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Securities and Exchange Commission's FY 2020 and FY 441 G St. N.W. Washington, DC 20548 November 16, 2020 The Honorable Jay Clayton Chairman United States Securities and Exchange Commission Financial Audit: Securities and Exchange Commission’s FY 2020 and FY 2019 Financial Statements Dear Mr. Clayton: This report transmits the GAO auditor’s report on the results of our audits of the fiscal years 2020 and 2019 financial statements of the United States Securities and Exchange Commission (SEC) and its Investor Protection Fund (IPF),1 which is incorporated in the enclosed U.S. Securities and Exchange Commission Fiscal Year 2020 Agency Financial Report. As discussed more fully in the auditor’s report that begins on page 54 of the enclosed agency financial report, we found • the financial statements of SEC and its IPF as of and for the fiscal years ended September 30, 2020, and 2019, are presented fairly, in all material respects, in accordance with U.S. generally accepted accounting principles; • SEC maintained, in all material respects, effective internal control over financial reporting for SEC and for IPF as of September 30, 2020; and • no reportable noncompliance for fiscal year 2020 with provisions of applicable laws, regulations, contracts, and grant agreements we tested. The Accountability of Tax Dollars Act of 2002 requires that SEC annually prepare and submit audited financial statements to Congress and the Office of Management and Budget.2 The Securities Exchange Act of 1934, as amended in 2010 by section 922 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), requires SEC to annually prepare and submit a complete set of audited financial statements for IPF to Congress.3 In accordance with the authority conferred by the Chief Financial Officers Act of 1990, as amended 1IPF, which was established in 2010 by section 922 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), funds the activities of SEC’s whistleblower award program under that section and the SEC Office of Inspector General Employee Suggestion Program established under section 966 of the Dodd-Frank Act. Pub. L. No. 111-203, §§ 922(a), 966, 124 Stat. 1376, 1844, 1912-13 (July 21, 2010), classified at 15 U.S.C. §§ 78d- 4(e), 78u-6(b), (g). IPF is a separate SEC fund and its financial statements present SEC’s financial activity associated with these programs. Accordingly, IPF’s financial transactions are also included in SEC’s overall financial statements. 2Pub. L. No. 107-289, § 2, 116 Stat. 2049-50 (Nov. 7, 2002), amending 31 U.S.C. § 3515. 3Dodd-Frank Act, § 922(a), 124 Stat. 1844 (July 21, 2010), adding § 21F(g)(5) of the Securities Exchange Act of 1934, classified at 15 U.S.C. § 78u-6(g)(5). Page 1 GAO-21-192R SEC’s Financial Statements for FY 2020 and FY 2019 by the Government Management Reform Act of 1994,4 we have audited the SEC and IPF financial statements. Section 963 of the Dodd-Frank Act further requires that (1) SEC annually submit a report to Congress describing management’s responsibility for internal control over financial reporting and assessing the effectiveness of such internal control during the fiscal year; (2) the SEC Chairman and Chief Financial Officer attest to SEC’s report; and (3) GAO assess the effectiveness of SEC’s internal control over financial reporting and evaluate, attest to, and report on SEC’s assessment.5 Accordingly, this report also includes our reporting in response to the requirement under section 963 of the Dodd-Frank Act. ________________ We are sending copies of this report to the Chairs 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 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, the report is available at no charge on the GAO website at https://www.gao.gov. If you or your staff have questions concerning this report, please contact me at (202) 512-3133 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. Sincerely yours, James R. Dalkin Director Financial Management and Assurance Enclosure (104105) 4See the Chief Financial Officers Act of 1990, Pub. L. No. 101-576, 104 Stat. 2838 (Nov. 15, 1990), codified, in relevant part, as amended, at 31 U.S.C. § 3521(g); see also the Government Management Reform Act of 1994, Pub. L. No. 103-356, 108 Stat. 3410 (Oct. 13, 1994), codified, in relevant part, as amended, at 31 U.S.C. § 3515(c). 5Dodd-Frank Act, § 963(a), (b), 124 Stat. 1910 (July 21, 2010), classified at 15 U.S.C. § 78d-8(a), (b). Page 2 GAO-21-192R SEC’s Financial Statements for FY 2020 and FY 2019 U.S. SECURITIES AND EXCHANGE COMMISSION AGENCY FINANCIAL REPORT FISCAL YEAR 2020 the SEC oversees . 7,400+ Reporting Companies (more than half exchange listed) Active Registered 28,000+ CLEARING AGENCIES Registered Entities 7 24 Credit National Securities 9 Rating EXCHANGES AGENCIES CERTIFICATE OF EXCELLENCE IN ACCOUNTABILITY REPORTING Certificate of Excellence in ® Accountability Reporting The SEC’s fiscal year 2019 Agency Financial Report received the presented to the Certificate of Excellence in Accountability Reporting from the U.S. Securities and Exchange Commission Association of Government Accountants. This was the 14th year in recognition of outstanding effort in preparing the Agency Financial Report for fiscal year 2019 in a row that the SEC has won this award, which is presented to federal government agencies whose annual reports achieve Diane L. Dudley, CGFM, CPA Chair, CEAR Board the highest standards in demonstrating accountability and Ann M. Ebberts, MS, PMP Chief Executive Officer, AGA communicating results. MESSAGE FROM THE CHAIRMAN 2020 was certainly a year of challenge unlike any in recent memory. Fortu- nately, for America’s investors and markets, the women and men of the U.S. Securities and Exchange Commission (SEC) once again demonstrated their unwavering and unparalleled commitment to protecting investors, maintaining fair, orderly, and efficient markets, and facilitating capital formation. Their dedication combined with our strong and flexible regulatory framework allowed the SEC to respond quickly to the health, economic, and other unexpected challenges we faced this year. During my time as Chairman, the agency, recognizing the value of our time-tested regulatory framework, has focused on modernizing our rules and regulations, some of which have not been meaningfully updated in decades. We OUR VISION have also taken advantage of advances in communication and other technology to improve our engagement with market participants as well as the methods To promote capital and practices we employ to fulfill our regulatory responsibilities. markets that inspire These actions were necessary—in the past 30 years our markets have public confidence undergone a sweeping transformation and many of our rules, regulations, and other requirements had, understandably, become dated. More importantly, and provide a diverse our modernization efforts improved all three components of our mission: array of financial investor protection, market efficiency, and capital formation. This was only possible because each initiative was shaped by our career staff. Their decades opportunities of experience, cooperation across divisions and offices, and commitment to our to retail and mission provided the bedrock for, and energy to complete, our retrospective review and modernization processes. These dedicated professionals have my institutional investors, profound thanks and respect. entrepreneurs, public As just a few examples, in fiscal year (FY) 2020, in areas principally covered by companies and other the Division of Investment Management, these modernization efforts included: market participants. the regulatory framework for funds’ use of derivatives (40 years since the last meaningful update), the investment adviser marketing and solicitation rules i (60 years), and the regulation of funds that invest in necessary, bring prompt actions to enforce our rules other funds (47 years). In areas principally covered and applicable law. In FY 2020, in the face of many by the Division of Corporation Finance and the challenges, our Office of Compliance Inspections and Office of Chief Accountant, these efforts included: the Examinations (OCIE) conducted examinations that auditor independence rules (20 years); the business, covered 15 percent of all SEC-registered investment legal proceedings, and risk factor disclosure for advisers, verified 4.8 million investor accounts total- public companies (over 30 years); and the “accredited ing $3.4 trillion in assets, conducted more than 120 investor” definition (35 years). Additionally, the outreach events, more than 200 formal meetings with Commission significantly progressed its fulsome other regulators, issued a report on cybersecurity and review of the shareholder proposal and proxy voting resiliency, and published 8 risk alerts. Our Division process, some components of which had not been of Enforcement (ENF) brought over 700 actions, updated since 1954. obtaining financial remedies of more than $4.5 billion, and awarded a record 39 individual whistleblowers This is only a sample of the work done by the approximately $175 million. These statistics illustrate Commission in FY 2020 to evaluate whether decades but do not fully capture the flexibility of the women old rules continue to function effectively and in line and men of OCIE and ENF and their unwavering with their purpose, and to propose and implement commitment to protecting investors and our markets. updates as needed. Here I note that, although many actions are attributed to only one or two divisions Of course, without the Commission-wide efforts to or offices, these efforts rely on indispensable support ensure the efficacy and efficiency of our rules discussed from teams throughout the agency.
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