SEC to return part of its 2003 appropriations

Unable to hire hundreds of new accountants and investigators, the Securities and Exchange Commission won't spend $103 million of its fiscal 2003 budget, and will return the money to the general Treasury fund.

The SEC received a 45 percent increase in its funding in 2003-the largest increase in agency history-and most of that money was intended to hire 842 new employees. But the agency faced several hurdles in making use of the money. For starters, the budget wasn't approved until February 2003. That meant the agency spent the first five months of the fiscal year operating on its fiscal 2002 budget and couldn't develop a massive hiring strategy.

Additionally, Congress was slow to act on legislation making it easier for the agency to hire accountants, economists and investigators. President Bush signed the bill into law earlier this month. Finally, with increased scrutiny on financial reports, there is stiff competition from the private sector for top-flight accountants and economists.

Nonetheless, the agency could have found ways to utilize the funds, said Michael Clampitt, a lawyer and accountant in the agency's corporate finance division.

"How do you not spend $103 million? They could have paid existing staff for overtime to review more company filings," said Clampitt, who is also president of the National Treasury Employees Union local that represents SEC employees.

Even if it were able to bring new staff on board, the agency lacks a clear vision of how to make the best use of their talents, according to Richard Hillman, director of financial markets and community investment at the General Accounting Office.

"The SEC has embarked on an effort to allocate resources and determine its needs without the benefit of an updated strategic plan," Hillman told the House Government Reform Subcommittee on Efficiency and Financial Management at a Wednesday hearing. Rather, he said, the agency has relied on input from managers and an organizational study commissioned by former SEC Chairman Harvey Pitt.

"SEC's budget increase has heightened the need for strategic planning and the significance of the process, as SEC's spending plan will have to withstand considerable scrutiny," Hillman said, adding that the agency was unable to provide GAO with an analysis justifying budget allocations across each program area.

Strategic planning has rarely been a priority for SEC managers, according to agency sources. Rather, the four divisions operate as independent entities and budgets are based on the previous year's appropriation.

But Peter Derby, who was recently appointed to the newly created post of managing executive for operations at the agency, said that is about to change. He told the committee that the agency's next strategic plan, due out in September, will focus on improving coordination among its four divisions and better align resources with workload.

Rep. Todd Platts, R-Pa., chairman of the subcommittee, urged Derby to include GAO and industry officials in the process. He said it is critical to get input as early as possible so that all stakeholders agree on the direction in which the agency is moving.

Even without an updated strategic plan in place, Derby said changes are happening. For instance, he announced the creation of an Office of Risk Assessment to identify emerging issues and help managers reallocate resources as necessary. The office will include new staff, as well as staff from the other divisions.

Reflecting the disconnect between management and staff, Clampitt said, "That is the first I've heard of the office [the Office of Risk Assessment]. They haven't told us word one about it."

The idea for the Office of Risk Assessment comes directly from the report commissioned by Pitt. Despite being used as the foundation for other reforms taking place within the agency, Derby said there is no plan to finalize the report or to share it with the investment community, public, or members of Congress. Clampitt said neither he nor any other union officials have seen a copy of the report, which was prepared by the consulting firm McKinsey & Co.

Another recommendation being acted upon requires division directors to submit quarterly reports to Chairman William Donaldson showing how well they are meeting certain performance objectives. Derby said the intention is to hold managers more accountable.

Derby also said training opportunities for current and existing staff will be improved. Two months ago, the agency launched the SEC University, which consolidates training from the four divisions into one area and includes an array of online programs.

But Clampitt said the university won't do anything to improve agency operations.

"I've been here since 1990 and despite all of the corporate scandals, I've never once been informed of classes that would help me do my job better," he said. Rather, the classes, especially the online offerings, focus on using new software. Instead, he said the agency should send staff to seminars with industry officials and analysts to hear about trends.