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Report to the Chairman, United States Securities and Exchange 
Commission: 

November 2008: 

Financial Audit: 

Securities and Exchange Commission's Financial Statements for Fiscal 
Years 2008 and 2007: 

GAO-09-173: 

GAO Highlights: 

Highlights of GAO-09-173, a report to Chairman, United States 
Securities and Exchange Commission. 

Why GAO Did This Study: 

Established in 1934 to enforce the securities laws and protect 
investors, the Securities and Exchange Commission (SEC) plays an 
important role in maintaining the integrity of the U.S. securities 
markets. Pursuant to the Accountability of Tax Dollars Act of 2002, SEC 
is required to prepare and submit to Congress and the Office of 
Management and Budget audited financial statements. GAO agreed, under 
its audit authority, to perform the audit of SEC’s financial 
statements. GAO’s audit determined whether, in all material respects, 
(1) SEC’s fiscal year 2008 financial statements were reliable and (2) 
SEC’s management maintained effective internal control over financial 
reporting and compliance with laws and regulations. GAO also tested 
SEC’s compliance with selected laws and regulations. 

What GAO Found: 

In GAO’s opinion, SEC’s fiscal years 2008 and 2007 financial statements 
were fairly presented in all material respects. A notable achievement 
during fiscal year 2008 was the significant progress SEC made in 
addressing the material weakness reported in GAO’s previous financial 
statement audit of SEC. As a result, GAO concluded that, although 
certain controls should be improved, SEC had effective internal control 
over financial reporting and compliance with laws and regulations as of 
September 30, 2008. GAO did not find reportable instances of 
noncompliance with the laws and regulations it tested. 

Last year, GAO identified significant control deficiencies in SEC’s 
period-end financial reporting process, disgorgements and penalties 
accounts receivable, accounting for transaction fee revenue, and 
preparation of financial statement disclosures. These significant 
deficiencies, taken collectively, constituted a material weakness in 
SEC’s financial reporting process. Based on our work during this year’s 
audit, GAO concluded that SEC’s improvements in internal controls over 
its financial reporting process were such that GAO no longer considers 
this area to be a significant deficiency or a material weakness as of 
September 30, 2008. However, SEC’s financial reporting process 
continues to rely heavily on manual compensating measures that were 
labor-intensive and required heroic efforts from SEC and contractor 
personnel to produce reliable financial reporting within mandated time 
frames. SEC’s ability to sustain improvements over its financial 
reporting process remains at risk until SEC fully integrates its 
subsidiary systems, and until its accounting system can readily produce 
financial reports without the need for significant manual processes. 

As was the case last year, GAO continued to identify weaknesses in 
controls over information security, accounting for budgetary resources, 
and property and equipment, and therefore continues to consider these 
areas as significant deficiencies as of September 30, 2008. 

In commenting on a draft of this report, SEC’s Chairman cited GAO’s 
recognition of the agency’s substantial progress in strengthening 
internal controls during fiscal year 2008. The Chairman also stated SEC 
will continue working to enhance the reliability of its financial 
reporting, the soundness of its operations, and public confidence in 
the agency’s mission. 

To view the full product, including the scope and methodology, click on 
[hyperlink, http://www.gao.gov/products/GAO-09-173]. For more 
information, contact Jeanette Franzel, (202)-512-9471 or 
franzelj@gao.gov. 

[End of section] 

Contents: 

Letter: 

Auditor's Report: 

Opinion on Financial Statements: 

Opinion on Internal Control: 

Significant Deficiencies: 

Compliance with Laws and Regulations: 

Consistency of Other Information: 

Objectives, Scope, and Methodology: 

SEC Comments and Our Evaluation: 

Management's Discussion and Analysis: 

Financial Statements: 

Balance Sheet: 

Statements of Net Cost: 

Statements of Changes in Net Position: 

Statements of Budgetary Resources: 

Statements of Custodial Activity: 

Notes to the Financial Statements: 

Appendix: 

Appendix I: Comments from the Securities and Exchange Commission: 

Letter November 14, 2008: 

The Honorable Christopher Cox: 
Chairman: 
United States Securities and Exchange Commission: 

Dear Mr. Cox: 

This report presents our opinion on whether the financial statements of 
the United States Securities and Exchange Commission (SEC) for the 
fiscal years ended September 30, 2008, and 2007, are presented fairly, 
in all material respects, in conformity with U.S. generally accepted 
accounting principles. This report also presents (1) our opinion on the 
effectiveness of SEC's internal control over financial reporting and 
compliance as of September 30, 2008, and (2) the results of our 
evaluation of SEC's compliance with selected laws and regulations 
during 2008. 

The Accountability of Tax Dollars Act of 2002 requires that SEC prepare 
and submit audited financial statements to Congress and the Office of 
Management and Budget (OMB). We agreed, under our audit authority, to 
audit SEC's financial statements. We conducted this audit in accordance 
with U.S. generally accepted government auditing standards and OMB 
guidance. 

We are sending copies of this report to the Chairmen and Ranking 
Members of the Senate Committee on Banking, Housing, and Urban Affairs; 
the Senate Committee on Homeland Security and Governmental Affairs; the 
House Committee on Financial Services; and the House Committee on 
Oversight and Government Reform. We are also sending copies to the 
Secretary of the Treasury, the Director of the Office of Management and 
Budget, and other interested parties. In addition, this report will be 
available at no charge on our Web site at [hyperlink, 
http://www.gao.gov]. 

If you have questions about this report, or if I can be of further 
assistance, please call me at (202) 512-9471 or franzelj@gao.gov. 

Sincerely yours, 

Signed by: 

Jeanette M. Franzel: 

Director Financial Management and Assurance: 

Auditor's Report To the Chairman of the United States Securities and 
Exchange Commission: 

In our audits of the United States Securities and Exchange Commission 
(SEC) for fiscal years 2008 and 2007, we found: 

* the financial statements as of and for the fiscal years ended 
September 30, 2008, and 2007, including the accompanying notes, are 
presented fairly, in all material respects, in conformity with U.S. 
generally accepted accounting principles; 

* although internal controls could be improved, SEC had effective 
internal control over financial reporting (including safeguarding of 
assets) and compliance with laws and regulations as of September 30, 
2008; and: 

* no reportable noncompliance with laws and regulations we tested. 

The following sections discuss in more detail these conclusions as well 
as our conclusions on SEC's Management Discussion and Analysis and 
other supplementary information. They also present information on the 
objectives, scope, and methodology of our audit and our discussion of 
SEC management's comments on a draft of this report. 

Opinion on Financial Statements: 

SEC's financial statements, including the accompanying notes, present 
fairly, in all material respects, in conformity with U.S. generally 
accepted accounting principles, SEC's assets, liabilities, net 
position, net costs, changes in net position, budgetary resources, and 
custodial activity as of, and for the fiscal years ended, September 30, 
2008, and September 30, 2007. 

As disclosed in footnote 1.D. to SEC's financial statements, in fiscal 
year 2008, SEC changed its method of presentation for the receipt, 
accounting, and disposition of all disgorgement-related assets stemming 
from actions against violators of federal securities laws and for 
investments. 

Opinion on Internal Control: 

Although certain internal controls could be improved, SEC maintained, 
in all material respects, effective internal control over financial 
reporting (including safeguarding assets) and compliance as of 
September 30, 2008, that provided reasonable assurance that 
misstatements, losses, or noncompliance material in relation to the 
financial statements would be prevented or detected on a timely basis. 
Our opinion on internal control is based on criteria established under 
31 U.S.C. § 3512(c)(d), commonly referred to as the Federal Managers' 
Financial Integrity Act (FMFIA), and the Office of Management and 
Budget (OMB) Circular No. A-123, Management Accountability and Control. 

During this year's audit, we identified three significant 
deficiencies[Footnote 1] in internal control, which although not 
material weaknesses,[Footnote 2] represent significant deficiencies in 
the design or operation of internal control that could adversely affect 
SEC's ability to meet its internal control objectives. These 
deficiencies, described in more detail later in this report, concern 
(1) information security controls, (2) controls over accounting for 
budgetary resources, and (3) property and equipment controls. 

In our 2007 audit report,[Footnote 3] we identified significant 
deficiencies in internal control in SEC's period-end financial 
reporting process, disgorgements and penalties accounts 
receivable,[Footnote 4] accounting for transaction fee revenue, and 
preparation of financial statement disclosures. These significant 
deficiencies, taken collectively, constituted a material weakness in 
SEC's financial reporting process. Our fiscal year 2008 audit concluded 
that SEC has made sufficient improvements in internal controls over its 
financial reporting process such that we no longer consider these 
issues to be significant deficiencies or a material weakness. 
Specifically, in 2008, SEC upgraded its general ledger system, 
Momentum; implemented new system modules to automate and integrate 
accounts receivable and property and equipment transactions; and 
improved controls and documentation for its period-end financial 
reporting process. However, some of the new processes were not fully 
implemented as of September 30, 2008, and other system integration 
projects involving accounting for disgorgements and penalties and 
investments are not scheduled to be implemented until fiscal year 2009. 
As a result, SEC continues to rely heavily on manual compensating 
controls and detective controls to work around its financial systems' 
limitations. These compensating and detective measures were labor- 
intensive and required heroic efforts from SEC and contractor personnel 
to produce reliable financial reporting within mandated time frames. 
SEC's ability to sustain improvements over its financial reporting 
process remains at risk until SEC fully integrates its subsidiary 
systems for disgorgements and penalties and for investments and until 
its general ledger accounting system can readily produce financial 
reports, thus eliminating the need for manual reconciliations, manual 
data handling, and other time-consuming manual processes. 

With regard to the current year significant deficiencies in internal 
control related to information security, accounting for budgetary 
resources, and property and equipment, we have reported on all of these 
deficiencies in prior audits and have provided SEC with recommendations 
to address these issues. SEC has taken actions to address these 
deficiencies; however, our work showed continuing deficiencies in the 
design and/or implementation of effective internal control for all of 
these areas as of September 30, 2008. Although the significant 
deficiencies in internal control did not materially affect the 2008 
financial statements, misstatements may nevertheless occur in unaudited 
financial information reported by SEC, including performance 
information, as a result of these deficiencies. 

We will be reporting additional details concerning these significant 
deficiencies separately to SEC management, along with recommendations 
for corrective actions. We will also be reporting less significant 
matters involving SEC's system of internal control separately to SEC 
management. 

Significant Deficiencies: 

Information Security: 

SEC relies extensively on computerized information systems to process, 
account for, and report on its financial activities and to make 
payments. During fiscal year 2008, SEC made important progress in 
mitigating certain control weaknesses that were previously reported as 
unresolved at the time of our prior review. For example, it adequately 
validated electronic certificates from certain connections to its 
network, physically secured the perimeter of the operations center, put 
in place a process to monitor unusual and suspicious activities at its 
operations center, and implemented a policy on remedial action plans to 
help ensure that deficiencies are mitigated in an effective and timely 
manner. However, SEC has not yet fully implemented certain key 
information security controls to effectively safeguard the 
confidentiality, integrity, and availability of its information systems 
and financial and sensitive data. Therefore, SEC continues to be at 
risk and does not have adequate assurance that (1) computer resources 
(programs and data) are protected from unauthorized disclosure, 
modification, and destruction; (2) access to facilities by unauthorized 
individuals is controlled; and (3) computer resources are protected and 
controlled to ensure the continuity of data processing operations when 
unexpected interruptions occur. 

Consistent with our previous audits, in fiscal year 2008, we continued 
to find that SEC (1) has not adequately documented access privileges 
for a major application SEC uses for processing fees paid by SEC- 
registered companies, (2) does not perform procedures for periodically 
reviewing application code to ensure that only authorized changes have 
been made, (3) does not restrict physical access to live network jacks 
in publicly accessible areas, and (4) has not yet completed annual 
testing of the general support system network that allows users to 
communicate with the database applications. 

During this year's audit, we found new information security weaknesses 
concerning identification and authentication, authorization, audit and 
monitoring, physical security, segregation of duties, and configuration 
management. For example, we found (1) the use of a single shared 
application ID for the Momentum database, (2) the lack of access 
request forms for some individuals using Momentum, and (3) computer 
functions that were not adequately segregated. These weaknesses 
existed, in part, because SEC has not yet fully implemented its 
information security program. 

Furthermore, during fiscal year 2008, SEC upgraded its Momentum 
financial reporting system and implemented two new automated interfaces 
in the Momentum application. These upgraded and new systems represent 
progress toward creating increased integration of SEC's financial 
management systems to address previously reported weaknesses associated 
with the manual processing of financial information. However, our 
review of the upgraded general ledger system and new system interfaces 
identified information security deficiencies that reduced SEC's ability 
to control data integrity and detect unauthorized user activity or 
system changes. Specifically, we found inadequate auditing and 
monitoring capabilities with respect to the upgraded Momentum database. 
In addition, the new system interface for recording accounts receivable 
transactions into Momentum was developed, tested, and placed into 
production without proper security monitoring. These deficiencies were 
due, in part, to a lack of communication and coordination among SEC 
offices regarding the information security control requirements needed 
in developing its upgraded and new financial systems. 

Collectively, these continuing and newly identified weaknesses 
represent a significant deficiency in SEC's internal control over 
information systems and data SEC uses for financial reporting. 
Specifically, the weaknesses decrease assurances regarding the 
reliability of the data processed by the systems and increase the risk 
that unauthorized individuals could gain access to critical hardware 
and software and intentionally or inadvertently access, alter, or 
delete sensitive data or computer programs. Until SEC fully implements 
all key elements of its information security program, the information 
that is processed, stored, and transmitted on its systems will remain 
vulnerable, and management will not have sufficient assurance that 
financial information and financial assets are adequately safeguarded 
from inadvertent or deliberate misuse, fraudulent use, improper 
disclosure, or destruction. Furthermore, adequate safeguarding of 
financial information will continue to be at risk until SEC strengthens 
its control environment to ensure effective communication and 
coordination among SEC offices to support information security needs of 
the various system applications used across SEC. We will be issuing a 
separate report on issues we identified regarding information security 
concerns at SEC. 

Accounting for Budgetary Resources: 

For fiscal year 2008, SEC incurred approximately $916 million in 
obligations, which represent legal liabilities against funds available 
to SEC to pay for goods and services ordered. At September 30, 2008, 
SEC reported that the amount of budgetary resources obligated for 
undelivered orders was approximately $157 million, which reflects 
obligations for goods and services ordered but not yet delivered or 
received as of that date. 

Similar to our last year's audit, during the course of testing fiscal 
year 2008 undelivered order transactions, we identified several 
concerns over SEC's accounting for obligations and undelivered orders. 
Specifically, we continued to find numerous instances in which SEC (1) 
recorded invalid obligation-related transactions due to incorrect 
posting logic configurations in SEC's general ledger, (2) recorded 
obligations prior to having documentary evidence of a binding agreement 
for the goods or services, and (3) did not maintain sufficient 
documentation of authorizations for downward adjustments to prior-year 
undelivered orders. During fiscal year 2008, SEC addressed some 
problems related to the incorrect posting logic configurations in its 
general ledger; however, several significant posting logic problems 
continue to exist. As a result, SEC had to correct transaction errors 
resulting from the incorrect posting configurations by making adjusting 
journal entries amounting to approximately $83.8 million in fiscal year 
2008. 

For fiscal year 2008, SEC's budgetary resources included amounts 
appropriated in the fiscal year 2008 appropriation for SEC and 
offsetting collections.[Footnote 5] In 2008, SEC recorded approximately 
$986 million in offsetting collections, which primarily represent fees 
SEC collected from self-regulatory organizations (e.g., stock exchanges 
and the Financial Industry Regulatory Authority) and registrants. In 
our testing of offsetting collections for this year's audit, we 
identified issues concerning posting model configurations and 
insufficient documentation of procedures concerning processing of 
offsetting collections. Specifically, we identified (1) invalid revenue-
related transactions due to additional incorrect posting configurations 
in SEC's general ledger and (2) incomplete procedures for general 
ledger entries necessary to properly account for returning appropriated 
funds to the U.S. Treasury.[Footnote 6] As a result of the incorrect 
posting configurations in the general ledger, SEC made adjustments of 
approximately $983.7 million to record fees in the appropriate 
budgetary accounts. 

Although SEC was able to identify most of the errors and make 
corresponding adjustments, the ineffective processes that caused these 
errors constitute a significant deficiency in SEC's internal control 
over recording and reporting obligations and revenue, and put SEC at 
risk that the amounts recorded in the general ledger and reported on 
SEC's Statement of Budgetary Resources could be misstated in the future 
if the necessary compensating adjustments are not identified and made. 
Specifically, SEC's general ledger is not configured to properly post 
undelivered order and offsetting collection transactions, thereby 
resulting in the need for SEC to routinely identify and correct these 
entries. Extensive reviews of the budgetary transactions, along with 
significant adjusting journal entries, are needed to compensate for the 
system limitations. An additional weakness in the area of budgetary 
accounting is SEC's lack of formal policies or effective internal 
controls to prevent recording of obligations that are not valid. 
Recording obligations prior to having sufficient documentary evidence 
of a binding agreement for the goods and services is a violation of the 
recording statute,[Footnote 7] and may result in funds being reserved 
unnecessarily and, therefore, made unavailable for other uses should 
the agreement not materialize. In addition, early recording of 
obligations may result in the charging of incorrect fiscal year funds 
for an agreement executed in a later fiscal year. 

Property and Equipment: 

SEC's property and equipment consists of general-purpose equipment used 
by the agency; capital improvements made to buildings leased by SEC for 
office space; and internal-use software development costs for projects 
in development and production. SEC acquired approximately $17 million 
in property and equipment during fiscal year 2008. 

To address our previous audit findings concerning property and 
equipment, in fiscal year 2008, SEC developed a new property and 
equipment subsidiary ledger system that is integrated with its general 
ledger accounting system and new policies and procedures for recording 
property transactions. However, in our testing of property and 
equipment acquisitions processed under this new system, we found that 
the controls over the receipt and acceptance of assets were not 
operating effectively, which caused errors in SEC's recording of new 
property and equipment purchases. These control deficiencies resulted 
from (1) incorrect system design configurations and (2) a lack of 
training and experience on the use of the new system in conjunction 
with the new accounting processes for property and equipment purchases. 
A contributing factor to these internal control deficiencies was SEC's 
decision to implement the new property and equipment system in July, 
late into the fiscal year, without sufficient time to fully test the 
system configurations and train its users prior to the year's end. SEC 
corrected the design configurations in September, enabling the 
transactions to post to the proper accounts. However, SEC personnel 
continued to record property and equipment purchases incorrectly since 
they were still not familiar with the new system processes, resulting 
in ongoing asset capitalization errors. To compensate for the system 
configuration issues and the lack of user training on the new 
processes, SEC performed a labor-intensive reconciliation and review of 
property additions and made adjusting journal entries to correct 
capitalization errors and properly report related account balances at 
September 30, 2008. 

In addition to the above issues, during the course of testing fiscal 
year 2008 property transactions, we continued to find inaccuracies in 
amounts capitalized for internal-use software projects, inaccuracies in 
recorded acquisition costs, and unrecorded property and equipment 
purchases. These issues are consistent with findings in our previous 
audits of SEC and indicate a need for improved oversight and review of 
accounting for property transactions. SEC corrected most of the 
substantive errors we identified through our interim and year-end 
testing. The remaining uncorrected errors did not materially affect the 
balances reported for property and equipment or the corresponding 
depreciation/amortization expense amounts in SEC's financial statements 
for fiscal year 2008. However, these continuing conditions, along with 
the issues we found this year with the new system implementation, 
evidence a significant deficiency in control over the recording of 
property and equipment that affects the reliability of SEC's reported 
balances for property and equipment. Although the system configuration 
issue has been addressed, until users are adequately trained in using 
the new property and equipment system and processes, and oversight and 
review processes over accounting for property and equipment 
transactions are strengthened, SEC does not have sufficient assurance 
that property and equipment transactions will be completely, 
consistently, or accurately recorded or reported. 

Compliance with Laws and Regulations: 

Our tests of SEC's compliance with selected provisions of laws and 
regulations for fiscal year 2008 disclosed no instances of 
noncompliance that would be reportable under U.S. generally accepted 
government auditing standards or OMB audit guidance. However, the 
objective of our audit was not to provide an opinion on overall 
compliance with laws and regulations. Accordingly, we do not express 
such an opinion. 

Consistency of Other Information: 

SEC's Management Discussion and Analysis and other accompanying 
information contain a wide range of data, some of which are not 
directly related to the financial statements. We did not audit and do 
not express an opinion on this information. However, we compared this 
information for consistency with the financial statements and discussed 
the methods of measurement and presentation with SEC officials. Based 
on this limited work, we found no material inconsistencies with the 
financial statements, U.S. generally accepted accounting principles, or 
OMB guidance. However, because of the internal control weaknesses noted 
in this report, misstatements may occur in related performance 
information. 

Objectives, Scope, and Methodology: 

SEC management is responsible for (1) preparing the financial 
statements in conformity with U.S. generally accepted accounting 
principles; (2) establishing, maintaining, and assessing internal 
control to provide reasonable assurance that the broad control 
objectives of FMFIA are met; and (3) complying with applicable laws and 
regulations. 

We are responsible for obtaining reasonable assurance about whether (1) 
the financial statements are presented fairly, in all material 
respects, in conformity with U.S. generally accepted accounting 
principles; and (2) management maintained effective internal control, 
the objectives of which are the following: 

* Financial reporting: Transactions are properly recorded, processed, 
and summarized to permit the timely and reliable preparation of 
financial statements in conformity with U.S. generally accepted 
accounting principles, and assets are safeguarded against loss from 
unauthorized acquisition, use, or disposition. 

* Compliance with applicable laws and regulations: Transactions are 
executed in accordance with (1) laws governing the use of budgetary 
authority, (2) other laws and regulations that could have a direct and 
material effect on the financial statements, and (3) any other laws, 
regulations, or governmentwide policies identified by OMB audit 
guidance. 

We are also responsible for (1) testing compliance with selected 
provisions of laws and regulations that could have a direct and 
material effect on the financial statements and for which OMB audit 
guidance requires testing and (2) performing limited procedures with 
respect to certain other information appearing in SEC's Performance and 
Accountability Report. To fulfill these responsibilities, we: 

* examined, on a test basis, evidence supporting the amounts and 
disclosures in the financial statements; 

* assessed the accounting principles used and significant estimates 
made by SEC management; 

* evaluated the overall presentation of the financial statements; 

* obtained an understanding of SEC and its operations, including its 
internal control related to financial reporting (including safeguarding 
of assets) and compliance with laws and regulations (including 
execution of transactions in accordance with budget authority); 

* obtained an understanding of the design of internal controls related 
to the existence and completeness assertions relating to performance 
measures as reported in SEC's Management Discussion and Analysis, and 
determined whether the internal controls have been placed in operation; 

* tested relevant internal controls over financial reporting and 
compliance with applicable laws and regulations, and evaluated the 
design and operating effectiveness of internal control; 

* considered SEC's process for evaluating and reporting on internal 
control and financial management systems under FMFIA; and: 

* tested compliance with selected provisions of the following laws and 
their related regulations: 

* the Securities Exchange Act of 1934, as amended; 

* the Securities Act of 1933, as amended; 

* the Antideficiency Act; 

* laws governing the pay and allowance system for SEC employees; 

* the Debt Collection Improvement Act; 

* the Prompt Payment Act; 

* the Federal Employees' Retirement System Act of 1986; and: 

* the Financial Services and General Government Appropriations Act, 
2008. 

We did not evaluate all internal controls relevant to operating 
objectives as broadly defined by FMFIA, such as those controls relevant 
to preparing statistical reports and ensuring efficient operations. We 
limited our internal control testing to controls over financial 
reporting and compliance. Because of inherent limitations in internal 
control, misstatements due to error or fraud, losses, or noncompliance 
may nevertheless occur and not be detected. We also caution that 
projecting our evaluation to future periods is subject to the risk that 
controls may become inadequate because of changes in conditions or that 
the degree of compliance with controls may deteriorate. 

We did not test compliance with all laws and regulations applicable to 
SEC. We limited our tests of compliance to those required by OMB audit 
guidance and other laws and regulations that had a direct and material 
effect on, or that we deemed applicable to, SEC's financial statements 
for the fiscal year ended September 30, 2008. We caution that 
noncompliance may occur and not be detected by these tests, and that 
this testing may not be sufficient for other purposes. 

We performed our work in accordance with U.S. generally accepted 
government auditing standards and OMB audit guidance. 

SEC Comments and Our Evaluation: 

In commenting on a draft of this report, SEC's Chairman said that he 
was pleased to receive an unqualified opinion on SEC's financial 
statements, and that SEC had effective internal control over financial 
reporting. He referred to SEC's substantial progress it made in 
strengthening its internal controls during fiscal year 2008, and 
expressed his pleasure that several control deficiencies that last year 
were found to collectively constitute a material weakness had been 
remedied. He cited this result as testimony to SEC's commitment to 
improving its internal control environment and operational efficiencies 
to allow SEC to lead by example in financial reporting. SEC's Chairman 
expressed his appreciation for our diligent efforts to complete our 
audit of an essentially new framework of internal control over 
financial reporting put in place in the fourth quarter, in a very 
compressed time frame. He added that these accomplishments are as 
commendable as they are unprecedented. 

The complete text of SEC's comments is reprinted in appendix I. 

Signed by: 

Jeanette M. Franzel: 
Director Financial Management and Assurance: 

November 14, 2008: 

[End of section] 

Management's Discussion and Analysis: 

The Securities and Exchange Commission’s Management’s Discussion and 
Analysis (MD&A) serves as a brief overview of this entire report. It 
provides you with a concise description of the agency’s performance 
measures, financial statements, systems and controls, compliance with 
laws and regulations, and actions taken or planned. It should also 
provide you with a balanced assessment of our program and financial 
performance, and the efficiency and effectiveness of our operations.

Vision, Mission, Values, and Goals: 

Vision: 

The Securities and Exchange Commission (SEC) aims to be the standard 
against which federal agencies are measured. The SEC’s vision is to 
strengthen the integrity and soundness of U.S. securities markets for 
the benefit of investors and other market participants, and to conduct 
its work in a manner that is as sophisticated, flexible, and dynamic as 
the securities markets it regulates. 

Mission: 

The mission of the SEC is to protect investors; maintain fair, orderly, 
and efficient markets; and facilitate capital formation. 

Values: 

In managing the evolving needs of a complex marketplace and in pursuing 
its mission, the SEC embraces the following values: 

* Integrity; 
* Fairness; 
* Teamwork; 
* Accountability; 
* Resourcefulness; 
* Commitment to Excellence. 

Goals: 

* Enforce compliance with federal securities laws: 

The Commission seeks to detect problems in the securities markets, 
prevent and deter violations of federal securities laws, and alert 
investors to possible wrongdoing. When violations occur, the SEC aims 
to take prompt action to halt the misconduct, sanction wrongdoers 
effectively, and, where possible, return funds to harmed investors. 

* Promote healthy capital markets through an effective and flexible 
regulatory environment: 

The savings and investments of every American are dependent upon 
healthy capital markets. The Commission seeks to sustain an effective 
and flexible regulatory environment that will facilitate innovation, 
competition, and capital formation to ensure that our economy can 
continue to grow and create jobs for our nation’s future. Enhancing the 
productivity of America is a key goal that the SEC works to achieve by 
increasing investor confidence in the capital markets. 

* Foster informed investment decision making: 

An educated investing public ultimately provides the best defense 
against fraud and costly mistakes. The Commission works to promote 
informed investment decisions through two main approaches: reviewing 
disclosures of companies and mutual funds to ensure that clear, 
complete, and accurate information is available to investors; and 
implementing a variety of investor education initiatives. 

* Maximize the use of SEC resources: 

The investing public and the securities markets are best served by an 
efficient, well-managed, and proactive SEC. The Commission strives to 
improve its organizational effectiveness by making sound investments in 
human capital and new technologies, and by enhancing internal controls.

Organizational Structure and Resources: 

The SEC is an independent federal agency established pursuant to the 
Securities Exchange Act of 1934 (Exchange Act). It is headed by a 
bipartisan five-member Commission, comprised of the Chairman and four 
Commissioners, who are appointed by the President and confirmed by the 
Senate (see Appendix A: Chairman and Commissioners). The Chairman 
serves as the chief executive officer (CEO). The SEC is organized into 
four main divisions: Corporation Finance, Enforcement, Investment 
Management, and Trading and Markets. The SEC’s headquarters are in 
Washington, D.C., and it has 11 regional offices located throughout the 
country. In Fiscal Year (FY) 2008, the SEC received budget authority of 
$906 million consisting of current-year offsetting collections in the 
amount of $843 million plus $63 million in funds carried over from 
prior fiscal years. At September 30, 2008, the agency employed 3,511 
Full-time Equivalents (FTE), including 3,442 permanent and 69 temporary 
FTE. 

Figure: Chart 1.1. 

This figure is a chart showing SEC organization. 

[Refer to PDF for image] 

[End of figure] 

FY 2008 Highlights: 

Responses to Market Turmoil: 

In 2008, the subprime mortgage crisis and the resulting turmoil in the 
credit markets led to rapid and dramatic changes in U.S. financial 
markets. Once the crisis began with the deterioration of mortgage 
origination standards, the rise of abusive lending practices, and the 
spillover into the capital markets through securitization, the SEC used 
its law enforcement and regulatory powers to combat fraud and market 
manipulation and sustain orderly and liquid markets. During 2008 the 
agency moved aggressively in four main areas: investigating and 
prosecuting violations of the securities laws; releasing accounting and 
disclosure guidance to uncover hidden risk; using recent authority 
granted by Congress to regulate credit rating agencies; and using 
emergency and permanent rulemaking authority to maintain orderly 
markets. The SEC’s work in these areas has been both national and 
international. 

Among its many areas of focus, the SEC worked to oversee the financial 
markets and protect investors. The SEC continued to pursue those who 
would use hidden manipulation, illegal naked short selling, or 
illegitimate trading tactics to drive market behavior and undermine 
confidence. And the Commission used its regulatory authority to 
strengthen disclosure, provide needed accounting guidance, and prevent 
market manipulation. 

Key examples of the agency’s actions during the subprime mortgage 
crisis include: 

Investigating fraud and market manipulation. The SEC devoted 
significant resources to hold accountable those whose violations of the 
law contributed to the subprime crisis and the loss of confidence in 
the markets. Led by the Division of Enforcement’s subprime working 
group, which was formed in 2007, the agency aggressively investigated 
possible fraud, market manipulation, and breaches of fiduciary duty. 
For example, in 2008 the enforcement staff launched investigations into 
whether mortgage lenders properly accounted for the loans in their 
portfolios and established appropriate loan loss reserves. The division 
also began investigating the role of the various parties involved in 
the securitization of mortgage-backed securities and collateralized 
debt obligations. Enforcement staff also worked to determine whether 
investment banks and broker-dealers defrauded retail customers by 
making false representations, or by putting investors into unsuitable 
mortgage-backed investments. As of the end of FY 2008, the SEC had over 
50 pending law enforcement investigations in the subprime area. 

The Enforcement Division undertook a sweeping investigation into market 
manipulation of financial institutions, focusing on broker-dealers and 
institutional investors with significant trading activity in financial 
issuers and with positions in credit default swaps. The division 
reached the largest settlements in the SEC’s history—over $50 billion— 
on behalf of investors in auction rate securities (ARS) from Merrill 
Lynch, Wachovia, UBS, Citigroup, Bank of America and RBC Capital 
Markets. The division also brought a landmark enforcement action 
against a trader who spread false rumors designed to drive down the 
price of stock, and charged two Wall Street brokers with defrauding 
their customers when making more than $1 billion in unauthorized 
purchases of subprime-related auction rate securities. 

In July 2008, the Office of Compliance Inspections and Examinations 
(OCIE) conducted examinations to prevent the spread of false 
information intended to manipulate securities prices. Examiners focused 
on the supervisory and compliance controls of broker-dealers and 
investment advisers. 

Penalties against naked short selling. The Commission adopted new rules 
that strictly enforce the ban on abusive naked short selling contained 
in Regulation SHO, and impose significant penalties for its violation. 
A broker-dealer that does not deliver securities by the close of 
business on the settlement date (three days after the sale transaction 
date, or T+3) is banned from any short sales in that issuer until the 
failure is cured. New antifraud Rule 10b-21 expressly targets 
fraudulent short selling transactions. The Commission unanimously 
approved an additional measure to make it easier for issuers to 
repurchase their own shares on the open market, in order to provide 
liquidity in fragile market conditions. The Commission also voted 
unanimously to require weekly reporting by hedge funds and other large 
investment managers of their daily short positions, as part of a 
comprehensive investigation of possible market manipulation. 

Guidance to support money market funds. In September 2008, the Office 
of the Chief Accountant (OCA) provided guidance to clarify how banks 
should treat, for purposes of their balance sheets, the financial 
support they provide to money market funds within the same financial 
services complex. This helped clarify for banks the appropriate 
accounting treatment for any assistance they render to money market 
funds, helping to protect investors in these funds. Guidance on fair 
value accounting. The credit market crisis that deepened in September 
2008 made questions about the determination of fair value particularly 
challenging for preparers, auditors, and users of financial 
information, as the concept of fair value measurement assumes an 
orderly transaction between market participants. OCA and the Financial 
Accounting Standards Board (FASB) jointly provided timely 
clarification, based on the guidance issued by OCA and FASB staff in 
FASB Statement No. 157, Fair Value Measurements. The clarification 
addressed questions cited as most urgent while the FASB prepared to 
propose additional interpretative guidance on fair value measurement 
under U.S. generally accepted accounting principles (GAAP). Among other 
issues, OCA and FASB addressed the use of management’s internal 
assumptions and broker quotes to measure fair value when an active 
market for a security does not exist. 

Study on fair value accounting. The Emergency Economic Stabilization 
Act of 2008 called for the SEC to conduct a study of mark-to-market 
accounting standards, considering the effects of such standards on the 
balance sheets of financial institutions, on bank failures in 2008, and 
on the quality of financial information available to investors. The 
agency has dedicated substantial resources to this study. 

Implementation of the Troubled Asset Relief Program. The Chairman 
serves as one of five members of the Financial Stability Oversight 
Board, which oversees the U.S. Department of the Treasury’s (Treasury) 
implementation of the $700 billion Troubled Asset Relief Program. The 
SEC brings to this role its unique perspective on investor protection, 
the maintenance of orderly markets, and the promotion of capital 
formation. 

Regulation of credit rating agencies. The Commission began regulating 
credit rating agencies in the last month of FY 2007. In FY 2008 the 
agency examined the three largest rating agencies. These examinations 
uncovered serious shortcomings at these firms, including a lack of 
disclosure to investors and the public, a lack of policies and 
procedures to manage the rating process, and insufficient attention to 
conflicts of interest. The rating agencies all agreed to implement 
broad reforms to address these problems. In addition, the Commission 
proposed sweeping new rules for rating agencies to bring increased 
transparency to the credit ratings process and curb practices that 
contributed to the turmoil in the credit markets. The rules are 
designed to improve investor understanding of credit ratings through 
enhanced disclosure of the agencies’ methods and performance data, 
reduce undue reliance on credit ratings, and promote investor 
confidence in credit ratings by minimizing conflicts of interest. 

Formal Cooperation with the Federal Reserve Board. In July 2008, the 
SEC signed a Memorandum of Understanding with the Federal Reserve Board 
to cooperate and share information related to anti-money laundering, 
bank brokerage activities under the Gramm-Leach-Bliley Act, clearance 
and settlement in the banking and securities industries, the regulation 
of transfer agents, and other key areas. In addition to giving both 
organizations continued insight during the deepening credit crisis, the 
memorandum also enhanced SEC oversight of the broker-dealer 
subsidiaries of bank holding companies. The information from the bank 
holding company level that the SEC now receives under the memorandum 
will strengthen the agency’s ability to protect the customers of the 
broker-dealers and the integrity of the broker-dealer firms. 

Ending the CSE Program. The Consolidated Supervised Entities (CSE) 
program was created in 2004 in an effort to fill a regulatory hole 
regarding the lack of oversight for major investment bank holding 
companies under the Gramm- Leach-Bliley Act of 1999. Due to the lack of 
statutory authority from Congress, however, the program was voluntary 
in nature. In addition, the program’s use of the Basel standards for 
holding company capital and the Federal Reserve’s 10 percent “well 
capitalized” standard was found inadequate when Bear Stearns nearly 
failed in March 2008. The SEC ended the voluntary CSE program in 
September 2008. Broker-dealer subsidiaries of former participants in 
the program continue to be monitored vigorously.
 
Enforcement and Examination: 

The SEC vigorously pursued potential violations of the federal 
securities laws, highlighted by the second-highest number of 
enforcement actions in agency history in FY 2008. The Commission 
brought 671 enforcement actions during the fiscal year, with the number 
of insider trading and market manipulation cases up more than 25 
percent and 45 percent respectively over the previous year. 

In addition to the cases described above, the Commission also brought 
major cases related to hedge fund fraud, insider trading, financial 
fraud, options backdating, and other areas. For example, the SEC 
successfully prosecuted the head of two Connecticut based hedge funds, 
whose fraudulent actions caused investor losses of approximately $500 
million. The Commission also charged the former Chairman and CEO of 
Enron Energy Services with selling Enron stock on the basis of 
material, nonpublic information, and he agreed to pay $32 million in 
disgorgement, penalties, and prejudgment interest. In a major financial 
fraud case, the former Chairman and CEO of DHB Industries, a major 
supplier of body armor to the U.S. military and law enforcement 
agencies, was charged with engaging in a pervasive accounting fraud 
between 2003 and 2005, violating insider trading laws in 2004, and 
using millions of dollars in corporate funds to pay personal expenses. 
The SEC filed options backdating cases against Broadcom, the Chairman 
and CEO of UnitedHealth Group, Brooks Automation, and executives with 
Monster Worldwide, among others. In all, the disgorgements and 
penalties ordered in SEC cases amounted to more than $1 billion in FY 
2008. 

Office of Collections and Distributions. In FY 2007, the SEC created 
the office to manage the collection of penalties and disgorgements and 
speed the process of returning funds back to harmed investors. The 
agency also continued to use the Phoenix system, deployed in 2007, 
which has significantly improved the tracking of dollars ordered to be 
paid to the SEC, courts, or other appointed trustees. Between FY 2004 
and FY 2008, the total amount ordered was approximately $12.9 billion. 
About 75 percent of this total has been either collected or otherwise 
satisfied as of the end of FY 2008. The SEC also succeeded in 
distributing approximately $1 billion to injured investors in FY 2008, 
bringing total distributions since the passage of Sarbanes-Oxley to an 
estimated $4.3 billion. The SEC continues to streamline the process and 
return funds to investors as quickly as possible.[Footnote 8] 

Internet enforcement, microcap fraud, municipal fraud. In FY 2008, the 
SEC continued to fight fraudulent activity conducted via the Internet 
and in the sale of microcap and municipal securities. The SEC obtained 
an emergency court order freezing the assets of the alleged perpetrator 
of an Internet fraud scheme that reaped approximately $72 million from 
more than 3,000 investors in all 50 states and at least 30 foreign 
countries. In four separate enforcement actions, the Commission charged 
six microcap companies, four company officers, and several market 
professionals who, according to the Commission’s allegations, engaged 
in a scheme to raise millions of dollars in capital through improperly 
registered stocks. 

Additionally, the SEC charged the mayor of Birmingham, Alabama, and 
others with fraud related to municipal bond offerings and swap 
agreement transactions he directed. The Commission also filed a settled 
civil fraud action against the independent auditor of San Diego, 
California, in connection with the city’s false and misleading 
financial statements in five 2002 and 2003 bond offerings. 

Enhancing enforcement and examination systems. In FY 2008, the agency 
focused on improving and strengthening the agency’s internal 
enforcement and examinations systems. The Division of Enforcement’s new 
system, called “The Hub,” gives all enforcement staff access to the 
entire inventory of investigations and provides senior managers with a 
wealth of data about those activities. As a result, enforcement 
leadership’s ability to direct the resources of the entire national 
enforcement program quickly and effectively has been enhanced 
significantly. 

The Risk Assessment Database for Analysis and Reporting (RADAR) 
automates OCIE’s risk assessment and mapping process, which helps the 
office identify and respond quickly to new or resurgent forms of 
fraudulent, illegal, or questionable behavior or products. Using RADAR, 
examiners nationwide can identify and prioritize risks to investors, 
registrants, and markets, which the SEC analyzes to determine 
examination priorities and develop appropriate regulatory responses. In 
FY 2008, OCIE expanded the information it collects and analyzes using 
RADAR, and the office plans to enhance the system further in FY 2009. 

In FY 2008, the agency began developing the Risk Assessment 
Documentation and Inspection Umbrella System (RADIUS), a new over-
arching examination platform that will allow staff to conduct, plan, 
and coordinate examinations more easily and effectively. Ultimately, 
RADIUS will serve as the central platform for the examination program 
through which examiners will perform program-wide risk assessment, 
document management, data tracking and reporting, and program-wide 
planning. 

CCOutreach Program. During the year, the SEC fully implemented a new 
CCOutreach program for brokerdealers, with the SEC and Financial 
Industry Regulatory Authority (FINRA) conducting 14 regional seminars. 
The seminars focused on the SEC’s examination priorities, FINRA’s 
examination findings, and other important issues to assist chief 
compliance officers (CCO) in developing and enhancing effective 
compliance programs. Additionally, the SEC continued to host seminars 
for compliance officers at investment advisers and funds, and the 
agency issued a new ComplianceAlert letter identifying common 
deficiencies and weaknesses that SEC examiners found during their 
examinations of firms. 

Enhanced Protection, Outreach, and Disclosure for Investors: 

Expanded SEC office focusing on investor protection. The SEC 
significantly improved and expanded its investor education and advocacy 
functions in 2007, establishing the Office of Investor Education and 
Advocacy (OIEA). With an expanded staff, OIEA undertook new initiatives 
in FY 2008, focusing on assessing the views and needs of retail 
investors, ensuring those views inform the SEC’s regulatory policies 
and disclosure programs, improving financial literacy, and helping 
investors make informed investment decisions. 

Protecting seniors from fraudulent activities and abusive sales 
practices. The SEC continued to focus on protecting the savings and 
investments of seniors, who hold the vast majority of the nation’s 
savings, making them prime targets for fraud. The SEC, FINRA, and the 
North American Securities Administrators Association (NASAA) announced 
in 2006 a multi-year national initiative to protect seniors from 
investment fraud and sales of unsuitable securities. A key component of 
the initiative has been the Seniors Summit. The third annual summit, 
which was held in September, focused on helping older investors make 
difficult financial decisions and learn ways to protect their assets as 
they age. This year, the three regulators also launched an initiative 
to identify effective practices used by financial services firms in 
dealing with senior investors and to disseminate information about 
these best practices throughout the industry. 

Additionally, the Commission proposed a new rule that would protect 
seniors from fraudulent and abusive sales of equity indexed annuities, 
which are often sold to seniors but may be unsuitable for them because 
of high early surrender charges that lock up investors’ money for many 
years. The proposed rule establishes the standards for determining when 
the annuities are subject to the investor protections afforded by the 
securities laws. 

Improved access to municipal securities information. In July 2008, the 
Commission proposed measures that would for the first time enable 
investors to access complete financial information about municipal 
bonds for free on the Internet. Approximately two-thirds of the $2.5 
trillion in municipal securities are owned directly or indirectly by 
retail investors. Currently, issuers of municipal bonds submit their 
disclosures to a variety of for-profit information repositories that 
then sell the disclosures to the public, severely limiting the 
availability of this information to retail investors. The proposed 
amendments would designate the Municipal Securities Rulemaking Board as 
the central repository for ongoing disclosures by municipal issuers. 

Enhancement of Global Accounting Standards. The increasing integration 
of the world’s capital markets, which has resulted in two-thirds of 
U.S. investors directly or indirectly owning securities issued by 
foreign companies that report their financial information using 
International Financial Reporting Standards (IFRS), has made the 
establishment of a single set of high quality accounting standards a 
matter of growing importance. In 2008, the SEC took several major steps 
to encourage the development of IFRS as a uniform and high-quality 
global standard, which would help U.S. investors who own foreign 
securities better analyze and more readily compare their investments. 
The Commission aided the record number of U.S. investors who own the 
securities of foreign companies by approving rule amendments 
encouraging foreign private issuers in the U.S. to use the version of 
IFRS issued by the International Accounting Standards Board (IASB). The 
rule amendments eliminate the GAAP reconciliation requirement for 
foreign private issuers that use the version of IFRS issued by the 
IASB. In addition, the Commission voted on a proposed “roadmap” that 
could lead to the use of IFRS rather than GAAP by U.S. issuers 
beginning in 2014. The Commission will make a decision in 2011 on 
whether adoption of IFRS is in the public interest and would benefit 
investors. Finally, the SEC worked with other securities authorities to 
enhance the governance of the International Accounting Standards 
Committee Foundation, which oversees the IASB. 

Report of the SEC’s Advisory Committee on Improvements to Financial 
Reporting. In FY 2008, the Advisory Committee released its final report 
identifying ways to reduce complexity in the U.S. financial reporting 
system and make financial reports clearer to investors. The report has 
25 recommendations for the SEC, FASB, and the Public Company Accounting 
Oversight Board (PCAOB). The SEC also considered how best to implement 
these recommendations in future rulemaking actions. 

Proposals allowing summary prospectuses for mutual funds. In November 
2007, the Commission proposed rule amendments that would allow all 
mutual fund investors to receive a clear, concise summary of key 
information needed to make an informed decision. The proposed rules are 
intended to enable investors to use and compare mutual fund information 
more effectively. The SEC published a prototype summary prospectus on 
its Web site and actively sought investor input. 

Information sharing agreements. In FY 2008, the SEC entered into a MOU 
with the Commodity Futures Trading Commission (CFTC) to establish a 
permanent regulatory liaison between the two agencies and provide for 
enhanced information sharing. The agreement establishes a process to 
better address the regulatory issues that cross regulatory boundaries 
established decades ago. The SEC also signed protocols to share 
information on the application of IFRS, as issued by the IASB, with 
financial regulators in four European countries—Belgium, Bulgaria, 
Norway, and Portugal. 

Small business cost and benefits study of Section 404. The SEC 
commenced a cost-benefit study of the auditor attestation requirement 
for smaller companies under Section 404(b) of the Sarbanes-Oxley Act of 
2002. The study will collect and analyze extensive “real world” cost 
and benefit data from a broad array of companies currently complying 
with Section 404, under the new Auditing Standard by the PCAOB and the 
management guidance the agency provides. The new audit standard and 
management guidance were intended to reduce the compliance costs of 
Section 404, while strengthening its focus on material controls. In 
addition to assessing the Section 404 cost reductions resulting from 
the Commission’s recent actions, the final report also will inform any 
decision to improve the efficiency and effectiveness of Section 404 
implementation. To allow time for completion of the study, the 
Commission proposed a one-year extension of the Section 404(b) auditor 
attestation requirement for smaller public companies, with the 
requirement first applying to companies whose fiscal years end on or 
after December 15, 2009. 

Electronic shareholder forums. In FY 2008, the Commission adopted 
amendments to facilitate the use of electronic shareholder forums. The 
amendments allow the use of technology to help shareholders communicate 
with each other and express their concerns to companies in more cost-
effective ways, while removing legal concerns. 

Information security. The Commission proposed new rules that provide 
more detailed standards for information security programs, including 
safeguarding information and responding to information security 
breaches. The proposed rules are intended to protect investor privacy 
and prevent security breaches at the financial institutions and other 
entities the SEC regulates. 

Improving Transparency for Investors: 

Interactive Data Electronic Applications (IDEA). In FY 2008 the SEC 
unveiled a new system—IDEA—as the successor to the agency’s 1980s-era 
Electronic Data Gathering Analysis, and Retrieval system (EDGAR) 
database. IDEA marks the SEC’s transition from collecting and 
disseminating whole forms to making each item of information on the 
forms individually searchable. The Office of Interactive Disclosure 
also led the implementation of a new electronic data-based filing 
system and free Web-based analytical tools for investors.

Taxonomies for GAAP. In FY 2008, the SEC released for public comment 
the computer labels, or “tags,” that will enable public companies to 
make financial reports available in interactive data form instead of 
text form. The financial reporting taxonomy is the resulting 
standardized list of computer codes used to represent GAAP. The 
Commission will use the initial financial statements prepared using the 
new taxonomy to develop IDEA to seamlessly accept and render the 
filings. 

Financial Explorer, Mutual Fund Reader, and Executive Compensation 
Reader. The SEC launched Web-based applications that allow investors to 
find, view, download, and analyze financial and other information that 
public companies and mutual funds submit in interactive data format. 
Using these applications investors can compare key financial 
information about companies and mutual funds. In addition, one year of 
data on executives’ compensation at 500 of the largest American 
companies is also available on the SEC’s Web site. 

Rule proposals requiring companies and mutual funds to use interactive 
data. The Commission proposed in May 2008 a requirement that U.S. 
reporting companies provide their financial statements and footnotes in 
interactive data. The Commission also proposed that mutual fund 
investors be given access to key information about fees, performance, 
and strategies through interactive data for more than 8,000 mutual 
funds. 

Interactive data roundtables. As the SEC continued to make the 
transition from a data collection system that is form-based to one that 
is dynamic, accessible, and better organized around core company and 
mutual fund information, the agency continued its efforts to consult 
with outside organizations to learn from their efforts to use 
interactive data. The SEC hosted the International Roundtable on 
Interactive Data for Public Financial Reporting in June 2008. Topics 
included the experience in countries that have already adopted 
interactive data and the views of countries currently considering 
adopting interactive data. Another roundtable in October 2008 focused 
on the data, technology, and processes that companies use in satisfying 
their SEC disclosure obligations, as well as how the SEC could improve 
its disclosure system so that companies enjoy efficiencies and 
investors have better access to high-quality information, especially in 
light of the current credit crisis. 

Financial and Performance Highlights: 

* In FY 2008, the SEC was authorized by Congress to spend $906 million, 
a 2.8 percent increase over the $881.6 million authorized in FY 2007. 
Funding was offset by fees collected by the SEC. Of the total 
authority, $843 million was new budgetary authority and the remaining 
$63 million was carried over from prior year unobligated balances, as 
illustrated in Chart 1.2. 

* In FY 2008, the SEC reduced its year-end unobligated balance over 
previous levels through rigorous oversight and management of budgetary 
resources made possible by improvements in technology such as the 
agency’s budget and performance tool. 

* The SEC employed 3,511 FTE in FY 2008. This represents an increase of 
46 FTE over FY 2007. 

* In 2002, Congress set by law the aggregate amounts the SEC is to 
collect annually through fees. These target amounts generally exceed 
the level of funding appropriated to the SEC, and are used by Congress 
to offset SEC and other federal spending. 

* In order to meet the offsetting collections target in FY 2008, the 
SEC lowered the rates of fees it collects on securities transactions on 
the exchanges and certain over-the-counter markets. Additional 
discussion of the fees collected by the SEC can be found in Note 1.L. 
Accounts Receivable and Allowance for Uncollectible Accounts on page 
66, and Note 1.S. Revenue and Other Financing Sources on page 68. 

* While the transaction fee rate was cut by more than half from this 
time last year, there was significantly more transactional volume 
compared to last year. Therefore, the total collections dropped only 36 
percent. In accordance with law, the SEC collected fees in excess of 
its appropriations from Congress. However, the excess amount is 
declining, as illustrated in Chart 1.3. 

Figure: Chart 1.2: Spending Authority by Source: 

This figure is a combination bar graph. The X axis represents fiscal 
years, and the Y axis represents cumulative spending authority (in 
millions). One bar represents New Budget Authority, and the other bar 
represents Carry-Over. 

Fiscal Year: 2006; 
New Budget Authority: $863; 
Carry-Over: $25. 

Fiscal Year: 2007; 
New Budget Authority: $868; 
Carry-Over: $14. 

Fiscal Year: 2008; 
New Budget Authority: $843; 
Carry-Over: $63. 

[See PDF for image] 

[End of figure] 

Figure: Chart 1.3: Offsetting Collections vs. New Budgetary Authority: 

This figure is a shaded graph representing offsetting collections vs. 
new budgetary authority. The X axis represents the fiscal years, and 
the Y axis represents cumulative collections (in millions). 

[See PDF for image] 

[End of figure] 

* Decreases in the fee rates are reflected in line item variances from 
the prior year for: Accounts Receivable shown on the Balance Sheet on 
page 59; Earned Revenue per the Statement of Net Cost on page 60; and 
Spending Authority from Offsetting Collections and Temporarily not 
Available Pursuant to Public Law on the Statement of Budgetary 
Resources on page 62. 

* The continued accumulation of offsetting collections is reflected in 
the increase to Fund Balance with Treasury (FBWT) and a corresponding 
increase in Cumulative Results of Operations as reported on the Balance 
Sheet on page 59. 

* Due to the aggressive and sustained efforts of SEC staff, 
approximately 74 percent of the agency’s planned performance levels 
were either met or exceeded in FY 2008 (Chart 1.4). The FY 2008 
performance level is approximately 18 percentage points greater than 
the FY 2007 performance level. 

* The SEC dedicated a majority of its resources to Goal 1: Enforce 
Compliance with Federal Securities Laws. As reported in the Statement 
of Net Cost on page 60, nearly 64 percent of agency resources, 
including two-thirds of the agency’s FTE, were focused on detecting and 
prosecuting securities violations (Chart 1.5). 

* In FY 2008, the SEC undertook the second highest number of 
enforcement actions in agency history. The Commission returned 
approximately $1 billion to harmed investors through Disgorgement and 
Fair Fund distributions, $738.5 million of which stemmed from 11 major 
cases (Table 1.1). 

* The market turmoil in FY 2008 required the Division of Investment 
Management to provide an extraordinary number of no-action responses on 
an emergency basis. Staff increased their efforts and significantly 
surpassed the FY 2008 timeliness goal for responding to no-action 
letter and interpretive requests for guidance about federal securities 
laws (Performance Section, Table 2.21). 

* The Divisions of Corporation Finance and Investment Management 
exceeded their performance targets for the review of Exchange Act 
reporting company disclosures in FY 2008 (Performance Section, Table 
2.25). This level of review allows the SEC to continue to meet the 
requirements of the Sarbanes-Oxley Act by reviewing material financial 
and other information of all corporations and investment company 
portfolios at least once every three years. 

Figure: Chart 1.4: FY 2008 Results by Performance Level: 

This figure is a pie graph showing FY2008 results by performance level. 

Planned Performance Level Exceeded or Met: 74%; 
Planned Performance Level Improved over Prior Year, But Target Not Met: 
5%; 
Planned Performance Level Not Met: 16%; 
N/A New Performance Measure in FY 2008, Target Was Not Set: 5%. 

[See PDF for image] 

[End of figure]  

Figure: Chart 1.5: FY 2008 Cost by Goal: 

This figure is a pie graph showing FY2008 results by performance level. 

Goal 1— Enforce compliance with federal securities laws: 64%; 
Goal 2— Promote healthy capital markets through an effective and 
flexible regulatory environment: 11%;
 Goal 3— Foster informed investment decision making: 14%; 
Goal 4— Maximize the use of SEC resources: 11%. 

[See PDF for image] 

[End of figure] 

Table 1.1: Major SEC Distributions to Harmed Investors during FY 2008*: 

Dollars in thousands. 

Massachusetts Financial Services Company: $307,698; 
Banc of America Capital Management LLC: $147,169; 
Knight Securities: $53,217; 

Columbia Management Advisors, Inc.: $49,616; 
Franklin Advisors Inc. $49,123; 
Janus Capital Corporation: $42,261; 
Ameriprise Financial Services: $31,771; 
RS Investment Management Inc. et al: $27,048; 
Bank of America Securities Distribution Fund: $ 26,619; 
International Equity Advisors: $3,420; 
Commonwealth Equity Services Fund: $537. 

* The SEC does not report on its financial statements any amounts 
another government entity such as a court, or a non-governmental 
entity, such as a receiver has collected or will collect and will 
subsequently disburse. 

[End of table] 

* In FY 2008, the Commission proposed rules to respond to the market 
turmoil, as well as to improve the quality of disclosures for 
investors. For a discussion of key rules and other Commissions efforts, 
see the FY 2008 Highlights on page 10. 

* In FY 2008, the OIEA met its targets for responding to new investment-
related complaints and questions from investors who contact the SEC. 
Nearly 81,000 investor contacts were received during FY 2008, an almost 
5 percent increase over FY 2007. OIEA is exploring process changes and 
improved information management (e.g., updating topical information on 
SEC.gov) in order to resolve investor matters even more quickly in the 
future (Table 1.2 and Performance Section, Table 2.31). 

* In FY 2008, the SEC upgraded its core financial management system and 
implemented an automated time and attendance system capable of 
collecting information on the activities staff performed in support of 
the SEC’s mission. 

* Outlays for property and equipment decreased this year from prior 
year highs related to Washington D.C. and New York office leasehold 
improvements, and the accumulated amortization on the prior balances 
contributed to the net decrease of Property and Equipment reported on 
the Balance Sheet on page 59. See Table 1.3. 

Table 1.2: Percentage of investor complaints and inquiries completed 
within seven and thirty business days: 

Closed within 7 days: 
Phone calls; 
FY 2007: 98%; 
FY 2008: 99%. 

Other contacts; 
FY 2007: 64%; 
FY 2008: 70%. 

Total; 
FY 2007: 82%; 
FY 2008: 85%. 

Closed within 30 days: 
Phone calls; 
FY 2007: 99%; 
FY 2008: 99%. 

Other contacts; 
FY 2007: 88%; 
FY 2008: 91%. 

Total; 
FY 2007: 94%; 
FY 2008: 95%. 

[End of table] 

Table 1.3: Change in Property Balance: 

In thousands. 

Total Property Acquisitions; 
FY 2008: $16,809; 
FY 2007: $31,511. 

Depreciation/Amortization; 
FY 2008: (29,626); 
FY 2007: (35,912). 

Disposals; 
FY 2008: (1,456); 
FY 2007: (950). 

Total Reductions in Property; 
FY 2008: (31,082); 
FY 2007: (36,862). 

Total Change; 
FY 2008: $(14,273); 
FY 2007: $(5,351). 

[End of table] 

Limitations of the Financial Statements: 

The principal financial statements included in this report have been 
prepared to report the financial position and results of operations of 
the SEC, pursuant to the requirements of 31 U.S.C. 3515(b). While the 
statements have been prepared from the books and records of the SEC in 
accordance with U.S. GAAP for federal entities and the formats 
prescribed by the Office of Management and Budget (OMB), the statements 
are in addition to the financial reports used to monitor and control 
budgetary resources which are prepared from the same books and records. 
The statements should be read with the understanding that they are for 
a component of the U.S. Government, a sovereign entity. 

Performance Results Summary: 

In FY 2008, the SEC exceeded or met 43 planned performance levels on 36 
performance measures. A comparison of the SEC’s performance levels for 
FY 2007 and FY 2008, organized by goal, is presented in Table 1.4. A 
discussion of the agency’s program achievements and detailed 
performance results is located in the Performance Section. 

Table 1.4: Performance Results Summary: 

Key: Level Of Performance Attained: 

+: Performance level exceeded or met; 

??: Performance level improved over prior year, but target not met; 

–: Performance level not met; 

N/A: New performance measure in FY 2008, target was not set. 

Goal 1: Enforce Compliance With The Federal Securities Laws: 1. 
Percentage of advisers deemed “high risk” examined during the year; 
Performance Level: FY07: +; 
Performance Level: FY08: +. 

Goal 1: Enforce Compliance With The Federal Securities Laws: 2. 
Percentage of firms receiving deficiency letters that stated they took 
or would take corrective action in response to all exam findings;  
Performance Level: FY07: –; 
Performance Level: FY08: –. 

Goal 1: Enforce Compliance With The Federal Securities Laws: 3. 
Percentage of registrant population examined during the year: 
Investment advisers, Investment companies, Broker-dealers; 
Performance Level: FY07: +; 
Performance Level: FY08: +. 

Goal 1: Enforce Compliance With The Federal Securities Laws: 4. 
Percentage of (non-sweep) exams that are concluded within 120 days; 
Performance Level: FY07: –; 
Performance Level: FY08: –. 

Goal 1: Enforce Compliance With The Federal Securities Laws: 5. 
Percentage of attendees at CCOutreach that rated the program as 
“Useful” or “Extremely Useful” in their compliance efforts; 
Performance Level: FY07: +; 
Performance Level: FY08: +. 

Goal 1: Enforce Compliance With The Federal Securities Laws: 6. 
Percentage of exams with “significant” findings*; 
Performance Level: FY07: [Empty]; 
Performance Level: FY08: [Empty]. 

Goal 1: Enforce Compliance With The Federal Securities Laws: 7. 
Percentage of first enforcement cases filed within two years; 
Performance Level: FY07: –; 
Performance Level: FY08: +. 

Goal 1: Enforce Compliance With The Federal Securities Laws: 8. 
Maintaining an effective distribution of cases across core enforcement 
areas; 
Performance Level: FY07: +; 
Performance Level: FY08: +. 

Goal 1: Enforce Compliance With The Federal Securities Laws: 9. 
Percentage of enforcement cases successfully resolved; 
Performance Level: FY07: +; 
Performance Level: FY08: +. 

Goal 1: Enforce Compliance With The Federal Securities Laws: 10. 
Percentage of debts where either a payment has been made, or a 
collection activity has been initiated within six months of the due 
date of the debt; 
Performance Level: FY07: N/A; 
Performance Level: FY08: +. 

Goal 1: Enforce Compliance With The Federal Securities Laws: 11. 
Percentage of Fair Funds and disgorgement dollars designated for 
distribution that are distributed to investors within 12 months; 
Performance Level: FY07: N/A; 
Performance Level: FY08: N/A. 

Goal 1: Enforce Compliance With The Federal Securities Laws: 12. Volume 
of enforcement activity: investigations opened, cases filed, and 
investigations closed*; 
Performance Level: FY07: [Empty]; 
Performance Level: FY08: [Empty]. 

Goal 1: Enforce Compliance With The Federal Securities Laws: 13. Assets 
frozen abroad in SEC cases through coordination with foreign 
regulators*; 
Performance Level: FY07: [Empty]; 
Performance Level: FY08: [Empty]. 

Goal 2: Promote Healthy Capital Markets Through An Effective And 
Flexible Regulatory Environment: 14. Percentage of SRO rule filings 
closed in less than 60 days from filing; 
Performance Level: FY07: +; 
Performance Level: FY08: +. 

Goal 2: Promote Healthy Capital Markets Through An Effective And 
Flexible Regulatory Environment: 15. Average daily share volume (in 
billions of shares) on the NYSE and Nasdaq exchanges: NYSE; 
Performance Level: FY07: +; 
Performance Level: FY08: –. 

Goal 2: Promote Healthy Capital Markets Through An Effective And 
Flexible Regulatory Environment: 15. Average daily share volume (in 
billions of shares) on the NYSE and Nasdaq exchanges: Nasdaq; 
Performance Level: FY07: –; 
Performance Level: FY08: +. 

Goal 2: Promote Healthy Capital Markets Through An Effective And 
Flexible Regulatory Environment: 16. Percentage of transaction dollars 
settled on time each year; 
Performance Level: FY07: N/A; 
Performance Level: FY08: +. 

Goal 2: Promote Healthy Capital Markets Through An Effective And 
Flexible Regulatory Environment: 17. Percentage of market outages at 
SROs and ECNs that are corrected within targeted timeframes: Within 2 
hours, Within 4 hours Within 24 hours; 
Performance Level: FY07: +; 
Performance Level: FY08: +. 

Goal 2: Promote Healthy Capital Markets Through An Effective And 
Flexible Regulatory Environment: 18. Equity portfolio holdings of U.S. 
investment companies as a percentage of total U.S. stock market 
capitalization; 
Performance Level: FY07: +; 
Performance Level: FY08: +. 

Goal 2: Promote Healthy Capital Markets Through An Effective And 
Flexible Regulatory Environment: 19. Number of new foreign private 
issuers and dollar amount of registered securities*; 
Performance Level: FY07: [Empty]; 
Performance Level: FY08: [Empty]. 

Goal 2: Promote Healthy Capital Markets Through An Effective And 
Flexible Regulatory Environment: 20. Percentage of regulated entities 
representing a single point of failure that meet the continuity of 
operations standards of the White Paper, the Policy Statement, and the 
Automated Review Program: White Paper analysis; 
Performance Level: FY07: N/A; 
Performance Level: FY08: +. 

Goal 2: Promote Healthy Capital Markets Through An Effective And 
Flexible Regulatory Environment: 20. Percentage of regulated entities 
representing a single point of failure that meet the continuity of 
operations standards of the White Paper, the Policy Statement, and the 
Automated Review Program: Policy Statement analysis; 
Performance Level: FY07: N/A; 
Performance Level: FY08: –. 

Goal 2: Promote Healthy Capital Markets Through An Effective And 
Flexible Regulatory Environment: 21. Timeliness of SEC responses to 
written no-action letter, exemptive applications, and interpretive 
requests: Trading and Markets: No-action letter, exemptive, and 
interpretive requests (combined figure); 
Performance Level: FY07: +; 
Performance Level: FY08: –. 

Goal 2: Promote Healthy Capital Markets Through An Effective And 
Flexible Regulatory Environment: 21. Timeliness of SEC responses to 
written no-action letter, exemptive applications, and interpretive 
requests: Investment Management: No-action letter and interpretive 
requests; 
Performance Level: FY07: +; 
Performance Level: FY08: +. 

Goal 2: Promote Healthy Capital Markets Through An Effective And 
Flexible Regulatory Environment: 21. Timeliness of SEC responses to 
written no-action letter, exemptive applications, and interpretive 
requests: Investment Management: Exemptive applications; 
Performance Level: FY07: N/A; 
Performance Level: FY08: +. 

Goal 2: Promote Healthy Capital Markets Through An Effective And 
Flexible Regulatory Environment: 21. Timeliness of SEC responses to 
written no-action letter, exemptive applications, and interpretive 
requests: Corporation Finance: No-action letter and interpretive 
requests; 
Performance Level: FY07: –; 
Performance Level: FY08: –. 

Goal 2: Promote Healthy Capital Markets Through An Effective And 
Flexible Regulatory Environment: 21. Timeliness of SEC responses to 
written no-action letter, exemptive applications, and interpretive 
requests: Corporation Finance: Shareholder proposals; 
Performance Level: FY07: +; 
Performance Level: FY08: +. 

Goal 2: Promote Healthy Capital Markets Through An Effective And 
Flexible Regulatory Environment: 22. Percentage of U.S. households 
owning mutual fund shares; 
Performance Level: FY07: +; 
Performance Level: FY08: +. 

Goal 2: Promote Healthy Capital Markets Through An Effective And 
Flexible Regulatory Environment: 23. Percentage of U.S. households 
investing in the securities market either through direct share 
ownership or ownership of mutual funds; 
Performance Level: FY07: N/A; 
Performance Level: FY08: N/A. 

Goal 2: Promote Healthy Capital Markets Through An Effective And 
Flexible Regulatory Environment: 24. Mutual fund share of total 
retirement assets; 
Performance Level: FY07: +; 
Performance Level: FY08: +. 

Goal 3: Foster Informed Investment Decision Making: 25. Percentage of 
Exchange Act reporting companies reviewed by the SEC: Corporations; 
Performance Level: FY07: +; 
Performance Level: FY08: +. 

Goal 3: Foster Informed Investment Decision Making: 25. Percentage of 
Exchange Act reporting companies reviewed by the SEC: Investment 
company portfolios; 
Performance Level: FY07: +; 
Performance Level: FY08: +. 

Goal 3: Foster Informed Investment Decision Making: 26. Average time to 
issue initial comments on Securities Act filings; 
Performance Level: FY07: +; 
Performance Level: FY08: +. 

Goal 3: Foster Informed Investment Decision Making: 27. Percentage of 
investment company disclosure reviews for which initial comments are 
completed within timeliness goals: Initial registration statements; 
Performance Level: FY07: +; 
Performance Level: FY08: +. 

Goal 3: Foster Informed Investment Decision Making: 27. Percentage of 
investment company disclosure reviews for which initial comments are 
completed within timeliness goals: Post-effective amendments; 
Performance Level: FY07: +; 
Performance Level: FY08: +. 

Goal 3: Foster Informed Investment Decision Making: 27. Percentage of 
investment company disclosure reviews for which initial comments are 
completed within timeliness goals: Preliminary proxy statements; 
Performance Level: FY07: +; 
Performance Level: FY08: +. 

Goal 3: Foster Informed Investment Decision Making: 28. Percentage of 
forms and submissions filed electronically and in a structured format: 
Forms: Total percentage in electronic format; 
Performance Level: FY07: –; 
Performance Level: FY08: +. 

Goal 3: Foster Informed Investment Decision Making: 28. Percentage of 
forms and submissions filed electronically and in a structured format: 
Filings received: Total percentage in electronic format; 
Performance Level: FY07: –; 
Performance Level: FY08: +. 

Goal 3: Foster Informed Investment Decision Making: 29. Number of 
searches for EDGAR filings on [hyperlink, http://www.sec.gov]; 
Performance Level: FY07: +; 
Performance Level: FY08: –. 

Goal 3: Foster Informed Investment Decision Making: 30. Demand for 
investor education information, and average cost per thousand investors 
reached: Total number of investors reached (in millions, with Web 
visits); 
Performance Level: FY07: N/A; 
Performance Level: FY08: N/A. 

Goal 3: Foster Informed Investment Decision Making: 30. Demand for 
investor education information, and average cost per thousand investors 
reached: Average cost per thousand investors reached (with Web visits); 
Performance Level: FY07: N/A; 
Performance Level: FY08: N/A. 

Goal 3: Foster Informed Investment Decision Making: 31. Percentage of 
investor complaints and inquiries completed within 7 and 30 business 
days: Closed within 7 days; 
Performance Level: FY07: +; 
Performance Level: FY08: +. 

Goal 3: Foster Informed Investment Decision Making: 31. Percentage of 
investor complaints and inquiries completed within 7 and 30 business 
days: Closed within 30 days; 
Performance Level: FY07: N/A; 
Performance Level: FY08: +. 

Goal 3: Foster Informed Investment Decision Making: 32. Investor 
assistance and public information telephone inquiries: Investor 
assistance; 
Performance Level: FY07: N/A; 
Performance Level: FY08: +. 

Goal 3: Foster Informed Investment Decision Making: 32. Investor 
assistance and public information telephone inquiries: Public 
information; 
Performance Level: FY07: N/A; 
Performance Level: FY08: +. 

Goal 3: Foster Informed Investment Decision Making: 33. Responses to 
Freedom of Information Act requests; 
Performance Level: FY07: N/A; 
Performance Level: FY08: +. 

Goal 4: Maximize The Use Of Sec Resources: 34. Staff turnover rate; 
Performance Level: FY07: –; 
Performance Level: FY08: +. 

Goal 4: Maximize The Use Of Sec Resources: 35. Maintain a top five 
ranking among the Best Places to Work in Government; 
Performance Level: FY07: +; 
Performance Level: FY08: +. 

Goal 4: Maximize The Use Of Sec Resources: 36. Human resources 
productivity; 
Performance Level: FY07: Discontinued; 
Performance Level: FY08: Discontinued. 

Goal 4: Maximize The Use Of Sec Resources: 37. Percentage of the time 
that SEC.gov and EDGAR are operable: SEC.gov; 
Performance Level: FY07: +; 
Performance Level: FY08: +. 

Goal 4: Maximize The Use Of Sec Resources: 37. Percentage of the time 
that SEC.gov and EDGAR are operable: EDGAR; 
Performance Level: FY07: +; 
Performance Level: FY08: +. 

Goal 4: Maximize The Use Of Sec Resources: 38. Number of OIG and GAO 
information security-related recommendations outstanding for more than 
18 months: GAO recommendations; 
Performance Level: FY07: –; 
Performance Level: FY08: ??. 

Goal 4: Maximize The Use Of Sec Resources: 38. Number of OIG and GAO 
information security-related recommendations outstanding for more than 
18 months: OIG recommendations; 
Performance Level: FY07: –; 
Performance Level: FY08: +. 

Goal 4: Maximize The Use Of Sec Resources: 39. Percentage of major 
systems that have been certified and accredited, and given a privacy 
impact assessment, within required timeframes: Major systems certified 
and accredited; 
Performance Level: FY07: –; 
Performance Level: FY08: –. 

Goal 4: Maximize The Use Of Sec Resources: 39. Percentage of major 
systems that have been certified and accredited, and given a privacy 
impact assessment, within required timeframes: Major systems with 
privacy impact assessment completed; 
Performance Level: FY07: –; 
Performance Level: FY08: –. 

Goal 4: Maximize The Use Of Sec Resources: 40. Financial audit results: 
Unqualified opinion; 
Performance Level: FY07: +; 
Performance Level: FY08: +. 

Goal 4: Maximize The Use Of Sec Resources: 40. Financial audit results: 
Material weaknesses; 
Performance Level: FY07: –; 
Performance Level: FY08: +. 

Goal 4: Maximize The Use Of Sec Resources: 40. Financial audit results: 
Significant deficiency; 
Performance Level: FY07: –; 
Performance Level: FY08: +. 

* Denotes an indicator and will not have performance targets. 

Note: Since the FY 2007 PAR, the SEC has adopted new performance 
measures. These new measures and corresponding data are included in the 
agency’s FY 2009 Congressional Justification and the Performance 
Section of this report.

[End of table] 

Management Assurances: 

Chairman’s Assurance Statement: 

The management of the SEC is responsible for establishing and 
maintaining effective internal control and financial management systems 
that meet the objectives of the FMFIA. Internal control is an integral 
component of the agency’s management that provides reasonable assurance 
that the following objectives are being achieved: effectiveness and 
efficiency of operations, reliability of financial reporting, and 
compliance with applicable laws and regulations. The SEC is able to 
provide reasonable assurance that the internal controls and financial 
management systems meet the objectives of FMFIA. 

The SEC’s Financial Management Oversight Committee (FMOC) assured 
prompt implementation and proper resolution of corrective actions 
addressing the previously identified material weakness in internal 
control over financial reporting. Based upon the results of the actions 
taken, the SEC can provide reasonable assurance that internal control 
over financial reporting as of September 30, 2008 was operating 
effectively and no material weaknesses were found in the design or 
operation of the internal controls over financial reporting. The SEC 
conducted its evaluation of internal control over the effectiveness and 
efficiency of operations and compliance with applicable laws and 
regulations in accordance with OMB Circular A-123. In its review, the 
SEC found no material weakness or material non-conformance in the 
design or operation of its internal controls.

Signed by: 

Christopher Cox: 

Chairman: 
November 14, 2008: 

[End of section] 

Federal Managers’ Financial Integrity Act: 

The Federal Managers’ Financial Integrity Act (FMFIA) of 1982 is 
implemented by the OMB Circular No. A-123, revised, Management’s 
Responsibility for Internal Control. 

Section 2 of the FMFIA requires federal agencies to report, on the 
basis of annual assessments, any material weaknesses that have been 
identified in connection with its internal and administrative controls. 
The reviews that took place during FY 2008 provide reasonable assurance 
that SEC systems and management controls comply with the requirements 
of the FMFIA. 

Section 4 of the FMFIA requires that agencies annually evaluate and 
report on whether financial management systems conform to government-
wide requirements. The SEC evaluated its financial management systems 
for the fiscal year ending September 30, 2008 in accordance with the 
FMFIA and OMB Circular No. A-127, Financial Management Systems, as 
applicable. The financial management systems are in substantial 
compliance with federal financial management system requirements. 

Internal control over financial reporting was evaluated by the SEC’s 
independent auditors, the Government Accountability Office (GAO). GAO 
concluded that although certain controls could be improved, SEC had 
effective internal control over financial reporting as of September 30, 
2008. 

The SEC conducted its annual assessment of the effectiveness of 
internal control in accordance with the requirement of OMB Circular No. 
A-123, Management’s Responsibility for Internal Control. 

In accordance with guidance issued by the SEC’s Office of the Executive 
Director, 33 office heads conducted reviews of their financial, 
administrative, and program management controls in FY 2008. The offices 
range in size from 8 to 487 positions, with an average of 115 positions 
at the end of FY 2008. This segmentation ensures comprehensive coverage 
of SEC offices.

Each office head prepared an annual assurance statement that identified 
any control deficiencies meriting the attention of the Chairman. These 
statements were based on information gathered from various sources, 
including, among other things: 

* Management’s personal knowledge gained from the daily operation of 
the office; 

* Internal management reviews and self-assessments; 

* GAO and Office of Inspector General reports; 

* Annual performance plans and reports; 

* Audits of the agency’s financial statements; 

* Reports and other information from Congress or the Office of 
Management and Budget; and: 

* Additional reviews relating to the office’s operations, including 
those discussed in the Other Reviews section below. 

Each year, the agency’s FMOC evaluates the Section 2 and 4 submissions, 
recommendations from the Office of the Inspector General (OIG), and 
other supplemental sources of information. Based on this review, the 
FMOC advises the Chairman as to whether the SEC had any internal 
control or system design deficiencies serious enough to be reported as 
a material weakness or non-conformance. 

Other Reviews: 

Also during the year, the OIG and the Office of Information Technology 
(OIT) conducted a combined total of 21 additional reviews. The reviews 
covered 16 of the 33 assessable units (48 percent). Some components had 
multiple reviews. 

Further, OIT, in conjunction with system owners, completed the 
certification and accreditation of 21 major systems in FY 2008. As a 
result, the SEC has now certified and accredited a total of 45 systems 
in accordance with the appropriate guidance from OMB and National 
Institute of Standards and Technology. OIT also completed contingency 
testing on the majority of the SEC’s accredited systems in conjunction 
with several of its disaster recovery exercises.

Finally, GAO audited the Commission’s financial statements. GAO’s 
procedures included audits of the FY 2008 financial statements, 
internal control over financial reporting and compliance with selected 
laws and regulations material to SEC’s financial statements, and 
actions taken in response to prior GAO audit recommendations.

Eliminating Material Weakness in Internal Controls over Financial 
Reporting: 

Description of FY 2007 Material Weakness. GAO’s audit of the SEC’s 
financial statements for FY 2007 found a material weakness in internal 
controls over financial reporting, stemming from the combination of 
four control deficiencies. These four deficiencies related to the SEC’s 
period-end financial reporting process, disgorgements and penalties 
accounts receivable, accounting for transaction fee revenue, and 
preparing financial statement disclosures. 

The first two deficiencies, related to the period-end financial 
reporting process and the disgorgements and penalties accounts 
receivable, were attributed to the same underlying condition: lack of 
an integrated financial system forcing reliance on manual processes. 
With manual processes, the risk of error is inherently greater. GAO 
found that SEC processes for recording transaction fee revenue and 
preparing financial statement disclosures were subject to error because 
the agency did not have documented procedures. 

Corrective Actions Taken. The SEC was successful in eliminating in FY 
2008 the material weakness in internal controls over financial 
reporting that was cited in the FY 2007 audit. Developing a fully 
integrated financial management system was the keystone of the SEC’s FY 
2008 Corrective Action Plan for remediation of the material weakness 
and system non-conformance. The first step toward full integration of 
the SEC’s financial management systems was the upgrade of the agency’s 
core financial system, Momentum, which was accomplished in FY 2008. The 
upgraded system provides full integration of accounts payable; accounts 
receivable, including disgorgements and penalties; purchasing; and 
property, plant, and equipment (PP&E) transactions with the general 
ledger. The system improvements eliminated a significant amount of 
manual data handling of material financial balances, resulting in 
enhanced timeliness, accuracy, and reliability of financial 
information, and greater transparency in financial processes. 

To address the lack of documented procedures cited by GAO as the cause 
for deficiencies related to transaction fee revenues and preparing 
financial statement disclosures, the SEC improved process documentation 
for financial reporting and period-end closes. The SEC’s first quarter 
2008 financial statements were the first to be prepared using the newly 
documented methodologies. 

In addition, beginning in the first quarter, the SEC eliminated the 
labor-intensive use of multiple spreadsheets by automating the 
generation of financial statements and analytical reports. Consistency 
and quality assurance checking and the identification of abnormalities 
or inconsistencies were automated through rule-based validation and 
data integrity checks. 

Utilizing best practices, several other changes to SEC financial 
management business processes were made, improving the effectiveness 
and efficiency of internal control and increasing transparency. 
Foremost among these, disgorgement and penalty disbursements are now 
accomplished through Momentum using standard disbursement processes. 
Previously the disbursements were made using an exception process, 
bypassing the framework of controls available through both Momentum and 
the standard Treasury certification and disbursement processes. 

These and other improvements substantially reduced the risks associated 
with the material weakness identified by GAO last year. 

Additional Corrective Actions Planned. The SEC will continue to 
strengthen internal control and fully integrate its financial 
management systems, including addressing the three significant 
deficiencies identified by the GAO. Full integration will be achieved 
through automating the manual interfaces currently in place for 
accounts receivable and PP&E, and the manual process for investments 
and financial statements generation, and footnotes disclosure. Fully 
integrating these processes will increase control efficiency essential 
to ensure sustainable processes. The SEC will continue this effort as a 
top priority in FY 2009, and expects to complete this project in 2010. 

Financial Management System Conformance: 

Although the SEC is not required to comply with the Federal Financial 
Management Improvement Act, the agency assesses its financial 
management systems annually for conformance with the requirements of 
OMB Circular A-127 and other federal financial system requirements. 

Description of FY 2007 Non-conformance. In the past, SEC systems did 
not conform to the fundamental requirements for federal financial 
management systems to be fully integrated and comply with the U.S. 
Standard General Ledger (SGL) at the transaction level. 

Corrective Actions Taken. As described above, the upgrade accomplished 
in FY 2008, was an essential step in moving toward full integration. 
The new system (including accounts receivable and fixed asset modules) 
is compliant with the standards established by the Financial System 
Integration Office (FSIO), which requires conformance with all federal 
financial system requirements. The SEC addressed the issue of non-
compliance with the SGL at the transaction level through the data 
conversion process and deployment of accounts receivable and PP&E
modules in FY 2008. Business processes were refined and a manual 
interface at the transaction level was implemented for disgorgement and 
penalty accounts receivable. All Commission enforcement receivables are
now recorded at the transaction level in the SEC financial management 
system of record (Momentum), eliminating the past use of spreadsheet 
and summary level general ledger adjustments posted on a monthly basis. 
Previously, data was manually entered at a summary level, whereas
compliance with SGL is required at the transaction, or detail, level. 
Similarly, in FY 2008 the SEC also implemented the fixed asset module 
to automate and integrate accounting processes related to PP&E using 
standard SGL compliant transactions. 

Additional Corrective Actions Planned. As a result of the corrective 
actions taken over the past year, the SEC is in substantial compliance 
with federal financial management system requirements. However, 
additional improvements, mentioned above, are planned to achieve full 
integration of financial management systems resulting in greater 
efficiency, effectiveness, and risk mitigation by minimizing reliance 
on detective controls. 

Federal Information Security Management Act (FISMA): 

FISMA requires federal agencies to conduct an annual self-assessment of 
their IT security and privacy programs, to develop and implement 
remediation efforts for identified weaknesses and vulnerabilities, and 
to report compliance to OMB. The SEC’s Inspector General, Chief 
Information Officer, and Privacy Officer performed a joint review of 
the agency’s compliance with FISMA requirements during 2008, and 
submitted the report to OMB on October 1, 2008, as required. The report
showed that the agency continued to make progress in mitigating 
information security risk and complying with FISMA requirements, and 
that no significant deficiencies were identified.

During the year, additional steps were taken to enhance the overall 
information security and privacy programs at the SEC, including 
developing a comprehensive set of policies and procedures related to 
information security management, conducting a review of 54 Privacy
Act Systems of Record, and revising several privacyrelated policies and 
procedures in accordance with requirements to reflect the importance of 
protecting personally identifiable information. The agency strengthened 
a range of technical controls including intrusion monitoring, password 
management, access control, patch management, system change control, 
and database security. The SEC also established a process designed to 
allow the security team to scan the systems for adherence to security 
requirements in lieu of self-assessments by system owners. This new 
process also enhanced physical security monitoring at the SEC primary 
data center and made improvements in the timeliness and accuracy of 
user access reports provided to system owners. The agency achieved 99 
percent compliance with annual information security and privacy 
awareness training, and its OIT and regional offices completed tabletop 
exercises to train the regional disaster recovery teams. 

[End of section] 

Financial Section: 

This section of the Performance and Accountability Report contains
the Agency’s financial statements, required supplementary information 
and related Independent Auditor’s Report, as well as other information 
on the Agency’s financial management. Information presented here 
satisfies the reporting requirements of OMB Circular A-136, Financial 
Reporting Requirements, as well as the Accountability of Tax Dollars 
Act of 2002. 

The first portion of this section contains Principal Financial 
Statements. The statements provide a comparison of FY 2008
and 2007 data. SEC prepares the following required statements: 

* Balance Sheet—presents, as of a specific time, amounts of
future economic benefits owned or managed by the reporting
entity exclusive of items subject to stewardship reporting
(assets), amounts owed by the entity (liabilities), and amounts
which comprise the difference (net position). 

* Statement of Net Cost—presents the gross cost incurred by the 
reporting entity less any exchange revenue earned from its activities. 
SEC also prepares a Statement of Net Cost by Goal to provide cost 
information at the strategic goal level. 

* Statement of Changes in Net Position—reports the change in net 
position during the reporting period. Net position is affected by 
changes to Cumulative Results of Operations. 

* Statement of Budgetary Resources—provides information about how 
budgetary resources were made available as well as their status at the 
end of the period. 

* Statement of Custodial Activity—reports collection of nonexchange
revenue for the General Fund of the Treasury. SEC, as the collecting 
entity, does not recognize these collections as revenue. Rather, the 
Agency accounts for sources and disposition of the collections as 
custodial activities on this statement. 

The accompanying Notes to Financial Statements provide a description of 
significant accounting policies as well as detailed information on 
select statement lines. These notes and the principal statements are 
audited by the GAO. 

Message from the Chief Financial Officer: 

Figure: Kristine M. Chadwick: 

This figure is a picture of Kristine M. Chadwick. 

[See PDF for image] 

[End of figure] 

Chief Financial Officer and Associate Executive Director, Finance: 

I am pleased to join Chairman Cox in presenting the Commission’s FY 
2008 PAR. I am grateful for the dedication and hard work of the SEC 
staff during the past year that resulted in an unqualified audit 
opinion with no material weaknesses. This accomplishment reflects the 
success of our continuous improvement strategy. During the past fiscal 
year, the SEC made significant progress in enhancing accountability
and transparency by expanding the use of technology. We resolved the 
material weakness in internal control over financial reporting found 
last year by taking targeted corrective actions to address the prior 
years’ audit recommendations, enhancing both the effectiveness and 
efficiency of our framework of internal control. The SEC’s lack of 
automated system integration was the underlying cause of the system non-
conformance previously reported, as well as the deficiencies that 
contributed to the finding of a material weakness. Accordingly, 
integration of financial management systems was the cornerstone of the 
SEC’s corrective action plan to remediate the deficiencies identified 
by the GAO. 

As part of the SEC’s commitment to implementing a fully integrated 
financial management system compliant with federal financial system 
requirements, we successfully upgraded our core financial management 
system to the current, FSIO-certified version. In July, we deployed the
upgrade and implemented two fully integrated modules to record, track, 
process, and report PP&E and accounts receivable transactions. In 
addition, as part of the modernization and integration of financial 
management systems, we implemented a new travel system under the 
government-wide e-gov initiative and an automated time and attendance 
system capable of collecting information on the activities staff 
perform in support of the SEC’s mission. Concurrent with the financial 
system upgrades, we used technology to improve internal controls and 
streamline business processes. For example, now business rules relative
to transactions, such as capitalization of fixed assets, are
automatically enforced, which promotes consistency and
minimizes the risk of errors. The system improvements also allowed us 
to achieve substantial compliance with SGL at the transaction level, a 
fundamental requirement for federal financial management systems. In 
doing so, we strengthened our ability to verify the completeness and 
accuracy of our balances, and established a formalized, disciplined 
basis to support balances reported to our stakeholders. 

In 2008 the SEC received the Association of Government Accountants’ 
Certificate of Excellence in Accountability Reporting award for our FY 
2007 PAR. This is the second year that the Commission has received this 
prestigious award. 

I am proud of the remarkable progress and success achieved this year. 
Though there is more to accomplish, I am confident that our objective 
to continually improve will successfully support us in meeting these 
challenges. 

Sincerely, 

Signed by: 

Kristine M. Chadwick: 
Chief Financial Officer and Associate Executive Director, Finance: 
November 14, 2008: 

[End of section] 

U.S. Securities And Exchange Commission: 
Balance Sheet: 
As of September 30, 2008 and 2007: 

Dollars in thousands. 

Assets (Note 2): Intragovernmental: Fund Balance with Treasury (Note 
3); 
FY 2008: $6,011,310; 
FY 2007: $5,888,039. 

Assets (Note 2): Intragovernmental: Investments, Net (Notes 4 and 12); 
FY 2008: 2,982,542; 
FY 2007: 3,602,666. 

Assets (Note 2): Intragovernmental: Accounts Receivable (Note 5) 45 — 
Advances and Prepayments; 
FY 2008: 3,936; 
FY 2007: 1,198. 

Assets (Note 2): Intragovernmental; 
FY 2008: 8,997,833; 
FY 2007: 9,491,903. 

Assets (Note 2): Accounts Receivable, Net (Note 5); 
FY 2008: 135,470; 
FY 2007: 138,693. 

Assets (Note 2): Advances and Prepayments; 
FY 2008: 1,032; 
FY 2007: 902. 

Assets (Note 2): Property and Equipment, Net (Note 6); 
FY 2008: 84,007; 
FY 2007: 98,280. 

Assets (Note 2): Total Assets; 
FY 2008: $9,218,342; 
FY 2007: $9,729,778. 

Liabilities (Note 7): Intragovernmental: Accounts Payable; 
FY 2008: $15,588; 
FY 2007: $6,153. 

Liabilities (Note 7): Intragovernmental: Employee Benefits; 
FY 2008: 4,433; 
FY 2007: 2,699. 

Liabilities (Note 7): Intragovernmental: Unfunded FECA and Unemployment 
Liability; 
FY 2008: 1,340; 
FY 2007: 1,109. 

Liabilities (Note 7): Intragovernmental: Custodial Liability, Net (Note 
16); 
FY 2008: 2; 
FY 2007: 4. 

Liabilities (Note 7): Total Intragovernmental; 
FY 2008: 21,363; 
FY 2007: 9,965. 

Liabilities (Note 7): Accounts Payable; 
FY 2008: 39,122; 
FY 2007: 43,096. 

Liabilities (Note 7): Accrued Payroll and Benefits; 
FY 2008: 22,970; 
FY 2007: 18,176. 

Liabilities (Note 7): Accrued Leave; 
FY 2008: 38,829; 
FY 2007: 35,296. 

Liabilities (Note 7): Registrant Deposits; 
FY 2008: 51,793; 
FY 2007: 61,689. 

Liabilities (Note 7): Actuarial FECA Liability (Note 8); 
FY 2008: 5,604; 
FY 2007: 5,080. 

Liabilities (Note 7): Liability for Disgorgement and Penalties (Note 
12); 
FY 2008: 3,108,367; 
FY 2007: 3,679,370. 

Liabilities (Note 7): Other Accrued Liabilities (Note 9); 
FY 2008: 27,005; 
FY 2007: 23,338. 

Liabilities (Note 7): Total Liabilities; 
FY 2008: 3,315,053; 
FY 2007: 3,876,010. 

Commitments and Contingencies (Note 11): 

Net Position: Cumulative Results of Operations—Earmarked Funds (Note 
12); 
FY 2008: 5,903,289; 
FY 2007: 5,853,768. 

Total Net Position; 
FY 2008: $5,903,289; 
FY 2007: $5,853,768. 

Net Position: Total Liabilities and Net Position; 
FY 2008: $9,218,342; 
FY 2007: $9,729,778. 

The accompanying notes are an integral part of these financial 
statements.

[End of table] 

U.S. Securities And Exchange Commission: 
Statement of Net Cost: 
For the years ended September 30, 2008 and 2007: 

Dollars In Thousands. 

Costs By Strategic Goal (Note 13): Enforce compliance with federal 
securities laws: Total Gross Cost; 
FY 2008: $595,327; 
FY 2007: $529,454. 

Costs By Strategic Goal (Note 13): Promote healthy capital markets 
through an effective and flexible regulatory environment: Total Gross 
Cost; 
FY 2008: 102,822; 
FY 2007: 79,704. 

Costs By Strategic Goal (Note 13): Foster informed investment decision 
making: Total Gross Cost; 
FY 2008: 133,487; 
FY 2007: 135,917. 

Costs By Strategic Goal (Note 13): Maximize the use of SEC resources: 
Total Gross Cost; 
FY 2008: 99,267; 
FY 2007: 97,466. 

Costs By Strategic Goal (Note 13): Total Entity: Total Gross Program 
Cost; 
FY 2008: 930,903; 
FY 2007: 842,541. 

Costs By Strategic Goal (Note 13): Total Entity: Less: Earned Revenue 
Not Attributed to Programs (Note 14); 
FY 2008: 956,317; 
FY 2007: 1,507,750. 

Costs By Strategic Goal (Note 13): Net (Income) from Operations (Note 
17); 
FY 2008: $(25,414); 
FY 2007: $(665,209). 

The accompanying notes are an integral part of these financial 
statements.

[End of table] 

U.S. Securities And Exchange Commission: 
Statement of Changes in Net Position: 
For the years ended September 30, 2008 and 2007: 

Dollars In Thousands. 

Cumulative Results Of Operations—earmarked Funds: Beginning Balance; 
FY 2008: $5,853,768; 
FY 2007: $5,152,921. 

Cumulative Results Of Operations—earmarked Funds: Budgetary Financing 
Sources: Appropriations Used; 
FY 2008: —; 
FY 2007: 9,201. 

Cumulative Results Of Operations—earmarked Funds: Other Financing 
Sources: Imputed Financing (Note 10); 
FY 2008: 24,107; 
FY 2007: 26,437. 

Cumulative Results Of Operations—earmarked Funds: Total Financing 
Sources; 
FY 2008: 24,107; 
FY 2007: 35,638. 

Cumulative Results Of Operations—earmarked Funds: Net Income from 
Operations; 
FY 2008: 25,414; 
FY 2007: 665,209. 

Cumulative Results Of Operations—earmarked Funds: Net Change; 
FY 2008: 49,521; 
FY 2007: 700,847. 

Cumulative Results Of Operations—earmarked Funds: Cumulative Results of 
Operations (Note 12); 
FY 2008: $5,903,289; 
FY 2007: $5,853,768. 

Unexpended Appropriations: Beginning Balance; 
FY 2008: $ —; 
FY 2007: $9,201. 

Unexpended Appropriations: Budgetary Financing Sources: Appropriations 
Used; 
FY 2008: —; 
FY 2007: (9,201). 

Unexpended Appropriations: Total Unexpended Appropriations; 
FY 2008: —; 
FY 2007: —. 

Unexpended Appropriations: Net Position, End of Period; 
FY 2008: $5,903,289; 
FY 2007: $5,853,768. 

The accompanying notes are an integral part of these financial 
statements.

[End of table] 

U.S. Securities And Exchange Commission: 
Statement of Budgetary Resources: 
For the years ended September 30, 2008 and 2007: 

Dollars in thousands. 

Budgetary Resources: Unobligated Balance, Brought Forward, October 1; 
FY 2008: $90,012; 
FY 2007: $186,669. 

Budgetary Resources: Recoveries of Prior-Year Unpaid Obligations; 
FY 2008: 38,384; 
FY 2007: 23,030. 

Budgetary Resources: Budget Authority: Spending Authority from 
Offsetting Collections: Earned: Collected; 
FY 2008: 985,997; 
FY 2007: 1,538,749. 

Budgetary Resources: Budget Authority: Spending Authority from 
Offsetting Collections: Earned: Change in Receivables from Federal 
Sources; 
FY 2008: 45; 
FY 2007: (131). 

Budgetary Resources: Budget Authority: Spending Authority from 
Offsetting Collections: Change in Unfilled Customer Orders without 
Advance Received; 
FY 2008: 122; 
FY 2007: (663). 

Budgetary Resources: Budget Authority: Subtotal; 
FY 2008: 986,164; 
FY 2007: 1,537,955. 

Budgetary Resources: Temporarily Not Available Pursuant to Public Law; 
FY 2008: (141,039); 
FY 2007: (781,047). 

Budgetary Resources: Total Budgetary Resources; 
FY 2008: $973,521; 
FY 2007: $966,607. 

Status Of Budgetary Resources: Obligations Incurred: Direct (Note 15); 
FY 2008: $915,422; 
FY 2007: $876,274. 

Status Of Budgetary Resources: Obligations Incurred: Reimbursable (Note 
15); 
FY 2008: 403; 
FY 2007: 321. 

Status Of Budgetary Resources: Unobligated Balance Available: Realized 
and Apportioned for Current Period; 
FY 2008: 687; 
FY 2007: 6,068. 

Status Of Budgetary Resources: Unobligated Balance Not Available; 
FY 2008: 57,009; 
FY 2007: 83,944. 

Status Of Budgetary Resources: Total Status of Budgetary Resources; 
FY 2008: $973,521; 
FY 2007: $966,607. 

Change In Obligated Balance: Obligated Balance, Net: Unpaid 
Obligations, Brought Forward, October 1; 
FY 2008: $254,660; 
FY 2007: $230,102. 

Change In Obligated Balance: Obligated Balance, Net: Uncollected 
Customer Payments from Federal Sources, Brought Forward, October 1; 
FY 2008: —; 
FY 2007: (794). 

Change In Obligated Balance: Obligated Balance, Net: Total Unpaid 
Obligated Balance, Net; 
FY 2008: 254,660; 
FY 2007: 229,308. 

Change In Obligated Balance: Obligations Incurred Net; 
FY 2008: 915,825; 
FY 2007: 876,595. 

Change In Obligated Balance: Gross Outlays; 
FY 2008: (881,127); 
FY 2007: (829,006). 

Change In Obligated Balance: Recoveries of Prior-Year Unpaid 
Obligations, Actual; 
FY 2008: (38,384); 
FY 2007: (23,030). 

Change in Uncollected Customer Payments from Federal Sources; 
FY 2008: (167); 
FY 2007: 793. 

Change In Obligated Balance: Obligated Balance, Net, End of Period: 
Unpaid Obligations; 
FY 2008: 250,974; 
FY 2007: 254,660. 

Change In Obligated Balance: Obligated Balance, Net, End of Period: 
Uncollected Customer Payments from Federal Sources; 
FY 2008: (167); 
FY 2007: —. 

Change In Obligated Balance: Obligated Balance, Net, End of Period: 
Total, Unpaid Obligated Balance, Net, End of Period (Note 11); 
FY 2008: $250,807; 
FY 2007: $254,660. 

Net Outlays: Net Outlays: Gross Outlays; 
FY 2008: $881,127; 
FY 2007: $829,006. 

Net Outlays: Net Outlays: Offsetting Collections; 
FY 2008: (985,997); 
FY 2007: (1,538,749). 

Distributed Offsetting Receipts; 
FY 2008: (3,779); 
FY 2007: (1,105). 

Net Outlays: Net Outlays: Net Outlays/(Collections); 
FY 2008: $(108,649); 
FY 2007: $(710,848). 

The accompanying notes are an integral part of these financial 
statements.

[End of table] 

U.S. Securities And Exchange Commission: 
Statement of Custodial Activity: 
For the years ended September 30, 2008 and 2007: 

Dollars in thousands. 

Revenue Activity: Sources of Cash Collections: Disgorgement and 
Penalties; 
FY 2008: $193,069; 
FY 2007: $496,524. 

Revenue Activity: Accrual Adjustments; 
FY 2008: (2); 
FY 2007: (7,931). 

Revenue Activity: Total Custodial Revenue (Note 16); 
FY 2008: 193,067; 
FY 2007: 488,593. 

Disposition Of Collections: Amounts Transferred to: Department of the 
Treasury; 
FY 2008: $193,069; 
FY 2007: $496,524. 

Disposition Of Collections: Change in Liability Accounts; 
FY 2008: (2); 
FY 2007: (7,931). 

Disposition Of Collections: Total Disposition of Collections; 
FY 2008: 193,067; 
FY 2007: 488,593. 

Net Custodial Activity; 
FY 2008: $ —; 
FY 2007: $ —. 

The accompanying notes are an integral part of these financial 
statements.

[End of table] 

Notes to Financial Statements: 

As of September 30, 2008 and 2007: 

Note 1. Summary of Significant Accounting Policies: 

A. Reporting Entity: 

The SEC is an independent agency of the United States government 
established pursuant to the Exchange Act. The SEC’s mission is to 
protect investors; maintain fair, orderly, and efficient securities 
markets; and facilitate capital formation. The SEC works with Congress, 
other executive branch agencies, Self-Regulatory Organizations
(SRO) (e.g., stock exchanges and FINRA), the PCAOB, state securities 
regulators, and many other organizations in support of the agency’s 
mission. 

These financial statements report on the SEC’s strategic goals. The 
agency’s programs promote the public interest by promoting compliance 
through examinations of regulated entities; facilitating capital 
formation through full disclosure; enforcing the federal securities
laws; regulating investment companies and investment advisers; 
overseeing the operations of the nation’s securities markets and 
participants; promoting technological innovation in the securities 
markets; encouraging international regulatory and enforcement 
cooperation; and educating and assisting investors. 

B. Basis of Presentation and Accounting: 

The accompanying financial statements present the financial position, 
net cost of operations, changes in net position, budgetary resources, 
and custodial activities of the SEC’s core business activities as 
required by the Accountability of Tax Dollars Act of 2002. They may 
differ from other financial reports submitted pursuant to the
OMB directives for the purpose of monitoring and controlling the use of 
the SEC budgetary resources. The SEC’s books and records serve as the 
source of the information presented in the accompanying financial
statements. The agency classified assets, liabilities, revenues, and 
costs in these financial statements according to the type of entity 
associated with the transactions. Intragovernmental assets and 
liabilities are those due from or to other federal entities. 
Intragovernmental earned revenues are collections or accruals due from
other federal entities. Intragovernmental costs are payments
or accruals due to other federal entities. 

The SEC’s financial statements have been prepared on the accrual basis 
of accounting in conformity with GAAP for the federal government. 
Accordingly, revenues are recognized when earned and expenses are 
recognized when incurred, without regard to the receipt or payment
of cash. These principles differ from budgetary accounting and 
reporting principles. The differences relate primarily to the 
capitalization and depreciation of property and equipment, as well as 
the recognition of other long-term assets and liabilities. The 
statements were also prepared in conformity with OMB Circular No. A-136,
Financial Reporting Requirements. 

C. Change in Methodology: 

Effective for FY 2008, the SEC changed its accounting methodology for 
bulk purchases of equipment. The SEC changed its capitalization 
threshold to $50,000 in order to be consistent with the policy in the 
SEC’s Office of Administrative Services. In the prior year, the SEC’s
capitalization threshold was $500,000. Refer to Note 6. Property and 
Equipment, Net. 

D. Changes in Presentation: 

The SEC receives collections from civil injunctive and administrative 
proceedings that order the disgorgement and prejudgment interest of ill-
gotten gains, payment of civil monetary penalties, and post-judgment 
interest against violators of federal securities laws. 

The SEC changed its method of presentation for the receipt, accounting, 
and disposition of all disgorgement related assets stemming from 
actions against violators of federal securities laws. Historically, the 
SEC treated disgorgement-related receivables as custodial activity and 
the collection and investment of disgorgements and penalties as 
fiduciary activity. Beginning in FY 2008, the SEC treated all activity 
related to disgorgement and penalties as non-entity assets under 
control of the SEC with an equal and offsetting liability on the 
balance sheet. Also effective in FY 2008, the SEC did not include 
receivables for amounts the SEC expects to distribute to the public or 
collections it expects to forward to the public in the Statement of 
Custodial Activity (SCA). The SCA only includes collections the SEC 
anticipates forwarding to the Treasury’s general fund. As the current 
presentation reflects a change from one that was acceptable to another 
that is a preferred presentation, prior period financial statement and 
related information was presented as previously reported. Additional 
details regarding disgorgement and penalties and the SCA are presented 
in Note 1.U. Disgorgement and Penalties, Note 12. Earmarked, 
Disgorgement and Penalties, and Non-Entity Funds, and Note 16. Custodial
Revenues and Liabilities. 

In the SEC’s FY 2007 Performance and Accountability Report, Note 4. 
Investments is presented differently to conform with reporting 
requirements in OMB Circular A-136. 

E. Use of Estimates: 

The preparation of financial statements in conformity with GAAP 
requires management to make estimates and assumptions that affect the 
reported amounts of assets and liabilities. These estimates and 
assumptions include the disclosure of contingent assets and liabilities 
at the date of the financial statements and the reported amounts of 
revenues and expenses during the reporting period. Actual results may 
differ from those estimates. 

F. Intra- and Inter-Agency Relationships: 

The SEC does not have transactions among its own operating units, and 
therefore, intraentity eliminations are not necessary. The SEC has 
certain oversight responsibilities with respect to the FASB, the 
Securities Investor Protection Corporation (SIPC) (refer to Note 11. 
Commitments and Contingencies), and PCAOB; however, these entities are 
not subject to consolidation. 

G. Fund Accounting Structure: 

The SEC accounts for financial activities by Treasury Appropriation
Fund Symbol (TAFS), summarized as follows: 

* General Fund—Salaries and Expenses (0100 and X0100) consist of 
earmarked funds for use in carrying out the SEC’s mission and functions 
and revenues collected by the SEC in excess of appropriated funds for 
FY 2003 through FY 2004 (0100) and FY 2005 through FY 2008 (X0100) 
(refer to Note 1.H. Earmarked Funds, Note 3. Fund Balance with
Treasury, and Note 12. Earmarked, Disgorgement and Penalties, and Non-
Entity Funds). 

Other Funds: 

* Deposit and Suspense Funds (X6563, X6561, F3875, and F3880) carry 
disgorgement, penalties, and interest collected and held on behalf of 
harmed investors, registrant monies held temporarily until earned by 
the SEC, and collections awaiting disposition or reclassification. 

* Miscellaneous Receipt Accounts (1099 and 3220) hold non-entity 
receipts and accounts receivable from custodial activities that the SEC 
cannot deposit into funds under its control. These include amounts
received pursuant to cases that the SEC will send to the Treasury.

The SEC does not have lending or borrowing authority, except as 
discussed in Note 11. Commitments and Contingencies. The SEC has 
custodial responsibilities, as described in Note 16. Custodial
Revenues and Liabilities. 

H. Earmarked Funds: 

Earmarked funds are financed by specifically identified revenues, often 
supplemented by other financing sources, which remain available over 
time. The SEC collects such funds, which statutes require the SEC to 
use for designated activities, benefits or purposes; and to account for
them separately from the government’s general revenues. The SEC 
accounts for these as offsetting collections and deposits amounts 
collected in TAFS 0100, Salaries and Expense as detailed in Note 12. 
Earmarked, Disgorgement and Penalties, and Non-Entity Funds. 

I. Entity/Non-Entity Assets: 

Assets that an agency is authorized to use in its operations are entity 
assets. Assets that an agency holds on behalf of another federal agency 
or a third party and are not available for the agency’s use are non-
entity assets. The SEC’s non-entity assets include the following: (i)
disgorgement, penalties, and interest collected or to be
collected and held or invested by the SEC pending distribution to 
harmed investors (disgorgement funds); (ii) custodial accounts 
receivable; and (iii) excess filing fees remitted by registrants 
(registrant deposits). 

J. Fund Balance with Treasury: 

FBWT includes certain funds held on behalf of third parties. These 
include registrant deposits and uninvested disgorgement funds. FBWT 
also includes undisbursed account balances with Treasury and balances 
in excess of appropriated amounts that are unavailable to the SEC. 

The SEC conducts all of its banking activity in accordance with 
directives issued by Treasury’s Financial Management Service (FMS). The 
SEC deposits all revenue and receipts in commercial bank accounts 
maintained by the FMS or wires them directly to a Federal Reserve Bank. 
Treasury processes all disbursements made by the SEC. The Federal 
Reserve Bank transfers all monies maintained in commercial bank
accounts on the business day following the day of deposit. 

K. Investments: 

The SEC invests disgorgement funds in short-term Treasury securities, 
whenever practicable. Disgorgement funds may also include civil 
penalties collected under the “Fair Fund” provision of the Sarbanes-
Oxley Act of 2002. As the funds are collected, the SEC holds them in a 
deposit fund account and may invest them in overnight and short-term
market-based Treasury bills through a facility provided by the Bureau 
of the Public Debt, pending their distribution to investors. The SEC 
adds interest earned to the funds and these funds are subject to 
taxation under Treasury Regulation section 1.468B-2. Additional details 
regarding SEC investments are provided in Note 4. Investments. 

L. Account Receivable and Allowance for Uncollectible Accounts: 

Both SEC’s entity and non-entity accounts receivable consist primarily 
of amounts due from the public. Entity accounts receivable are amounts 
that the SEC will retain upon collection. These generally include 
claims arising from: (i) securities transaction fees paid by exchanges, 
(ii) filing fees paid by registrants, (iii) goods or services that
the SEC has provided to another federal agency pursuant to an inter-
agency agreement, (iv) host reimbursement of employee travel, and (v) 
employee-related debt. Entity accounts receivable represent a small 
volume of the SEC’s business activities because agency fee legislation 
generally requires payment of filing fees at the time of filing, and
SRO transaction fees are payable to the SEC twice a year: in March for 
the period September through December, and in September for the period 
January through August. Accordingly, the year-end accounts receivable 
accrual generally represents fees payable by the SROs to the SEC
for activity during the month of September. 

Non-entity accounts receivable are amounts that the SEC will not retain 
upon collection. These mainly include disgorgement, penalties, and 
interest assessments. The SEC recognizes these accounts receivable when 
an order of the Commission or a court designates it to collect the
assessed disgorgement, penalties, and interest. The SEC does not 
recognize interest as accounts receivable, unless a court or 
administrative order specifies the amount of pre- and post-judgment 
interest. 

The SEC is also party to orders directing violators of federal 
securities laws to pay the court or a receiver to collect the 
disgorgement, penalties, and interest assessed against them. These 
orders are not recognized as accounts receivable by the SEC because the 
debts are payable to another party. However, these debts are subject to 
change based on, for example, future orders issued by the presiding 
court that could result in the SEC recognizing a receivable. In the 
cases where the court order or other legally binding instrument 
requires the debtor to remit funds to the SEC, a receivable is 
recorded. 

The SEC bases the allowance for uncollectible amounts and the related 
provision for estimated losses for disgorgement, penalties, and FOIA 
accounts receivable on a collectability analysis. The analysis consists 
of the evaluation of the individual account balances for the largest
debts, allowing for historical collection data, to determine on a 
percentage basis the value of gross accounts receivable that are likely 
to be collected by the SEC. The SEC applies this percentage to the 
remaining disgorgement, penalties, and FOIA accounts receivable to 
reflect the balances at their estimated net realizable value. 

The SEC bases the allowance for uncollectible amounts and the related 
provision for estimated losses for filing fees and other accounts 
receivable on analysis of historical collection data. No allowance for 
uncollectible amounts or related provision for estimated losses have 
been established for fees payable by SROs, as these gross accounts
receivable are deemed to represent their net realizable value based on 
historical experience. 

M. Advances and Prepayments: 

The SEC may prepay amounts in anticipation of receiving future benefits 
such as training and supplemental health benefits for SEC employees. 
The agency expenses these payments when the goods are received or 
services are performed. The SEC also may advance funds to its personnel
for travel costs. The SEC expenses these amounts when the expense 
voucher is processed. 

N. Property and Equipment, Net: 

The SEC’s property and equipment consists of software, general-purpose 
equipment used by the agency, capital improvements made to buildings 
leased by the SEC for office space, and internal-use software 
development costs for projects in development. The SEC reports property
and equipment purchases and additions at cost. The agency expenses 
property and equipment acquisitions that do not meet the capitalization 
criteria, normal repairs, and maintenance when received or incurred by 
the SEC. 

The SEC depreciates property and equipment over their
estimated useful lives using the straight-line method of depreciation. 
The agency removes property and equipment from its asset accounts in 
the period of disposal, retirement, or removal from service. The SEC 
recognizes the difference between the book value and the amount 
realized as a gain or loss in the same period that the asset is 
removed. 

During FY 2008, the SEC discontinued recording a salvage value for 
capitalized personal property and removed the assigned salvage values 
from existing capitalized personal property. The reason for the change 
is that historically the SEC has not recovered any value from used
property or equipment when removed or scrapped. As a result of this 
action the agency recorded additional accumulated depreciation and the 
related expense in FY 2008. 

O. Liabilities: 

The SEC records liabilities for amounts that are likely to be paid as a 
result of events that have occurred as of the relevant balance sheet 
dates. The SEC’s liabilities consist of routine operating accounts 
payable, accrued payroll and benefits, registrant deposit accounts, 
liabilities for disgorgement and penalties, and custodial liabilities 
for amounts held on behalf of Treasury. 

Liabilities for distribution of disgorgement and penalties represent 
the largest portion of the SEC’s liabilities. A liability for 
disgorgement and penalties arises when an order is issued for the SEC 
to collect disgorgement, penalties, and interest from securities law 
violators, which may be returned to harmed investors. When the
Commission or court issues an order, the SEC establishes an account 
receivable due to the SEC. When collected, the SEC holds receipts in 
FBWT or invests in Treasury securities pending distribution to harmed 
investors. The SEC reports an equal and offsetting liability for assets 
held at Treasury as a non-entity liability on the balance sheet. 

The SEC recognizes liabilities covered by three types of resources: 
realized budgetary resources, unrealized budgetary resources that 
become available without further congressional action, and amounts held 
that do not require the use of budgetary resources. Realized budgetary
resources include obligated balances that fund existing liabilities and 
unobligated balances as of the relevant balance sheet dates. Unrealized 
budgetary resources represent fee collections in excess of amounts 
appropriated for current fiscal year spending. The SEC uses these
resources to cover liabilities when appropriation language makes these 
unrealized budgetary resources available in the fiscal year without 
further congressional action. 

P. Employee Retirement Systems and Benefits: 

The SEC’s employees participate in either the Civil Service Retirement 
System (CSRS) or the Federal Employees Retirement System (FERS), 
depending on when they start working for the federal government. 
Pursuant to Public Law 99-335, FERS and Social Security automatically 
cover most employees hired after December 31, 1983. Employees who
are rehired after a break in service of more than one year and who had 
five years of federal civilian service prior to 1987 are eligible to 
participate in the CSRS offset retirement system or may elect to join 
FERS. 

The SEC does not report CSRS or FERS assets or accumulated plan 
benefits that may be applicable to its employees in its financial 
statements. The U.S. Office of Personnel Management (OPM) reports them. 
Although the SEC reports no liability for future payments to
employees under these programs, the federal government is liable for 
future payments to employees through the various agencies administering 
these programs. The SEC does not fund post-retirement benefits such as 
the Federal Employees Health Benefit Program (FEHB) and the
Federal Employees Group Life Insurance Program (FEGLI). The SEC is also 
not required to fully fund CSRS pension liabilities. Instead, the 
financial statements of the SEC recognize an imputed financing source 
and corresponding expense that represent the SEC’s share of the cost to
the federal government of providing pension, post-retirement health, 
and life insurance benefits to all eligible SEC employees. For the 
fiscal year ended September 30, 2008, the SEC made contributions based 
on OPM cost factors equivalent to approximately 6.77 percent and
11.52 percent of the employee’s basic pay for those employees covered 
by CSRS and FERS, respectively. For the fiscal year ended September 30, 
2007, the SEC made contributions based on OPM cost factors equivalent 
to approximately 6.74 percent and 10.87 percent of the
employee’s basic pay for those employees covered by CSRS and FERS, 
respectively. All employees are eligible to contribute to a thrift 
savings plan. For those employees participating in FERS, a thrift 
savings plan is automatically established, and the SEC makes a 
mandatory one percent contribution to this plan. In addition, the SEC 
matches contributions ranging from one to four percent for
FERS-eligible employees who contribute to their thrift savings plan. 
The SEC contributes a matching amount to the Social Security 
Administration under the Federal Insurance Contributions Act, which 
fully covers FERS participating employees. Employees participating in 
CSRS do not receive matching contributions to their thrift
savings plans. 

Q. Injury and Post-employment Compensation: 

The Federal Employees’ Compensation Act (FECA), administered by the 
U.S. Department of Labor (DOL), addresses all claims brought by SEC 
employees for on-the-job injuries. The DOL bills each agency annually 
as its claims are paid, but payment on these bills is deferred for two 
years to allow for funding through the budget process. Similarly, 
employees that the SEC terminates without cause may receive 
unemployment compensation
benefits under the unemployment insurance program also administered by 
the DOL, which bills each agency quarterly for paid claims. 

R. Annual, Sick, and Other Leave: 

The SEC accrues annual leave and compensatory time as earned and 
reduces the accrual when leave is taken. Each month, the SEC makes an 
adjustment so that the balances in the accrued leave accounts reflect 
current leave balances and pay rates. No portion of this liability has 
been obligated. Future financing sources provide funding to the
extent that current or prior year funding is not available to
pay for leave earned but not taken. The SEC expenses sick leave and 
other types of non-vested leave as used.  

S. Revenue and Other Financing Sources: 

Exchange revenue transactions and non-exchange revenues that arise from 
the government’s ability to demand payment generate the SEC’s revenue 
and financing sources. The SEC’s exchange revenue mainly consists of 
fees collected from SROs and registrants. 

The SEC’s funding is primarily through the collection of securities 
transaction fees from SROs and securities registration, tender offer, 
merger, and other fees from registrants. The fee rates are established 
by the SEC in accordance with federal law and are applied to volumes
of activity reported by SROs or to fi lings submitted by registrants. 
When received, the SEC records these fees as exchange revenue. The SEC 
is permitted by law to include these amounts in its obligational 
authority or to offset its expenditures and liabilities upon 
collection, up to authorized limits. The SEC records all amounts
remitted by registrants in excess of the fees for specific filings as 
liabilities in deposit accounts until earned by the SEC from registrant 
filings or returned to the registrant pursuant to the SEC’s policy, 
which calls for the return of registrant deposits when an account is
dormant for six months. 

The SEC also receives collections from proceedings that result in the 
assessment of disgorgement, penalties, and interest against violators 
of federal securities laws. When the SEC collects these funds, it 
transfers the funds to Treasury. The SEC reports an equal and 
offsetting liability for the disgorgement and penalties held by the SEC 
on the Balance Sheet. The SEC does not record amounts collected and 
held by another government entity, such as a court registry, or a non-
government entity, such as a receiver. 

T. Budgets and Budgetary Accounting: 

The SEC is subject to certain restrictions on its use of statutory 
fees. The SEC deposits all fee revenues in a designated account at 
Treasury. However, the SEC may use funds from this account only as 
authorized by Congress, made available by OMB apportionment, and upon 
issuance of a Treasury warrant. Revenue collected in excess of
appropriated amounts is restricted for use by the SEC. 

The SEC can use fees other than the restricted excess fees from its 
operations, subject to an annual congressional limitation of $842.7 
million and $867.5 million for the budget FYs 2008 and 2007, 
respectively. In addition, Congress made available approximately $63 
million and $14 million for fiscal years 2008 and 2007, respectively. 
Funds appropriated that the SEC does not use in a given fiscal year are 
maintained in a designated account for use in future periods, as 
appropriated by Congress. 

Each fiscal year, the SEC receives Category A apportionments, which are 
quarterly distributions of budgetary resources made by OMB. The SEC 
also receives a small amount of Category B funds for reimbursable 
activity, which are exempt from quarterly apportionment. 

U. Disgorgement and Penalties: 

The SEC maintains non-entity assets related to disgorgements and 
penalties ordered pursuant to civil injunctive and administrative 
proceedings and which, upon collection and further order, the SEC may 
distribute to harmed investors. The SEC also recognizes an equal and 
offsetting liability for these assets as discussed in Note 1.O. 
Liabilities. 

These assets consist of disgorgement, penalties, and
interest assessed against securities law violators where the
Commission, administrative law judge, or in some cases, a court, has 
determined that the SEC should return such funds to harmed investors. 
The SEC holds such funds as non-entity assets pending distribution to 
harmed investors pursuant to an approved distribution plan. The SEC does
not record on its financial statements any asset amounts another 
government entity such as a court, or a non-governmental entity, such 
as a receiver, has collected or will collect. Additional details 
regarding disgorgement and penalties are presented in Note 1.D. Changes 
in Presentation and Note 12. Earmarked, Disgorgement and
Penalties, and Non-Entity Funds. 

Note 2. Non-entity Assets: 

At September 30, non-entity assets of the SEC consisted of the 
following: 

Dollars In Thousands. 

Registrant Deposits (Fund Balance with Treasury); 
FY 2008: $51,793; 
FY 2007: $61,689. 

Disgorgement and Penalties: Fund Balance with Treasury; 
FY 2008: 37,707; 
FY 2007: 13,094. 

Disgorgement and Penalties: Investments; 
FY 2008: 2,982,542; 
FY 2007: 3,602,666. 

Disgorgement and Penalties: Accounts Receivable; 
FY 2008: 88,118; 
FY 2007: 63,610. 

Custodial Assets (Accounts Receivable); 
FY 2008: 2; 
FY 2007: 4. 

Total Non-entity Assets; 
FY 2008: 3,160,162; 
FY 2007: 3,741,063. 

Total Entity Assets; 
FY 2008: 6,058,180; 
FY 2007: 5,988,715. 

Total Assets (Note 12); 
FY 2008: $9,218,342; 
FY 2007: $9,729,778. 

[End of table] 

Effective in FY 2008, the SEC changed its method of presenting the 
receipt, accounting, and disposition of disgorgement and penalties-
related assets stemming from actions against violators of federal 
securities laws. The SEC previously treated disgorgement and penalties-
related receivables as custodial activity. Beginning in FY 2008, these 
receivables are treated as non-entity disgorgement and penalties 
assets; consequently, $63.6 million of accounts receivable that was
treated as a custodial asset in FY 2007 is reported as a non-entity 
disgorgement and penalties asset in FY 2008. Refer to Note 1.D. Changes 
in Presentation. 

Note 3. Fund Balance with Treasury: 

FBWT by type of fund as of September 30, are as follows:

(Dollars In Thousands): 

Fund Balance: General Funds: 
FY 2008: $5,921,810; 
FY 2007: $5,813,256. 

Other Funds; 
FY 2008: 89,500; 
FY 2007: 74,783. 

Total Fund Balance with Treasury: 
FY 2008: 6,011,310; 
FY 2007: 5,888,039. 

Status of Fund Balance with Treasury:

Unobligated Balance: Available; 
FY 2008: 687; 
FY 2007: 6,068. 

Unobligated Balance: Unavailable; 
FY 2008: 57,009; 
FY 2007: 83,944. 

Obligated Balance not yet Disbursed; 
FY 2008: 250,807; 
FY 2007: 254,660. 

Non-Budgetary Fund Balance with Treasury; 
FY 2008: 5,702,807; 
FY 2007: 5,543,367. 

Total Fund Balance with Treasury; 
FY 2008: $6,011,310; 
FY 2007: $5,888,039. 

[End of table] 

Note 4. Investments: 

At September 30, 2008, investments consisted of the following: 

(Dollars in thousands.) 

Non-Marketable Market Based Securities; 
Cost: $2,976,912; 
Amortization Method: S/L; 
Amortized (premium) discount: $5,630; 
Investment Receivable: $ —; 
Investment Net: $2,982,542; 
Market Value Disclosure: $2,988,672. 

At September 30, 2007, investments consisted of the following: 

Non-Marketable Market Based Securities; 
Cost: $3,588,309; 
Amortization Method: S/L; 
Amortized (premium) discount: $14,202; 
Investment Receivable: $155; 
Investment Net: $3,602,666; 
Market Value Disclosure: $3,605,239. 

[End of table] 

The SEC invests these funds in overnight and short-term market-based 
Treasury bills. Treasury bills are securities traded in the primary and 
secondary U.S. Treasury market. Originally, the U.S. government 
auctions Treasury bills directly in the primary U.S. Treasury market 
and subsequently investors trade them in the secondary U.S. Treasury 
market. In accordance with GAAP, the SEC records the value of its 
investments in Treasury bills at cost and amortizes the discount on a 
straightline basis through the maturity date of these securities. The 
market value is determined by the secondary U.S. Treasury market and 
represents the value an individual investor is willing to pay for these 
securities, at a given point in time. 

Effective in FY 2008, the SEC disclosed its interest receivable related 
to investments in accordance with guidance provided by OMB Circular A-
136. Previously, the SEC presented its disclosures regarding 
receivables related to interest on investments in Note 5. Accounts 
Receivable, in the non-entity intragovernmental accounts receivable 
section. Beginning in FY 2008, disclosures regarding the interest 
receivable are reported with the investments; consequently, $155,000 of
interest receivable that was reported as accounts receivable in FY 2007 
is reported in the table above. Refer to Note 1.D.
Changes in Presentation. 

Note 5. Accounts Receivable, Net: 

At September 30, 2008, accounts receivable consisted of the following:

(Dollars In Thousands). 

Entity Accounts Receivable: 

Entity Intragovernmental Assets: Reimbursable Activity; 
Gross Receivables: $ 45; 
Allowance: $ —; 
Net Receivables: $ 45. 

Subtotal Intragovernmental Assets:  
Gross Receivables: 45; 
Allowance: —; 
Net Receivables: 45. 

Entity Intragovernmental Assets: Exchange Fees; 
Gross Receivables: 46,480; 
Allowance: —; 
Net Receivables: 46,480. 

Entity Intragovernmental Assets: Filing Fees; 
Gross Receivables: 569; 
Allowance: 66; 
Net Receivables: 503. 

Entity Intragovernmental Assets: Other; 
Gross Receivables: 368; 
Allowance: 1; 
Net Receivables: 367. 

Non-entity Accounts Receivable: Disgorgement and Penalties; 
Gross Receivables: 434,193; 
Allowance: 346,075; 
Net Receivables: 88,118. 

Non-entity Accounts Receivable: FOIA; 
Gross Receivables: 2; 
Allowance: —; 
Net Receivables: 2. 

Subtotal Non-Intragovernmental Assets: 
Gross Receivables: 481,612; 
Allowance: 346,142; 
Net Receivables: 135,470. 

Total Accounts Receivable; 
Gross Receivables: $481,657; 
Allowance: $346,142; 
Net Receivables: $135,515. 

At September 30, 2007, accounts receivable consisted of the following: 

(Dollars In Thousands). 

Entity Accounts Receivable: Exchange Fees; 
Gross Receivables: $74,422; 
Allowance: $—; 
Net Receivables: $74,422. 

Entity Accounts Receivable: Filing Fees; 
Gross Receivables: 355; 
Allowance: 11; 
Net Receivables: 344. 

Entity Accounts Receivable: Other; 
Gross Receivables: 318; 
Allowance: 5; 
Net Receivables: 313. 

Non-entity Accounts Receivable: Disgorgement and Penalties; 
Gross Receivables: 329,584; 
Allowance: 265,974; 
Net Receivables: 63,610. 

Non-entity Accounts Receivable: FOIA Fees; 
Gross Receivables: 6; 
Allowance: 2; 
Net Receivables: 4. 

Total Accounts Receivable; 
Gross Receivables: $404,685; 
Allowance: $265,992; 
Net Receivables: $138,693. 

The SEC writes off debt aged two or more years by removing the debt 
amounts from the gross accounts receivable and any related allowance 
for uncollectible accounts. Refer to Note 1.L. Accounts Receivable and 
Allowance for Uncollectible Accounts for methods used to estimate 
allowances. 

[End of table] 

Note 6. Property and Equipment, Net: 

At September 30, 2008, property and equipment consisted of the 
following: 

Class Of Property: (Dollars in Thousands): Furniture; 
Depreciation/Amortization Method: S/L; 
Capitalization Threshold For Individual Purchases: $15; 
Capitalization Threshold For Bulk Purchases: $50; 
Service Life (Years): 5; 
Acquisition Cost: $10,844; 
Accumulated Depreciation/Amortization: $6,395; 
Net Book Value: $4,449. 

Class Of Property: (Dollars in Thousands): Equipment; 
Depreciation/Amortization Method: S/L; 
Capitalization Threshold For Individual Purchases: 15; 
Capitalization Threshold For Bulk Purchases: 50; 
Service Life (Years): 3; 
Acquisition Cost: 50,000; 
Accumulated Depreciation/Amortization: 44,139; 
Net Book Value: 5,861. 

Class Of Property: (Dollars in Thousands): Software; 
Depreciation/Amortization Method: S/L; 
Capitalization Threshold For Individual Purchases: 300; 
Capitalization Threshold For Bulk Purchases: 300; 
Service Life (Years): 3–5; 
Acquisition Cost: 76,069; 
Accumulated Depreciation/Amortization: 57,046; 
Net Book Value: 19,023. 

Class Of Property: (Dollars in Thousands): Leasehold Improvements; 
Depreciation/Amortization Method: S/L; 
Capitalization Threshold For Individual Purchases: 300; 
Capitalization Threshold For Bulk Purchases: N/A; 
Service Life (Years): 10; 
Acquisition Cost: 76,700; 
Accumulated Depreciation/Amortization: 22,026; 
Net Book Value: 54,674. 

Total; 
Depreciation/Amortization Method: [Empty]; 
Capitalization Threshold For Individual Purchases: [Empty]; 
Capitalization Threshold For Bulk Purchases: [Empty]; 
Service Life (Years): [Empty]; 
Acquisition Cost: $213,613; 
Accumulated Depreciation/Amortization: $129,606; 
Net Book Value: $84,007. 

At September 30, 2007, property and equipment consisted of the 
following: 

Class of Property (Dollars in Thousands): Furniture; 
Depreciation/Amortization Method: S/L; 
Capitalization Threshold For Individual Purchases: $15; 
Capitalization Threshold For Bulk Purchases: $50; 
Service Life (Years): 5; 
Acquisition Cost: $9,975; 
Accumulated Depreciation/Amortization: $4,227; 
Net Book Value: $5,748. 

Class of Property (Dollars in Thousands): Equipment; 
Depreciation/Amortization Method: S/L; 
Capitalization Threshold For Individual Purchases: 15; 
Capitalization Threshold For Bulk Purchases: 500; 
Service Life (Years): 3; 
Acquisition Cost: 48,509; 
Accumulated Depreciation/Amortization: 37,866; 
Net Book Value: 10,643. 

Class of Property (Dollars in Thousands): Software; 
Depreciation/Amortization Method: S/L; 
Capitalization Threshold For Individual Purchases: 300; 
Capitalization Threshold For Bulk Purchases: 300; 
Service Life (Years): 3–5; 
Acquisition Cost: 68,119; 
Accumulated Depreciation/Amortization: 47,117; 
Net Book Value: 21,002. 

Class of Property (Dollars in Thousands): Leasehold Improvements; 
Depreciation/Amortization Method: S/L; 
Capitalization Threshold For Individual Purchases: 300; 
Service Life (Years): N/A; 
Service Life (Years): 10; 
Acquisition Cost: 74,167; 
Accumulated Depreciation/Amortization: 13,280; 
Net Book Value: 60,887. 

Total; 
Depreciation/Amortization Method: [Empty]; 
Capitalization Threshold For Individual Purchases: [Empty]; 
Capitalization Threshold For Bulk Purchases: [Empty]; 
Acquisition Cost: $200,770; 
Accumulated Depreciation/Amortization: $102,490; 
Net Book Value: $98,280. 

[End of table] 

During FY 2008, the SEC recorded a software disposal for the Strategic 
Acquisition Manager system. The software was removed from production in 
September 2008. The net loss due to the disposal is $1.4 million. 
Effective FY 2008, the SEC changed its methodology of accounting for 
bulk purchases of equipment. In the prior year, the SEC’s capitalization
threshold was $500,000; this amount was changed to $50,000. Refer to 
Note 1.C. Change in Methodology. 

Note 7. Liabilities Not Covered by Budgetary Resources: 

At September 30, liabilities consisted of the following: 

(Dollars In Thousands). 

Liabilities Not Covered by Budgetary Resources: Intragovernmental: 
Unfunded FECA and Unemployment Liability; 
FY 2008: $1,340; 
FY 2007: $1,109. 

Total Intragovernmental Liabilities; 
FY 2008: 1,340; 
FY 2007: 1,109. 

Accrued Leave; 
FY 2008: 38,829; 
FY 2007: 35,296. 

Actuarial Liability; 
FY 2008: 5,604; 
FY 2007: 5,080. 

Other Accrued Liabilities—Recognition of Lease Liability (Note 9); 
FY 2008: 15,768; 
16,865. 

Total Liabilities Not Covered by Budgetary Resources; 
FY 2008: 61,541; 
FY 2007: 58,350. 

Liabilities Not Requiring Budgetary Resources: Intragovernmental: 
Custodial Liability; 
FY 2008: 2; 
FY 2007: 4. 

Total Intragovernmental Liabilities; 
FY 2008: 2; 
FY 2007: 4. 

Registrant Deposits; 
FY 2008: 51,793; 
61,689. 

Liability for Disgorgement and Penalties; 
FY 2008: 3,108,367; 
FY 2007: 3,679,370. 

Total Liabilities Not Requiring Budgetary Resources; 
FY 2008: 3,160,162; 
FY 2007: 3,741,063. 

Liabilities Covered by Budgetary Resources: Intragovernmental
Accounts Payable; 
FY 2008: 15,588; 
FY 2007: 6,153. 

Employee Benefits; 
FY 2008: 4,433; 
FY 2007: 2,699. 

Total Intragovernmental Liabilities; 
FY 2008: 20,021; 
FY 2007: 8,852. 

Accounts Payable; 
FY 2008: 39,122; 
FY 2007: 43,096. 

Accrued Payroll and Benefits; 
FY 2008: 22,970; 
FY 2007: 18,176. 

Other Accrued Liabilities; 
FY 2008: 11,237; 
FY 2007: 6,473. 

Total Liabilities Covered by Budgetary Resources; 
FY 2008: 93,350; 
FY 2007: 76,597. 

Total Liabilities; 
FY 2008: $3,315,053; 
FY 2007: $3,876,010. 

The SEC’s liabilities include amounts that will never require the use 
of a budgetary resource. These liabilities consist of registrant 
deposit accounts; accounts receivable for disgorgement, penalties, and 
interest assessed against securities laws violators; and invested and 
uninvested assets held by the SEC on behalf of harmed investors. 

[End of table] 

Note 8. Actuarial FECA Liability: 

FECA provides income and medical cost protection to covered federal 
civilian employees harmed on the job or who have contracted an 
occupational disease, and dependents of employees whose death is 
attributable to a job-related injury or occupational disease. Claims 
incurred for benefits under FECA for the SEC’s employees are 
administered by the DOL and ultimately paid by the SEC when funding 
becomes available. 

The SEC bases its estimate for FECA actuarial liability on the DOL’s 
FECA model. The model considers the average amount of benefit payments 
incurred by the SEC for the past three fiscal years, multiplied by the 
medical and compensation liability to benefits paid (LBP) ratio for the 
whole FECA program, estimated at approximately 11 times the annual 
payments. To capture variability, the model estimates the liability 
using three sets of LBP ratios, summarized below. 

For FY 2008, the LBP ratios were as follows: 

LBP Category: Highest; 
Medical: 9.30%; 
Compensation: 12.50%. 

LBP Category: Overall Average; 
Medical: 8.00%; 
Compensation: 11.70%. 

LBP Category: Lowest; 
Medical: 7.10%; 
Compensation: 11.40%. 

For FY 2007, the LBP ratios were as follows: 

LBP Category: Highest; 
Medical: 9.50%; 
Compensation: 12.20%. 

LBP Category: Overall Average; 
Medical: 8.00%; 
Compensation: 11.80%. 

LBP Category: Lowest; 
Medical: 7.20%; 
Compensation: 11.50%. 

[End of table] 

For FY 2008 and FY 2007, the SEC used the overall average LBP ratios to 
calculate the $5.6 million and $5.1 million FECA actuarial liabilities 
for those years, respectively. 

Note 9. Leases: 

The SEC has the authority to negotiate long-term leases for office 
space. At September 30, 2008, the SEC leased office space at 17 
locations under operating lease agreements that expire between 2009 and 
2021. The SEC paid $83 million and $85.5 million for rent for FY 2008 
and 2007, respectively. In FY 2008, the SEC signed supplemental lease 
agreements that led to an increase in future lease payments. Under 
existing commitments, minimum lease payments through FY 2013 and 
thereafter are as follows: 

Fiscal Year (Dollars In Thousands): 2009; 
Minimum Lease Payments: $78,822. 

Fiscal Year (Dollars In Thousands): 2010; 
Minimum Lease Payments: 76,984. 

Fiscal Year (Dollars In Thousands): 2011; 
Minimum Lease Payments: 76,902. 

Fiscal Year (Dollars In Thousands): 2012; 
Minimum Lease Payments: 67,813. 

Fiscal Year (Dollars In Thousands): 2013; 
Minimum Lease Payments: 60,151. 

Fiscal Year (Dollars In Thousands): 2014 and thereafter; 
Minimum Lease Payments: 343,532. 

Total Future Minimum Lease Payments; 
Minimum Lease Payments: $704,204. 

[End of table] 

The total future minimum lease payments summarized above include a 
liability the SEC has recognized for office space leased in New York. 

Fiscal Years (Dollars In Thousands): 2009; 
Required Lease Payments New York: $2,722. 

Fiscal Years (Dollars In Thousands): 2010; 
Required Lease Payments New York: 2,722. 

Fiscal Years (Dollars In Thousands): 2011; 
Required Lease Payments New York: 2,469. 

Fiscal Years (Dollars In Thousands): 2012; 
Required Lease Payments New York: 1,192. 

Total Future Estimated Lease Payments; 
Required Lease Payments New York: $9,105. 

[End of table] 

During FY 2005, the SEC entered into a lease agreement for new office 
space in New York. The SEC and GSA entered into separate agreements 
with the lessor of the previously occupied space. GSA agreed to rent 
the office space from the lessor for the next five years of the SEC’s
lease, at which time GSA has the option to renew the agreement for the 
remaining 15 months of the SEC’s lease. As part of the SEC’s agreement 
with the lessor, the SEC was responsible for the estimated $18 million 
difference between its annual lease liability and the annual lease 
liability negotiated by GSA with the lessor. As of FY 2008, the SEC is 
responsible for two years of the lease and two option years. As of 
September 30, 2008, this liability amounts to $9.1 million of lease 
payments which end in FY 2012. 

At September 30, 2008 and 2007, the SEC recognized an unfunded 
liability of $15.8 million and $16.9 million, respectively to cover the 
lease obligation. Refer to Note 7. Liabilities Not Covered by Budgetary 
Resources. 

Note 10. Imputed Financing: 

The SEC recognizes an imputed financing source and corresponding 
expense to represent its share of the cost to the federal government of 
providing pension and postretirement health and life insurance benefi 
ts (Pension/Other Retirements Benefits (ORB)) to all eligible SEC 
employees. For September 30, 2008 and 2007, the components of the
imputed financing sources and corresponding expenses
were as follows: 

Pension/ORB Category (Dollars In Thousands): CSRS; 
FY 2008: $5,551; 
FY 2007: $6,113. 

Pension/ORB Category (Dollars In Thousands): FERS; 
FY 2008: 1,188; 
FY 2007: 1,386. 

Pension/ORB Category (Dollars In Thousands): FEHB; 
FY 2008: 17,270; 
FY 2007: 18,838. 

Pension/ORB Category (Dollars In Thousands): FEGLI; 
FY 2008: 90; 
FY 2007: 89. 

Pension/ORB Category (Dollars In Thousands): Other; 
FY 2008: 8; 
FY 2007: 11. 

Total Pension/ORB; 
FY 2008: $24,107; 
FY 2007: $26,437. 

[End of table] 

Note 11. Commitments and Contingencies: 

A. Commitments: 

The Securities Investor Protection Act of 1970 (SIPA), as amended, 
created the SIPC to provide certain financial protections to customers 
of insolvent registered securities brokers, dealers, firms, and members 
of national securities exchanges for up to $500,000 per customer. SIPA 
authorizes the SIPC to create a fund to maintain all monies received 
and disbursed by the SIPC. SIPA also gives the SIPC the authority to 
borrow funds from the SEC in an amount not to exceed, in the aggregate, 
$1 billion in the event that the SIPC fund is or may appear 
insufficient for purposes of SIPA. If necessary, Treasury would make 
these funds available to the SEC through the purchase by Treasury of 
notes or other obligating instruments issued by the SEC. Such notes or 
other obligating instruments would bear interest at a rate determined 
by the Secretary of the Treasury. As of September 30, 2008, the SEC had 
not loaned any funds to the SIPC, and there are no outstanding notes or 
other obligating instruments issued by the SEC. 

In addition to future lease commitments discussed in Note 9. Leases, 
the SEC is obligated for the purchase of goods and services that have 
been ordered, but not received. As of September 30, 2008, net 
obligations for all of SEC’s activities were $250.8 million, of which 
$93.5 million was delivered and unpaid. As of September 30, 2007, net 
obligations for all of SEC’s activities were $254.7 million, of which 
$80.7 million was delivered and unpaid. 

B. Contingencies: 

The SEC recognizes contingent liabilities when a past event or exchange 
transaction has occurred, a future outflow or other sacrifice of 
resources is probable, and the future outflow or sacrifice of resources 
is measurable. 

The SEC is party to various routine administrative proceedings, legal 
actions, and claims brought against it, including
threatened or pending litigation involving labor relations claims, some 
of which may ultimately result in settlements or decisions against the 
federal government. As of September 30, 2008, the SEC does not owe for 
any claims. 

Note 12. Earmarked, Disgorgement and Penalties, and Non-Entity Funds: 

SEC’s earmarked funds arise from offsetting collections from securities 
transaction fees, registration fees, and other fees authorized by the 
Securities Act of 1933 (“the Securities Act”) and the Exchange Act. As 
such, the SEC identified and separately displayed activity in this fund 
on the Statement of Changes in Net Position and the Balance Sheet in 
accordance with the provisions of Statement of Federal Financial 
Accounting Standards (SFFAS) 27, Identifying and Reporting Earmarked 
Funds. Note 1.H. Earmarked Funds displays additional details regarding 
SEC earmarked funds. 

For FY 2008, the assets, liabilities, net position, and net income from 
operations relating to earmarked, disgorgement and penalties, and non-
entity funds consisted of the following: 

Disgorgement: 

Non-Entity: 

(Dollars In Thousands) Earmarked And Penalties Funds Total

Balance Sheet as of September 30, 2008: 

Assets: Fund Balance with Treasury; 
Earmarked: $5,921,810; 
Disgorgement: $37,707; 
Non-entity Funds: $51,793; 
Total: $6,011,310.  

Assets: Investments; 
Earmarked: —; 
Disgorgement: 2,982,542; 
Non-entity Funds: —; 
Total: 2,982,542. 

Assets: Accounts Receivable; 
Earmarked: 47,395; 
Disgorgement: 88,118; 
Non-entity Funds: 2; 
Total: 135,515. 

Assets: Advances and Prepayments; 
Earmarked: 4,968; 
Disgorgement: —; 
Non-entity Funds: —; 
Total: 4,968. 

Assets: Property and Equipment, Net; 
Earmarked: 84,007; 
Disgorgement: —; 
Non-entity Funds: —; 
Total: 84,007. 

Total Assets (Note 2); 
Earmarked: $6,058,180; 
Disgorgement: $3,108,367; 
Non-entity Funds: $51,795; 
Total: $9,218,342. 

Liabilities: Accounts Payable; 
Earmarked: $54,710; 
Disgorgement: $—; 
Non-entity Funds: $—; 
Total: $54,710. 

Liabilities: Accrued Payroll and Benefits; 
Earmarked: 27,403; 
Disgorgement: —; 
Non-entity Funds: —; 
Total: 27,403. 

Liabilities: FECA and Unemployment Liability; 
Earmarked: 6,944; 
Disgorgement: —; 
Non-entity Funds: —; 
Total: 6,944. 

Liabilities: Accrued Leave; 
Earmarked: 38,829; 
Disgorgement: —; 
Non-entity Funds: —; 
Total: 38,829. 

Liabilities: Custodial Liability; 
Earmarked: —; 
Disgorgement: —; 
Non-entity Funds: 2; 
Total: 2. 

Liabilities: Registrant Deposits; 
Earmarked: —; 
Disgorgement: —; 
Non-entity Funds: 51,793; 
Total: 51,793. 

Liabilities: Liability for Disgorgement and Penalties; 
Earmarked: —; 
Disgorgement: 3,108,367; 
Non-entity Funds: —; 
Total: 3,108,367. 

Liabilities: Other Accrued Liabilities; 
Earmarked: 27,005; 
Disgorgement: —; 
Non-entity Funds: —; 
Total: 27,005. 

Total Liabilities; 
Earmarked: $154,891; 
Disgorgement: $3,108,367; 
Non-entity Funds: $51,795; 
Total: $3,315,053. 

Net Position: Cumulative Results of Operations; 
Earmarked: $5,903,289; 
Disgorgement: $ —; 
Non-entity Funds: $ —; 
Total: $5,903,289. 

Total Net Position; 
Earmarked: 5,903,289; 
Disgorgement: —; 
Non-entity Funds: —; 
Total: 5,903,289. 

Total Liabilities and Net Position; 
Earmarked: $6,058,180; 
Disgorgement: $3,108,367; 
Non-entity Funds: $51,795; 
Total: $9,218,342. 

Statement of Net Cost: For the Year Ended September 30, 2008: Gross 
Program Costs; 
Earmarked: $930,903; 
Disgorgement: $—; 
Non-entity Funds: $—; 
Total: $930,903. 

Statement of Net Cost: For the Year Ended September 30, 2008: Net 
Program Costs; 
Earmarked: 930,903; 
Disgorgement: —; 
Non-entity Funds: —; 
Total: 930,903. 

Less Earned Revenues Not Attributable to Program Costs; 
Earmarked: 956,317; 
Disgorgement: —; 
Non-entity Funds: —; 
Total: 956,317. 

Net (Income) from Operations; 
Earmarked: $(25,414); 
Disgorgement: $—; 
Non-entity Funds: $—; 
Total: $(25,414). 

Statement of Changes in Net Position For the Year Ended September 30, 
2008: Net Position Beginning of Period; 
Earmarked: $5,853,768; 
Disgorgement: $—; 
Non-entity Funds: $—; 
Total: $5,853,768. 

Statement of Changes in Net Position For the Year Ended September 30, 
2008: Imputed Financing; 
Earmarked: 24,107; 
Disgorgement: —; 
Non-entity Funds: —; 
Total: 24,107. 

Statement of Changes in Net Position For the Year Ended September 30, 
2008: Net Income from Operations; 
Earmarked: 25,414; 
Disgorgement: —; 
Non-entity Funds: —; 
Total: 25,414. 

Net Change; 
Earmarked: 49,521; 
Disgorgement: —; 
Non-entity Funds: —; 
Total: 49,521. 

Net Position End of Period; 
Earmarked: $5,903,289; 
Disgorgement: $—; 
Non-entity Funds: $—; 
Total: $5,903,289. 

[End of table] 

For FY 2007, the assets, liabilities, net position, and net income from 
operations relating to earmarked, disgorgement and penalties, and non-
entity funds consisted of the following: 

Balance Sheet as of September 30, 2007: 

Assets: Fund Balance with Treasury; 
Earmarked: $5,813,256; 
Disgorgement: $13,094; 
Non-entity Funds: $61,689; 
Total: $5,888,039. 

Investments; 
Earmarked: —; 
Disgorgement: 3,602,666; 
Non-entity Funds: —; 
Total: 3,602,666. 

Accounts Receivable; 
Earmarked: 75,079; 
Disgorgement: 63,610; 
Non-entity Funds: 4; 
Total: 138,693. 

Advances and Prepayments; 
Earmarked: 2,100; 
Disgorgement: —; 
Non-entity Funds: —; 
Total: 2,100. 

Property and Equipment, Net; 
Earmarked: 98,280; 
Disgorgement: —; 
Non-entity Funds: —; 
Total: 98,280. 

Total Assets (Note 2); 
Earmarked: $5,988,715; 
Disgorgement: $3,679,370; 
Non-entity Funds: $61,693; 
Total: $9,729,778. 

Liabilities: Accounts Payable; 
Earmarked: $49,249; 
Disgorgement: $—; 
Non-entity Funds: $—; 
Total: $49,249. 

Liabilities: Accrued Payroll and Benefits; 
Earmarked: 20,875; 
Disgorgement: —; 
Non-entity Funds: —; 
Total: 20,875. 

Liabilities: FECA and Unemployment Liability; 
Earmarked: 6,189; 
Disgorgement: —; 
Non-entity Funds: —; 
Total: 6,189. 

Liabilities: Accrued Leave; 
Earmarked: 35,296; 
Disgorgement: —; 
Non-entity Funds: —; 
Total: 35,296. 

Liabilities: Custodial Liability; 
Earmarked: —; 
Disgorgement: —; 
Non-entity Funds: 4; 
Total: 4. 

Liabilities: Registrant Deposits; 
Earmarked: —; 
Disgorgement: —; 
Non-entity Funds: 61,689; 
Total: 61,689. 

Liabilities: Liability for Disgorgement and Penalties; 
Earmarked: —; 
Disgorgement: 3,679,370; 
Non-entity Funds: —; 
Total: 3,679,370. 

Liabilities: Other Accrued Liabilities; 
Earmarked: 23,338; 
Disgorgement: —; 
Non-entity Funds: —; 
Total: 23,338. 

Total Liabilities; 
Earmarked: $134,947; 
Disgorgement: $3,679,370; 
Non-entity Funds: $61,693; 
Total: $3,876,010. 

Net Position: Cumulative Results of Operations; 
Earmarked: $5,853,768; 
Disgorgement: $—; 
Non-entity Funds: $—; 
Total: $5,853,768. 

Total Net Position; 
Earmarked: 5,853,768; 
Disgorgement: —; 
Non-entity Funds: —; 
Total: 5,853,768. 

Total Liabilities and Net Position; 
Earmarked: $5,988,715; 
Disgorgement: $3,679,370; 
Non-entity Funds: $61,693; 
Total: $9,729,778. 

Statement of Net Cost For the Year Ended September 30, 2007: Gross 
Program Costs; 
Earmarked: $842,541; 
Disgorgement: $—; 
Non-entity Funds: $—; 
Total: $842,541. 

Statement of Net Cost For the Year Ended September 30, 2007: Net 
Program Costs; 
Earmarked: 842,541; 
Disgorgement: —; 
Non-entity Funds: —; 
Total: 842,541. 

Less Earned Revenues Not Attributable to Program Costs; 
Earmarked: 1,507,750; 
Disgorgement: —; 
Non-entity Funds: —; 
Total: 1,507,750. 

Net (Income) from Operations; 
Earmarked: $(665,209); 
Disgorgement: $—; 
Non-entity Funds: $—; 
Total: $(665,209). 

Statement of Changes in Net Position: For the Year Ended September 30, 
2007: Net Position Beginning of Period; 
Earmarked: $5,152,921; 
Disgorgement: $—; 
Non-entity Funds: $—; 
Total: $5,152,921. 

Statement of Changes in Net Position: For the Year Ended September 30, 
2007: Appropriations Used; 
Earmarked: 9,201; 
Disgorgement: —; 
Non-entity Funds: —; 
Total: 9,201. 

Statement of Changes in Net Position: For the Year Ended September 30, 
2007: Imputed Financing; 
Earmarked: 26,437; 
Disgorgement: —; 
Non-entity Funds: —; 
Total: 26,437. 

Statement of Changes in Net Position: For the Year Ended September 30, 
2007: Net Income from Operations; 
Earmarked: 665,209; 
Disgorgement: —; 
Non-entity Funds: —; 
Total: 665,209. 

Net Change; 
Earmarked: 700,847; 
Disgorgement: —; 
Non-entity Funds: —; 
Total: 700,847. 

Net Position End of Period; 
Earmarked: $5,853,768; 
Disgorgement: $—; 
Non-entity Funds: $—; 
Total: $5,853,768. 

[End of table] 

Note 13. Intragovernmental Costs and Exchange Revenue: 

The SEC assigned all costs incurred for FY 2008 and FY 2007 to specific 
goals, but exchange revenue is not directly assignable to a specific 
goal and is presented in total. Total intragovernmental and public 
costs for the years ended September 30, 2008 and 2007 are summarized 
below. 

Program Goals (Dollars In Thousands): Enforce Compliance with Federal 
Securities Laws: Intragovernmental Costs; 
FY 2008: $116,189; 
FY 2007: $82,118. 

Program Goals (Dollars In Thousands): Enforce Compliance with Federal 
Securities Laws: Public costs; 
FY 2008: 479,138; 
FY 2007: 447,336. 

Program Goals (Dollars In Thousands): Subtotal—Enforce Compliance with 
Federal Securities Laws; 
FY 2008: 595,327; 
FY 2007: 529,454. 

Program Goals (Dollars In Thousands): Promote Healthy Capital Markets 
through an Effective and Flexible Regulatory Environment: 
Intragovernmental Costs; 
FY 2008: 20,068; 
FY 2007: 12,362. 

Program Goals (Dollars In Thousands): Promote Healthy Capital Markets 
through an Effective and Flexible Regulatory Environment: Public Costs; 
FY 2008: 82,754; 
FY 2007: 67,342. 

Program Goals (Dollars In Thousands): Subtotal—Promote Healthy Capital 
Markets through an Effective and Flexible Regulatory Environment; 
FY 2008: 102,822; 
FY 2007: 79,704. 

Program Goals (Dollars In Thousands): Foster Informed Investment 
Decision Making: Intragovernmental Costs; FY FY 2008: 26,052; 
FY 2007: 21,081. 

Program Goals (Dollars In Thousands): Foster Informed Investment 
Decision Making: Public Costs; 
FY 2008: 107,435; 
FY 2007: 114,836. 

Program Goals (Dollars In Thousands): Subtotal—Promote Informed 
Investment Decision Making; 
FY 2008: 133,487; 
FY 2007: 135,917. 

Program Goals (Dollars In Thousands): Maximize the Use of SEC 
Resources: Intragovernmental Costs; 
FY 2008: 19,374; 
FY 2007: 15,117. 

Program Goals (Dollars In Thousands): Maximize the Use of SEC 
Resources: Public Costs; 
FY 2008: 79,893; 
FY 2007: 82,349. 

Program Goals (Dollars In Thousands): Subtotal—Maximize the Use of SEC 
Resources; 
FY 2008: 99,267; 
FY 2007: 97,466. 

Program Goals (Dollars In Thousands): Total Entity: Intragovernmental 
Costs; 
FY 2008: 181,683; 
FY 2007: 130,678. 

Program Goals (Dollars In Thousands): Total Entity: Public Costs; 
FY 2008: 749,220; 
FY 2007: 711,863. 

Program Goals (Dollars In Thousands): Total Costs; 
FY 2008: 930,903; 
842,541. 

Program Goals (Dollars In Thousands): Less: Exchange Revenues; 
FY 2008: 956,317; 
FY 2007: 1,507,750. 

Program Goals (Dollars In Thousands): Net (Income) from Operations; 
FY 2008: $(25,414); 
FY 2007: $(665,209). 

[End of table] 

Note 14. Exchange Revenues: 

For the fiscal years ended September 30, exchange revenues consisted of 
the following: 

(Dollars In Thousands). 

Securities Transactions Fees; 
FY 2008: $794,672; 
FY 2007: $1,249,019. 

Securities Registration, Tender Offer, and Merger Fees; 
FY 2008: 161,377; 
FY 2007: 258,490. 

Other; 
FY 2008: 268; 
FY 2007: 241. 

Total Exchange Revenues; 
FY 2008: $956,317; 
FY 2007: $1,507,750. 

[End of table] 

Note 15. Status of Budgetary Resources: 

A. Apportionment Categories of Obligations Incurred: 

The distinction between Category A and B funds is the time of 
apportionment. Category A funds are subject to quarterly apportionment 
by OMB. Category B funds represent budgetary resources distributed by a 
specified time period, activity, project, object, or a combination of 
these categories. The SEC’s Category B funds represent amounts 
apportioned at the beginning of the fiscal year for the SEC’s 
reimbursable activity. As of September 30, 2008 and 2007, obligations 
incurred as reported on the Statement of Budgetary Resources (SBR) 
consisted of the following: 

Obligations Incurred (Dollars In Thousands): 

Direct Obligations: Category A; 
FY 2008: $915,422; 
FY 2007: $876,274. 

Total Direct Obligations; 
FY 2008: 915,422; 
FY 2007: 876,274. 

Reimbursable Obligations: Category B; 
FY 2008: 403; 
FY 2007: 321. 

Total Reimbursable Obligations; 
FY 2008: 403; 
FY 2007: 321. 

Total Obligations Incurred; 
FY 2008: $915,825; 
FY 2007: $876,595. 

[End of table] 

In addition, the amounts of budgetary resources obligated for 
undelivered orders include $157.5 million and $173.9 million as of 
September 30, 2008 and 2007, respectively. 

B. Explanation of Differences between the Statement of Budgetary 
Resources and the Budget of the United States Government: 

A comparison between the FY 2008 SBR and the actual FY 2008 data in the 
President’s budget cannot be presented, as the FY 2010 President’s 
budget is not yet available; the comparison will be presented in next 
year’s financial statements. A comparison between the FY 2007 SBR and 
the FY 2007 data in the FY 2009 President’s budget is as follows: 

(Dollars in Millions): 

Combined Statement of Budgetary Resources; 
Budgetary Resources: $967; 
Obligations Incurred: $877; 
Distributed Offsetting Receipts: $(1); 
Net Outlays: $(711). 

Expired Accounts; 
Budgetary Resources: (2); 
Obligations Incurred: (1); 
Distributed Offsetting Receipts: —; 
Net Outlays: —. 

Other; 
Budgetary Resources: [Empty]; 
Obligations Incurred: [Empty]; 
Distributed Offsetting Receipts: (1); 
Net Outlays: 1. 

Budget of the U.S. Government; 
Budgetary Resources: $965; 
Obligations Incurred: $876; 
Distributed Offsetting Receipts: $(2); 
Net Outlays: $(710). 

[End of table] 

The SBR reports on both expired and unexpired amounts while the budget 
excludes expired accounts that are no longer available for new 
obligations. Other differences are due to rounding. 

Note 16. Custodial Revenues and Liabilities: 

As of September 30, 2008 and 2007 the source of custodial revenues is 
disgorgement and penalties which included the following amounts: 

(Dollars In Thousands): 

Cash Collections; 
FY 2008: $193,069; 
FY 2007: $496,524. 

Increase/(Decrease) in Amounts to Be Collected; 
FY 2008: (2); 
FY 2007: (7,931). 

Total Non-Exchange Revenues; 
FY 2008: $193,067; 
FY 2007: $488,593. 

[End of table] 

Starting in FY 2008, the SEC changed its method of presenting the 
receipt, accounting, and disposition of disgorgement and penalties-
related assets stemming from actions against violators of federal 
securities laws. In prior years, the SEC treated disgorgement and 
penalties-related receivables as custodial activity. Beginning in FY 
2008, the SEC treats these receivables as disgorgement and penalties 
assets. Consequently, $63.6 million of custodial receivables that the 
SEC presented as custodial liabilities in FY 2007 are presented as 
disgorgement and penalties assets in FY 2008. Refer to Note 1.D. Changes
in Presentation for additional disclosure for these receivables. 

NOTE 17. Reconciliation of Net Cost of Operations (Proprietary) to 
Budget (formerly the Statement of Financing): 

(Dollars In Thousands). 

Resources Used To Finance Activities: Budgetary Resources Obligated: 
Obligations Incurred (Note 15); 
FY 2008: $915,825; 
FY 2007: $876,595. 

Resources Used To Finance Activities: Budgetary Resources Obligated: 
Less: Spending Authority from Offsetting Collections and Recoveries; 
FY 2008: (1,024,548); 
FY 2007: (1,560,985). 

Resources Used To Finance Activities: Budgetary Resources Obligated: 
Net Obligations; 
FY 2008: (108,723); 
FY 2007: (684,390). 

Resources Used To Finance Activities: Other Resources: Imputed 
Financing from Cost Absorbed by Others (Note 10); 
FY 2008: 24,107; 
FY 2007: 26,437. 

Total Resources Used to Finance Activities; 
FY 2008: (84,616); 
FY 2007: (657,953). 

Resources Used To Finance Items Not Part Of The Net Cost Of Operations: 
Change in Budgetary Resources Obligated for Goods, Services, and 
Benefits: Ordered But Not Yet Provided; 
FY 2008: 13,721; 
FY 2007: (35,123). 

Resources Used To Finance Items Not Part Of The Net Cost Of Operations: 
Resources That Finance the Acquisition of Assets Capitalized on the 
Balance Sheet; 
FY 2008: (16,520); 
FY 2007: (31,793). 

Resources Used To Finance Items Not Part Of The Net Cost Of Operations: 
Net Decrease in Revenue Receivables Not Generating Resources until 
Collected; 
FY 2008: 27,678; 
FY 2007: 30,855. 

Total Resources Used to Finance Items Not Part of the Net Cost of 
Operations; 
FY 2008: 24,879; 
FY 2007: (36,061). 

Total Resources Used to Finance the Net Cost of Operations; 
FY 2008: (59,737); 
FY 2007: (694,014). 

Components Of Net Cost Of Operations That Will Not Require Or
Generate Resources In The Current Period: Components Requiring Or 
Generating Resources In Future Periods: Costs That Will Be Funded by 
Resources in Future Periods; 
FY 2008: 3,533; 
FY 2007: 2,322. 

Components Of Net Cost Of Operations That Will Not Require Or
Generate Resources In The Current Period: Components Requiring Or 
Generating Resources In Future Periods: Change in Lease Liability; 
FY 2008: (1,097); 
FY 2007: (10,776). 

Components Of Net Cost Of Operations That Will Not Require Or
Generate Resources In The Current Period: Components Requiring Or 
Generating Resources In Future Periods: Change in Unfunded Liability; 
FY 2008: 754; 
FY 2007: 385. 

Total Components of Net Cost of Operations That Will Require or
Generate Resources in Future Periods; 
FY 2008: 3,190; 
FY 2007: (8,069). 

Components Of Net Cost Of Operations That Will Not Require Or
Generate Resources In The Current Period: Components Not Requiring or 
Generating Resources: Depreciation and Amortization; 
FY 2008: 29,626; 
FY 2007: 35,912. 

Components Of Net Cost Of Operations That Will Not Require Or
Generate Resources In The Current Period: Revaluation of Assets or 
Liabilities; 
FY 2008: 1,457; 
FY 2007: 950. 

Components Of Net Cost Of Operations That Will Not Require Or
Generate Resources In The Current Period: Other Costs That Will Not 
Require Resources; 
FY 2008: 50; 
FY 2007: 12. 

Total Components of Net Cost of Operations That Will Not Require or
Generate Resources in Future Periods; 
FY 2008: 31,133; 
FY 2007: 36,874. 

Total Components of Net Cost of Operations That Will Not Require or
Generate Resources in the Current Period; 
FY 2008: 34,323; 
FY 2007: 28,805. 

Net (Income) from Operations; 
FY 2008: $(25,414); 
FY 2007: $(665,209). 

[End of table] 

[End of section] 

Appendix I: Comments from the Securities and Exchange Commission: 

Christopher Cox: 
Chairman: 
Headquarters: 
100 F. Street, NE: 
Washington, DC 20549: 
chairmanoffice@sec.gov: 
[hyperlink, http://www.sec.gov]: 

United States Securities and Exchange Commission: 

Regional Offices: Atlanta, Boston, Chicago, Denver, Fort Worth, Los 
Angeles, Miami, New York, Philadelphia, Salt Lake City, San Francisco: 

November 14, 2008: 

Jeanette M. Franzel: 
Director, Financial Management and Assurance: 
Government Accountability Office: 
441 G. Street N.W. 
Washington D.C. 20548: 

Dear Ms. Franzel: 

Thank you for the opportunity to respond to the Government 
Accountability Office's draft report on the SEC's fiscal year 2008 and 
2007 Financial Statements (GAO-09-172). I would like to personally 
acknowledge and comment you and the GAO staff for your hard work and 
dedication in working with the SEC again this year to meet the 
reporting deadline for our financial statements. 

I am pleased that the audit found that the statements and notes are 
presented fairly, in all material respects, and in conformity with U.S. 
generally accepted accounting principles; that the SEC had effective 
internal controls over financial reporting and compliance with laws and 
regulations; and that there were no instances of reportable 
noncompliance with laws and regulations tested by GAO. 

The SEC made substantial progress in strengthening its internal 
controls over financial reporting during fiscal year 2008. I am pleased 
that GAO found that the SEC was successful in remedying several control 
deficiencies that last fiscal year were found to collectively 
constitute a material weakness in internal control over financial 
reporting. 

This result in testimony to the SEC's commitment to constantly 
improving our internal control environment and operational efficiencies 
so that the agency can lead by example in financial reporting. In July 
of this fiscal year, we upgraded our core financial accounting system 
and deployed two new modules that laid the foundation for full 
financial system integration, supported implementation of U.S. Standard 
General Ledger (SGL) compliant posting models, and enhanced the 
efficiency and effectiveness of our internal controls. Our work is not 
yet done, but I am very proud of what the SEC was able to accomplish in 
such a short period of time. I am also very appreciative of GAO's 
diligent efforts to complete its review, in a very compressed 
timeframe, of an essentially new framework of internal control over 
financial reporting. These accomplishments are as commendable as they 
are unprecedented. 

The SEC will continue working over the course of this fiscal year to 
enhance our internal controls and ensure the reliability of our 
financial reporting, soundness of operations, and public confidence in 
the agency's mission. I appreciate your support of these efforts and 
look forward to continuing our productive dialogue on the issues 
addressed in the 2008 audit. 

If you have any questions relating to our response, please contact 
Kristine Chadwick, Chief Financial Officer, at (202) 551-7840. 

Sincerely, 

Signed by: 

Christopher Cox: 
Chairman: 

[End of section] 

Footnotes: 

[1] A significant deficiency is a control deficiency, or combination of 
control deficiencies, that adversely affects the entity's ability to 
initiate, authorize, record, process, or report financial data reliably 
in accordance with generally accepted accounting principles such that 
there is more than a remote likelihood that a misstatement of the 
entity's financial statements that is more than inconsequential will 
not be prevented or detected. 

[2] A material weakness is a significant deficiency or a combination of 
significant deficiencies that results in more than a remote likelihood 
that a material misstatement of the financial statements will not be 
prevented or detected. 

[3] GAO, Financial Audit: Securities and Exchange Commission's 
Financial Statements for Fiscal Years 2007 and 2006, [hyperlink, 
http://www.gao.gov/products/GAO-08-167] (Washington, D.C.: Nov. 16, 
2007). 

[4] A disgorgement is the repayment of illegally gained profits (or 
avoided losses) for distribution to harmed investors whenever feasible. 
A penalty is a monetary payment from a violator of securities law that 
SEC obtains pursuant to statutory authority. A penalty is fundamentally 
a punitive measure, although penalties occasionally can be used to 
compensate harmed investors. 

[5] Offsetting collections are amounts the SEC receives from 
businesslike transactions with the public (e.g., fees for filing 
registration statements), which SEC is authorized to credit to 
appropriations accounts for future obligation. The Securities Act of 
1933 (15 U.S.C. § 77a et seq.) and the Securities Exchange Act of 1934 
(15 U.S.C. § 78a et seq.) require SEC to assess certain fees and credit 
them as offsetting collections. 

[6] The 2008 appropriation for SEC provided $906 million for SEC's 
necessary expenses and required SEC to use the offsetting collections 
it receives during the year to reduce amounts appropriated from the 
General Fund of the U.S. Treasury. See Financial Services and General 
Government Appropriations Act, 2008, Pub. L. No. 110-161, div. D, tit. 
V, 121 Stat. 1972, 2010 (Dec. 26, 2007). 

[7] The recording statute provides that an amount shall be recorded as 
an obligation of the United States Government only when supported by 
documentary evidence of a binding agreement between an agency and 
another party that is in writing and establishes specific goods to be 
delivered or services to be provided. 31 U.S.C. § 1501(a)(1). 

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