Detailed Information on the
Securities and Exchange Commission - Full Disclosure Program (Corporate Review) Assessment

Developing at least one measure of the result of this program-- a measure that assesses whether this program is effective.

Further refining the agency's Budget and Program Performance Analysis System (BPPAS), an activity-based costing and performance-based budgeting system to develop and present integrated budget, performance cost information.

Ensuring the program can continue to review at least once every three years the financial statements of each reporting company as required under the Sarbanes-Oxley Act.

Developing and refining its performance measures and establishing targets.

Ensuring the program continues to review Initial Public Offering registrations more efficiently.

Measure: Percentage of Exchange Act reporting companies reviewed by the SEC.

Explanation:The Sarbanes-Oxley Act requires that the SEC review the disclosures of all reporting companies and investment company portfolios at least once every three years. These reviews help improve the information available to investors and may uncover possible violations of the securities laws.

Measure: Average time to issue initial comments on Securities Act filings (in days).

Explanation:The target of 30 days or less has become a de facto industry standard for the maximum time to receive SEC comments. Companies often build this timeframe into their plans. The 30-day timeframe is considered aggressive given the other mandatory reviews the agency conducts and the fluctuation in filing volume that impacts workload plans. This measure includes the review of registration and merger proxy statement filings and initial public offerings.

Measure: Average number of days to resolve comments provided to issuers on reviews of annual reports.

Explanation:

Measure: Percentage of no-action letters and interpretive requests, and shareholder proposals completed within timeliness goals (no-action letters within 30 days and shareholder proposals before the company's planned proxy mailing date). (New measure, added February 2008)

Explanation:The SEC staff responds to requests for guidance from individuals and companies about specific provisions of the federal securities laws. These queries can ask for proper interpretations of the securities laws or regulations, or for assurances that no enforcement action will be taken in certain circumstances. The staff also reviews applications for exemptions from the securities laws. Written responses to such requests for guidance, when provided, generally are publicly available, as are applications and related notices and orders, when issued. This measure gauges whether the Division of Corporation Finance is issuing providing initial comments on these requests on a timely basis. The division aims to provide initial comments on at least 90% of no action letters within 30 days and 100% of initial comments on shareholder proposals before the company's planned proxy mailing date.

Is the program purpose clear?

Explanation: Congress established laws designed to restore and maintain investor confidence in capital markets by providing more structure and government oversight. Securities laws and regulations were established to prevent fraud and misrepresentation in the public offering, trading, voting, and tendering of securities. This Program monitors the collection, review, and dissemination of this material information to the public so they may make informed investment decisions.

Evidence: Three primary statutes authorize the SEC to implement a program to support the full disclosure of information: the Securities Act of 1933, the Securities Act of 1934, and the Sarbanes-Oxley Act of 2002. These laws require that companies publicly offering securities tell the truth about their business and the risks of investing. Recent allegations of corporate fraud have confirmed the importance of accurate and timely disclosures in maintaining the public's confidence in the securities markets. The issue was deemed of sufficient importance that Congress and the President recently approved the Sarbanes-Oxley Act of 2002 to tighten disclosure rules and provide increased staff and funding for this Program.

Does the program address a specific and existing problem, interest, or need?

Explanation: A safe and sound securities market continues to be instrumental to the U.S. economy. At the end of 2002, over 52% of U.S. households owned securities. and the value of assets under investment company management ($6.3 trillion) significantly exceeded the amount on deposit at commercial banks ($3.7 trillion).

Evidence: Statutory Authority is identified in the agency's strategic plan and is reinforced in the program's mission statement in the annual budget request, and on the agency's website: www.sec.gov/about.whatwedo/html.

Is the program designed so that it is not redundant or duplicative of any Federal, state, local or private effort?

Explanation: The SEC is uniquely charged with the responsibility of administering the securities laws and regulations established to prevent fraud and misrepresentation in the public offering, trading, voting, and tendering of securities.

Evidence: The SEC has primary jurisdiction for requiring and reviewing corporate registrations and filings to ensure the disclosure of material information to the public through this Program. Other federal and state regulators also may review disclosure materials, but do so for different purposes. For example, banking regulators consider safety and soundness issues, and states and other Federal regulators evaluate mergers for merit and fairness issues.

Is the program design free of major flaws that would limit the program's effectiveness or efficiency?

Explanation: The design of the disclosure review process is fundamentally sound. In reviewing filings under the 1933 and 1934 Securities Acts, this Program seeks to monitor and enhance compliance with financial and other disclosure requirements. Filings are received electronically through the SEC's Electronic Data Gathering, Analysis and Retrieval (EDGAR) system and made available to the public via the agency's website. As part of the review process, division staff may issue comments to an issuer to elicit better compliance with applicable requirements through amended filings and restatements by the company. Through this comment process, the Program facilitates investor access to information necessary to make informed investment decisions, deters fraud, and enhances the efficiency of the capital markets. When appropriate, matters are referred to SEC's Enforcement division for possible action.

Evidence: The U.S. model for the disclosure of material information has become a defacto standard for other countries to follow. In the U.S., many states also accept filings made to the SEC as sufficient to satisfy their corporate disclosure requirements. Recent legislation (particularly the Sarbanes-Oxley Act of 2002) underscored the relevance of the SEC's disclosure program and resulted in increased funding to expand disclosure activities to support the SEC mission.

Is the program effectively targeted, so program resources reach intended beneficiaries and/or otherwise address the program's purpose directly?

Explanation: The program does not have beneficiaries as defined by the question.

Evidence:  

Does the program have a limited number of specific long-term performance measures that focus on outcomes and meaningfully reflect the purpose of the program?

Explanation: The Program's long-term performance goal is the adequate, accurate, and timely disclosure of material information to investors. Accomplishing this goal protects investors and facilitates capital formation. The program has certain measures that reflect timeliness of disclosure review but do not directly address the long-term performance goal. SEC is in the process of developing broader long-term measures.

Evidence: The Program needs to develop long-term outcome-based goals. The Program is in the process of developing new outcome-oriented measures. Depending upon the results of these efforts, the agency may consider using surveys to evaluate the usefulness of material information and the efficacy of the Program.

Does the program have ambitious targets and timeframes for its long-term measures?

Explanation: SEC needs to develop long-term measures. Refined targets and timeframes are under development.

Evidence: SEC has targets for its efficiency measures that are ambitious and have timeframes. SEC needs to develop long-term outcome measures and related targets. SEC is working to provide these measures in their 2005 GPRA plan.

Does the program have a limited number of specific annual performance measures that demonstrate progress toward achieving the program's long-term measures?

Explanation: SEC has specific annual measures that are used to monitor the performance of the program. These measures address the extent and timeliness of reviews as well as quantifiable outcomes from those reviews, such as number or reviews that result in significant income restatements. These measures are being refined in light of Sarbanes-Oxley Act mandates.

Evidence: As shown in the SEC's Annual Performance Reports, the Program tracks a number of annual measures. The primary measures the Program is currently tracking are listed under the measures tab. For example, the Program measures the average time it takes to issue initial comments on full-review registration statements and merger proxy filings.

Does the program have baselines and ambitious targets and timeframes for its annual measures?

Explanation: The Program is in the process of developing baselines and targets. For many measures, it is difficult to estimate a baseline or set reasonable targets. For the example, one annual measure is the total dollar value of restatements with financial changes greater than 10%. The Program has a limited basis to project the dollar amount of erroneous statements in future years. The Program has baselines and targets for certain other measures, such as the average number of days to resolve comments.

Evidence: Examples of historical baselines, actuals, and projections are located in the FY04 budget request on page I-16 under the Full Disclosure Program and in the SEC's FY04 GPRA Annual Performance Report.

Do all partners (including grantees, sub-grantees, contractors, cost-sharing partners, etc.) commit to and work toward the annual and/or long-term goals of the program?

Explanation: The full disclosure corporate review program is unique to the SEC and does not have partners (grantees, contractors, etc.).

Evidence:  

Are independent and quality evaluations of sufficient scope and quality conducted on a regular basis or as needed to support program improvements and evaluate effectiveness and relevance to the problem, interest, or need?

Explanation: Evaluations or program performance reviews are conducted on a periodic basis to evaluate program effectiveness and consider program improvements. Internal management reports also are used regularly and systematically to assess program performance against targets. In many instances, independent evaluators have used and reviewed internal Program management reports as part of their assessments (see reference to management information system reports in question 3.1).

Evidence: Regular audits of the program are conducted by the General Accounting Office and the SEC's Office of Inspector General. Recent OIG audits covered the following topics: Comment Letter Follow-up, Commission Review of Periodic Reports, Planning the Enforcement of F/D Rules, EDGAR Utility to Commission Staff, the Rulemaking Process, and Collection of Filing Fees. Three of these audits (EDGAR Utility, Rulemaking Process, and Collection of Filing Fees) were issued within the last year. Audits and studies conducted by the GAO included reviews of rulemaking compliance and a study on Financial Statement Restatements. Currently, GAO is conducting an update of its previous review on Section 10a Reporting.

Are Budget requests explicitly tied to accomplishment of the annual and long-term performance goals, and are the resource needs presented in a complete and transparent manner in the program's budget?

Explanation: The SEC FY05 Budget needs to be better aligned with the agency's GPRA plan. Currently, the budget reflects workload estimates, such as the impact of staffing levels on the volume of applications and filings that are reviewed. While this information is helpful, the agency needs to align its budget requests with outcome-oriented goals.

Evidence: SEC 2005 Budget

Has the program taken meaningful steps to correct its strategic planning deficiencies?

Explanation: The Program undertakes periodic reviews of its activities in light of changes in agency resources and market conditions. These reviews result in refinements of businesses processes, staff workload, and the various selection criteria for filing reviews. The Program staff are currently creating new performance measures for its 2005 GPRA plan. The Program is considering using new data sources, such as investor surveys, to measure program results.

Evidence: The General Accounting Office report, SEC OPERATIONS: Increased Workload Creates Challenges (GAO-02-302), identified a number of issues that affected the agency's performance. GAO found that while the agency has established a GPRA strategic plan, the agency would benefit from a comprehensive strategic planning process. Since the GAO report was issued, the Program has taken steps to address the report's recommendations. Also, the agency filled a position that will support its GPRA strategic planning and performance management activities and is revising its GPRA performance measures to be more outcome-oriented.

Are all regulations issued by the program/agency necessary to meet the stated goals of the program, and do all regulations clearly indicate how the rules contribute to achievement of the goals?

Explanation:  

Evidence:  

Does the agency regularly collect timely and credible performance information, including information from key program partners, and use it to manage the program and improve performance?

Explanation: The program maintains a management information system to track performance information on the receipt, review, and processing of filings. The information is used to analyze the effectiveness of the program and identify possible changes to regulations to better meet program goals.

Evidence: The Program's Filing Activity Tracking System (FACTS) produces management reports on program performance and workload levels. Analysis of data results in changes to Program activities. Data can be analyzed across issues, managers, and staff performance. Regular review of results at the branch and staff level are used to manage performance against targets.

Are Federal managers and program partners (grantees, subgrantees, contractors, cost-sharing partners, etc.) held accountable for cost, schedule and performance results?

Explanation: Senior officers and supervisors in the agency are held accountable for performance and program management through performance standards and evaluations. No grantees, sub-grantees, contractors, or cost-sharing partners perform full disclosure activities.

Evidence: Senior Officer Performance Plan/Rating document, and Supervisory Performance Plan and Evaluation form (SEC 2495).

Are all funds (Federal and partners') obligated in a timely manner and spent for the intended purpose?

Explanation: Most program funding is associated with compensation and benefits and therefore is obligated quickly for that purpose. In the past year, there have been some delays in obligations due to hiring delays. The Program has not yet completed hiring a large number of the new accountants for which the Program recently received funding. New hiring authorities are helping speed up the process.

Evidence: Of the funds appropriated for the Program in 2002, 91.1% were obligated in the first year, all for the originally stated purpose. For example, a major IT project, the recent modernization effort for EDGAR, was completed on time and within budget.

Does the program have procedures (e.g., competitive sourcing/cost comparisons, IT improvements, approporaite incentives) to measure and achieve efficiencies and cost effectiveness in program execution?

Explanation: The Program does not currently have procedures in place to measure cost effectiveness in program execution.

Evidence: The Program's FACTS system tracks timeliness of disclosure reviews, but the agency has not developed procedures to track cost efficiencies.

Does the program collaborate and coordinate effectively with related programs?

Explanation: The Program frequently consults and coordinates with other SEC programs. For example, the Program communicates with other programs on new rulemaking that affects their responsibilities, and will refer matters uncovered during disclosure reviews to the SEC's Enforcement Division for further investigation. The Program also actively seeks the input of other affected offices on recommendations to the Commission. The Program also has strong working relationships with other securities-related groups and Federal regulators, including the North American Securities Administrators Association, the Comptroller of the Currency (OCC), and other banking regulation agencies.

Evidence: The SEC's Government-Business Forum on Small Business Capital Formation recently held its 21st annual meeting. This yearly gathering provides the only national forum for small businesses to let officials from different parts of the federal government know how the laws, rules and regulations affect the ability of small companies to raise capital. The SEC also participates in the North American Securities Administrators Association annual uniformity conference. In addition, internal manuals and procedures cover matters requiring coordination and staff liaison work across SEC programs.

Does the program use strong financial management practices?

Explanation: The SEC has not undergone a full financial audit. A majority of the Program's resources are expended on compensation and benefits and are managed via the SEC's payroll system through an inter-agency agreement with the Department of Interior. The Program also is involved in the collection of filing fees and the security of the EDGAR filing system. Recommendations for improvements in these areas are being implemented.

Evidence: The SEC is currently scheduled to complete its first audited financial statements for fiscal year 2004. OIG audits on internal controls and financial management included assessments on the Collection of Filing Fees (Audit #348), and an Independent Accountant's Report (Audit #362). The implementation of a new automated filing fee system addressed a material weakness previously reported to Congress. The Filing Fee audit concluded that corrections had been made and did not identify any material weaknesses in the management controls over the collection of filing fees. The Independent Accountant's Report found some items concerning the collection of filing fees that were without policies. These items are expected to be resolved by the end of fiscal year 2004. System security certification and accreditation activities for the EDGAR system also are currently underway.

Has the program taken meaningful steps to address its management deficiencies?

Explanation: The Program successfully resolved prior deficiencies and materials weaknesses reported to Congress. In addition, in the past year, with the assistance of a consultant, SEC has made a full management review of the agency.

Evidence: Corrective action is taken on IG recommendations and tracked centrally by the agency. For example, an audit on confidential treatment requests identified areas for improvement. The Program implemented changes to ensure documents were safeguarded and SSNs were eliminated aherever practicable. An audit on IT security and data validation also resulted in changes in how information is collected, tracked, and analyzed.

Did the program seek and take into account the views of all affected parties (e.g., consumers; large and small businesses; State, local and tribal governments; beneficiaries; and the general public) when developing significant regulations?

Explanation: Proposed Rulemakings and the process of soliciting views of affected parties in the drafting process is formalized. Intended rulemaking activities also are identified in the semi-annual Unified Agenda publications. Furthermore, notices of Commission meetings and the results of Open Meetings are published in the daily SEC News Digest, which is available on the Commission's website.

Evidence: Agency releases are published in the Federal Register and also are made available on the SEC's website. The releases formally solicit public views. The views of all public commentators are summarized, analyzed, and fully considered. Revisions to Proposed Rulemakings are made as appropriate in response to pubic comment. The majority of Proposed Rulemakings are considered at Commission Open Meetings, which may be attended by members of the public. The Unified Agenda contains information on SEC rulemaking activities as well. Depending upon the nature of the rule, selected audiences are contacted for feedback on rulemaking initiatives. Public comments on proposed rules or concept releases also are gathered electronically via the agency's web site. For example, the Program is considering possible changes to proxy rules. Public hearings and roundtables often are held in connection with comprehensive or controversial rulemaking initiatives. Comments are being sought from a wide variety of sources in advance of any formal rulemaking. Individual investor feedback also is gathered through work with groups representing investing communities. Also the public may petition the Commission to adopt or rescind rules on matters. The Program occasionally will seek the assistance of corporate and investor groups, as well as organizations, to help ensure broad dissemination of requests for public comment.

Did the program prepare adequate regulatory impact analyses if required by Executive Order 12866, regulatory flexibility analyses if required by the Regulatory Flexibility Act and SBREFA, and cost-benefit analyses if required under the Unfunded Mandates Reform Act; and did those analyses comply with OMB guidelines?

Explanation: As an independent agency, the SEC is not required to prepare the regulatory impact analyses required by the Executive Order. However, SEC rulemaking follows a formal process to ensure that requirements are met in both the proposing and adopting stages. Regulatory Flexibility Act (RFA), SBREFA, and cost analyses are conducted on all rulemaking activities by the office drafting the proposing and adopting release, although most of the work associated with the SBREFA analysis is required only at the adopting stage. These documents are reviewed by the Office of Economic Analysis and the Office of General Counsel at the proposing and adoption stages. Internal controls are in place to ensure that rulemaking packages are complete before being issued and distributed outside the agency. The Office of Economic Analysis issues formal memos regarding its review of the RFA, cost-benefit, and SBREFA analyses.

Evidence: GAO conducts reviews of SEC rulemaking to determine compliance with applicable requirements. For example, a report was issued on the promulgation of the SEC's rule on Acceleration of Periodic Report Filing Dates and Disclosure Concerning Web Site Access to Reports. In addition, the SEC's Office of General Counsel maintains a guide on rulemaking requirements (Title: SEC Compliance Handbook), and the Program also provides guidance to staff to ensure compliance with Federal requirements (Memo entitled: Corporation Finance Rulemaking Outline). The Program further maintains a separate "Rulemaking Style Manual". Additionally, Division rulemakers compile a "closing binder" that contains documents and memos evidencing compliance with the RFA, PRA, and SBREFA requirements.

Does the program systematically review its current regulations to ensure consistency among all regulations in accomplishing program goals?

Explanation: When a Program determines that an area of regulation (text or forms) needs to be reviewed, related matters are incorporated and considered.

Evidence: Regular and systematic reviews are required by statute (RFA and PRA), and rules are reviewed consistent with those guidelines. The Program also has undertaken initiatives such as establishing a Disclosure Simplification Task Force to review all rules and forms administered by the Program with a view toward eliminating outdated requirements and eliminating any unnecessary duplication among requirements. Major issues also are identified by the Program and result in periodic, comprehensive reviews of rules covering targeted areas. For example, a review of the proxy rules is underway and the Program is considering formulating broad changes to the Securities Act registration process. Studies also are conducted on cross-cutting issues affecting the financial regulatory community. For example, the SEC and the Federal Reserve jointly issued a white paper on structural change in the settlement of government securities, and a staff report on the Task Force on Mortgage-Backed Securities Disclosure was prepared with the Department of the Treasury and the Office of Federal Housing Enterprise Oversight.

Are the regulations designed to achieve program goals, to the extent practicable, by maximizing the net benefits of its regulatory activity?

Explanation: The Program's primary regulatory activity is to establish new disclosure requirements or to eliminate obsolete disclosure requirements so that investors get information that is relevant to their investment decisions. Proposed rulemaking identifies proposed new requirements and requests comment on implementation benefits and costs. Alternatives are addressed and cost/benefit analyses are prepared in accordance with rulemaking and cost/benefit analysis guidance. To collect and verify data on potential costs and benefits a small number of companies may be contacted to ask for estimates (provided the activity is undertaken consistent with Paperwork Reduction Act requirements). Both qualitative and quantitative benefits are evaluated against the potential cost of regulations. The agency attempts to maximize the benefit while minimizing the burden of its regulatory activity to the extent practicable.

Evidence: The Office of General Counsel provides guidance on developing regulations, and the Office of Economic Analysis provides a manual containing guidance on preparing a cost-benefit analysis. The Program has published a small business compliance guide and routinely considers possible means to lessen burdens on small business issuers. The Program also considers special issues associated with foreign private issuers.

Has the program demonstrated adequate progress in achieving its long-term outcome performance goals?

Explanation: The Program's current long-term goals are not outcome based.

Evidence: The program needs to develop more outcome based measures. SEC is currently refining its long-term and annual performance goals and will provide further information during the FY 2005 GPRA Annual Planning process.

Does the program (including program partners) achieve its annual performance goals?

Explanation: The Program met performance goals for the percentage of issuers reviewed annually and average time to issue initial comments on full review registration and merger proxy statement filings. The Program is in the process of developing other measures.

Evidence: The Program's goal was to review 20% of issuers in 2003, the program reviewed 23 percent. The program's goal was to issue initial comments on full review registration and merger proxy statement filings in 30 days. In 2003, the average time to issue comments was 27.7 days.

Does the program demonstrate improved efficiencies or cost effectiveness in achieving program performance goals each year?

Explanation: The Program has not demonstrated improved efficiencies or cost effectiveness in program goals each year.

Evidence: The program needs to develop measures of efficiencies or cost effectiveness.

Does the performance of this program compare favorably to other programs, including government, private, etc., that have similar purpose and goals?

Explanation: The SEC is uniquely charged with the responsibility of administering the securities laws and regulations established to prevent fraud and misrepresentation in the public offering, trading, voting, and tendering of securities.

Evidence:  

Do independent and quality evaluations of this program indicate that the program is effective and achieving results?

Explanation: GAO and OIG audits indicate that the program is effectively managed and generally achieves results. Audits have noted that some improvements are possible and the Program recently received increased staff and funding to help make these changes. In addition, the Program recently received through legislation greater flexibility to hire accounting professionals.

Evidence: The SEC's Office of Inspector General issued a report, GPRA Performance Reports (#329), assessing whether the Commission prepared its performance reports in accordance with GPRA requirements. The audit found that the reports generally complied with the requirements and also recommended actions for some of the measures. Additional OIG audits assessed factors of the Program including an audit on EDGAR Utility to Commission Staff (#351) and Comment Letter Follow Up (#326). The General Accounting Office report, SEC OPERATIONS: Increased Workload Creates Challenges (GAO-02-302), identified a number of issues that affected agency and program performance. The GAO study included interviews with stakeholder communities and their assessment of program performance. The report found that the SEC is a respected regulator but that limited resources were having a significant impact on the work of the agency. Other GAO audits and studies have assessed rulemaking compliance as well as Financial Statement Reporting.

Were programmatic goals (and benefits) achieved at the least incremental societal cost and did the program maximize net benefits?

Explanation: The Program's primary regulatory activity is establishing or eliminating disclosure requirements. Proposed rulemaking identifies proposed new requirements and requests comment on implementation burden. Alternatives are addressed and cost/benefit analyses are completed. The agency attempts to minimize the burden of its regulatory activity to the extent practicable while maximizing net benefits.

Evidence: The Program published a small-business compliance guide and routinely considers possible means to lessen burdens on small-business issuers. The Program also considers special issues associated with foreign private issuers.