Detailed Information on the
Securities and Exchange Commission - Enforcement Assessment

Working with other similar programs in the government to develop measures that better reflect effectiveness.

Developing targets for existing measures on the collections of fines.

Committing to long-term improvement in the output, outcomes, or efficiency of this program.

Developing and implementing a replacement case management system.

Improving management and oversight of the collection of fines, disgorgements, and other funds to be collected as a result of enforcement activity.

Developing and implementing a replacement case management system.

Further refine 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, and cost information.

Developing a measure that quantifies increased efficiencies.

Measure: Percentage of cases successfully resolved (in terms of number of defendants).

Explanation:Based upon the status of parties at the end of the fiscal year in which cases were filed against them. Successfully resolved includes those matters litigated with a favorable judgment for the SEC, settled, or where a default judgment was issued.

Measure: Percentage of first enforcement cases filed within two years within initiation of an investigation.

Explanation:Based upon the length of time between an inquiry or investigation being opened and the first action being filed.

Measure: 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.

Explanation:The SEC can seek a wide range of remedies for failure to comply with the securities laws. These remedies include civil monetary penalties and disgorgement. When the remedies are imposed by the Commission or the federal district court, payments must be made by a certain date. This measure identifies the percentage of debts where debtors have made payments, either to the SEC, federal district court or receivers, or the SEC has initiated a collection activity within 180 days of the due date. Such collection activities include, among other things, demand letters, negotiation of payment plans, enforcing the payment of the debt through the courts, or other judicial remedies. This measure was developed in 2007 as part of the strategic planning process. Prior year data are not available. The FY 2008 figure is based on review by the Office of Collections and Distributions. The Office of Collections and Distributions reviewed both collection activities and receipt dates for all debts that reached the sixmonth mark within the FY. Because the SEC uses the deposit date for debts payable to the agency for purposes of financial reporting, the SEC will review its methodology for reporting this measure in 2009.

Is the program purpose clear?

Explanation: Congress established laws designed to restore and maintain investor confidence in capital markets by providing structure and government oversight. Securities laws and regulations were established to deter fraud and misrepresentation in connection with the offer and sale of securities. This program is directed at detecting and sanctioning fraudulent activity in the securities markets, including fraud by brokers, dealers, investment advisers and investment companies, financial fraud by issuers of securities, fraud in securities offerings, market manipulations, and insider trading.

Evidence: Congress has provided authority to investigate and remedy violative conduct in the Federal securities laws, including the Securities Act of 1933, the Securities Exchange Act of 1934, the Investment Advisers Act of 1940, and the Investment Company Act of 1940. These statutes have been augmented by the Insider Trading Sanctions Act of 1984, the Insider Trading and Securities Fraud Enforcement Act of 1988 and the Sarbanes-Oxley Act of 2002. The statutes require full disclosure of material information in connection with the offer and sale of securities and prohibit fraudulent activity in the securities markets.

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

Explanation: A safe and sound securities market is vital to the U.S. economy. The program is critical to protecting investors and promoting the integrity and efficiency of the U.S. securities markets. Recent exposure of issues relating to research analyst reports, investment companies, investment advisers, and broker-dealer sales practices have highlighted major problems resulting from conflicts of interest inherent in the financial services business. Further, as illustrated by recent scandals in the areas of corporate accounting and auditing, as well as by the growth of online activity that affects investment decisions and by the expansion of international markets, the need continues for maintaining and enhancing a national program to prevent and suppress fraud.

Evidence: The agency files or institutes hundreds of cases each year in which it seeks remedies for violations of the Federal securities laws. In 2003, the agency brought a total of 679 judicial actions and administrative proceedings against a total of 1415 defendants or respondents. The successful prosecution of hundreds of cases demonstrates that the agency performs a critical function in finding and terminating frauds. Each year, the agency successfully obtains emergency relief in the form of temporary restraining orders and asset freezes to ensure that frauds are promptly ended. In 2003, the agency obtained orders requiring violators to disgorge approximately $900 million in ill-gotten gains and to pay approximately $1.1 billion in civil penalties. These matters are addressed in the agency's 2003 Annual Report available on SEC's website at www.sec.gov.

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

Explanation: SEC is uniquely charged with responsibility for administering federal securities laws and regulations to prevent fraud and misrepresentations in the U.S. securities markets. State regulators enforce local securities laws, but they have limited jurisdiction.

Evidence: The SEC has primary jurisdiction for oversight of U.S. securities markets and enforcement of the federal securities laws. The SEC oversees the enforcement activities of self-regulatory organizations, such as the NYSE and the NASD, that have jurisdiction limited to member firms and their employees. The program works closely with the Department of Justice in the criminal prosecution of securities violations. The program is designed to function in coordination with other authorities to ensure effective and comprehensive oversight of U.S. markets.

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

Explanation: The design of the Enforcement program is fundamentally sound, and it operates free of major flaws. The program has historically focused on areas critical to the markets, such as fraud by securities professionals and issuers. However, the program is designed and managed to maintain flexibility so that new and emerging issues affecting the markets are addressed. Further, the program has successfully addressed and implemented changes recommended by the Office of Inspector General, and no material weaknesses or internal control issues have been identified that limit the program's effectiveness or efficiency.

Evidence: The program is currently expanding its ability to detect problems earlier, identify novel issues sooner, and more effectively use new sources of information to prevent a problem from having a major impact on the markets. Enforcement staff also are conducting "around the corner reviews" to ensure that the program is posititioned to address risks likely to impact the markets and market participants.

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

Explanation: The program has an established process for considering and reviewing the distribution of resources across investigations and cases.

Evidence: To maximize the use of resources, the program relies on a process of regular reviews of caseloads. These reviews may result in a decision to change the direction of an investigation, including expanding or narrowing its focus, or closing the matter. These reviews take into consideration SEC priorities, the significance of the case, the balance of SEC presence across all core program areas, and the strength of the case. Further, to ensure program matters are handled efficiently, managers are required to approve requests to open and conduct inquiries and investigations.

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: While, the agency has recently established new goals that are more outcome oriented, it has not developed long-term outcome-based performance measures that reflect these goals. The program's two long-term performance goals are: the early detection and prevention of potential violations, and the sanctioning of violations when they do occur. Without information on the level of violations, it is difficult to measure the agency's progress in meeting its long-term goals.

Evidence: The program's long-term measures are derived from the agency's strategic plan and are discussed in its annual performance budget. SEC 2004 Strategic Plan, SEC 2004 Performance Plan

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

Explanation: While the program has established outcomes that it is seeking to achieve, it has not been able to develop measures or estimate a baseline and set reasonable targets.

Evidence: SEC 2004 Strategic Plan.

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

Explanation: Specific annual measures are used to monitor the performance of the program. These measures primarily address the number of enforcement actions and remedies resulting from the program's enforcing compliance with the federal securities laws. Examples of program annual measures are: 1) The percent of cases successfully resolved, and 2) Percent of cases filed within 2 years. SEC is encouraged to develop its measures further in order to get a better sense of the magnitude of the cases it brings and of the deterrence effect of the program.

Evidence: SEC's strategic plan outlines the outcomes the agency is seeking and the measures used to gauge its progress. The annual performance report tracks performance against specific measures used by the program.

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

Explanation: The agency established performance targets to guage its annual progress across a number of measures. Targets are used to assess the program's performance in: the length of time to bring its first action in a case; the resolution of its cases; and the distribution of cases across core program areas. However, there is inherent difficulty in measuring the impact of SEC enforcement activities, For example, the number of enforcement actions filed by the agency can range widely. The total number of actions does not necessarily correspond to any increase or decrease in the actual level of fraud occurring in the industry. Further, the program has no realistic basis on which to determine what level of fraud exists in the industry, or the desired number of enforcement actions that should be filed in any given year to achieve a certain level of performance. The program needs to work to develop further targets for some measures, such as the collection rate of penalties.

Evidence: SEC 2004 Strategic Plan, SEC FY 2006 OMB Budget Request and Performance Plan.

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

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

Evidence:  

Are independent 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: Internal and external evaluations or reviews are conducted to evaluate program effectiveness and to identify potential program improvements.

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 Enforcement's Internet program, disgorgements, and deterring securities recidivism. Audits and studies conducted by GAO include: reviews of SEC and CFTC Fines Follow-Up, and Oversight of Disgorgement Collections. The OIG is currently examining the SEC's planning for the enforcement of disclosure rules.

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: While SEC made progress of integrating performance into its budget in its FY 2006 Budget Request, costs could be better integrated into the agency's performance framework. The SEC is continuing to develop a more comprehensive approach to presenting information that links budget data with performance information. Funds for acquiring and implementing an activity-based costing system were requested in the agency's FY 2005 Congressional budget.

Evidence: The SEC is developing a more detailed methodology and structure to estimate and budget for the full annual costs to achieve its goals and long-term measures at both the agency and program level. The model will allocate administrative and human resources overhead costs. Once established, additional strategies for linking budget and performance data will be addressed.

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

Explanation: During 2003, the Chairman implemented new management reporting activities including performance dashboards (a performance tracking system), comprehensive risk assessment practices, and regular organizational reviews targeted at aligning human resource requirements with agency priorities. The program is implementing parallel practices to further develop its planning and management activities.

Evidence: A new agency strategic plan was developed over a 12 month period with participation from throughout SEC. In addition, budget development activities include much closer collaboration between the budget, planning, and evaluation staffs.

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 uses a variety of quantitative and qualitative information sources, including tracking systems and regular management meetings to adjust program priorities, make resource allocations, and take other appropriate management actions. The program maintains a flexible approach to allocating and re-allocating resources to adapt to continually changing investigation needs.

Evidence: Data on open cases are tracked in the Division's computerized Case Activity Tracking System, which generates a variety of management reports. The program staff also maintains liaison with state, local, foreign, and other federal authorities. Program policies govern the length of time staff are allowed to prepare recommendations for opening formal investigations, and the program regularly monitors the allocation of resources, caseloads, and duration of matters being considered. See also question 1.5 above.

Are Federal managers and program partners (including grantees, sub-grantees, contractors, cost-sharing partners, and other government partners) held accountable for cost, schedule and performance results?

Explanation: SEC recently implemented a pay for performance program that is used to evaluate managers and staff. The merit-based pay program links annual evaluations to performance. Senior officers and supervisors in the agency are held accountable for performance and program management through performance standards and evaluations.

Evidence: Annual pay for performance policy guidance is provided in writing to managers and staff according to established employee performance review cycles. Performance management materials are also made available to staff on the agency's internal website. In particular, the program uses senior management ratings and computerized reporting in its case and action tracking system to ensure that resources are appropriately applied to the investigations and actions that best further the agencies law enforcement goals. Human Resources "Performance Management Process memo dated June 3, 2004. "Pay for Performance" internal web page.

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

Explanation: Program funds are used for their intended purposes. Budget execution of program funds is timely and regularly monitored by senior program and agency officials. For example, information technology investments are approved and monitored by the agency's Information Technology Capital Planning Committee and Information Officers Council, while budget performance is compared against operating plans on monthly in the Chairman's Management Dashboard review.

Evidence: Most program funding is associated with compensation and benefits and is obligated for that purpose. The program has been aggressive in using hiring flexibilities, new recruiting practices, and the agency's work-life program to attract and retain employees, resulting in its using its budget resources at expected levels. Over the past three years, the program's attrition rate has dropped significantly from the agency's historical average, and the program is expected to fill nearly all its vacancies by fiscal year end. Non-personnel costs exceeded planned levels due to increases in investigation and litigation workloads from FY2001 to FY2003. For example, costs for expert witnesses, foreign counsel, deposition and transcription services, and other litigation support services rose significantly during this period.

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

Explanation: The program adopted an efficiency measure on the timeliness of bringing cases and also competitively sources for a variety of litigation support services so that the program can more efficiently manage its staffing resources. While the program does not currently have procedures in place to measure cost effectiveness in program execution, it is developing alternative approaches for determining program costs to achieve agency strategic goals.

Evidence: The program uses a measure and targets to monitor the timeliness of its cases. The measure seeks to reflect the need to balance timeliness of enforcement actions with the need for complete, effective, and fair investigations. The program also uses competitive sourcing to acquire litigation support services for large cases or those that are particularly complex. Contracts allow the program to support its needs for paralegal assistance, capture and conversion of files into electronic formats, and forensic services. Competitive sourcing allows enforcement attorneys to focus on investigative matters and case duties and improves the overall efficiency of the program. The agency is conducting an assessment on activity-based costing alternatives. Included in the study will be what types of efficiency measures are appropriate for the program.

Does the program collaborate and coordinate effectively with related programs?

Explanation: The program has working relationships with enforcement and surveillance officials at the self-regulatory organizations, and with state, foreign and other federal regulators, including the Department of Justice. SEC participates in conferences with Federal and State regulators, and hosts a law enforcement coordination conference each year. The conference held in April 2004 was attended by representatives from over 40 state, federal, and self-regulatory organizations. The program also functions in close coordination with other SEC programs on investigations and rulemaking activities.

Evidence: The program leads or participates in joint enforcement activities ranging from task forces, to information sharing, to bringing joint cases. For example, SEC is a member of the President's Corporate Fraud Task Force and the Bank Fraud Working Group. The agency worked with the Commodities Futures Trading Commission on joint inquiries into single stock futures, and established a cooperative information sharing agreement with the Food and Drug Administration. In addition, program staff routinely exchange information with the self-regulatory organizations, criminal and regulatory organizations, and foreign authorities to assist wtih investigations and cases, including detailing staff to work in the U.S. Attorney's Office to assist with securities cases. Internally, the program coordinates with other SEC divisions to provide leads, referrals, and expertise during investigations. The program also consults on rulemaking activities in order to ensure that the agency can effectively implement and enforce the intent of the regulations.

Does the program use strong financial management practices?

Explanation: The agency has not undergone a full financial audit. A majority of the program's resources are in compensation and benefits and are managed via SEC's payroll system through an inter-agency agreement with the Department of Interior. These financial resources are well managed by the program, the agency, and DOI. The program also is responsible for activities related to the collection of funds payable to the government as a result of enforcement activities. In July 2003, the General Accounting Office released a second report on the agency's collection program. While the report recognized improvements that had been made, it continued to highlight weaknesses that were found in financial management practices.

Evidence: The agency's financial management practices are being audited in 2004. In response to recent statutory changes regarding auditing of financial statements, the agency has developed new computerized databases for the tracking of amounts ordered in its enforcement actions and proceedings.

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

Explanation: The program successfully resolved prior deficiencies and has implemented regular management and performance reviews. New risk assessment practices are being established to help the program direct its resources to those areas that present the greatest potential harm to the public and the industry.

Evidence: The program promptly resolved matters identified by SEC's Office of Inspector General that required management focus. These areas included enhancing the security and protection of materials that contractors access (audit G219), improving communication and the quality of information in the Division's Internet enforcement activities (audit 352), and improving data in the program's case tracking system (audit 331). Additionally, the Division regularly reports its level of activity and timeliness of actions through the Chairman's Performance Management Dashboard. The agency's Executive Review Board meets regularly to consider the organizational structure of agency programs to ensure that resources are optimally allocated to meet mission goals. SEC's Office of Risk Assessment also is focusing on identifying and addressing risks that cut across programs and require senior level management attention.

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

Explanation: The program does not have long-term outcome-oriented measures or targets. There exist inherent challenges in using long-term performance goals to measure enforcement outcomes. In particular, the agency sees enforcement activities as the culmination of work across the agency to deter fraud and protect investors. Long-term performance measures are being considered that better reflect the agency-wide nature of enforcement activities.

Evidence: SEC Strategic Plan

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

Explanation: The agency achieved its intended performance levels for FY 2004 for which targets are used.

Evidence: FY2006 OMB Budget Request, and FY 2004 Performance and Accountability Report (pending publication).

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

Explanation: The program does not demonstrate improved efficiencies and cost effectiveness. The program is working on developing methods of measuring cost effectiveness.

Evidence: SEC Strategic Plan

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

Explanation: Comparable prograns that target similar types of fraud, such as the CFTC, U.S. Attorneys, and SROs, do not use similar performance measures and therefore it is too difficult to compare program results.

Evidence:  

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

Explanation: Independent evaluations of the program are conducted by the Government Accountability Office and SEC's Office of Inspector General.?? The evaluations focus on program outcomes including its success in deterring recidivism and its use of referrals.?? Recommendations are evaluated and incorporated into the program as appropriate.

Evidence: OIG Reports 352 Internet Enforcement Program, 360 Deterring Securities Recidivism, and 322 OCIE Referrals to Enforcement.?? Current and planned evaluations include:?? GAO 250-199 Enforcement Activities in the Mutual Fund Industry, and OIG audits of the program's waivers for monetary relief, and its case management practices.