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SEC Watchdog Finds Recordkeeping in Disarray

The Securities and Exchange Commission (SEC)—a federal regulator that polices recordkeeping on Wall Street, among other things—has failed to properly handle its own records, according to a recent audit by the agency's inspector general.

The audit report, issued a year after the SEC came under fire for improperly purging investigative files, describes a records system in disarray.

Many SEC staffers are still unsure about when to preserve records and when to dispose of them, the inspector general found. As a result, some SEC offices may have improperly destroyed documents, while others are sitting on piles of records that could have been safely discarded.

In December 2011, President Obama issued a memo calling proper records management the "backbone of open Government." If agencies fail to update their records policies, "the surge in information could overwhelm agency systems," the memo states.

It appears the SEC does not always practice what the President preached.

Some agency offices are operating under old policies for disposing of federal records, while others are not operating under any policy at all. Outdated or missing policies "could potentially result in retaining unnecessary records or discard[ing] records that should have been preserved," the inspector general wrote.

In a survey sent to SEC staff in charge of recordkeeping, 40 percent of respondents said "their office had never disposed of any records."

Keeping records that should have been purged may lead to wasted office space, higher costs, and the unnecessary disclosure of records, the auditors found.

The SEC has also neglected to update its list of vital records that need to be safeguarded during an emergency. This could "prevent the SEC from performing mission essential functions" during a crisis, the inspector general wrote.

In addition, the SEC's records office has failed to process documents in a timely fashion.

The office receives requests from other SEC employees and helps the agency respond to Freedom of Information Act (FOIA) requests from the public. It tries to process non-urgent requests within seven business days. But the office took up to eight months to process some requests, and often failed to notify SEC managers of the delays.

The office also faces a 10-year backlog of records that are eligible for destruction, and does not have accurate information on the number of records that were created or destroyed each year.

The SEC has agreed to implement the inspector general's recommendations for improving the agency's recordkeeping practices. In a response to POGO's request for comment, SEC spokesman John Nester referred POGO to a line in the report stating that the inspector general's office "considers the report's recommendations resolved."

However, the report also states that "each recommendation will remain open" until the inspector general can confirm it has been fully implemented.

This is not the first time the SEC has been scrutinized for its recordkeeping practices.

In a report issued last year, the inspector general found that the agency had purged internal investigative files over several decades. SEC staffers also made "inaccurate or misleading" statements to the National Archives about the document destruction, an Archives official told the inspector general.

In a possible allusion to those revelations, the latest audit found that SEC offices are now more supportive of records management because of an unspecified "records destruction matter."

The inspector general also criticized the SEC's recordkeeping in a recent audit of the agency's travel oversight.

In 2009 and 2010, the agency sent staffers on one-day trips to Rome and Dubai, and a two-day business-class trip to Brussels and Sydney. At the time, it was unclear from the SEC's paperwork whether these trips were worthwhile.

SEC officials eventually provided justification for the trips, but only after being questioned by the inspector general.

"Given the scrutiny of stakeholders regarding the SEC's budget, all international trips and the related benefits must be reviewed and approved based on substantiated support and the needs of the SEC," the inspector general wrote. Agency managers cannot evaluate the potential benefits of a trip if the benefits are not documented at the time.

In a written response to the latest recordkeeping audit, an agency official complained that "[t]he scope of the audit and the recommendations combine to highlight records issues existing prior to 2008, and thus significantly diminish the accomplishments of the [records management office] since 2008."

This claim is "not factual," the inspector general responded. The report was based on "appropriate, factual evidence and OIG observations that were made during the scope of the audit," which looked at the period from January 1, 2008, to September 30, 2011.

Regardless of the rift over the timing, the SEC did affirm that "there is still work to be done," and assured the inspector general that a "complete overhaul of the records program" is underway.

By: Michael Smallberg
Investigator, POGO

Michael Smallberg, Investigator Michael Smallberg is an investigator for the Project On Government Oversight. Michael's investigations center on oversight of the financial sector.

Topics: Financial Sector

Related Content: Financial Oversight, Securities and Exchange Commission

Authors: Michael Smallberg

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