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1995 Audit of Midwest Regional Office

Feb. 2, 1995

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1995 Audit of Midwest Regional Office

Audit Report No. 216
February 2, 1995


In August and September 1994, we performed an audit of administrative and program controls in the Midwest Regional Office (MWRO). The audit found that MWRO controls were generally functioning adequately. We are recommending certain improvements, as summarized below and described in the Audit Results section.

The MWRO should document its market search and justify use of a sole source for purchases; periodically reconcile its records with the Comptroller's; formally appoint an ADP liaison; and tighten controls over the transit subsidy program, among other improvements. It should also help develop guidance for investment company/investment advisor examinations.

Generally, the MWRO agreed with our findings and recommendations, and has already begun corrective actions. See its comments, attached. We have modified the report as appropriate to reflect the MWRO's comments, as well as those of the Office of the Executive Director (also attached).


We reviewed selected administrative and program controls of the Midwest Regional Office. 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 MWRO's controls were adequate, were being implemented economically and efficiently, and were in compliance with Commission policies and procedures.

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


The Midwest Regional Office in Chicago, Illinois, is responsible for administering Commission programs, subject to headquarters oversight, in the midwestern United States (Illinois, Indiana, Iowa, Kentucky, Michigan, Minnesota, Missouri, Ohio, and Wisconsin).

The MWRO is headed by a Regional Director. A Deputy Regional Director and two Associate Regional Directors (for Enforcement and Regulation) report to the Regional Director.

The MWRO is further divided into offices headed by Assistant Regional Directors. In turn, the offices are divided into branches (enforcement, broker dealer and transfer agent examinations, and investment company/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 under the supervision of the Administrative Officer.

The MWRO 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.


We found that MWRO controls were generally functioning adequately. We are recommending certain enhancements, as discussed below. The audit findings and recommendations are organized by function.


ADP Liaison

Like other Commission components, the MWRO 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. In a future audit, the Office of Inspector General plans to review the roles and responsibilities of the ADP liaisons in the field and home office.

Recommendation A

The MWRO should appoint and train an ADP Liaison. The performance plan of the Liaison should include ADP duties. According to the MWRO, a Computer Specialist was hired in July, 1994, and his performance plan includes ADP duties.

Location of ADP Equipment

The MWRO maintains an ADP file server and cables in a dusty telephone closet with poor ventilation. ADP equipment is sensitive to its environment and can be damaged by these conditions.

Recommendation B

The MWRO should provide adequate ventilation and a cleaner environment for the file server and cables.


The MWRO'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.

We examined the 1994 payroll records of a judgement sample of fifteen employees. Generally, the records were complete, legible, mathematically correct, and adequately supported the time and attendance entries. The timekeepers should be commended for the well maintained records, especially since they recently assumed this responsibility. We found several immaterial errors and omissions, which are described in the Appendix.

Recommendation C

The MWRO should correct the leave balances for the SF-699 timecards discussed in the Appendix.

Recommendation D

The MWRO should inform its timekeepers of the results of our review and remind them to be more careful about errors in these areas.


The Office of the Comptroller (OC) maintains the Commission's official budgeting and accounting records (the Federal Financial System, or FFS). The MWRO, 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 MWRO does not perform a monthly reconciliation. MWRO staff indicated that it does not receive current information on the status of funds, making reconciliation difficult.

We were informed by OC personnel that efforts are underway to expedite the availability of fund status data. The Comptroller's Office is developing methods to transmit electronically fund status data to field offices. OC officials also informed us that ad hoc reporting capabilities are available from FFS but due to its complexity requires specialized training.

Ultimately the MWRO administrative personnel rely on their own records for maintaining fund status. Our review of these records showed that funds were well monitored.

Recommendation E

The MWRO should periodically reconcile its records with the fund status reports from the Comptroller's Office, increasing the frequency of reconciliations near fiscal year end. Also, the MWRO should request training in the ad hoc reporting capabilities of FFS.

Recommendation F

The Office of the Comptroller should survey Commission administrative officers for ways to improve the reconciliation process.

Recommendation G

The OC should expedite, within its resources, ongoing efforts to distribute fund availability reports electronically. The OC should also make training available to generate ad hoc reports from the accounting system, as resources allow.


The MWRO participates in the Commission's transit subsidy program. Participants sign a certification form as well as a Fare Subsidy log.

We reviewed program records, and reconciled transportation checks on hand with the records. We also observed physical security over the checks.

Generally, the records appeared well maintained, and the checks were stored in a secure location. One check was missing, however, based on our count.

In response, the MWRO proposed to tighten controls over the checks by performing a count at the end of each month. The records will also be finalized then.

Recommendation H

The MWRO should implement its plans to tighten controls over transit checks.


We reviewed two purchasing files. One file did not contain adequate evidence of a market search and a sole source justification, as required. In the other file, the vendor defaulted after being issued a purchase order. It has retained some MWRO furniture. The Administrative Officer continues to make efforts to recover the furniture or compel service but neither has resulted to date.

Recommendation I

The MWRO should remind its staff to document its market searches, and to prepare an adequate sole source justification when appropriate.

Recommendation J

The MWRO should take appropriate action to recover its furniture from the vendor. If necessary, it should consult with the Offices of Administrative and Personnel Management and General Counsel.


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

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

We found two vouchers were submitted late.

Recommendation K

The MWRO should remind its staff to submit vouchers in a timely manner.


We selected a judgement sample of fifteen items from MWRO's property records for review. We were able to locate all fifteen items.

The MWRO has a number of laptop computers, one of which was recently lost. The laptops are kept in an ADP store room when not in use, and employees sign a log when they take one. However, some branch chiefs have lent laptops assigned to them to their staff, which lessens accountability.

Recommendation L

The MWRO should require branch chiefs who lend out laptop computers to maintain a signed log.


The MWRO has an imprest fund for miscellaneous small purchases (e.g., office supplies, photocopying). We performed a cash count, examined a judgement sample of fifteen transactions, and observed security procedures. All funds were properly accounted for, and the fund was adequately secured.


The MWRO 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 reviewed a judgement sample of ten MWRO personnel files, and found them to be generally in accordance with OAPM requirements. We noted, however, that a section (Supervisory Position Certification and Authorization of Performance Plan) of three performance plans had not been completed.

Recommendation M

The MWRO should ensure that all performance plans are completed.


The MWRO, like all Commission offices, participates in the Management Control Program. The program requires an annual certification letter, which is prepared by the Office's Management Control Officer.

Currently, the MWRO does not obtain supporting certification letters from the Associate Regional Directors for Enforcement and Regulation. These letters would provide additional assurance that controls are adequate, or are being improved.

Recommendation N

The MWRO should obtain supporting certification letters from the Associate Regional Directors.


We reviewed a judgement sample of four investment company/investment advisor (IC/IA) examinations. The working papers for the examinations were not well organized, did not show evidence of supervisory review, and did not explain the exams' objectives, scope, methodology, and conclusions.

The Commission has not issued guidance on preparation and supervisory review of IC/IA working papers. Recently, the MWRO took a lead role in preparing such guidance for examinations of broker/dealers.

Recommendation O

The MWRO, other regions, and the Division of Investment Management should form a team to prepare guidance on IC/IA examination working papers.



Several enforcement staff suggested that additional training, particularly in investigating white collar crime, would be helpful.

Recommendation P

The MWRO should survey its staff for their training needs and research training providers for available investigative and other classes.


Summary of Time and Attendance Review

In our sample of fifteen employees, we found:

no authorization signatures on some leave slips (SF-71, Application for Leave) for two employees;

incomplete sick leave slips in some cases for five employees;

seven leave balances according to the leave slips which did not agree with the timecard (SF-699) balance; and

one leave slip which did not indicate the type of leave.

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