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. 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. SEC plans to  address this finding by strengthening its policies and its internal controls  over existing processes. Agency staff estimate that it will  not be fully complete until 2008. 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. Opportunities Exist to Improve CATS’s Usefulness

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. SEC Has Made Progress in Managing Its Collection Program but Needs to Take Further Steps

SEC has taken actions consistent with five of eight open recommendations  from our previous studies (table 2). Moreover, we identified three new concerns related to SEC’s  management of collection staff, including (1) the lack of a formal process  for assessing the impact of collection staff efforts, (2) the need for  additional routine training and guidance to ensure the effectiveness of  collection staff’s efforts, and (3) the need for more formal communication  and coordination protocols between the two units that track and maintain  CATS data in order to improve the efficiency of collection activities. SEC Management Has Not Completed Actions to Evaluate the Performance of Its Collection Program

We found that SEC had made some progress in addressing our remaining  three open recommendations related to (1) establishing performance  measures to better track the effectiveness of SEC’s collection efforts; (2)  tracking, on an aggregate and individual basis, both receivers’ fees and the  amounts distributed to harmed investors to ensure that investor recovery is  maximized; and (3) implementing collection guidelines and developing  controls to ensure that staff follow the guidelines. First, SEC does not have a formal mechanism to assess whether  the increased collection resources are being used effectively. SEC has issued guidance to its staff on interpreting and applying the  provision—for example, explaining that ordering a disgorgement for as  little as $1 can qualify a case as a Fair Fund case and make CMPs eligible  for distribution. SEC Has Successfully Used Fair Funds, but Distribution Has Been Slow

According to agency documents, SEC staff have successfully applied the  Fair Fund provision in at least 75 cases since 2002 and, as a result of these  efforts, more than $4.8 billion in disgorgement and CMPs were designated  for return to harmed investors as of April 2005. In its comments, SEC acknowledged that the  Division of Enforcement’s efforts in data tracking and management  practices are still in their early stages, but said that the agency is working  diligently to strengthen its collection program. Specifically, SEC is in the process of (1) developing reports and training  programs that will allow for consistent monitoring of the collection  program nationwide, (2) developing a system by which OFM can notify  Enforcement about data entered into SEC’s case tracking system, (3)  determining the effectiveness of new collection processes and staff, (4)  revising current performance measures to more effectively determine  program performance, (5) collecting information on the amount of  penalties and disgorgement distributed to investors and paid to receivers,  and (6) developing systems to collect data on Fair Fund cases. Specifically, to evaluate the effectiveness of SEC’s  procedures for referring delinquent cases to the Department of the  Treasury’s (Treasury) Financial Management Service (FMS) both before  and after the collection guidelines were established, we interviewed SEC  staff to discuss the activities they took recently to refer delinquent cases to  FMS. To evaluate SEC’s implementation of the Fair Fund provision, we reviewed  Section 308 (a–c) of the act and performed a legislative search and legal  analyses. To describe the actions CFTC has taken to address previous  recommendations, we interviewed relevant CFTC staff, reviewed collection  documents they provided and relied on CFTC’s Office of Inspector  General’s (OIG) work. Like the Securities and Exchange Commission (SEC), CFTC also imposed  significantly larger amounts of CMPs from September 2002 through  December 2004 compared with previous years.
Why GAO Did This Study

The Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC) impose penalties, disgorgements, and restitution on proven and alleged violators of the securities and futures laws, respectively. GAO has issued a number of previous reports on agency collection efforts and made numerous recommendations for improvement. This report follows up on open issues from the previous reports and (1) discusses SEC's progress in improving its tracking of penalty and disgorgement collection data, (2) assesses the steps SEC has taken to improve collection program management, (3) evaluates SEC's implementation of the Fair Fund provision in the Sarbanes-Oxley Act of 2002, and (4) describes CFTC's actions to address previous GAO recommendations.

What GAO Found

In response to GAO's previous recommendations, SEC has taken positive steps to improve its tracking of collection data, such as discontinuing its use of an unreliable tracking system, modifying its existing Case Activity Tracking System (CATS) to capture financial data, and establishing a policy for improved data entry. GAO's review of 45 cases tracked in CATS revealed that SEC complied with its policy for improved data entry, a step that contributes to improving the overall reliability of SEC's collection data. However, GAO identified additional actions that SEC can take to enhance CATS's usefulness for key users, such as attorneys, collection monitors, and case management specialists in the Division of Enforcement. SEC is currently addressing this issue through a multiyear effort to comprehensively upgrade CATS. Agency officials estimate that the upgrade, which will be completed in phases, will be fully complete in 2008. SEC has also addressed some previous recommendations made to strengthen management of its collection program, such as increasing its collection staff and referring eligible delinquent cases to the Department of the Treasury's (Treasury) Financial Management Service (FMS) on a timely basis. However, SEC must take further steps to address other recommendations designed to enhance management's evaluation of program performance. During this review, GAO identified new issues that warrant SEC management attention. For example, although SEC has increased the number of staff devoted to collection efforts, the agency has neither developed a method to ensure that adequate and consistent supervision is provided to them, nor has it formally assessed whether its additional resources are being used effectively. SEC also has not developed a procedure by which to ensure that two key units, both responsible for tracking collection activity, are effectively communicating and coordinating with one another. Since implementing Section 308(a) of the Sarbanes-Oxley Act of 2002, (commonly known as the Fair Fund provision), SEC has instructed its staff to aggressively use the provision and estimates designating over $4.8 billion for return to harmed investors as a result of the provision's enactment. However, to date, only a small amount of the funds have been distributed. According to SEC, distribution is often a lengthy process that can be further complicated by external factors such as a pending criminal indictment on the violator. GAO also found that SEC lacked a reliable method by which to identify and collect data on Fair Fund cases. SEC took action to address this issue, but efforts were still in their early stages. SEC has yet to analyze the data it has collected in order to fully determine the provision's effectiveness in returning an increased fund amount to harmed investors. CFTC implemented both recommendations from previous GAO reports related to controls over fingerprinting procedures and timely referral of eligible delinquent cases to Treasury's FMS.