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.
INTERNATIONAL TECHNICAL ASSISTANCE
AUDIT NO. 284
October 27, 1998
The Securities and Exchange Commission's Office of Inspector General (OIG) conducted an audit of the Commission's process for providing technical assistance (TA) to foreign securities regulators. Overall, we found that the process was operating efficiently and effectively. Additionally, foreign officials generally complimented the Commission's timeliness and professionalism in providing assistance.
We identified enhancements that could improve the efficiency and effectiveness of the TA process. Specifically, we are making recommendations to the Office of International Affairs (OIA) regarding their organizational structure and use of resources, foreign regulator suggestions, recording and tracking requests, fulfilling requests, and evaluation forms and surveys.
As the world's model for securities regulation, the United States provides TA to foreign countries. OIA coordinates Commission TA and active enforcement cases, and conducts other international outreach. However, enforcement coordination requests take priority over other international activities. Providing TA is important to the Commission because it develops (and helps foster) critical relationships overseas and improves the quality of regulation in foreign markets. Any Commission division or office may be involved in actually providing TA.
Technical assistance provided includes two annual International Institutes (i.e., conferences), each covering distinct subject matter. The Spring program covers market development and regulation for emerging markets, while the Fall program covers enforcement issues in more advanced markets. Other TA provided includes satisfying requests for training sessions, meetings, and copies of laws and other materials.
Technical assistance requests are received orally or in writing and are screened based on the nature and timing of the request and the potential demands on Commission resources. Each request is assigned to an OIA staff member. Where necessary, input from other Commission offices and divisions are obtained. Simple document requests are fulfilled by OIA staff, while requests involving detailed legal or research issues frequently are referred to other Commission divisions and offices. However, OIA coordinates all TA responses. Significant requests are logged into an ACCESS tracking system and relevant documentation is maintained.
A substantial portion of TA is funded through three reimbursable agreements with the United States Agency for International Development (USAID), which allow countries with USAID missions to draw upon Commission expertise. These agreements include: 1) New Independent States (NIS)/Central Eastern Europe (CEE); 2) Egypt; and 3) a global agreement, signed in 1997, for all regions. OIA submits quarterly reports to USAID detailing reimbursable expenses incurred under each agreement. Under the agreements the Commission provided $1,331,961 of international TA from April 1997 through March 1998. Of this amount, $463,602 (or 35%) and $300,144 (or 23%) was provided to Russia and Egypt, respectively.
Office of International Affairs staff advised that the number of TA requests to the Commission is increasing. OIA fulfilled 160 written requests for TA in fiscal year 1997. Tracking verbal requests varies depending on significance and amount of work involved. Referrals to domestic organizations (e.g., NASD) are not tracked.
The Commission caters to a TA demand which outweighs available resources. Additionally, there are several difficulties in providing international TA. First, there is an absence of comprehensive securities regulations in most foreign countries. For example, regulation in the German and Great Britain markets only became prevalent in the 1990's. Second, foreign diplomacy is a key element in the process. Finally, many foreign countries' cultures, as well as founding principles (e.g., democracy) are much different than those in the United States.
SCOPE AND OBJECTIVES
We reviewed the Commission's process for providing TA to foreign securities regulators. We did not review the adequacy of specific Commission reimbursable agreements with USAID, nor did we review the propriety of specific TA expenditures under such agreements. Additionally, we did not review OIA's enforcement coordination function or other international outreach.
The primary audit objective was to determine the efficiency and effectiveness of the Commission's process for providing TA. The audit was performed from June through August 1998 in accordance with generally accepted government auditing standards.
We reviewed a random sample of 20 TA requests and 10 TA files from fiscal year 1997 to 1) verify compliance with OIA policies and procedures and 2) assess controls over recording, tracking, and fulfilling TA requests. In addition, we performed the following:
- Reconciled TA expenditures under the NIS/CEE agreement from January through March 1998 with Office of the Comptroller reports and verified reimbursement.
- Sent a survey to 11 foreign regulators, for which the Commission provided more than $10,000 of TA from April 1997 through March 1998, to assess customer satisfaction and identify potential improvements.
- Observed selected sessions of the July 6-10, 1998, Disclosure Training Program (an annual TA event put on by the Division of Corporation Finance, in coordination with OIA) and reviewed participant evaluation forms.
We also examined documentation including internal policies and procedures, quarterly reports sent to USAID, OIA performance plans, OMB Circular A-130, and automated listings of TA requests. Finally, we interviewed selected Commission, USAID, and foreign officials to evaluate the TA process.
Overall, we found that the Commission's process for providing TA to foreign securities regulators was operating efficiently and effectively. Additionally, foreign officials generally complimented the timeliness and professionalism of the Commission in providing TA.
We identified enhancements that could improve the efficiency and effectiveness of the process. Specifically, we are making recommendations to OIA regarding their organizational structure and use of resources, foreign regulator suggestions, recording and tracking requests, fulfilling requests, and evaluation forms and surveys.
ORGANIZATIONAL STRUCTURE OF OIA and USE OF RESOURCES
Office of International Affairs management has developed a flat organizational structure where staff report to different supervisors on different matters, such as TA and enforcement coordination. Such a structure increases the opportunity for staff to learn from multiple supervisors and also expands the knowledge base of staff. However, any appropriate OIA staff person (i.e., Assistant Director, Staff Attorney, Program Analyst, or Legal Assistant) could respond to a request, depending on its nature and complexity. Additionally, no OIA staff member works exclusively on TA requests.
Division of Enforcement officials complimented OIA's efficiency and effectiveness in coordinating TA. The only concerns raised related to turnover of OIA staff and the high volume of requests that OIA receives, which may cause occasional delays. Given the Commission's growing international presence, increasing specialization could improve TA coordination. Such specialization could be limited or extensive as deemed appropriate. For example, certain staff could specialize in certain countries or global regions. Additionally, a more hierarchical structure (e.g., certain staff report to a certain Assistant Director) or a team approach could be considered.
The OIA's small size does not lend itself to a regularly scheduled large scale training program, such as the Division of Enforcement's annual training. However, OIA officials stated that an internal training program is held when there are a number of new staff. The next program, scheduled for October/November 1998, will emphasize enforcement matters. The program will consist of 1-2 hour sessions over a 10-week period. Attorneys, Legal Assistants, and Program Analysts will be encouraged to attend.
Office of International Affairs officials agreed that a staff training program is key to ensure efficient and effective TA. Although OIA has identified certain training topics, other critical components should be considered. For example, OIA should consider requiring attorneys to attend certain training sessions of other Commission divisions (e.g., Enforcement, Market Regulation, etc.). Additionally, ACCESS training (e.g., conducting data searches, sorts, etc.) should be provided. OIA should also consider possible rotation assignments to Commission divisions for selected staff.
The OIA expends significant effort in planning and coordinating recurring training events, such as the International Institutes. Legal Assistants and Program Analysts perform much of the legwork for such events. However, an attorney oversees their efforts and may become involved at times in coordinating the logistics (e.g., facilities, trash removal, equipment set-up, computers, etc.).
While recognizing that a legal component is critical in planning TA events, it may be more practical to have non-legal staff perform logistical and administrative tasks. For example, OIA should contact OAPM to explore the feasibility of developing an administrative position that could enable them to effectively coordinate events with other Commission divisions and offices.
The Office of International Affairs should consider increasing staff specialization.
The Office of International Affairs should further develop its training program for staff.
The Office of International Affairs should have a non-attorney coordinate the logistical and administrative aspects of recurring training events, and in coordination with OAPM, consider establishing an administrative position for this work.
FOREIGN REGULATOR SUGGESTIONS
We sent a survey to 11 foreign regulators and received 10 responses. Generally, responses complimented the Commission for TA services provided. Specifically, foreign officials commended the expertise and professionalism of Commission staff and felt that training programs were both informative and timely. On a scale 1 to 5, where 1 was "excellent", 2 was "very good", and 5 was "poor", foreign officials rated their overall satisfaction with Commission TA as 1.33.
Survey suggestions received included the desire to have: 1) an annual schedule of training events; 2) additional opportunities to get familiar with Commission practices; and 3) future TA rendered on a regular basis, rather than exclusively on an ad hoc basis. OIA officials felt that some suggestions had merit, but noted that TA demand is much greater than the Commission's ability to respond. Accordingly, the Commission has invested significant resources into programs that efficiently reach many regulators at one time (e.g., International Institutes), in lieu of satisfying numerous individual requests.
We observed selected sessions of the July 6-10, 1998, Disclosure Training Program and reviewed participant evaluation forms. This program, presented by OIA and Division of Corporation Finance officials, is a recurring TA event. We found the program informative and well received by participants.
Key participant suggestions were: 1) coordinate presentations, so that material is not repeated; 2) distribute presentation outlines; and 3) present additional practice exercises. OIA officials felt that the suggestions were useful and could be implemented through discussions with Corporation Finance officials.
The Office of International Affairs should consider suggestions from the OIG survey and the Disclosure Training Program participants and implement those deemed appropriate.
RECORDING AND TRACKING REQUESTS
The process for recording and tracking TA requests is very decentralized. A Word listing is maintained to obtain a sequential number for each request. Requests are logged into the Word system, taking the next sequential number (i.e., stat number), by entering case name, date received, and staff assigned. A standard tracking form ("stat sheet") is also prepared with information, such as the case name, staff assigned, date received, request category, and description. Identical information is then entered into an ACCESS database system, which serves as the "master log" for TA requests. Any OIA staff may prepare a stat sheet and record a request in either or both systems.
We randomly selected 20 stats from the fiscal year 1997 ACCESS listing and traced each to supporting documentation in the stat files.
- Of the 20 items, we found adequate supporting documentation for 15. However, one item was recorded in the system under two stat numbers. OIA staff advised that the individual entering the item must have realized that the stat number had already been used and as a result, selected another stat number. The original stat number entered remained in the ACCESS system as a duplicate entry.
- A stat sheet was the only documentation found for each of the remaining five. Three of these TA requests related to meetings and two related to correspondence sent. Additionally, of these five stat sheets, three had no request category checked and four contained no description.
Conversely, we also randomly selected ten fiscal year 1997 stat files and traced each to the fiscal year 1997 ACCESS listing.
- Of the ten, one item could not be found on the ACCESS listing. OIA staff advised that this stat had either been mistakenly deleted or possibly not entered.
- Of the remaining nine: seven had no response date on the listing; two had no receipt date; and two had an incorrect receipt date.
Certain actions cause data discrepancies between the Word and ACCESS systems. For example, OIA officials mentioned problems with staff logging a request into the Word system and taking a number already used. Consequently, when the data is entered into the ACCESS system (which will not allow duplicative entries), a new number must be created. Additionally, sometimes staff log out of the Word system without saving the file. Finally, staff have sometimes delayed entering a request into the Word system, but have made the respective entry into the ACCESS system.
Office of International Affairs management stated that the Word system serves an assignment function, while the ACCESS system creates a record of how a particular request was handled. Furthermore, the ACCESS system is more complex for OIA staff to use. However, we found that a simple sort in the ACCESS system can quickly identify the last sequential number used. Additionally, a simple sort would not require entering descriptive information. Finally, OMB Circular No. A-130, "Management of Federal Information Resources," as revised in February 1996, advises agencies to ensure that information systems are not duplicative.
A more streamlined process for recording and tracking TA requests would reduce potential system errors and improve file documentation. For example, OIA could have selected staff perform certain functions in the process. Additionally, OIA should consider implementing read-only access for certain staff using the ACCESS system.
The OIA needs to document and improve existing policies and procedures for recording and tracking TA requests. These are necessary to document processes for staff. Such procedures should specify what information to enter into the ACCESS system, file documentation to maintain, and which staff are responsible for certain functions.
The Office of International Affairs should correct inaccuracies found in the ACCESS system and file documentation during our review.
The Office of International Affairs should institute periodic spot checks of ACCESS system entries and file documentation to verify data entry timeliness and accuracy.
The Office of International Affairs should consider eliminating the Word log once all staff receive ACCESS training.
The Office of International Affairs should streamline the process for recording and tracking TA requests (e.g., implement read-only access for selected staff using the ACCESS system).
The Office of International Affairs should document and improve existing policies and procedures for recording and tracking TA requests and issue them to all staff.
The Foreign Visitors Program (FVP) is headed up by a Public Affairs Specialist in the Office of Public Affairs (OPA). The FVP introduces individuals and groups (mainly international) to Commission programs and functions through meetings and tours. There were 816 foreign (and about 20 domestic) Commission visitors in fiscal year 1997. The FVP is also a source of TA requests, which are routed through OIA with a recommendation as to what division or office get involved.
Some OIA officials stated that having the FVP in OIA may be beneficial since it is largely an international function, while others felt that the current structure worked fine. It would seem that having the FVP located in OIA may speed up request fulfillment and help centralize the TA process. The OPA Director is willing to consider such a transfer. Accordingly, OIA and OPA should 1) evaluate the costs and benefits of such a proposal and 2) if warranted, determine whether staff resources should also be transferred.
Office of International Affairs officials stated that developing sites on the Commission's Intranet and Internet homepage for international issues was in the planning stage. Such sites would be an effective information source for interested parties. OIA management cited examples where foreign regulators had attempted to locate desired information on the Commission's web-site unsuccessfully, prior to submitting a TA request.
A site on the Intranet for international issues could include OIA functions and staff, international travel procedures, as well as text of memoranda of understanding. More importantly, a site on the Internet could satisfy simple document requests (e.g., securities laws, forms, etc.), and provide guidance on submitting TA requests. Additionally, such a site could include information on training events and the FVP.
The OIA needs to decide implementation issues, such as capabilities, what information to include, and associated costs of developing sites. Although OIA lacks computer expertise, it is one of several Commission offices recently granted a shared computer specialist position. Additionally, OIA staff can coordinate with Office of Information Technology (OIT) officials and consult with the Office of the Executive Director (OED) or USAID to obtain contract funds to hire a consultant.
The OIA approves certain expenses under the USAID agreements, such as those less than $500 and covered under a blanket purchase agreement. An OIA staff member charges items, such as books costing $20 to $200, on a personal credit card and later gets reimbursed. Using a government credit card would be more appropriate and convenient for these and other small purchases (e.g., office supplies).
Office of International Affairs officials have discussed a government credit card with officials from OED and the Office of Administrative and Personnel Management (OAPM). However, nothing definite has been set in motion. OIA staff needs to work with OED and OAPM officials to decide spending limitations, applicable approvals, and prepare necessary documentation.
The Office of International Affairs, in coordination with OPA and OED, should consider transferring the FVP to OIA.
The Office of International Affairs, in consultation with OIT and OED, should develop and implement sites for international issues on the Commission's Intranet and Internet homepage.
The Office of International Affairs, in coordination with OAPM and OED, should obtain a government credit card for small purchases.
EVALUATION FORMS AND SURVEYS
The OIA uses participant evaluation forms from the Spring Institute and all domestic regional training programs to identify program improvements. However, evaluation forms are not issued after the Fall Enforcement Institute and some international training events. Also, the evaluation forms currently used do not request a performance rating.
The OIA could enhance its evaluation forms in several ways. For example, evaluation forms could be used at all significant domestic and international training events. Additionally, forms could include a rating scale to measure progress toward TA goals. Finally, OIA could conduct periodic surveys of foreign officials, as well as Commission staff, to better identify and satisfy customer needs.
The Office of International Affairs should improve evaluation forms for TA events and consider conducting surveys of foreign officials and Commission staff.