This document is an HTML formatted version of a printed document. The printed document may contain agency comments, charts, photographs, appendices, footnotes and page numbers which may not be reproduced in this electronic version. If you require a printed version of this document contact the United States Securities and Exchange Commission, Office of Inspector General, Mail Stop 11-7, 450 Fifth Street N.W., Washington, D.C. 20549 or call (202) 942-4460.
Survey of the Economic Analysis Program
Audit Report No. 251
February 7, 1997
Based on our interviews, management significantly improved the economic analysis program starting in July 1995. The improvements have continued under current management, and the Office of Economic Analysis (OEA) is now functioning effectively.
OEA's biggest challenge is to instill a culture as a service provider, while retaining its ability to provide independent advice to the Commission. It also needs to attract and retain highly qualified management and staff.
We have made some recommendations (see page 4) to help OEA continue enhancing its effectiveness. Generally, OEA concurred with our recommendations (see its attached comments). We have modified the report to reflect OEA’s comments, as well as informal comments from the Offices of the Executive Director, the General Counsel, and Administrative and Personnel Management, and the Division of Enforcement.
SCOPE AND OBJECTIVES
Our objectives were to gather information on the economic analysis program, and to identify possible risks and improvements to the program. During the survey, we interviewed Office of Economic Analysis and other Commission staff, and reviewed OEA work products and files.
We did not attempt to evaluate the quality, timeliness, and usefulness of OEA work, nor did we test management controls. The survey was performed between June and November 1996, in accordance with generally accepted government auditing standards.
The Office of Economic Analysis was created several years ago from the merger of the Chief Economist's Office and the Directorate of Economic and Policy Analysis (DEPA). A number of former DEPA staff subsequently left OEA.
Currently, the office has a staff of approximately 20, and is managed by a Director and Deputy Director (an Associate Director position was recently approved). Most of the staff are economists or in related fields. The Office also has three secretaries and one Administrative Officer. Four staff are college professors appointed to a one to two year term under the Intergovernmental Personnel Act (IPA) program.
The consensus from our interviews is that management significantly improved the economic analysis program starting in July 1995. The improvements have continued under the current management. Currently, OEA is effectively providing useful economic expertise to the Commission, according to our interviews.
OEA previously had a number of problems, according to the staff we interviewed. While the quality of its staff was good, they were for the most part not being used effectively, and their morale and work performance suffered. Communications (within OEA and with Commission divisions), project management, and management controls were cited as serious problems after the merger that created OEA.
Prior to July 1995, OEA conducted independent research that did not necessarily contribute to the Commission's mission, according to our interviews. It often opposed, sometimes at the last minute and without prior consultation, Commission initiatives. It did not really view itself as part of the Commission (for example, the dress and time and attendance of some staff were more typical of academia than the government). The Office's relationship with the rest of the Commission was frequently confrontational, rather than seeking to build a consensus.
Since July 1995, the Office developed priorities and a strategic direction in accordance with the Commission's mission. Management instituted numerous changes, which, according to our interviews, have improved management controls, staff morale and productivity, and relations with the divisions, particularly Market Regulation.
The changes include eliminating independent research not related to the Commission's mission; assigning work and managing the workload; instituting periodic meetings and status reports; improving communication with the divisions and with non-economists; preparing a reorganization plan and making staff assignments to increase accountability; and improving file maintenance and staff professionalism in dress and time and attendance.
A material risk facing OEA now is that turnover in senior management could return it to its prior condition. As one Division senior manager stated, OEA needs to institute a structure and a culture as a service provider. Also, the Commission needs to make selection of appropriate OEA management a high priority.
The staff we interviewed feel that OEA should provide economic expertise to the Commission. OEA staff, including any academics, should perform work related to the Commission's mission, and support its initiatives. Disagreements with program divisions should be worked out early, before they reach the Commission level. On the other hand, OEA should be able to provide its honest opinion, and to feel that its opinion is valued, respected, and understood.
As a small office, OEA's effectiveness is significantly determined by the quality of its management and staff. The Chairman, in recent selections of OEA management, has recognized the importance of management and people skills as well as economic expertise.
Another challenge faced by OEA is to attract and retain highly qualified staff. According to OEA management, financial economists, the specialty the Commission needs, receive substantially higher salaries in the private sector or in banking regulatory agencies (such as the Federal Reserve) than what the Commission offers. The salary issue affects both groups of OEA staff: career civil servants with strong skills in data analysis, statistics and computers, and academic PhDs with strong theoretical and intellectual skills.
The issue is especially acute now that OEA is receiving more work from Commission divisions and offices, and needs to hire additional staff. OEA would like to hire, and the Commission needs, highly qualified financial economists with securities industry expertise and good people skills. OEA is concerned that it will not be able to attract these economists at the current pay scale.
We have several recommendations to help OEA continue enhancing its effectiveness and accountability. Some are relatively significant, while others are minor. They are listed in rough order of significance below. OEA is already considering many of the recommendations.
As discussed above, OEA indicated that its effectiveness has been hurt by its difficulty in hiring and retaining well qualified staff, given the strong job market for financial economists. It is not able to offer the securities industry differential, even though its staff have expertise in the securities industry, because the Commission only received OPM approval for the attorney and accountant job series.
Grade classification is another issue. Because of personnel rules, OEA is not currently able to offer non-supervisory GS-14 and GS-15 grades, despite the complexity of its work and the current job market.
OEA should discuss with the Office of Administrative and Personnel Management how it can best hire and retain well qualified staff. For example, the Commission could request a securities industry salary differential for economists, and the grade classifications could be reevaluated.
Relations with the Chairman's Office
Due to the nature of its role, OEA does not have specific programmatic responsibilities for which it can be held directly accountable. In addition, OEA reports only to the Chairman on economic matters, although it normally works with the Divisions. To ensure its accountability, OEA needs to establish appropriate reporting mechanisms with the Chairman's Office.
OEA should discuss with the Chairman's Office ways to keep that office informed about OEA's work, future plans, and any problems it experiences.
An OEA mission statement would help define its own vision and its role in the Commission. As discussed above, OEA's role in the past was not well defined.
OEA should draft a mission statement. It should ask the divisions and Commissioners for comments before finalizing it.
Computer and Data Needs
OEA has distinctive computer needs beyond those of most offices and divisions. Its staff need to use sophisticated software programs which the Office of Information Technology (OIT) does not normally support. Also, OEA staff make use of large and varied data bases in their work.
Because of these distinctive needs, OIT's normal customer support structure consisting of a relatively low level OIT contact has not worked well. Instead, the Directors of OEA and OIT have had to communicate directly, which has worked, but is inefficient.
OEA should ask OIT for a higher level (for example, GS-14 or GS-15) contact. This contact should have the authority to make decisions, and have the expertise or training to understand OEA's distinctive needs.
Policies and Procedures Manual
OEA does not have a policies and procedures manual. A manual would act as a management control and be helpful to OEA staff, especially new employees.
OEA should prepare a policies and procedures manual.
oea Role in Rulemaking
As stated above, previously OEA would be brought in late in rulemaking issues and tend to be confrontational (e.g., by criticizing the divisions before the Commissioners without prior discussions). Coordination has improved now, but it would be helpful to formalize OEA's role in rulemaking. Statutory changes in the past year (amendments to the Regulatory Flexibility Act, the Paperwork Reduction Act, and the Small Business Regulatory Fairness Act) have increased the role of OEA in the rulemaking process.
OEA should consider working out with the divisions a general framework or statement of principles on its role in rulemaking. For example, the framework might state that OEA will be brought into a matter early; it will provide a draft to the divisions and review their comments before presenting its opinion to the Commission; OEA and the divisions will attempt to work out disagreements before going to the Commission; and OEA responses will be timely, subject to resource limitations.
OEA has recently issued a few contracts for economic technical assistance. It has indicated that it presently has more work than it can handle. Obtaining additional contractor assistance would be one way to leverage its staff resources.
At least one of OEA's contracts was a "pass-through," that is, OEA was not really involved with the contract (IM and MR were), but the funds came from its budget.
OEA should evaluate its contract needs, and consider asking for additional contract funds. Also, it should consider transferring funds to the appropriate division when it is not really involved in a project.
As a service provider, OEA needs information on how its customers view its work. Currently it is viewed positively, and OEA already receives informal feedback on its staff's work. OEA might, however, want to experiment with using a customer survey form or other mechanism for communication with its customers.
OEA should consider trying a customer survey to see whether useful information is obtained.
We spoke with a senior manager in one region who was complimentary about help OEA had provided. The manager suggested that OEA might want to inform the regions of its services, since they might not think to use OEA.
The manager pointed out that the regions should not be required to use OEA, as OEA would then be viewed as one more hoop to jump through to get something done. Rather, OEA should offer to help the regions when appropriate.
OEA should inform the regions of its services. For example, the OEA Director could visit the regions, give speeches at internal Commission conferences, or write a memorandum to regional staff explaining the economic analysis program. OEA should consult with the Director of Regional Operations in the Division of Enforcement on the best approach.
Management Information System
OEA does not have an automated management information system to track work assignments and provide information to managers. Now that its work is increasing, it should develop one, or ask the Office of Information Technology for assistance.
OEA should develop, in consultation with the Office of Information Technology, an automated management information system with appropriate controls.
Management Control Program
OEA has not had an active management control program under
the Federal Managers' Financial Integrity Act (FMFIA) and OMB Circular A-123. However, management controls have recently been improved, as discussed above.
In the past, the Office prepared a boilerplate FMFIA management control certification, using the prior year's letter, which did not list any weaknesses, even when management controls needed improvement. It did not undertake any evaluation, and the person designated by OEA as its Management Control Officer (MCO) was unaware of the designation and received no training.
OEA should implement an active management control program. It should consider making a manager with knowledge of program controls (for example, the Deputy or Associate Chief Economist) the Management Control Officer. The MCO should receive training in the management control program, and also on the Government Performance and Results Act. OEA should conduct an annual evaluation of controls, as required by FMFIA. It should consult with, and receive training from, the Office of the Executive Director as necessary.
OEA has three secretaries and one Administrative Officer. Given voice mail, personal computers and its small size, it has more clerical help than it really needs. Converting one or more of these staff to professional positions would enhance its productivity. However, government personnel rules do not readily permit this conversion.
Alternatively, OEA has a certain amount of work that is paraprofessional (research and computer related). Its secretaries possibly could do more of this work if appropriately trained. At least one of its secretaries seemed very interested in such training.
OEA should consider ways to improve use of its secretaries. It should coordinate with the Office of Administrative and Personnel Management so as to be consistent with the agency-wide Support Staff Study recommendations. Methods to improve their use could include training, additional work assignments, or creation of new positions that provide the skills needed in the Office.
In the last fiscal year, OEA had a $1000 training budget. It did not use even this small amount. Training for OEA staff in such topics as economics, computers, management, contracting, and government regulations seems appropriate.
In consultation with its staff and training staff in the Office of Administrative and Personnel Management, OEA should reassess its training program. It should decide what training is needed, and how much it will cost. It should consider requesting an increase in the size of its training budget, if needed.
DetailING STAFF TO DIVISIONS
Detailing an OEA economist to a division, or detailing division staff to OEA, might also help with the communication gap alluded to above. Recently, one OEA employee was detailed to Market Regulation to assist with a major project, apparently successfully.
OEA should explore with the divisions whether any details of OEA economists to a division, or division staff to OEA, would be mutually beneficial.
Support for Budgets
According to an OEA manager, OEA's workload numbers reported in the budget used to be unsupported and unrealistic, and included too many categories. The manager reduced the number of categories, and set up a file for economic reports issued by OEA. The current budget is based on the number of reports in this file.
We read through the file and talked to the OEA staff who maintained it. When developing workload numbers for the current budget, all items in the file (including e-mails and letters) were counted as issued reports, even though some related to office administration, not economics. OEA needs to further enhance its workload reporting process.
OEA should define in writing what constitutes an issued report for workload reporting. It should consider assigning an economist to make the count.
Time and Attendance Log
OEA staff sign a log sequentially when they arrive. The log is not signed sequentially when they depart, however, as required by Commission regulations.
OEA should tell its staff to log out sequentially. It should consult with the Comptroller's Office, if necessary.
An OEA manager indicated that performance elements have not been developed yet for one employee who has been with the Commission over five months.
OEA should ensure that performance elements have been developed for all employees, requesting assistance from the Office of Administrative and Personnel Management in developing or reviewing standards if needed.