441 G St. N.W. Washington, DC 20548 November 16, 2015 The Honorable Mary Jo White Chair United States Securities and Exchange Commission Financial Audit: Securities and Exchange Commission’s Fiscal Years 2015 and 2014 Financial Statements Dear Ms. White: This report transmits the GAO auditor’s report on the results of our audits of the fiscal years 2015 and 2014 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 2015 Agency Financial Report. As discussed more fully in the auditor’s report that begins on page 59 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, 2015, and 2014, 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, 2015; and • no reportable noncompliance for fiscal year 2015 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 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 in the Chief Financial Officers Act of 1990, as amended by the Government Management and 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 1IPF was established in 2010 by section 922 of the Dodd-Frank Wall Street Reform and Consumer Protection Act to fund the activities of SEC’s whistleblower award program and the SEC Office of Inspector General suggestion program. IPF is a separate SEC fund and its financial statements present SEC’s financial activity associated with its whistleblower and Inspector General suggestion programs. Accordingly, IPF’s financial transactions are also included in SEC’s overall financial statements. 2Pub. L. No. 107-289, § 2, 116 Stat. 2049-2050 (Nov. 7, 2002), amending 31 U.S.C. § 3515. 3Section 21F(g)(5) of the Securities Exchange Act of 1934, 15 U.S.C. § 78u-6(g)(5). 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). Page 1 GAO-16-145R SEC’s Financial Statements for Fiscal Years 2015 and 2014 Congress describing management’s responsibility for internal control over financial reporting and for 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 attest to and report on the assessment made by SEC.5 Accordingly, this report also includes our reporting in response to the requirement under the Dodd-Frank Act. _________ We are sending copies of this report to the Chairmen 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 Government 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 http://www.gao.gov. If you or your staff have questions about this report, please contact me at (202) 512-3133 or [email protected]. Sincerely yours, James R. Dalkin Director Financial Management and Assurance Enclosure (194924) 5Dodd-Frank Act, Pub. L. No. 111-203, § 963(a), (b) (2), 124 Stat. 1376, 1910 (2010), codified at 15 U.S.C. § 78d- 8(a), (b)(2). Page 2 GAO-16-145R SEC’s Financial Statements for Fiscal Years 2015 and 2014 U.S. SECURITIES AND EXCHANGE COMMISSION AGENCY FINANCIAL REPORT F ISCAL Y EAR 2 0 1 5 About This Report The U.S. Securities and Exchange Commission’s (SEC) Fiscal Year (FY) 2015 Agency Financial Report (AFR) provides financial and high-level performance results that enable the President, Congress and the public to assess the SEC’s accomplishments and understand its financial picture. This report satisfies the reporting requirements contained in the following laws and regulations: • Accountability of Tax Dollars Act of 2002 • Chief Financial Officers Act of 1990, as amended by the Reports Consolidation Act of 2000 • Dodd-Frank Wall Street Reform and Consumer Protection Act Section 922 Whistleblower Protection, and Section 963 Annual Financial Controls Audit • Federal Civil Penalties Inflation Adjustment Act of 1990, as amended • Federal Financial Management Improvement Act of 1996 • Federal Managers Financial Integrity Act of 1982 • Government Management Reform Act of 1994 • GPRA Modernization Act of 2010 • Improper Payments Information Act of 2002, as amended by Improper Payments Elimination and Recovery Act of 2010 and Improper Payments Elimination and Recovery Improvement Act of 2012 • Office of Management and Budget Circular A-123, Management’s Responsibility for Internal Controls • Office of Management and Budget Circular A-136, Financial Reporting Requirements • Recovery Auditing Act, Section 831, Defense Authorization Act, for 2002 For the fourth year in a row, the SEC is producing an AFR, with a primary focus on financial results, and an Annual Performance Report (APR), which focuses on strategic goals and performance results, in lieu of a combined Performance and Accountability Report. The FY 2015 APR will be included in the SEC FY 2017 Congressional Budget Justification available in February 2016. Additionally, SEC will publish a Summary of Performance and Financial Information (SPFI), also to be released in February 2016. This AFR and prior year SEC AFRs are electronically available at www.sec.gov/about/secreports.shtml. To comment on this report, email [email protected]. Certificate of Excellence in Accountability Reporting The SEC’s FY 2014 AFR received the Certificate of Excellence in the Accountability Reporting (CEAR) from the Association of Government Accountants, CERTIFICATE OF EXCELLENCE IN which represents the ninth year in a row the SEC ACCOUNTABILITY REPORTING® has received this honor. The award CERTIFICATE OF is presented to Federal Presented to the EXCELLENCE IN ACCOUNTABILITY® Government agencies REPORTING U.S. Securities BEST-IN-CLASS AWARD whose annual reports and Exchange Commission Presented to the achieve the highest In recognition of your outstanding efforts in preparing the Agency Financial U.S. Securities and standards demonstrating Report for the fiscal year ended September 30, 2014. Exchange Commission A Certificate of Excellence in Accountability Reporting is presented In recognition for Providing the accountability and by AGA to federal government agencies whose Agency Financial Reports achieve the highest standards demonstrating accountability and communicating results. Most Responsive Explanations and Actions for communicating results. In Prior Year CEAR Recommendations in your FY14 Agency Financial Report addition, the SEC received Robert F. Dacey, CGFM, CPA Chair, Certificate of Excellence in Accountability Reporting Board Robert F. Dacey, CGFM, CPA Chair, Certificate of Excellence a Best in Class Award for the in Accountability Reporting Board Ann Ebberts, MS, PMP Chief Executive Officer, AGA Most Responsive Explanations Ann M. Ebberts, MS, PMP Chief Executive Officer, AGA and Actions for Prior Year CEAR Recommendations. Contents Message from the Chair 2 Introduction to the Agency Financial Report 4 Management’s Discussion and Analysis 5 Mission, Vision, Values and Goals 6 History and Purpose 8 Organizational Structure and Resources 9 Fiscal Year 2015 in Review 13 Looking Forward 34 Financial Highlights 40 Performance Highlights 48 Verification and Validation of Performance Data 48 Strategic and Performance Planning Framework 48 Performance Achievements 50 Management Assurances and Compliance with Laws 53 Annual Assurance Statement 53 Management’s Assessment of Internal Control 54 Other Reviews 54 Financial Management Systems Conformance 55 Federal Information Security Management Act (FISMA) 55 Financial Section 57 Message from the Chief Financial Officer 58 Report of Independent Auditors 59 Enclosure I: Management’s Response to Audit Opinion 65 Financial Statements 68 Notes to the Financial Statements 74 Required Supplementary Information (Unaudited) 103 Investor Protection Fund Financial Statements 106 Notes to the Investor Protection Fund Financial Statements 108 Other Information 115 Combined Schedule of Spending (Unaudited) 116 Inspector General’s Statement on Management and Performance Challenges 118 Management’s Response to Inspector General’s Statement 129 Summary of Financial Statement Audit and Management Assurances 135 Improper Payments Elimination and Recovery Act Reporting Details 136 Civil Monetary Penalties