Office of Filings & Information Services
March 20, 1997
Audit No. 244
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Office of Filings & Information Services
Audit Report No. 244
March 20, 1997
Controls in the Office of Filings and Information Services (OFIS) are generally adequate, and OFIS has recently made changes to improve its operations. We are making several recommendations for further improvements, including updating its procedures for broker dealer withdrawal applications; updating issuers’ changes in fiscal years (filed on Form 8-K) for several entities; and improving the accuracy of OFIS’s internal database used to track open investigation files.
OFIS generally concurred with our findings and recommendations. Its comments are attached. In addition, the Division of Market Regulation suggested several editorial revisions to the draft report, which has been modified as appropriate.
OBJECTIVES AND SCOPE
The objective of our survey was to gather information about OFIS to assist in audit planning. We also sought to determine whether controls in that office were adequate.
We reviewed available documentation, and interviewed staff in OFIS, the divisions of Corporation Finance and Market Regulation, the Office of Information Technology, and the National Association of Securities Dealers. We tested management controls by selecting a judgmentjudgement sample from case files and reports of various form types.
The survey did not address fee processing in OFIS, the subject of a recent OIG audit (No. 225). OurThe survey was performed between February and DecemberOctober 1996, in accordance with generally accepted government auditing standards.
OFIS is responsible for the receipt and initial handling of all public documents filed at the Commission’s headquarters office. It determines whether the documents are acceptable; extracts data from them for entry into automated systems; calculates filing fees; performs cursory and substantive examinations of filings; and prepares correspondence to filers.
OFIS is also responsible for the Commission’s records management program; for authenticating documents produced for administrative or judicial proceedings; and for providing filer support services. In addition, OFIS manages the Commission’s public reference facilities, which provide public access to filings (in addition to the electronic dissemination through EDGAR)..
OFIS has approximately 130 staff, whoich are organized into five branches: Document Control, Public Reference, EDGAR Operations, Registrations and Examinations, and Records Management. During 1995, OFIS processed 392,675 paper documents and 70,765 electronic filings.
Generally, we found that controls in the Office of Filings and Information Services were adequate. In addition, OFIS has recently made a number of changes to improve its operations. It has improved filer support at headquarters; added EDGAR terminals in the Public Reference Room; begun implementation of the Government Information Locator Service (which lets the public locate Commission records electronically by using the Internet); established an Internet mailbox for inquiries from the public; started records management reviews; and sent backlogged files to the Federal Records Center.
Update guidance for broker/dealer withdrawal applications
The Registrations and Examination Branch processes applications from broker/dealers seeking to withdraw from the applications from broker/dealers seeking to withdraw from business. Since 1993, these applications have been received electronically through the National Association of Securities Dealers’ Central Registration Depository (CRD) system.
TheThe BbBrranch’s operating procedures were amended in 1993 to accommodate the filing of broker/dealer applications with the CRD. However, the procedures are now outdated and inconsistent with Commission rules.
A redesign of the CRD system is pending (the redesign was postponed until early 1997). The Bbranch indicated that it has delayed further updating its procedures in anticipation of the redesign).
The Office of Filings and Information Services should update its operating procedures for broker/dealer withdrawal applications..
The Division of Market Regulation should coordinate with the Office of Filings and Information Services to clarify broker/dealer application processing rules and regulations.
In response to our recommendations, OFIS has already modified its internal standard operating procedures based on discussions with the Division of Market Regulation. Also, newly revised orders and withdrawal letters will clearly state the date that a completed filing is made with the NASD’s CRD system is the actual received date of the filing.
Update changes in entities’ fiscal years
The due dates for entities’ reports on Forms 10-K and 10-Q are based on the end of their fiscal year. OFIS sends a delinquency notice to any entities whose reports are overdue.
Entities notify the Commission of changes in their fiscal years on Form 8-K, Item 8. The changes are then recorded in a subsystem of the Entity Filing Fee System (EFFS).
We found that of a judgmentjudgement sample of 46 fiscal year changes submitted in fiscal year 1996, 16 were not updated in EFFS. Consequently, EFFS contained incorrect reporting periods for these 16 entities.
Three filers (not in our sample) were sent delinquency notices in error, two because EFFS was not updated. The other filer received a notice because EFFS is not programmed to recognize that a Form 10Q may properly be filed rather than a Form 10K when the transition period (due to a change in fiscal years) is less than six months.
The Office of Filings and Information Services should update the changes in fiscal years for the 16 entities we identified. It should implement a control to ensure that future fiscal year changes are promptly updated in EFFS (e.g., a supervisor could periodically spot check recording of changes reported on Form 8-K, Item 8.) Also, it should ensure that the redesign of EFFS properly recognizes filing requirements when the fiscal year changes.
In response to our recommendation, OFIS added staff to the delinquency program and is considering ways to improve the automated delinquency system. It has also initiated a review of changes on Form 8-K Item 8 to ensure that the system is appropriately updated.
Ensure accuracy of data base for open cases
Investigative cases are opened and closed using Form 19A. These forms are sent to OFIS for filing. OFIS staff tracks these forms with a PC-based automated database developed for their internal use.
As part of our tests, we requested a listing from this database of investigations opened between May and September 1996. Of the 345 cases on the listing we were given, 142 were for cases closed during that period.
The error occurred because OFIS staff erroneously entered the closing date for these investigations into the field for opening investigations. As a consequence, the data base was inaccurate.
The Office of Filings and Information Services should correct the database for Form 19A. It should provide guidance to its staff as necessary, and perform documented spot checks of the database’s accuracy.
OFIS indicated that the data base would be corrected, and that information in the system would be spot checked periodically.
Forward notifications of delisted securities timely
Market Regulation receives notifications of delisted securities (Form 25, entitled "Notification of the Removal From Listing and Registration of Matured, Redeemed, or Retired Securities"), which it then forwards to OFIS. OFIS in turn makes these paper filings available to the public.
Market Regulation had not set standards for timely forwarding of these notifications. We found that in some cases forwarding took months, an unnecessary delay.
The Division of Market Regulation should set standards for timely forwarding of Form 25, and develop a control to ensure the standards are enforced.
In response to our recommendation, the Division of Market Regulation developed standards and procedures to improve processing of Form 25. The new standards require that Form 25 be delivered to OFIS within 5 days of receipt. The Division of Market Regulation also created a Q&A database for Form 25 so that Division staff can monitor that Form 25s are being sent timely.
Require contractor supervisor to certify hours worked
OFIS has hired a contractor (Computech International) to help send old files to the Federal Records Center for storage. The contractor has a staff of between 8-10, who are required to sign in and out. The sign-in sheets are used to document hours worked, and support contractor timecards and invoices.
OFIS staff have been signing as the supervisor on the sign-in sheets. This procedure is not appropriate, as the contractor, not OFIS, is responsible for supervising its employees and certifying their hours worked.
The Office of Filings and Information Services should tell its staff and the contractor that a contractor supervisor should sign the sign-in sheets.
In response to our recommendation, OFIS discontinued signing the contractor sign-in sheets.