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.
GPRA PERFORMANCE REPORTS
Audit No. 329
March 29, 2002
We found that the Commission's performance reports for fiscal years (FY)1 1999 and 2000 generally complied with the Government Performance and Results Act of 1993 (GPRA). However, we are recommending actions for nine of eleven performance measures selected from the FY 1999 performance report to ensure that reported measures materially agreed with the supporting records.2 We noted similar discrepancies in a previous audit (No. 283, issued March 16, 1999). We are also recommending that the Office Financial Management (OFM) 3 improve the link between GPRA objectives, strategies, goals and measures.
OBJECTIVES AND SCOPE
Our objective was to determine whether the Commission prepared its FY 1999 performance report in accordance with GPRA requirements and maintained adequate supporting information for selected performance measures. The Commission issued the final FY 2000 report in April 2001, after the start of our audit. We did, however, review the FY 2000 report for compliance with GPRA and followed up on certain performance measures that we selected from the FY 1999 report.
During the audit, we interviewed staff, reviewed supporting documentation, and performed tests of selected records. We performed the fieldwork between November 2000 and June 2001, in accordance with generally accepted government auditing standards.
The Government Performance and Results Act of 1993 requires government agencies to submit annual performance reports to the Congress concerning progress toward goals and objectives included in the agencies' performance plans. The reports compare actual performance to planned goals, explain unmet goals and assess the impact of current performance on future performance levels.
To develop the performance report, the Commission's Office of Financial Management (OFM) collects and consolidates performance information forwarded by the offices and divisions. The OFM then circulates a draft GPRA report among the offices and divisions, revises the draft as appropriate and forwards it to the Chairman for review and signature. The Chairman sends the final report to the President and Congress. The OFM developed the performance report and performance plan as a combined document, starting with the FY 1999 performance report and FY 2001plan.
The Office of Management and Budget (OMB) wants agencies to link their budget requests and GPRA plans using the agencies' program structure. Since the GPRA plans should reflect program activity levels based on anticipated funding, the performance measures in the GPRA plans should be consistent with projected activity levels in the budget request. OMB Circular A-11 provides GPRA implementation guidance.
OMB also wants agencies to develop goals in their annual performance plans to address mission-critical management problems. The Commission added a fourth goal to its FY 2000-2005 strategic plan and FY 2002 annual performance plan addressing Commission management problems such as staff attrition, which has been described as mission-critical. In FY 2003 performance plans, OMB wants agencies to include performance goals to address the government-wide initiatives in the President's Management Agenda, issued in August 2001.
We found that the Commission generally prepared its FY 1999 and 2000 performance reports in accordance with GPRA requirements. For nine of eleven selected performance measures, however, we found that additional actions could be taken to ensure that they are in material agreement with supporting information. Our detailed findings and recommendations are described below.
The FY 2000 report included more discussion of the reasons for unmet goals than the FY 1999 report. On the other hand, the FY 2000 report listed objectives, strategies, and goals separately, making it difficult to link specific performance measures to them.
EXTRANEOUS DATA INCLUDED
Performance Measure: Percent of investment advisers examined since the beginning of the current five-year cycle
The Office of Compliance Inspections and Examinations (OCIE) obtained the total number of investment advisers (used to compute the planned percentage of investment advisers to review in FY 1999) from the Commission's database of investment advisers. This total included a number of advisers that the database designated as active but that had actually withdrawn before the beginning of FY 1999. OCIE discovered these withdrawals while conducting research in connection with its FY 1999 examinations. As OCIE discovered these pre-FY 1999 withdrawals, it included them with the FY 1999 withdrawals to account for the number of advisers that still needed to be reviewed during the remainder of the five-year review cycle.
As of January 1, 2001, investment advisers registered with the SEC were required to file on the National Association of Securities Dealers' (NASD) Investment Adviser Registration Depository (IARD) system. The IARD system includes current and complete information on investment advisers. To improve the accuracy of this performance measure, OCIE began using data from the IARD system to prepare its inspection plan for FY 2002. Also, OCIE will use information in the IARD to adjust its earlier five-year plans so that they reflect more accurately the number of advisers in each plan that need to be inspected prior to the end of the five-year planning period.
INCOMPLETE SUPPORTING RECORDS
Performance Measures: Number of Commission and SRO broker-dealer investor protection rules governing sales practices and net capital reviewed
Number of proposed SRO, NASD and MSRB rules seeking to trade new securities products
For these two measures, the Division of Market Regulation did not update their July 1999 estimate, which included only 10 months of FY 1999 data. Offices and divisions provided this estimate to the OFM to include in the Commission's draft performance plan due to OMB by September 1999. The number reported for FY 2000 was consistent with the supporting information.
Performance Measure: Percent of risk assessment reports resulting in follow-up
The Division of Market Regulation's risk assessment staff did not always document telephone follow-ups. As a result, the numbers submitted as actual performance for FYs 1999 and 2000 included an estimated number of telephone follow-ups. Similarly, our previous audit of GPRA performance measures found that the Division provided an estimate for this measure.
Performance Measure: Number of exchange-related, trading, and market surveillance matters reviewed at the request of the Division of Enforcement
In FY 1999 and 2000, the Division of Market Regulation combined an estimate of the number of telephone inquiries from the Enforcement Division with the number of Enforcement inquiries posted in their manual logbook. Our previous audit found that the Division did not have complete records in support of this measure. The Division of Market Regulation will discontinue reporting this measure, starting in the FY 2002 performance plan.
In the future, the Division of Market Regulation should ensure that it appropriately updates its estimated GPRA measures to represent activity for the entire fiscal year, and maintains adequate supporting records.
Performance Measures: Number and percent of new insurance contracts reviewed, number and percent of new mutual fund and closed-end fund portfolio disclosures reviewed.
The Division of Investment Management's Office of Insurance Products reported 235 new insurance contracts reviewed in FY 1999 and 210 in FY 2000 (100% of the new contracts filed). The Office of Disclosure and Review reported 927 new portfolios reviewed in FY 1999 and 1183 in FY 2000 (95% and 98% of the new portfolios filed). Both offices used the "budget report," generated by the Division's filing tracking system, to provide these measures.
The measures reported by both offices agreed with the budget report totals within our error range of 5%. Both offices, however, relied on the accuracy of the system generated totals instead of comparing the totals to the supporting detail.
The staff should verify the accuracy of the reported totals because of the risk that the system could count the filings incorrectly. The tracking system can generate printouts of this detail, enumerated to facilitate review.
Also, the Division's tracking system lacked information that Insurance Products needed to manage its workload. The managers, however, felt that modifying the Division's system to meet their needs would probably not be cost-effective. Consequently, Insurance Products used a different system to manage its workload that duplicated some of the filing data input. Eventually, the Office of Information Technology will review the Division's filing tracking system in connection with its development of an Enterprise Data Resource.4
In the future, the Office of Insurance Products and the Office of Disclosure and Review should compare their GPRA measures to the supporting detail records.
Performance Measure: Number of foreign private issuers that register under the 1933 and 1934 Acts for the first time and the dollar amount of securities registered for sale under the 1933 Act for all foreign private issuers
For both foreign and small business registrations, the Office of Filings and Information Services (OFIS) omitted some registrants' offering information from the Commission's Entity Filings and Fees Systems (EFFS). OFIS inputs the offering information from the registrations' facing pages. As a result, the offering totals used in the GPRA performance reports did not include these amounts.
We reviewed a judgment sample of 4 (of 10) FY 1999 and 9 (of 23) FY 2000 foreign registrations included on a list of filings for which no offering information was entered into EFFS. The FY 1999 filings in our sample totaled approximately $30.5 billion in offerings; the FY 2000 filings totaled approximately $2 billion. With these amounts included, the FY 1999 and 2000 GPRA report numbers differed from the supporting information by approximately 12% and 17%, respectively. In our previous audit, we found that Corporation Finance omitted certain foreign filers from the measure.
Performance Measure: Dollar value of small business registrations filed with the Commission
For FY 1999, the supporting information for small business registrations differed from the reported total by approximately 27%. The staff inadvertently entered an amount as $2 billion that should have been entered as $200 million. Also, as noted above, OFIS did not always enter the registrants' offering information into the EFFS system for small business filings. In our previous audit, we found that this measure included a rounding error. The number reported for FY 2000 was consistent with the supporting information.
Also, we found that incomplete offering information in EFFS adversely affected the accuracy of registration information provided to the public in the Office of Public Affair's (OPA) daily SEC News Digest. Our review of one daily listing used by OPA found that 14 securities offerings, totaling more than $1 billion, appeared to be missing from the listing.
In a previous audit, the OIG identified significant problems with internal controls over collection of filing fees.5 OFIS instituted additional procedures to improve these processes, but it appears that the procedures were not consistently followed in this case.
Improvements included in the newest EDGAR upgrade will allow staff to enter offering information without causing the system to reject the entry or inappropriately assess fees to registrants when their fees were already paid.
In the future, the Division of Corporation Finance should ensure that it correctly records information supporting GPRA measures.
In the future, the Office of Filings and Information Services should ensure that its staff follows its procedures to consistently enter and verify registrants' offering information from the filing facing pages into the Commission's systems.
UNCLEAR PERFORMANCE MEASURE
Performance Measure: Percentage of transfer agents and clearing agencies examined within prescribed cycles pursuant to the schedule of required cycles of 2, 5, 7, and 10 years
In FY 1999 and FY 2000, OCIE reported the completion percentages of the different cycles' goals for each year instead of the overall percentage of examinations conducted. The measure was unclear, however, as to whether a single overall percentage or separate percentages for each of the four cycles was reported.
In future reports, the Office of Compliance Inspections and Examinations should clarify the description of the measure to indicate that an overall measure including the goals for each cycle is being reported.
The Office of Compliance Inspections and Examinations indicated that it has taken steps to separate and clarify the GPRA performance measures for transfer agents and clearing agencies.
GOALS, OBJECTIVES, STRATEGIES, AND MEASURES
The Commission organized its FY 2000 performance report by the four overall goals established in the FY 2002-2005 strategic plan, dated September 2000. Each goal included a number of objectives, which, in turn, included a number of strategies for each objective. The report listed the five-year, outcome-based performance goals and the annual performance measures as separate sections after the goals and strategies.
This format made it difficult to ensure that performance measures were linked to a specific objective, strategy or five-year goal. In one instance, we noted that a five-year goal had no associated annual measure. Also, we noted 19 strategies, listed with five separate objectives in the FY 2002 performance plan, which appeared to lack corresponding performance measures.
In future revisions to the GPRA strategic plans, the OFM should improve the linkage between the performance measures and their associated objectives, strategies, and five-year goals.
1 References to yearly reports and plans are to fiscal years.
2 We defined material agreement as the measure differing from the records by no more than 5%.
3 This office was previously the Office of the Comptroller. The name was changed to Office of Financial Management Aug. 29, 2001.
4 The Enterprise Data Resource (EDR) effort involves combining various Commission database resources into one resource, intended to reduce duplicative data and improve data quality.
5 OIG Audit Report No. 225, February 8, 1996.