision-making governance issues, including (1) the development of a  work plan for implementing the OIG’s recommendations; (2) formalizing  charters, roles, and responsibilities for the Chief Information Officer  (CIO), IOC, ITCPC, and other relevant IT governance bodies, including  delegating to the CIO sufficient authority to effectively administer, control,  implement, and enforce the IT capital planning responsibilities; (3)  revising the project funding process and associated investment thresholds  and criteria; (4) improving the strategic planning for IT investments, which  includes finalizing an IT specific strategic plan that establishes the  strategic direction for IT capital planning and tactical operations within  SEC and establishing a single agencywide IT control process and structure  for the entire IT budget to select, prioritize, and fund all IT investments to  be managed by IOC and ITCPC; (5) linking IT project planning with SEC’s  enterprise architecture; (6) improving the tracking of IT projects in  progress; and (7) supporting IOC and ITCPC with adequate staff. Observations

Since Congress increased SEC’s budget to improve the agency’s oversight  of financial markets in fiscal year 2003, SEC has made significant progress  in hiring staff and is continuing its efforts to fill the remaining vacancies. Although SEC’s staff  allocations appear to be consistent with Sarbanes-Oxley, these allocations  were made without the benefit of a strategic plan. SEC commented that while more work remains, our review  of SEC activities acknowledged the progress the agency has made within a  constrained time frame. Appendix II: Comments from the Securities and Exchange Commission
Why GAO Did This Study

This report responds to a statement in the Conference Report on the Securities and Exchange Commission's (SEC) fiscal year 2004 appropriations directing GAO to study SEC's allocation of its increased funding for fiscal years 2003 and 2004. Historically, SEC has faced high staff turnover rates, long stretches of unfilled staff positions, and growing resource needs. Additionally, the agency has faced significant needs in its information technology area. In response to these trends and several high-profile corporate failures and financial scandals, Congress approved significant increases in SEC's appropriations to help improve oversight and increase public confidence in financial markets. This report builds on several reports GAO has issued on these issues. GAO was asked to review SEC's (1) allocation of its fiscal year 2003 and 2004 funds and (2) use of its information technology funding in fiscal year 2003 and its plan for 2004.

What GAO Found

Congress addressed SEC's human capital and workload challenges with a significant increase to SEC's appropriations for fiscal year 2003. SEC used over half of that increase to fund over 800 new positions primarily within its financial disclosure, enforcement, and examination areas. Although these allocations appear consistent with legislative directions, they were made without the benefit of an updated agencywide strategic plan, which was not approved until July 9, 2004. Although SEC received more flexible pay and hiring authority, SEC continues to face challenges filling critical vacancies, such as accountants. Officials cite competition from the private sector as a major factor. SEC's information technology (IT) budget increased from $46.6 million in fiscal year 2002 to over $100 million in fiscal year 2003. It increased another 20 percent to $120 million in fiscal year 2004. SEC used most of these large increases for maintenance and infrastructure needs, compared with new technology initiatives. Also, SEC's Office of Inspector General (OIG) issued a report detailing its concerns, which we share, about the decision-making process for IT capital investments. OIG made several recommendations to improve this process, and SEC staff have begun to take actions to address some of them. SEC commented that our review of its activities acknowledged the progress the agency has made and provided additional information about its activities since March.