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1995 Audit on Southeast Regional Office

Audit No. 212
December 31, 1994

EXECUTIVE SUMMARY

In July and August 1994, we performed an audit of administrative and program controls in the Southeast Regional Office (SERO).

We found SERO administrative controls needed improvement, especially in view of SERO's recent upgrade from a branch to a regional office. The new SERO Regional Director had already identified weaknesses in the office's administrative practices, and was taking steps to improve them (e.g., by hiring a new Administrative Officer).

We commend the SERO for its efforts to improve administrative practices. We are recommending certain additional improvements, as discussed in the Audit Results section.

From a Commission-wide perspective, our most significant finding concerned travel advances. After determining that SERO staff held unnecessary advances, we extended the scope of our audit work to all Commission staff. We found that approximately $110,000 in unnecessary travel advances was outstanding. We are recommending that the Comptroller's Office recoup these funds.

The SERO and the Division of Market Regulation provided informal comments on prior drafts of this report. In addition, we received written comments from the Offices of the Comptroller, Administrative and Personnel Management, and Information Technology (attached).

Generally, these offices concurred with our findings and recommendations. We have modified the report as appropriate to reflect the comments.

SCOPE AND OBJECTIVES

We reviewed selected administrative and program controls of the Southeast Regional Office (SERO). The activities reviewed included time and attendance, property, purchasing, travel, accounting, enforcement, and regulation.

The audit steps included interviews with administrative and program staff and tests of records. Because of time and resource constraints, the scope of testing was more limited than it would have otherwise been.

Our objective was to determine whether the SERO's controls were adequate to safeguard assets, were being maintained economically and efficiently, and were in compliance with Commission policies and procedures.

We performed the review between July and August, 1994, in accordance with generally accepted government auditing standards.

BACKGROUND

The Southeast Regional Office (SERO) in Miami, Florida, is responsible for administering Commission programs, subject to headquarters oversight, / in the southeastern United States (Alabama, Florida, Georgia, Louisiana, Mississippi, North Carolina, Puerto Rico, South Carolina, Tennessee, and the Virgin Islands). The Office was recently changed from a branch to a regional office, and now oversees the Atlanta District Office.

The SERO is headed by a Regional Director. An Assistant Regional Director (Enforcement) reports to the Regional Director. The office is further divided into branches (investigations, broker dealer and transfer agent examinations, and investment company and investment adviser examinations).

The Administrative Officer (AO) is responsible for most day-to-day administrative matters. / Her duties include travel, personnel, purchasing, and budgeting and accounting. Several timekeepers maintain the office's time and attendance (T&A) records.

The SERO receives guidance from and coordinates with relevant headquarters offices. For example, the Office of the Comptroller has overall responsibility for processing travel expenditures. The Divisions of Enforcement, Market Regulation, and Investment Management provide guidance for their respective programs.

AUDIT RESULTS

We found SERO administrative controls needed improvement, especially in view of SERO's recent upgrade from a branch to a regional office. The new SERO Regional Director had already identified weaknesses in the office's administrative practices, and was taking steps to improve them (e.g., by hiring a new Administrative Officer).

We commend the SERO for its efforts to improve administrative practices. We are recommending certain additional improvements, as discussed below. The audit findings and recommendations are organized by function.

TRAVEL

The SERO has a fiscal year 1994 travel budget of $124,000. Travel information is entered into the Federal Financial System (the Commission's automated financial system) at the Atlanta District Office. Atlanta also tracks travel expenditures.

Travel Advances

We found that six SERO staff had outstanding travel advances totaling $2,300. This finding led us to expand the scope of our review to all Commission travelers.

Commission travelers had approximately $110,000 in advances which were unnecessary, since they could obtain advances from ATM machines with their American Express card. The Comptroller's Office has discontinued issuing travel advances, except for new employees. It has also been working to reduce the balance.

Recommendation A

The Comptroller's Office should ask employees with unnecessary travel advances to return them by a definite date. After that date, the Comptroller's Office should collect the funds by salary offset.

Travel Documentation

We reviewed the SERO's travel documentation for completeness, accuracy, and compliance with regulations. The review included travel blotter records, and a judgement sample of sixteen travel authorizations and related vouchers.

Generally, travel authorizations and vouchers were appropriately prepared and approved. The correct per diem amounts were used, amounts claimed were supported by receipts, and the travel appeared reasonable.

We found, however, that one authorization lacked the approving official's title. Also, two vouchers used an incorrect POV reimbursement rate (26 rather than 25 cents).

Recommendation B

The SERO should remind its staff that travel authorizations should contain the approving official's title, and that vouchers should use the correct POV mileage rate.

PROPERTY INVENTORY

The Office of Administrative and Personnel Management (OAPM) recently conducted a property inventory at the SERO. The inventory identified several missing items, including five laptop computers.

We selected these computers for review, and were able, with the assistance of the AO, to locate four of them. However, two of the four needed repairs.

Recommendation C

The SERO should submit a property report to OAPM for the missing laptop computer.

Recommendation D

The SERO should arrange the repair or disposal of the two broken laptops with OIT.

TIME AND ATTENDANCE

The SERO's timekeepers enter time and attendance (T&A) data into the automated payroll records, and maintain manual payroll records (time and attendance records on Form SF-699, applications for leave, and overtime approval forms). Timekeepers are responsible for the completeness and accuracy of their T&A records. Administrative staff review this documentation for accuracy and compliance with Commission procedures.

We examined the 1994 payroll records of a judgement sample of thirteen employees. Generally, the records were complete, legible, mathematically correct, and adequately supported the time and attendance entries.

Four SF-699 timecards showed incorrect available leave balances, and one timecard had not been reviewed semi-annually, as required. In addition, one timekeeper maintained her own records. To promote adequate separation of duties, Commission regulations (SEC Handbook 15-2, page 3) discourage this practice.

Recommendation E

The SERO should correct the leave balances and perform a semi-annual review for the SF-699 timecards discussed above.

Recommendation F

The SERO should ensure that its timekeepers do not maintain their own records.

BUDGETING AND ACCOUNTING

The Office of the Comptroller (OC) maintains the Commission's official budgeting and accounting records. The SERO, like other offices and divisions, receives a budget for its operations at the beginning of each fiscal year. It is required to maintain blotter records of its expenditures, and to reconcile them with OC's, using a monthly print-out from that office.

The SERO's budgeting and accounting records were maintained by the Atlanta District Office, since Miami was until recently a branch office. The SERO administrative support staff maintained a copy of purchase orders and periodically prepared a summary of expenditures. However, the summary was not reconciled to the Comptroller's or Atlanta's records.

Recommendation G

The SERO should establish procedures for maintaining budgeting and accounting records for itself and Atlanta.

Recommendation H

The SERO should periodically reconcile its records to the Comptroller's and Atlanta's.

TRANSIT SUBSIDY PROGRAM

SERO issues 20 tokens each month to participants in the transit subsidy program (Metro-Dade Transit Agency). Participants sign a certification form as well as a Fare Subsidy log.

To help ensure the program's integrity, SERO should perform periodic audits of transit subsidy records. In addition, requiring annual rather than monthly certifications would reduce the program's administrative burden.

Recommendation I

The SERO should perform periodic audits of transit subsidy records.

Recommendation J

The SERO should require annual rather than monthly certifications by program participants.

AUTOMATED DATA PROCESSING

ADP Liaison

Like other Commission components, the SERO makes extensive use of automated data processing (ADP) equipment and software. It has not yet formally appointed an ADP Liaison, although one of its staff is assigned to ADP issues.

Recommendation K

The SERO should appoint and train an ADP Liaison.

Computer Repair

The SERO does not have a maintenance contract for computer repair. Instead, if its staff are unable to repair a computer, the computer is forwarded to the Office of Information Technology (OIT) in headquarters. The repairs may take weeks, during which the computer is unavailable.

Recommendation L

The SERO should consider issuing a maintenance contract for computer repair (excluding portables and laptops).

Computer Viruses

Recently, an SERO examiner downloaded data files during an inspection, and used the diskette in an SERO computer. A virus on the diskette shut down the SERO network for several days.

Recommendation M

The SERO should remind its staff to scan all diskettes from outside sources before using them.

IMPREST FUND

The SERO recently instituted a $300 imprest fund for miscellaneous small purchases (e.g., office supplies, photocopying), and appointed a temporary cashier. However, it has not yet appointed a permanent cashier, or designated someone to perform quarterly cash counts.

We performed a cash count, examined fund records, and observed security procedures. All funds were properly accounted for, and the fund was adequately secured.

Recommendation N

The SERO should appoint a cashier and alternate. The appointment should be sent to the Comptroller through the Associate Executive Director of OAPM.

Recommendation O

The SERO should ensure that the cashier and the alternate receive appropriate training.

Recommendation P

The SERO should designate someone to perform quarterly cash counts of the fund.

PERSONNEL

The SERO performs several personnel functions in coordination with the Office of Administrative and Personnel Management (OAPM). These functions include hiring, promoting, and training staff, and preparing performance standards and appraisals.

We scanned SERO personnel files, and found them to be generally in accordance with OAPM requirements. We noted, however, that the files were not well organized. In addition, they contained some extraneous materials (e.g., brochures, miscellaneous guidance), and documents were not securely fastened.

Recommendation Q

The SERO should ensure that personnel documentation is appropriately organized and securely fastened. Extraneous materials should be removed from the files.

ENFORCEMENT

Case Management

The Miami Branch Office (MBO) issued written procedures to improve its case management during calendar year 1992. Now that Miami is a regional office, it should issue new procedures or reaffirm the MBO procedures.

Recommendation R

The SERO should issue written case management procedures, or reaffirm the MBO procedures.

MARKET REGULATION

In fiscal year 1993, the Division of Market Regulation noted that several regions, including the SERO, needed to improve Examination Activity Tracking System (EATS) data input. The quality of EATS data improved in fiscal year 1994, according to the Division.

SERO examination staff are assigned to several examinations and travel frequently, leaving them insufficient time for data entry.

Recommendation S

The SERO should consider assigning EATS data entry to administrative staff. The examiner or team leader should complete the EATS worksheet and review the administrative staff's input for completeness and accuracy. The staff should be properly trained.