[Senate Hearing 107-508]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 107-508
 
  VITAL ASSETS: HUMAN CAPITAL IN FEDERAL ECONOMIC REGULATORY AGENCIES
=======================================================================





                                HEARING

                               before the

                  OVERSIGHT OF GOVERNMENT MANAGEMENT,
              RESTRUCTURING, AND THE DISTRICT OF COLUMBIA
                              SUBCOMMITTEE

                                 of the

                              COMMITTEE ON
                          GOVERNMENTAL AFFAIRS
                          UNITED STATES SENATE


                      ONE HUNDRED SEVENTH CONGRESS

                             SECOND SESSION

                               __________

                             APRIL 23, 2002

                               __________

      Printed for the use of the Committee on Governmental Affairs










                           U.S. GOVERNMENT PRINTING OFFICE
80-297                         WASHINGTON : 2003
___________________________________________________________________________
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpo.gov  Phone: toll free (866) 512-1800; (202) 512-1800  
Fax: (202) 512-2250 Mail: Stop SSOP, Washington, DC 20402-0001















                   COMMITTEE ON GOVERNMENTAL AFFAIRS

               JOSEPH I. LIEBERMAN, Connecticut, Chairman
CARL LEVIN, Michigan                 FRED THOMPSON, Tennessee
DANIEL K. AKAKA, Hawaii              TED STEVENS, Alaska
RICHARD J. DURBIN, Illinois          SUSAN M. COLLINS, Maine
ROBERT G. TORRICELLI, New Jersey     GEORGE V. VOINOVICH, Ohio
MAX CLELAND, Georgia                 THAD COCHRAN, Mississippi
THOMAS R. CARPER, Delaware           ROBERT F. BENNETT, Utah
JEAN CARNAHAN, Missouri              JIM BUNNING, Kentucky
MARK DAYTON, Minnesota               PETER G. FITZGERALD, Illinois
           Joyce A. Rechtschaffen, Staff Director and Counsel
              Richard A. Hertling, Minority Staff Director
                     Darla D. Cassell, Chief Clerk

                                 ------                                

OVERSIGHT OF GOVERNMENT MANAGEMENT, RESTRUCTURING, AND THE DISTRICT OF 
                         COLUMBIA SUBCOMMITTEE

                 RICHARD J. DURBIN, Illinois, Chairman
DANIEL K. AKAKA, Hawaii              GEORGE V. VOINOVICH, Ohio
ROBERT G. TORRICELLI, New Jersey     TED STEVENS, Alaska
THOMAS R. CARPER, Delaware           SUSAN M. COLLINS, Maine
JEAN CARNAHAN, Missouri              THAD COCHRAN, Mississippi
MARK DAYTON, Minnesota               PETER G. FITZGERALD, Illinois
       Marianne Clifford Upton, Staff Director and Chief Counsel
             James F.M. Williams, Professional Staff Member
               Andrew Richardson, Minority Staff Director
           John Salamone, Minority Professional Staff Member
                     Julie L. Vincent, Chief Clerk















                            C O N T E N T S

                                 ------                                
Opening statements:
                                                                   Page
    Senator Durbin...............................................     1
    Senator Voinovich............................................     2

                               WITNESSES
                        Tuesday, April 23, 2002

Loren Yager, Director of International Affairs and Trade, U.S. 
  General Accounting Office......................................     7
Richard Hillman, Director of Financial Markets and Community 
  Investment, U.S. General Accounting Office.....................     8
Grant Aldonas, Under Secretary for International Trade, Head, 
  International Trade Administration, U.S. Department of Commerce    10
James M. McConnell, Executive Director, U.S. Securities and 
  Exchange Commission............................................    12
Edward L. Blansitt, Deputy Inspector General, U.S. Department of 
  Commerce.......................................................    14
Troy Cribb, Trade Counsel, Steptoe and Johnson, L.L.P............    29
Lynn Turner, Professor of Accounting, Center for Quality 
  Financial Reporting, Colorado State University.................    31

                     Alphabetical List of Witnesses

Aldonas, Grant:
    Testimony....................................................    10
    Prepared statement...........................................    61
Blansitt, Edward L.:
    Testimony....................................................    14
    Prepared statement...........................................    80
Cribb, Troy:
    Testimony....................................................    29
    Prepared statement...........................................    87
Hillman, Richard:
    Testimony....................................................     8
    Prepared statement...........................................    43
McConnell, James M.:
    Testimony....................................................    12
    Prepared statement...........................................    69
Turner, Lynn:
    Testimony....................................................    31
    Prepared statement...........................................    89
Yager, Loren:
    Testimony....................................................     7
    Prepared statement...........................................    43

                                Appendix

Questions and responses for:
    Mr. McCOnnell................................................   106





















  VITAL ASSETS: HUMAN CAPITAL IN FEDERAL ECONOMIC REGULATORY AGENCIES

                              ----------                              


                        TUESDAY, APRIL 23, 2002

                                     U.S. Senate,  
       Oversight of Government Management, Restructuring,  
               and the District of Columbia Subcommittee,  
                  of the Committee on Governmental Affairs,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 10:03 a.m., in 
room SD-342, Dirksen Senate Office Building, Hon. Richard J. 
Durbin, Chairman of the Subcommittee, presiding.
    Present: Senators Durbin and Voinovich.

              OPENING STATEMENT OF SENATOR DURBIN

    Senator Durbin. Good morning. This hearing will come to 
order. I am pleased to welcome you to this hearing before the 
Senate Subcommittee on Oversight of Government Management. We 
will focus on ``Vital Assets: Human Capital in Federal Economic 
Regulatory Agencies.''
    Since his arrival in the Senate, my colleague and friend, 
George Voinovich, has really championed and tackled the 
critical issue of the human capital crisis facing our Federal 
workforce. Despite the change in party leadership on this 
Subcommittee, we have maintained our focus on this important 
part of our agenda and I have given Senator Voinovich my 
assurance that we will continue to. I share his belief that 
this is an essential part of our responsibility and I am 
welcoming not only his participation, but his leadership here.
    Today's hearing is devoted to examining the problem in the 
context of our country's economic regulatory agencies, 
particularly if the SEC and the Department of Commerce are 
equipped to accomplish their missions. Do they have the right 
staff in the right places with the right skills doing the right 
things to meet their responsibilities? Can the SEC protect and 
maintain the fiduciary trust of the investing public? With the 
continuing expansion of world globalization, can the Commerce 
Department fulfill its duty to represent our inventors and 
sustainers of commerce in what I see as an increasingly hostile 
and challenging trade environment?
    These two agencies are vital to my home State of Illinois, 
as I am sure they are to Ohio. Many have referred to the 
Chicago financial institutions as the ``other Wall Street.'' 
The Board of Options Exchange and the Chicago Stock Exchange, 
both regulated by the SEC, play a vital role in the economy of 
my State.
    Similarly, where would this country be without its domestic 
steel industry? The Department of Commerce and the U.S. Trade 
Representative's Office are on the front lines of the battle to 
save this industry that is really vital to our economy and our 
national security.
    In 1990, the GAO issued its high risk list, identifying 
particular vulnerabilities across the government susceptible to 
waste, fraud, abuse, and mismanagement. The GAO has regularly 
reported on agencies' progress in correcting the deficiencies 
that led to the high risk designation. In March 2000, the GAO 
reported that the ability of the Commerce Department and two 
other trade agencies to monitor and enforce trade agreements is 
limited. The GAO attributed the problems to the agency's lack 
of sufficient numbers of experienced staff.
    According to GAO, agencies have not identified at this 
point the full scope of their workload and the number of types 
of resources they need to perform their task, the availability 
of resources, the role of individual agencies, and such. As a 
result, the government is not reaping the full benefits of its 
trade agreements to increase U.S. market access abroad. The GAO 
recommended the Secretary of Commerce work with other agencies 
to develop a workable management strategy to address this 
situation.
    GAO also recently noted the security markets have undergone 
tremendous change over the last decade and the SEC faces 
growing regulatory and oversight challenges to stay abreast of 
these advances. The most recent highly publicized collapse of 
Enron has increased the pressure on the SEC to ensure that 
investors receive accurate, meaningful financial disclosure, an 
important part of the SEC's mission. According to the 
Investment Company Institute, in 1980, fewer than 10 percent of 
U.S. households owned mutual funds. Today, at least 50 percent 
invest in markets. This raises the question, is the SEC ready 
and able to handle this massive increase in its workload?
    I look forward to hearing from the GAO, the SEC, and the 
Department of Commerce this morning about the progress that has 
been made toward resolving this, and now I would like to 
recognize my colleague, Senator Voinovich, for an opening 
statement.

             OPENING STATEMENT OF SENATOR VOINOVICH

    Senator Voinovich. Thank you, Senator Durbin. I thank all 
of you for coming. This is the tenth hearing that the 
Subcommittee has held over the past 3 years on the human 
capital challenges confronting the Federal Government and the 
second one since Senator Durbin became the Chairman. Mr. 
Chairman, I want to thank you for holding this hearing and for 
your continuing interest in this subject that is very 
important, I think, to the future of our country.
    I happen to believe that human capital management is the 
most important issue facing our government today. The issues 
that will be examined today are a microcosm of a larger 
systemic human capital challenge facing the Federal Government. 
Even though half of the workforce will be eligible for 
retirement within the next 5 years, I am confident that our 
human capital crisis can be alleviated with the right 
combination of legislation, sound leadership and guidance from 
the administration, and improved management within each agency, 
but we need action now.
    On the legislative front, the goal of my proposed human 
capital legislation, S. 1603 and S. 1639, which I introduced on 
behalf of the administration, is to give the agencies the 
management flexibilities, the tools that they need to improve 
performance and accountability. I am glad that the President 
has taken an active role in this. I told him that the chickens 
were going to come home to roost during his administration and 
if he did not get on this, he would have more embarrassing 
moments like he had recently with the INS.
    I am also pleased, Mr. Chairman, that the President 
nominated Mark Everson to be Deputy Director for Management at 
OMB. This is the first time OMB will have someone in this 
particular position, although Sean O'Keefe did have a great 
deal of management oversight responsibility. Nonetheless, this 
nomination is long overdue.
    In order to address the human capital crisis at the agency 
level, senior executives must find creative ways to link human 
capital planning into the budget and strategic planning 
process. This linkage will enable agencies to identify staffing 
shortages at mission critical positions so they can conduct a 
more targeted recruitment effort. It will also help agencies 
better to train employees that need skills that need to be 
improved.
    However, reliable evidence suggests that most agencies 
still have a long way to go. For instance, in January, the 
General Accounting Office released its high risk series, as the 
Chairman has mentioned. Over the past several years, the roles 
and responsibilities of our trade agencies have increased in 
scope and technical complexity. The Department of Commerce 
maintains a database of nearly 300 international trade 
agreements to which the United States is a participant. These 
include NAFTA, 26 WTO agreements, 238 bilateral agreements with 
individual countries, and the number of agreements continues to 
grow. In fact, the Senate recently ratified an agreement with 
Jordan and agreements with Chile and Singapore are now in 
negotiation.
    Unfortunately, the staffing levels and work years have not 
kept pace with this workload. This combination raises doubts 
about our ability to monitor our trade relations and indicate 
that human capital management should be a top priority for our 
trade agencies, and I have mentioned this to Don Evans on 
several occasions and indicated, Mr. Chairman, that we were 
going to have him in here to talk about it.
    I believe there is a direct relationship between the human 
capital challenges at the Federal agencies that regulate and 
monitor trade and the ad hoc legislation that has been 
introduced to supercede our existing trade laws. For example, 
the quota bills designed to limit foreign steel imports that 
have been proposed in recent years, in my opinion, are a 
reflection of the frustration with the perceived lack of 
enforcement of existing trade laws.
    While I am sympathetic with the steelworkers' sense of 
frustration about the industry and its plight, I think those 
quota bills were an inappropriate response, but I can certainly 
understand why they felt the way that they did. That is one of 
the reasons why I urged the Secretary of Commerce to move 
forward with the Section 201 investigation in the steel 
industry. One of the things that really bothers me about the 
Section 201 investigation is how it is sometimes characterized 
as purely political. The fact is, that the Section 201 
investigation is a safeguard action that is authorized under 
GATT, NAFTA, and out into agreements under their laws, we have 
the authority to look and respond to surges that occur that 
significantly threathen our industries. So they finally went 
ahead and did it and then put some tariffs down.
    But a lot of this goes back to the sense of frustration, I 
think, of people throughout this country that we are not 
enforcing those laws. Mr. Aldonas, I am interested to see what 
you are doing about that.
    As equally important an issue is the Federal Government's 
ability to oversee the financial markets. The Securities and 
Exchange Commission plays an absolutely vital role in 
protecting investors and maintaining the integrity of those 
markets. Without consumer confidence provided by the SEC, the 
U.S. capital markets would not be the envy of the world. 
Similarly, the workforce challenges at Commerce, the SEC 
workload began to outgrow its resources some time ago.
    I commend Mr. McConnell and the SEC for recognizing their 
pay problems. Furthermore, the agency recommended a new pay 
scale that unfortunately was not fully funded. As a result, a 
lot of SEC staff have left for jobs in other Federal financial 
regulatory agencies because the pay was better in those 
agencies. I am interested in knowing what impact a new pay 
system will have on SEC staff turnover, and I understand there 
is some disagreement between the NTEU about where those pay 
scales ought to be adjusted.
    I am anxious to hear from our witnesses today. It is funny. 
I recently met with the local official that runs the INS office 
in Cleveland and I was really impressed with him. He has about 
174 people working for him. This office runs a special hiring 
program, Mr. Chairman, that allows them to expedite the hiring 
process for applicants who have graduated with a 3.5 average or 
better.
    During the course of our conversation, I asked him, ``How 
do the applicants know if they have a job?'' He said, ``Well, 
we tell them that they are qualified.'' ``But,'' I said, ``when 
can you officially hire them and give them a start date?'' He 
replied, ``Well, about 9 months later.'' That is how long it 
takes them to do the background checks and everything. I said, 
``Well, how many of the applicants do you hire?'' He said, 
``Not very many.'' Mr. Chairman, I find it utterly ridiculous 
that it takes 9 months to hire a highly qualified applicant for 
a Federal job.
    Thank you, Mr. Chairman.
    [The opening prepared statement of Senator Voinovich 
follows:]

            PREPARED OPENING STATEMENT OF SENATOR VOINOVICH
    Good morning, thank you all for coming. Today the Subcommittee on 
Oversight of Government Management is meeting to examine how the human 
capital crisis is affecting our Federal economic regulatory agencies 
and their ability to monitor and enforce our trade agreements and 
oversee our complex financial markets.
    This is the 10th hearing that this Subcommittee has held over the 
past 3 years on the human capital challenges confronting the Federal 
Government, and the second one since Senator Durbin became the 
Chairman. Mr. Chairman, I want to thank you for holding this hearing 
and for your continued partnership in examining this critical issue.
    Human capital management is the most important issue facing the 
Federal Government. The issues that will be examined today are a 
microcosm of larger systemic human capital challenges. Even though half 
the Federal workforce will be eligible for retirement within the next 5 
years, I am confident that our human capital crisis can be alleviated 
with the right combination of legislation, sound leadership and 
guidance from the administration, and improved management within each 
agency. But, let there be no doubt, the time for action is upon us.
    On the legislative front, the goal of my proposed human capital 
legislation S. 1603, and S. 1639, which I introduced on behalf of the 
Bush Administration, is to give agencies the management flexibility, 
tools and training necessary to improve performance and accountability.
    Thankfully, the President has taken an active role in human capital 
as well. President Bush's comprehensive management agenda has the right 
blend of proposals to help improve government performance. I was 
extremely pleased to learn that the President nominated Mark Everson to 
be Deputy Director of Management at OMB. Mr. Everson will be a strong 
addition to the President's management team, which includes OMB 
Director Mitch Daniels and OPM Director Kay James. With the appointment 
of Mr. Everson, I am increasingly optimistic that human capital reform 
can be enacted this year.
    In order to address the human capital crisis at the agency level, 
senior executives must find creative ways to link human capital 
planning into the budget and strategic planning processes. This 
important linkage will enable agencies to identify staffing shortages 
in mission critical positions so that they can conduct a more targeted 
recruitment effort. This process will also allow agencies to design 
better training programs for employees in need of updating their skill 
sets, thus helping the agency meet its strategic objectives.
    However, reliable evidence suggests that most agencies still have a 
long way to go. For instance, in January 2001, the General Accounting 
Office released its report High Risk Series: An Update, which states 
that, ``A lack of sufficient numbers of experienced staff with the 
right expertise limits the ability of the Department of Commerce, U.S. 
Trade Representative, and the Department of Agriculture to monitor and 
enforce trade agreements.''
    Over the past several years, the roles and responsibilities of our 
trade agencies have increased in scope an technical complexity. The 
Department of Commerce maintains a database of nearly 300 international 
trade agreements to which the United States is a participant. These 
include NAFTA, 26 WTO agreements and 238 bilateral agreements with 
individual countries, and the number of agreements continues to grow. 
The Senate recently ratified an agreement with Jordan, and agreements 
with Chile and Singapore are in negotiation.
    Unfortunately, the staffing levels and work years have not kept 
pace with this increased workload. This combination raises doubts about 
our ability to monitor our trade relations, and indicate that human 
capital management should be a top priority for our trade agencies. To 
me, it is clear that we simply do not have enough people to enforce our 
trade laws.
    I believe that there is a direct relationship between the human 
capital challenges at the Federal agencies that regulate and monitor 
trade and the ad hoc legislation that has been introduced to supercede 
our existing trade laws. For example, the quota bills designed to limit 
foreign steel imports that have been proposed in recent years are a 
reflection of frustration with the perceived lax-enforcement of 
existing trade laws. While I am sympathetic with the steelworkers sense 
of frustration with what is happening to their industry, I think that 
quota bills were and are an inappropriate response because they would 
violate our trade agreement.
    In order to maintain the benefits of free trade and prevent a 
breakdown of international trade, it is critical that we address our 
trade concerns within the existing trade law framework. This is exactly 
what President Bush did when he initiated an investigation regarding 
the damage being done by the recent surge in steel imports. Acting 
under Section 201 of the Trade Act of 1974, the President initiated a 
series of actions that culminated in the implementation of certain 
safeguards to help the steel industry weather a flood of foreign steel. 
The key here is that the President acted within the parameters of our 
trade agreement when he initiated this safeguard action.
    I am concerned that the widespread perception that we are not 
enforcing our trade laws is going to led to more efforts to restrict 
trade outside the framework of our trade agreements. If we can't 
convince and assure Americans that we are enforcing the rules, we will 
end up with legislation that violates our trade agreements and prompts 
retaliation and trade wars and that would certainly diminish the fruits 
of free trade. If we want free trade, we must have fair trade, and in 
order to do so, we must have the right people with the right skills at 
our trade agencies to enforce those laws.
    Mr. Chairman, as you well know, my Ohio constituents working in 
every industry have a vested interest in the human capital challenges 
facing our trade agencies. Nowhere is this more true than in the 
automotive and steel industries which both face strong foreign 
competition. Therefore, I am very interested in learning from Mr. 
Aldonas how the Department of Commerce is addressing these challenges.
    An equally important issue is the Federal Government's ability to 
oversee the financial markets, which form the foundation of our 
economy. The Securities and Exchange Commission plays an absolutely 
vital role of protecting investors and maintaining the integrity of the 
financial markets. Without the consumer confidence provided by the SEC, 
the U.S. Capital markets would not be the envy of the world. Similar to 
the workforce challenges at the Department of Commerce, in the 1990's, 
the SEC workload began to outgrow its resources.
    This trend was based on several factors including growing stock 
market trading and mutual fund transactions, financial innovations, 
emerging technologies that allowed for an explosion of Internet 
trading, and the globalization of our markets. Furthermore, the 
collapse of Enron begs the question of whether or not our government 
has the adequate staff to ensure transparency and regulatory 
compliance. Combining these factors with staff turnover that reached 
twice the rate of the rest of government, it became evident that the 
SEC needed to make dramatic improvements in their workforce planning 
process.
    On January 16, 2002, the President signed The Investor and Capital 
Markets Fee Relief Act. This law includes provisions that permit the 
SEC to raise salaries for certain employees to the levels of other 
Federal financial regulators such as the Federal Deposit Insurance 
Corporation and the Federal Reserve, whose pay exceeds their SEC 
counterparts. I am interested in sharing the SEC's opinion on the 
funding issues surrounding their new salary schedule, their methods and 
timelines for implementation, and how they plan to recruit and retain 
more staff to help them accomplish their mission.
    In addition to this legislation, the SEC has initiated a special 
study to evaluate the Commission's operations, efficiency, 
productivity, and resources. I commend Chairman Pitt for recognizing 
the human capital challenges facing the SEC and for taking a proactive 
stance to solve them. I hope that the findings of the SEC study will 
provide the Commission with long-term solutions to their workforce 
challenges.
    With over 11 years of experience at the SEC, I am sure that Mr. 
McConnell, will make a valuable contribution to our discussion.
    Thank you, Mr. Chairman. I look forward to a lively and informative 
discussion with our witnesses.

    Senator Durbin. Thank you, Senator Voinovich.
    I want to welcome our first panel. Loren Yager is the 
Director of International Affairs and Trade with the U.S. 
General Accounting Office. Thank you, Mr. Yager.
    Richard Hillman is the Director of Financial Markets and 
Community Investment with GAO.
    Grant Aldonas is the Under Secretary for International 
Trade, Head of the International Trade Administration at the 
U.S. Department of Commerce. I want to thank Mr. Aldonas for 
working closely with my staff during his former tenure as 
majority trade counsel to the Senate Finance Committee 
Chairman, Senator Roth. I welcome you back to these familiar 
halls and appreciate your coming here today.
    Mr. Aldonas. Thank you.
    Senator Durbin. Jim McConnell is the Executive Director of 
the Securities and Exchange Commission.
    Edward Blansitt is the Deputy Inspector General for the 
U.S. Department of Commerce.
    Thank you for coming. It is customary in this Subcommittee 
to swear in all witnesses, so if you would please stand and 
raise your right hand. Do you swear the testimony you are about 
to give is the truth, the whole truth, and nothing but the 
truth, so help you, God?
    Mr. Yager. I do.
    Mr. Hillman. I do.
    Mr. Aldonas. I do.
    Mr. McConnell. I do.
    Mr. Blansitt. I do.
    Senator Durbin. Thank you. Let the record note that the 
witnesses answered in the affirmative. Your written statement 
will be made part of the record in its entirety, and if you 
would be kind enough now to summarize your statement in about 5 
minutes, we would appreciate it.
    Mr. Yager, if you would start.

TESTIMONY OF LOREN YAGER,\1\ DIRECTOR OF INTERNATIONAL AFFAIRS 
           AND TRADE, U.S. GENERAL ACCOUNTING OFFICE

    Mr. Yager. Thank you. Good morning, Mr. Chairman, Senator 
Voinovich. I am pleased to have another opportunity to appear 
before this Subcommittee, particularly on the topic of human 
capital, where the Subcommittee has taken such a leadership 
role.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Hillman and Mr. Yager with 
attached charts appears in the Appendix on page 43.
---------------------------------------------------------------------------
    For the past 3 decades international trade has grown at 
more than twice the rate of U.S. GDP and this trade is governed 
by a wide variety of trade agreements. U.S. Government efforts 
to monitor and enforce these trade agreements involve at least 
17 Federal agencies, with three key agencies, the Office of the 
U.S. Trade Representative and the Departments of Commerce and 
Agriculture, having significant roles.
    The primary message of my testimony this morning is that 
despite the recent efforts of agency officials, there will 
continue to be significant human capital challenges at these 
three trade agencies in the coming years. Specifically this 
morning, I will discuss three things: The workload issues 
facing the key trade agencies, the changes that these agencies 
have made in the last few years, and finally, a few specific 
challenges for these particular agencies.
    First, let me provide a few illustrations of why the 
workload continues to increase. One is that the United States 
is now a party to at least 300 USTR negotiated agreements and 
many of these agreements have been negotiated in only the last 
10 years.
    A second aspect of the workload is that there is a rapidly 
growing number of nations that are party to the trade 
agreements. Including countries such as China in the WTO 
significantly increases the requirements for monitoring and 
enforcement.
    The third illustration of the increasing workload is that 
the agencies' dispute settlement caseload continues to grow. 
While these far-reaching agreements have substantially 
increased rights for U.S. exporters, they have also increased 
U.S. obligations to other nations.
    The second major topic that I will cover is the changes 
that the trade agencies have made since our March 2000 report. 
At that time, we reported that the three key trade agencies' 
human capital capabilities had not kept pace with their 
increasing monitoring and enforcement workload. This work 
requires a mixture of economic, technical, and legal analysis, 
and staff levels at the three key agencies had been flat or 
declining in the years before our report. As a result, we found 
at that time that the United States was unable to maximize the 
benefits from the trade agreements.
    I am pleased to report that the trade agencies have made 
significant efforts in the last 2 years to address these 
challenges. For example, the three agencies have additional 
funded positions and have had some significant success in 
filling those positions. In addition, the agencies have made 
other efforts, such as investing in people and increasing the 
attention to recruitment, which indicates a greater 
understanding of the role of the human capital function.
    The final issue that I will cover is the remaining 
challenges for these agencies. One is the issue of recruitment. 
This is difficult for the trade agencies because they need to 
hire trade experts and specialists for many of the positions, 
again, including economists, attorneys with litigation 
experience, and individuals with industry and regional 
expertise. This is particularly true at USTR, where they place 
a premium on staff with highly specialized skills.
    Retention also continues to be a problem at the trade 
agencies. For example, attrition at USTR is 17 percent 
annually, which is more than three times the governmentwide 
rate, and the rate at Commerce's Import Administration is more 
than double the governmentwide rate.
    A final challenge is the demand for staff expertise 
generated by the huge increase in volume and intensity of 
ongoing negotiations, including the Doha Development Round of 
the WTO, the Free Trade Area of the Americas, and a number of 
bilateral and other agreements.
    Mr. Chairman, I believe this is a particularly important 
time to focus on the human capital challenges at the trade 
agencies. On the one hand, the leadership of these agencies has 
made significant efforts to address some of these problems. On 
the other hand, the enormous volume of ongoing negotiations 
demonstrate one of the themes that is frequently brought before 
this Subcommittee, that the human capital challenges in the 
Federal Government have been developing for a long time and 
will not be quickly or easily addressed.
    Mr. Chairman, this concludes my testimony and I would be 
happy to answer any questions that you or Senator Voinovich 
have.
    Senator Durbin. Thank you, Mr. Yager. Mr. Hillman.

TESTIMONY OF RICHARD HILLMAN,\1\ DIRECTOR OF FINANCIAL MARKETS 
    AND COMMUNITY INVESTMENT, U.S. GENERAL ACCOUNTING OFFICE

    Mr. Hillman. Thank you. The leadership provided by this 
Subcommittee and the Senate Committee on Governmental Affairs 
has been especially important in focusing attention on the 
Federal Government's human capital challenges and I appreciate 
the opportunity to appear here today to discuss the serious 
human capital challenges facing the SEC.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Hillman and Mr. Yager with 
attached charts appears in the Appendix on page 43.
---------------------------------------------------------------------------
    My statement today will address three specific human 
capital challenges. Specifically, I will discuss SEC's workload 
and staffing challenges, the effects of the workload and 
staffing imbalances on SEC's ability to fulfill its mission, 
and finally, describe other factors that affect the fulfillment 
of the SEC's mission.
    Regarding my first point on SEC's workload and staffing 
challenges, we documented in a recently-issued report on SEC's 
operations that over the last decade, securities markets have 
experienced unprecedented growth and change. Technology has 
fundamentally changed the way markets operate and how investors 
access the markets. In addition, the markets have become more 
international and legislative changes have resulted in a 
regulatory framework that requires increased coordination 
amongst financial regulators and requires that SEC regulate a 
greater range of products and participants.
    Moreover, the recent sudden collapse of Enron and other 
corporate failures have stimulated an intense debate on the 
need for broad-based reform in such areas as financial 
reporting and accounting standards, oversight of the accounting 
profession, and the corporate governance, all of which could 
have significant repercussions on SEC's role and oversight 
challenges.
    Further, as stated in our March 2000 report, we found that 
SEC's ability to fulfill its mission has become increasingly 
strained due in part to imbalances between workload and staff 
resources. As I have illustrated in this middle chart before 
you, the larger and more active and more complex markets just 
discussed have resulted in an increased aggregate workload at 
the SEC, including more filings, complaints, inquiries, 
investigations, examinations, and inspections.
    The dotted line indicates SEC's combined workload--the 
increasing line indicates SEC's combined workload in these 
areas and it has continued to grow at a rapid rate throughout 
the decade while staff resources, represented by the more flat 
line, has grown little. As a result, SEC has been challenged to 
keep up with this increasing workload since about 1996.
    When we reviewed this workload on an activity basis, as 
this third chart shows, we found that over the last decade, 
staffing within the various areas of SEC's regulatory oversight 
grew from between 9 percent to 166 percent, while workload in 
those same areas grew from 60 to 264 percent. As the figure 
illustrates, these disparities exist across all key SEC 
activities, as the increase in SEC's workload has substantially 
outpaced the increases in SEC's staff.
    Although industry officials complimented SEC's regulatory 
regulations of the industry, given its staff size and budget, 
both SEC and industry officials identified several challenges 
that SEC faces. Let me just mention one.
    SEC's staff which review corporate filings are now 
reviewing those filings less frequently and less completely as 
their workload increases. The number of corporate filings has 
grown at an unprecedented rate of 60 percent, while staff 
responsible for reviewing those filings has grown at a rate of 
29 percent. As a result, SEC reviewed only 8 percent of all 
filings submitted in 2000 and reviewed about 16 percent, or 
only half of its annual goal of reviewing 30 to 35 percent of 
annual reports.
    Regarding my third point on challenges facing the SEC, we 
found that in addition to the staff and workload imbalances, 
other factors also contribute to the challenges SEC is 
currently facing. SEC officials said that although additional 
resources could help to do more, additional resources alone 
would not help SEC address its high turnover, which continues 
to be a challenge for the agency.
    As discussed in our 2001 report on SEC's human capital 
practices, about one-third of SEC's staff left the agency 
between 1998 and 2000. By 2001, this number has increased to 40 
percent. SEC's turnover rate for attorneys, accountants, and 
examiners averaged 15 percent in 2000, more than twice the rate 
for comparable positions governmentwide. Although the rate had 
decreased to 9 percent in 2001, turnover at SEC was still 
higher than the rate governmentwide.
    Further, because of its high turnover and its inability to 
hire new staff quickly, about 250 positions remained unfilled 
in September 2001, which represents about 8.5 percent of SEC's 
authorized positions.
    In summary, although SEC's workload and staffing imbalances 
have challenged SEC's ability to protect investors and maintain 
the integrity of the securities markets, SEC has generally 
managed the gap between workload and staff by determining what 
basic statutorily mandated duties it could accomplish with 
existing resource levels. This approach, while practical, has 
forced SEC's activities to be largely reactive rather than 
proactive.
    For instance, SEC has not put mechanisms in place to 
identify what it must do to address emerging and evolving 
issues. Although SEC has a strategic plan and has periodically 
adjusted staffing or program priorities to fulfill its basic 
obligations, it has not engaged in a much-needed systematic 
reevaluation of its programs and activities in light of current 
and emerging challenges.
    Given the regulatory pressures facing SEC and its human 
capital challenges, it is clear that SEC could benefit from 
some additional funding. However, a comprehensive agency-wide 
planning effort, including planning for use of technology to 
leverage available resources, could help SEC better determine 
the optimum human capital and funding needed to fulfill its 
mission.
    Thank you, Mr. Chairman.
    Senator Durbin. Thanks, Mr. Hillman. Mr. Aldonas.

      TESTIMONY OF GRANT ALDONAS,\1\ UNDER SECRETARY FOR 
INTERNATIONAL TRADE, HEAD, INTERNATIONAL TRADE ADMINISTRATION, 
                  U.S. DEPARTMENT OF COMMERCE

    Mr. Aldonas. Thank you, Mr. Chairman and Senator Voinovich. 
First of all, I appreciate the Subcommittee's interest and 
oversight. One of the lessons I drew from my experience on the 
Finance Committee was how critical it was for Congress and the 
executive to be engaged in an active dialogue about the 
management of our resources downtown, where I am now. 
Particularly, it helps us set priorities that are consistent 
with what Congress has authorized as well as ensure that we 
focus our efforts, and so I welcome the interest, particularly 
with respect to ITA.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Aldonas appears in the Appendix 
on page 61.
---------------------------------------------------------------------------
    The other thing I want to say to begin with is I have spent 
about 22 years in Washington, in a past incarnation in the 
Foreign Service and as a trade negotiator at USTR and then in 
private practice for many years and then with the Senate. Now I 
have the opportunity to work with dedicated professionals in 
the International Trade Administration, and I have to say I am 
enormously proud to serve with this group of people.
    Loren's comments about the challenges we face are real. 
There is no doubt that we have one heck of a challenge ahead of 
us. I think that is particularly true given what we have seen 
in terms of the increase of trade agreements, but also the 
challenges we have in trying to level the playing field, as 
both you and the Ranking Member Voinovich referred to, 
particularly with respect to steel.
    Most of that comes home to roost in the International Trade 
Administration. Our friends at USTR are the lead negotiators. 
Generally, a lot of the compliance work and a lot of the 
analytical work comes to ITA, and certainly enforcement of our 
trade laws is squarely within the province of the International 
Trade Administration.
    My point simply is, Mr. Chairman, that I work with a group 
of people that are dedicated to serving America's interest and 
are doing their best. We have made what I think are significant 
efforts to try to cope with the resource issues at the 
International Trade Administration, and I want to divide my 
comments two ways.
    The first thing is, and this really started in the last 
administration, as well, there was a real effort at the time of 
the passage of Permanent Normal Trade Relations with China to 
ramp up the ability of the Commerce Department to deal not only 
with trade agreements, but also to deal with the potential 
enforcement issues we face under our own trade remedy laws. 
That started the ball rolling. We are benefitting from that 
now.
    At this juncture, we have, in fact, virtually all of the 
personnel that were authorized in fiscal year 2001. The fiscal 
year 2003 budget has again asked for an increase in these 
areas, recognizing that the President has introduced a very 
aggressive trade agenda. That starts with trade promotion 
authority and the ability to negotiate new trade agreements. We 
are going to be in a position, hopefully, to conclude within 
the next 3 years a new multilateral round of trade negotiations 
within the framework of the WTO as well as the long-awaited 
Free Trade Agreement of the Americas. That will certainly raise 
the onus on the International Trade Administration to step up 
to the plate.
    Now, both of you have had the opportunity to talk with 
Secretary Evans. Both he and the President believe that 
promises made are promises that have to be kept, and 
accountability on compliance definitely starts with the 
President and the Secretary. What they have asked us to do is 
make sure that not only are we instituting the sorts of 
administrative and management measures that will help us ensure 
compliance, but that we are trying to solve problems, and here 
I want to come to the point about steel.
    Unfortunately, as you suggested, Mr. Chairman, too often in 
the past, I think the principal means of addressing steel was 
simply through the antidumping and countervailing duty laws, 
and we had fallen into the habit of what I would view as simply 
prosecuting the cases. What the President and Secretary Evans 
asked us to do was actually try and solve the underlying 
problems.
    Again, that raises the ante in terms of what the folks in 
ITA have to do, particularly in Import Administration in this 
instance. But it is essential to renewing the bargain on trade 
with the American public. Both the President and the Secretary 
understand unless we show up every day with compliance on our 
mind, with leveling the playing field on our mind, we are not 
going to have the support of the American public for trade 
promotion authority which is before the Senate or for the trade 
liberalizing agenda that is important to our economic future.
    Beyond that, I am happy to respond to any questions you 
have, Mr. Chairman and Senator Voinovich, and certainly pleased 
to be here. I do welcome the opportunity and certainly welcome 
the interest in ITA's functions. Thank you.
    Senator Durbin. Thanks a lot. Mr. McConnell.

 TESTIMONY OF JAMES M. McCONNELL,\1\ EXECUTIVE DIRECTOR, U.S. 
               SECURITIES AND EXCHANGE COMMISSION

    Mr. McConnell. Thank you, Chairman Durbin and Senator 
Voinovich. I appreciate the opportunity to testify before you 
today on behalf of the Securities and Exchange Commission to 
discuss critical resource and staffing issues that the 
Commission faces in its oversight of our financial markets. At 
the outset, I want to thank this Subcommittee and its staff for 
the tremendous support it has given the Commission.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. McConnell appears in the Appendix 
on page 69.
---------------------------------------------------------------------------
    The events of September 11, the bankruptcy of Enron, and 
the indictment of Arthur Andersen have all tested the strength 
and spirit of our economy, our capital markets, and, indeed, 
our country. In light of these events and explosive industry 
growth, the Commission must have the resources it needs to 
fulfill its multiple missions and maintain the public's 
confidence in our capital markets.
    The Commission currently oversees an estimated 8,000 
brokerage firms employing nearly 700,000 brokers; 7,500 
investment advisors with approximately $20 trillion in assets 
under management; 34,000 investment company portfolios; and 
over 17,000 reporting companies. The Commission also has 
oversight responsibilities for 9 registered securities 
exchanges, the National Association of Securities Dealers, the 
National Futures Association, 13 registered clearing agencies, 
and the Municipal Securities Rulemaking Board.
    The Commission today faces some of the most complex and 
difficult issues it has ever considered. New technologies, new 
participants, and new financial products are reshaping our 
markets. Our markets also are becoming increasingly global and 
they are taking steps to shed their long-held membership status 
and are moving to becoming publicly held entities.
    We are a Nation of investors. In 1980, only 5.7 percent of 
Americans owned mutual funds. Today, some 93 million 
shareholders representing 52 percent of U.S. households hold 
mutual funds. Our Nation's investors have an unprecedented 
stake in our markets. Whether through college savings plans or 
retirement accounts, our collective stake in U.S. markets 
continues to grow and we are increasingly dependent on those 
markets. It is now more important than ever that the SEC remain 
vigilant in policing and maintaining the integrity and 
transparency of the securities markets.
    Unfortunately, at the very time the challenges facing the 
Commission have grown, the Commission has been subject to 
extremely high attrition. Perhaps the single largest barrier to 
the Commission's effective recruitment and retention efforts 
was eliminated with the recent enactment of pay parity. This 
critical legislation does not mean, nor should it, that SEC 
employees will be paid at the level of the private sector. It 
does, however, redress the obvious disparity that previously 
existed between SEC employees and employees of the Federal bank 
regulatory agencies. Pay parity, when fully funded on a 
permanent basis, will help the Commission retain its talented 
and experienced staff.
    The legislation had the added benefit of establishing a 
stable, long-term funding source for the Commission, even after 
the meaningful fee relief it provided. In fiscal year 2003, the 
Commission will collect approximately $1.3 billion in 
securities-related fees. After fully funding pay parity and the 
additional positions we have requested for fiscal year 2003, 
the Commission will still collect over $750 million more than 
our budget.
    The Subcommittee has raised the issue of whether or not our 
government has adequate staff to monitor publicly traded 
companies. I commend the Subcommittee for tackling such a 
critical issue. In fact, the Commission itself is engaged in a 
comprehensive review of the SEC's resource needs and 
operations. When Chairman Pitt came to the SEC last fall, he 
expressed his intention to perform an in-depth review of the 
Commission's operations, effectiveness, and resource needs in 
time for the fiscal year 2003 budget process. The extraordinary 
events of the past 8 months, including the destruction of our 
Northeast Regional Office, made any contemplative review of our 
resource needs impossible until recently.
    Last month, Chairman Pitt announced the commencement of the 
special study he committed to with the results to be part of 
the fiscal year 2004 budget process. The study is also a direct 
result of the findings of the General Accounting Office as set 
forth in two of its recent reports on certain aspects of the 
SEC's operations.
    For more than a decade, the Commission's human capital 
agenda has been dominated by compensation issues, including 
aggressive use of the authorities available under Title V. Pay 
parity, the GAO reports, our internal special study, and these 
hearings will move us to a more comprehensive approach to the 
human capital issues that are this Subcommittee's topic of 
concern.
    Thank you for this opportunity and I ask that my formal 
testimony be included in the record. I will be pleased to 
answer any questions.
    Senator Durbin. Thanks, Mr. McConnell. Mr. Blansitt.

 TESTIMONY OF EDWARD L. BLANSITT,\1\ DEPUTY INSPECTOR GENERAL, 
                  U.S. DEPARTMENT OF COMMERCE

    Mr. Blansitt. Thank you, Mr. Chairman and Senator 
Voinovich. I appreciate the opportunity to appear before you to 
discuss the Department of Commerce Office of Inspector 
General's work related to the Department's International Trade 
Administration.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Blansitt appears in the Appendix 
on page 80.
---------------------------------------------------------------------------
    As part of a comprehensive planning process performed 
during the summer of 2001, the Office of Inspector General 
sought to identify those areas and activities of the Department 
of Commerce that we believe are most in need of our attention. 
As we reported in our September 2001 ``Semiannual Report to the 
Congress,'' we identified the need to increase international 
compliance with trade agreements and expand market access for 
American exporters as one of the top 10 management challenges 
facing the Department of Commerce. We made this determination 
based on the fact that trade compliance was, among other 
factors, a critical component of the Nation's overall trade 
agenda and a priority of the Secretary.
    In March 2002, we issued our initial report dealing with 
the International Trade Administration's trade compliance 
efforts. Within ITA, compliance is handled by three units, 
Market Access and Compliance, Trade Development, and the U.S. 
and Foreign Commercial Service.
    The Commerce Department reorganized its international 
economic policy and market access staff in July 1996 to give 
greater focus to market access and trade compliance issues and 
at that time created the Market Access and Compliance Unit 
within ITA that houses the Trade Compliance Center. Our review 
focused on the activities of the center in an effort to 
determine whether its management of the trade agreement 
compliance process was efficient, effective, and responsive to 
client needs.
    The Trade Compliance Center is the Department's focal point 
for trade compliance, provides information about trade 
agreements, and helps U.S. businesses understand their rights 
and gain market opportunities. The center's budget and staffing 
levels remained relatively constant from the date of its 
creation in fiscal year 1996 until fiscal year 2001. In fiscal 
year 2001, ITA received a $12.8 million increase to fund a 
compliance initiative for Market Access and Compliance and 
Import Administration.
    We conducted our review of the Trade Compliance Center just 
as it was expanding and found that the trade agreement and 
compliance work needed to be better coordinated within ITA and 
that collaboration between ITA's operating units should 
improve.
    We recommended a number of actions that ITA management 
should take to address these problems, including development of 
guidance that clearly delineates the role of the Trade 
Compliance Center. After we completed our field work, the 
center developed and distributed a trade compliance manual to 
all ITA staff. That manual explains how the compliance program 
works and outlined the roles of the various ITA components, but 
it should be strengthened to provide more definitive guidance 
to staff in determining when to coordinate with the center.
    Our review also identified the need for a central ITA-wide 
database of trade compliance work. ITA management has advised 
us that it moved to a consolidated database of compliance and 
market access cases in February 2002 and that the monthly 
compliance reports to the Secretary received clearance from all 
four of its operating units. However, because the consolidated 
database did not address all of our concerns, we have asked ITA 
to look at further consolidation of its database.
    Our report also examined performance measures proposed by 
ITA for assessing the effectiveness of its trade compliance 
activities and noted that although some adjustments are still 
needed, the compliance complaint process has improved since the 
Trade Compliance Center began handling such matters in 1997. 
The staff's knowledge and experience have grown and the results 
achieved by the compliance teams have enhanced ITA's effort to 
increase access to foreign markets in compliance with trade 
agreements.
    Because of the importance of trade compliance and market 
access to the success of U.S. exporters, we as an office intend 
that our recently completed report be only the first in a 
series of reviews to be conducted in this area.
    This concludes my prepared statement, Mr. Chairman, and I 
will be happy to answer any questions.
    Senator Durbin. Thanks, Mr. Blansitt.
    Mr. McConnell, I was born in the town of East St. Louis, 
Illinois. It was a great place to grow up in, but it is a town 
that has had more than its share of problems. One of the 
national news stories that came out about 10 or 15 years ago 
was that the police department in East St. Louis had reached 
the point where all of the police cars had broken down. None of 
them were on the street. Incidentally, someone ended up suing 
the city and ended up with the deed to city hall. So things 
were not going well in my old hometown.
    But, as I reflected on this hearing, I recalled the sad 
situation of a police department in a little town in downstate 
Illinois when you could not even put cars on the street, and 
the challenges that you face now at the SEC. Certainly, you 
have not reached that level, but----
    Mr. McConnell. Thank you. [Laughter.]
    Senator Durbin. You have given us clear warning signs here 
about what is happening at your agency. If we had this hearing 
and Enron had never occurred, it would be worrisome. But after 
Enron occurred and we saw the damage done, not just to the 
employees, the pensioners, and the investors in that company, 
but to the overall economy and our confidence in our economy, 
as I read and listen to your testimony, it is a wake-up call.
    For example, let us talk about the attrition rate that you 
face now at the SEC. Clearly, you are losing good people to 
better paying jobs. Can you give me some kind of idea of what 
you are up against, what you are competing with in terms of the 
skills of good people, what they can be paid at the SEC and 
what they make in the private sector?
    Mr. McConnell. Yes, I can. We need to hire, to conduct our 
mission, highly skilled attorneys, accountants, and examiners 
that, ideally, and we seek out most frequently people with 
experience in the industry. That industry routinely pays 
multiples of the salaries that are associated with government 
service.
    Senator Durbin. Give me an idea. You have got a bright 
young lawyer coming out of law school. You want that lawyer on 
the SEC staff. What do you typically offer to pay that lawyer?
    Mr. McConnell. That bright young lawyer is a little bit 
easier to deal with. We pay them typically the GS-11, high 
steps, which is $50,000, $60,000--something like that. That 
bright young lawyer could perhaps make at a firm twice that, 
right out of school. But that lawyer still wants to come to the 
SEC for a period of time. It is like graduate school.
    Senator Durbin. Sure.
    Mr. McConnell. So we still can attract those people. They 
do not stay. We used to try and hope that they stayed 3 years. 
It has gotten to the point where it is down to 2 years or less. 
Our cases can routinely take longer than that. A financial 
fraud case is enormously complex, time consuming, and can take 
a lot of time, and we might have multiple people working on the 
same case over time. It is very inefficient.
    Senator Durbin. How about accountants?
    Mr. McConnell. Accountants, typically, we will only hire 
seasoned accountants that have been in the industry, have 
actually been in the public accounting profession for some 
time. We have just found that bringing in entry-level 
accountants has not worked well for us, so we try to bring them 
in at the higher levels and that is very difficult.
    Senator Durbin. What do you offer the typical accountant 
with some experience?
    Mr. McConnell. Typically, we offer a GS-14 salary, $70,000, 
$80,000 range.
    Senator Durbin. Is that competitive with the private 
sector?
    Mr. McConnell. It is not competitive. We have probably had 
more difficulty hiring accountants than any other single 
segment of our workforce. In the accounting profession, 
certainly you can add to your resume by coming to the SEC if 
you are in public accounting. It is not the same sort of 
experience that you get if you are a young attorney and 
learning the securities laws at the SEC.
    Senator Durbin. What is the turnover on accountants? You 
talked about the young attorneys staying around for 2 years or 
less. What about accountants?
    Mr. McConnell. Accountants, we have had similar turnover 
problems. It has been double the governmentwide average. We 
have had in the past accountants, 10 or 12 percent turnover. 
Right now, we are actually experiencing, and this is maybe not 
part of your question, but we are experiencing a pretty good 
situation right now. The combination of pay parity having 
passed, behavior has changed somewhat, and in the market 
conditions. We are able to attract and retain people a little 
bit better right now. I say that, one extent, because this is a 
very good opportunity for us to take care of a lot of the 
problems that we have had in recent years with respect to 
bringing in the best people to regulate the securities markets.
    Senator Durbin. Do you use student loan forgiveness as an 
incentive for retention or recruiting?
    Mr. McConnell. We have not employed that to date.
    Senator Durbin. I might just add, parenthetically, that I 
believe in that, but I have come to realize since we have 
applied it to the U.S. Senate agencies that it is a difficult 
thing to set up standards for. It makes sense, but who receives 
it and who does not can be an issue.
    Mr. McConnell. Right.
    Senator Durbin. What does that say about morale at the 
agency? As we are in our first year now on some of these Senate 
agencies, the managers of these different agencies are 
addressing it in many different ways, and at the end of the 
year, we are going to take a look at it and see if it has had 
any value to us.
    Mr. McConnell. You are absolutely right. We encounter that 
same experience in dealing with a lot of the Title V 
authorities, the recruitment bonuses, retention allowances, 
relocation costs. We are aggressive users of those authorities 
now, but they have a cost. The people who do not receive it are 
not very happy, and I do not blame them necessarily, but you 
just cannot give it to everybody. You have to make very tough 
choices and you have to use criteria that people understand are 
fair and that is not an easy thing to do.
    Senator Durbin. I would just conclude, and certainly there 
are a lot of questions that could be asked here, but when we 
think about what we now expect of your agency after Enron, you 
are our last chance, the last hope for the average investor 
that there is going to be an honest cop on the beat who is 
going to take a look at all those filings and blow the whistle 
if some company is up to the tricks of Enron or something else 
that endangers the corporation as well as its investors and 
pensioners. And yet, as much as we are counting on you as cops 
on the beat, we are not giving you the squad cars that you need 
to cover the territory, just using that analogy.
    Mr. Aldonas, I guess the same thing could be said when it 
comes to the trade agreements. I am a person who votes for 
trade agreements. I believe in them. But Senator Voinovich and 
I were standing at the same rallies and at the same meetings 
bemoaning what happened to the steel industry here. When we 
believe several countries turned on the United States, dumping 
their product, we voted for trade agreements saying, well, if 
that ever happens, we are going to come roaring back at you. 
There is a law here, and you have to follow it.
    Well, if you look what happened over the course of several 
years, the law was not followed very carefully or closely and 
the losers turned out to be a lot of steel companies and a lot 
of steelworkers and a lot of local economies that were 
devastated by it. You are seeing a dramatic increase in trade 
agreements and questions being raised.
    I notice this morning's BNA reports that the WTO has seen a 
huge jump in the number of new dumping investigations in the 
second half of 2001. From July 1 to December 31, over 180 cases 
were initiated by WTO members. The United States was only 
second behind India. We filed 35 cases, mostly against China, 
South Africa, Brazil, Japan, and Venezuela. It is no surprise 
that, with the exclusion of South Africa, these other countries 
were all major steel producers, incidentally.
    Mr. Aldonas. Right.
    Senator Durbin. Of the 180 cases filed, China seems to be 
the most targeted, with 25 complaints filed against it. Now, I 
voted for the Permanent Normal Trade Relations with China. I 
believe there is a great opportunity here. But clearly, we are 
going to have to prove our mettle here in dealing with China 
that we are going to stand for fair trade and fight for it. Do 
you have the troops to engage in that fight?
    Mr. Aldonas. Yes, I think we do. Let me divide it into two 
sides, Mr. Chairman. One, on the market access side, we have 
doubled the size of the China office and we have improved the 
scope of the activities in-country, as well. We are going to 
pay an awful lot of attention to it. One of the things the 
Secretary has asked me to do is ensure that both our export 
promotion and our compliance activities focus on those areas 
where we have opened up new markets so that we are not losing 
in the implementation what we have tried to gain at the 
negotiating table.
    That is why over the course of the last 3 weeks I spent a 
lot of time in China, starting with Beijing, Shanghai, 
Guangzhou, Shenzhen, and Hong Kong, really preaching the 
message of WTO implementation. I took a Congressional staff 
delegation with me to underscore the oversight responsibilities 
of Congress and that there was no daylight between Congress and 
the executive on this. Secretary Evans is there repeating that 
message at a much higher level, meeting with the leadership of 
China to underscore for them that this is, without a doubt, how 
Congress is going to measure our trade relationship with China.
    Senator Durbin. But do you have the resources to make that 
promise stick, to say to the Chinese, we are ready to go toe-
to-toe when we feel that American companies and workers are the 
losers? Do you have the men and women you need to make that 
work?
    Mr. Aldonas. I believe, particularly with the request we 
have made for fiscal year 2003, that we will get there. With 
the compliance initiative that started in 2001, I think we are 
staffed up to start to grapple with these issues. But we 
recognize that we are going to need more in light of the 
ongoing negotiations and then still maintain a focus on China. 
That is why we have asked for more both in market access and 
compliance as well as Import Administration.
    Mr. Chairman, if you do not mind, I want to come back to 
the second part of this, which is not just the challenge of 
securing market access in China but ensuring that we are also 
grappling with those instances when China and other countries 
undermine the international trading system by dumping their 
products in the U.S. market, and as far as I am concerned, 
exporting their unemployment here to the devastation of an 
awful lot of steel companies as well as a lot of other 
companies in the United States.
    On that front, again, we have had a fairly significant 
increase in the amount of personnel. The real issue in Import 
Administration, more often than not, is retention. We have 
problems with our retention rate there that parallel what you 
see at the SEC or a number of the other agencies. They are very 
high.
    Part of that is the nature of the work, which is very 
difficult. It is challenging. You spend a lot of time away from 
home. There is also the fact that once you have learned the 
skills inside Import Administration, there is a real attraction 
in the private sector to go out and join a law firm or work as 
a paralegal and you can earn an awful lot more than you can at 
the Commerce Department. So there are issues that we have to 
grapple with on the retention side.
    But at this moment, I think we are fairly well staffed up. 
And, in fact, as a result of the steel decision, what we did 
was accelerate the hiring process in Import Administration 
because they are now doing double duty. We are not only 
handling the regular workload in terms of the countervailing 
duty and antidumping actions, we are actually handling the 
implementation of the Section 201 action, as well.
    So we have tried to accelerate all that and I feel 
comfortable we are up to staff now. I think time will tell over 
the course of this year whether we can sustain that. I look 
forward to the support for the fiscal year 2003 initiative to 
make sure that we do keep topping up here and are capable of 
grappling with the issues in front of us.
    Senator Durbin. Thank you. My time has expired, but I want 
to ask Mr. Yager, just in conclusion to this round of 
questions, you have heard these responses from Mr. McConnell 
and Mr. Aldonas about the challenges they face in their 
staffing. Is this what the GAO also concluded from your study?
    Mr. Yager. Yes, Mr. Chairman. We looked back, and I think 
particularly with the International Trade Administration, there 
were a couple of initiatives in the year 2001 which do seem to 
be exactly targeted at the kind of expertise that you would 
need. I think there was one, the overseas compliance program, 
where they added a significant number of staff. And in addition 
to that, there was the import surge monitoring group that was 
plussed up in 2001. I am not sure whether they did anticipate 
the kind of demand for those personnel, but certainly that 
would pay off at this point with the kind of safeguard actions 
and things like that that are now underway.
    With regard to the SEC, I would have to say Mr. Hillman is 
responsible for that area.
    Senator Durbin. Mr. Hillman.
    Mr. Hillman. And at the SEC, there continue to be serious 
turnover problems, although Mr. McConnell says things are 
getting better as the economy gets better. At the time of our 
study, there were 250 vacant positions at the SEC, or about 8.5 
percent of their staff resources. That is a serious shortfall 
that needs to be corrected. They need to also explore 
innovative ways to attract senior level staff and bring in 
information technology expertise to better position itself to 
oversee the evolving securities markets. Each of these areas, I 
believe that the SEC is challenged and SEC is attempting to 
meet that challenge.
    Senator Durbin. It would seem to me, though, that the luck 
or good experience at the governmental level is 
countercyclical, that if we are dealing with a recession, if we 
have a business downturn, there are going to be more lawyers, 
and accountants, and skilled people available to consider 
public service, working for the government. Now, as the economy 
turns around, there is more business activity, there is more 
need for the SEC to be watching more closely. These same people 
are going to be lured away because the new companies and new 
business opportunities pay them a lot more. That seems to put 
us in a terrible bind in terms of maintaining continuity here.
    Senator Voinovich.
    Senator Voinovich. I think that I agree with what you just 
said. I am glad to know that you are concentrating on China 
because I have been meeting on an ongoing basis with businesses 
in Ohio and the biggest complaint I am hearing now is from 
China. So the very people that were for Normal Trade Relations 
with China are the ones that are most bitterly complaining 
about it.
    I really think that it is important that you notify the 
citizens of this country of your actions so that people know 
that something is happening in this area. Because I sense 
growing frustration with my consituency in Ohio. For instance, 
I met a gentleman in the foundry business, who produces a 
casting for $3,000 in O'Leary, Ohio. Now, that same casting is 
being imported from China at $1,500. This gentleman has been in 
business for about 35 years and he is panicked, and I 
sympathize with him because this is his whole business. I asked 
him to get back to me with some specific examples, stating how 
other Ohio businesses have similar experiences which I will 
share with you because I think it is important for you to know 
the issues that hard working American businesses are faced 
with.
    Mr. Aldonas. I would appreciate it if you would.
    Senator Voinovich. There is a lot of anecdotal evidence out 
there. However, I would like to get at the real things that 
make a difference.
    I am asking all of our witnesses to explore our options to 
improve the system to deliver better results. I have introduced 
legislation and the administration has legislation to try and 
deal with some of the problems that your agencies experience. I 
am interested in knowing what additional tools you need to get 
the job done. David Walker has said that if agencies used the 
incentive package properly that most of our problems could be 
taken care of. Agencies must use the incentives that are 
actually available, and in order to do so, they must devise a 
strategic workforce plan stating when the flexibilities should 
be used.
    Which leads to my first question, do you feel that your 
respective agencies have the budget to get the job done? And 
then the next thing, it would be what other additional tools 
would you need in order to accomplish your missing, and I would 
also like you to comment on the retention issues facing your 
agency.
    I am interested in learning how agencies can overcome the 
retention problems especially since employees often leave the 
Federal Government after 4 or 5 years for more lucrative 
positions in the private sector.
    In your testimony Mr. McConnell, you stated that 52 percent 
of the American public invests in the market today, and after 
Enron, a lot of them are skeptical about it. So I would just 
like to have you all comment on your agencies budget and the 
use of human resource tools needed to help accomplish your 
agency's mission.
    Mr. Aldonas. If I could start, Senator Voinovich, in terms 
of the tools that are needed, one thing I think would be 
helpful is to follow closely the implementation of the 
President's management agenda, in part because it really does 
focus on the human capital concerns that are foremost in the 
minds of both the Chairman and Senator Voinovich. What we are 
doing in response to the President's directive is trying to 
identify the issues within the agency that would allow us to 
focus our resources on the hottest issues.
    I think for a long time, it is fair to say that at least in 
ITA, we have not really traced whether or not our resources are 
dedicated to the growing sectors of the economy and the hottest 
issues of time and what we have put together as a restructuring 
plan that we submitted to OMB really does reflect that. But I 
think it is going to require interest and oversight from 
Congress to ensure that these changes get made over time as a 
practical matter and I would invite your help with our 
authorizing Subcommittee as well as the appropriators to ensure 
that they understand the importance of what we are trying to 
achieve, to get the resources to the right place within our own 
framework at the Department of Commerce.
    Mr. Yager. Senator Voinovich, I think that I would like to 
add a little bit to that. There are also additional 
improvements that can be made within the context of the current 
flexibilities and I think that there has been a guide that was 
just produced by GAO in March, a model of strategic human 
capital management, and there are a number of critical success 
factors listed in that guide which would provide guidance to 
Commerce as well as USTR and the Department of Agriculture's 
group that handles international issues.
    So, for example, things like investments in people, data-
driven human capital approaches, integration and alignment, I 
think a lot of those critical success factors, we could use 
those and take a look at these agencies and they could make 
some progress with the current flexibilities.
    I think they are moving in the right direction from the 
levels at which they originally were, where they did not 
understand and did not fully take advantage of the human 
capital function. They are moving the right way, but there is 
more that they can do in these critical success factors. 
Whether it is the GAO report or whether it is OPM's or others, 
there is a lot of information out there that could help them.
    Senator Voinovich. When the budgets are presented and the 
Office of Management and Budget submits them, are you aware of 
any earmarking that would specify funding for human resource 
incentives to help the agencies deal with the human capital 
crisis? From what I understand, a lot of this is just kind of 
hidden. It is a line item and you have no idea what it is going 
to be used for. It seems to me that if you came up with a 
different format that tracked where the money was being spent, 
that it might give the Members of Congress a better 
understanding of how important this is.
    Mr. Aldonas. That is a good point. I know even from my 
perspective internally, looking at the roll-up of the numbers, 
it never, in my mind, accurately reflects what we are trying to 
do with the money. So I imagine from the consumer's point of 
view here in Congress, it is that much more difficult.
    For example, we put the priority on our people in this 
first budget at the Commerce Department under Secretary Evans 
and asked for another $1.2 million in training to address some 
of the retention issues that we faced. I know what the money is 
for. I am not sure that the roll-up actually reflects that is 
the goal that we are trying to achieve, and so I like the idea 
of trying to provide greater focus because it would give, I 
think, the folks who have to make the decision up here a better 
sense of how we plan to spend the money and whether it is 
really addressing the issues that we are facing down at the 
Commerce Department.
    Senator Voinovich. One of the things that I observe around 
here is that there really is not anybody that is lobbying for 
human capital. If there is a program that brings money into a 
community then it is easy to lobby for the funding. It is 
hardware. You have got the manufacturers that are lobbying very 
hard to buy the goods, Congressmen, Senators wanting it because 
it provides jobs. However, no one really lobbies for the people 
doing the work. It seems to me that agencies have to make the 
human capital case themselves. It is important and agencies 
have to let us know how Congress can help.
    Mr. McConnell, there is a lot of speculation that had SEC 
had the right number of people, that Enron might not have 
occurred. What is your reaction to that statement?
    Mr. McConnell. Well, we have tried to deal with that by--we 
do not really know. I mean, had we had more people, had we been 
doing our job differently, it is possible that we would have 
caught an Enron. But I am not saying that just by adding more 
people we could have precluded that or that there is not 
another Enron out there.
    We need to examine very closely how our disclosure system 
is working and that is what we are doing as part of our special 
study. Do we have the right people? Are we looking at the right 
things? Is the disclosure we are receiving from companies the 
right sort of disclosures that would help us with Enrons? The 
answers to those questions will help us then focus our resource 
needs, our resources requests, on doing just exactly that, 
trying to make sure that we are doing the best we can to 
preclude that from happening in the future.
    Senator Voinovich. I am interested in your opinion on how 
we can entice employees to stay in the government. Should we 
look at the pay schedule for the Senior Executive Service? One 
of the things that we have observed is that 70 to 75 percent of 
the people in the Senior Executive Service get the same pay.
    There is a lot of discussion centering on recruitment and 
retention incentives but should we also be exploring pay 
comparability and SES pay compression also? How importnat, in 
your opinion, is it for us to deal with certain human resource 
incentives in addition to pay comparability and pay 
compression?
    Sometimes, there is a tendency to support a flower-of-the-
month proposal, but it seems to me, that if you do not have a 
competitive pay schedule and you do not deal with the 
compression problem, then you can not effectively deal with the 
other issues either. Except perhaps to say that people in 
mission critical positions are going to get a higher salary. 
However, this often leaves a feeling of inequality throughout 
the organization. Can you comment on that?
    Mr. McConnell. I think there is no doubt that both 
compression and the failure of the Federal Government to keep 
up with the private sector have caused us serious problems with 
recruitment and retention. The SEC is perhaps in an enviable 
position right now of being able to implement a whole new pay 
system. While it is not going to be quite private sector-like, 
we will have substantial increases. We will be able to stretch 
out the pay scale to a much higher level--we will not be facing 
the same cap that current Federal employees face. Our cap will 
be in the $200,000 range because it will be capped at the Vice 
President's salary.
    So we will be able to put together a system that might, in 
fact, form some sort of a test of what could be done within the 
Federal Government. We are doing this under Title V. We are 
working closely with OPM. They are actually being quite helpful 
and are quite eager to see what we are doing, to see what sorts 
of things we come up with will be useful going forward for a 
problem that everybody recognizes is a very serious one.
    Senator Voinovich. It is interesting, you mentioned that, 
even with the new pay schedule, the SEC will collect $700 
million more than what the fees are. So the $700 million is 
going to go into the general fund, is that right?
    Mr. McConnell. Well, the $700 million actually is available 
to offset other appropriations. That total amount of $1.3 
billion that we will collect next fiscal year is available to 
our Appropriations Committees as an offset. So it is used 
during that fiscal year for whatever other Commerce-Justice-
State activities they choose.
    Senator Voinovich. But the point is that fees collected by 
the SEC, also subsidize a portion of the other part of the 
agency's budget.
    Mr. McConnell. Yes, sir, that is correct.
    Senator Voinovich. And your customers could say, we are 
giving you all this money and you say you cannot get the job 
done, but you are not spending all the money we are giving you. 
You are giving it to somebody else. Why are you not spending 
all that money to do the work you are supposed to be doing?
    Mr. McConnell. They have made that note to us, actually. 
[Laughter.]
    Senator Voinovich. I think it is something we ought to be 
looking at.
    Mr. Aldonas. Senator Voinovich, if I could just add, it is 
more of a personal reflection. I spent a good share of my time 
when I was in private practice as the hiring partner at a major 
law firm here in Washington, DC, and I was a bidder for 
services that both Mr. McConnell and I now buy at the SEC and 
the Commerce Department. We liked to talk a lot in our firm 
about the quality of life and a variety of other things, but 
you know, at the end of the day, when you are trying to attract 
that top graduate out of law school or a seasoned accountant or 
even paralegals and clerical staff, it boils down to the money.
    I think we do need to take a hard look at pay scales 
because you are trying to not only attract people and retain 
them, there is a lot of value from public service that people 
derive. There is a real attraction to working at the Commerce 
Department in the International Trade Administration because of 
the experience that they get and because of the nature of the 
work and the sense that you are wearing a white hat, frankly, 
because you are working for the U.S. Government on issues that 
are important to our economy. But that does not compensate for 
everything.
    Senator Voinovich. Thank you.
    Senator Durbin. Thank you, Senator Voinovich.
    I have a question or two to ask and then I am going to ask 
my colleague here if I can turn over the gavel to him because I 
have to run downstairs for a meeting and I will try to return 
for the second panel, too. But let me just try to address a 
couple points, if I can, before I leave here.
    Mr. Aldonas, one of the things that the GAO told us was 
that they had learned in your agency from people working there 
that you may have to shift resources away from trade compliance 
to meet the increased workload in conducting negotiations. Let 
me tell you why that troubles me and why it is topical in the 
Senate.
    We are being asked to give the President trade promotion 
authority to enter into new trade agreements. I have been 
reluctant to do that in the past because I think Congress has 
an important role to play here. But let us assume for a minute 
that it is going to pass and discuss what it means. We are now 
reaching the point where we are moving forward, or can move 
forward if this passes, at a faster pace to negotiate more 
trade agreements around the world. Many of us believe that 
expanded trade of the right circumstances is good for the 
United States and for the other country, as well.
    But if what we are hearing from you and the GAO is that as 
we are putting more time and resources into negotiations and 
more trade agreements, we are taking resources away from trade 
compliance, then the conclusion that I reach is we ought to 
slow down our pace, because if we cannot enforce the law, in 
other words, pass treaties that protect American businesses and 
workers, why in the world are we in such a headlong race to 
increase the number of trading opportunities for countries who 
can come into the United States unfettered by any legal 
requirements because we do not have any cops on the beat?
    Mr. Aldonas. Mr. Chairman, actually, we agree with you. 
That is why, in taking a look at our staffing, we felt it was 
going to be inadequate based on the structure we had when the 
Bush Administration came into office, and that is why as a part 
of the first budget request we could make, fiscal year 2003, we 
did ask for an additional 33 people in market access and 
compliance and an additional 40 in Import Administration, 
precisely because we knew we were going into a fairly 
aggressive year of trade negotiations, both in the WTO and the 
FTAA.
    What is not commonly understood is that while USTR leads 
the negotiations, frequently on issues that are peculiarly 
within our province, like things like antidumping, 
countervailing duties and safeguards, the Commerce Department 
is the lead negotiator, and as a consequence, we felt we had to 
get staffed up quickly, not only to deal with the WTO but the 
FTAA and the possibility of other bilateral agreements.
    But I agree with you fundamentally. We cannot be in a 
position where we are shifting resources away from compliance 
to engage in further negotiations. Those compliance jobs are 
part of the infrastructure of what makes the system run and 
keeps the playing field level.
    Senator Durbin. So if we are making a commitment to a trade 
agreement, we have to say to the American people, the workers 
and the businesses, we are also making a commitment to putting 
people in place to enforce it.
    Mr. Aldonas. Absolutely. Fundamentally, you cannot keep a 
bargain with the American public about trade if you are not 
doing that, as far as I am concerned.
    Senator Durbin. Mr. McConnell, let me ask you about a 
similar situation. We are being asked now to consider what we 
are going to do to avoid future Enrons and some people have 
said, well, strengthen the law, which basically means 
strengthen your agency so it can apply the law and enforce it 
with the Department of Justice.
    But there are others who say government is never going to 
keep up with the growth of business and the complexity of 
business for a lot of the reasons we have talked about. Maybe 
we ought to look to that other safeguard, the courts. As long 
as we have an opportunity for securities litigation, if these 
companies know that they could face civil penalties for their 
wrongdoing, that is going to be a greater disincentive than 
whether or not from year to year SEC has an appropriate 
workforce. What is your reaction to that?
    Mr. McConnell. The regulatory scheme that we employ does 
rely upon enforcement as a very strong tool to ensure 
compliance with our other oversight responsibilities. So we 
have that working hand-in-hand now and it needs to continue and 
be strengthened, even, as we go forward.
    I certainly have watched this as it has developed and I 
happen to believe that--maybe this betrays my background, too--
that the courts play an important role in this, too, as an 
effort to try to stop the excesses of those who abuse the law.
    Senator Durbin. Can I ask one very parochial question of 
you, Mr. Aldonas, and I think that perhaps Senator Voinovich 
might be interested in the answer, too. Exactly how many 
exclusions to the Section 201 remedy relative to steel that the 
President announced are now pending before this administration?
    Mr. Aldonas. Over 1,000.
    Senator Durbin. And how many have been granted?
    Mr. Aldonas. That, I have been away for 3 weeks and I have 
not actually been able to follow that, so I cannot give you an 
answer, but I would be happy to get back to you on that, Mr. 
Chairman.
    Senator Durbin. Of course, many of us thought the President 
was moving in the right direction with his Section 201 and his 
response on steel, but the exclusions make us nervous, because 
if we are going to continue to exclude by the hundreds all 
sorts of steel products to come into the United States, the net 
positive impact on the American steel industry and its workers 
is not going to be there.
    Mr. Aldonas. Understood, and what I want to assure you is 
the basic rule that is being applied is whether or not the 
specific exclusion request would undercut the remedy and the 
protection that we are trying to offer, the breathing space 
that we are trying to offer the industry, and so generally what 
we are looking at under those circumstances is whether the 
product is actually made in the United States in any 
commercially available quantities. If it is not, and generally, 
the industry will agree with us that it is not, then we will go 
ahead and grant the exclusion request. Where we see that it is 
being made, our view is that it is going to be undercutting the 
remedy under those circumstances.
    Senator Durbin. Thank you very much. I am going to step 
away, and as further indication of bipartisanship trust between 
parties, I am going to turn over the gavel to my friend, 
Senator Voinovich, and I will be returning shortly.
    Senator Voinovich [presiding]. Thanks very much. Is it true 
that there are currently 250 unfilled positions at the SEC?
    Mr. McConnell. Right now, we have done a better job of 
hiring up and we have lost significantly fewer people just in 
the last several months. So I will have to give you an update 
of that figure now, but it is less than that right now. But 
still, we have authority to fill positions that we are not able 
to fill, there is no doubt about that.
    Senator Voinovich. How long does it take to hire a new 
employee at the SEC?
    Mr. McConnell. It depends. Attorneys, we can hire very 
quickly. We have delegated authority to do that and we do not 
have to go through all the normal----
    Senator Voinovich. Can you waive the Title V provisions and 
bring people on?
    Mr. McConnell. We can waive those.
    Senator Voinovich. Under what provision are you able to do 
that?
    Mr. McConnell. We were delegated that by OPM because we 
have a unique class of attorneys for which--that we need and 
are available in the marketplace and so they delegated the 
authority to us for that.
    Senator Voinovich. That is from the Office of Personnel 
Management?
    Mr. McConnell. That is correct.
    Senator Voinovich. Is this a new flexibility offered by Kay 
James's at the Office of Personnel Management?
    Mr. McConnell. No, that has been in existence for quite 
some time, for about 15 years, as far as I can recall. Now, 
accountants and other staff are much more difficult. We have to 
use traditional hiring mechanisms for those and they can take 
quite a bit of time.
    With respect to something you mentioned earlier, we use the 
3.5 GPA program, as well, and that is very quick. Getting young 
people right out of college, we can do that. If they have got 
the GPA, we can hire them quickly. But typically, it takes 
months. It takes months to hire accountants and economists, 
examiners.
    Senator Voinovich. I would like you, if you would, to see 
if you can give me a couple of examples and get it back to me.
    Mr. McConnell. Certainly.
    Senator Voinovich. Take a couple of people that are, I 
would say, the average person you employ and give me some idea 
of how long it takes and why does it take as long as it does.
    Mr. McConnell. Absolutely.
    Senator Voinovich. OK. Mr. Aldonas, how long does it take 
to hire a new ITA employee?
    Mr. Aldonas. Well, it varies----
    Senator Voinovich. Does the agency utilize the rule of 
three where the best qualified are rated and ranked taking 
veterans performance into consideration?
    Mr. Aldonas. Generally, yes, and the way we approach 
recruiting varies a little bit by the different constituent 
parts of ITA. In some respects, the Import Administration 
serves as a basic intake mechanism because working on the 
dumping and countervailing duty cases gives people a fairly 
good grounding in what the international trade rules are and 
things of that nature. So what we try and do is keep the 
pipeline full with potential applicants so that we can try and 
ease the process as much as possible, but it still takes time.
    When we have been going through this process to fill in 
behind the fiscal year 2001 request, for example, it has taken 
us until, I think, just at the tail end of last year, maybe 
even early this year, before we really got the numbers up to 
where I thought they should be. So we are at the staffing 
levels we need to be under the fiscal year 2001 request, but it 
really took that sort of 18-month period to get fully up to 
speed.
    Senator Voinovich. And how many more employees will you 
bring on with the new budget?
    Mr. Aldonas. With the new budget, we will be looking at 33 
full-time equivalents in market access and compliance and 40 in 
Import Administration, again, because Import Administration 
provides something of an intake mechanism. Oftentimes, young 
folks will join the Department, will come in through Import 
Administration and they will spend about 2 years there getting 
a grounding and then they will move into the other areas of 
trade development, the Foreign Commercial Service, or market 
access compliance.
    Mr. Yager. Senator Voinovich, if I could add----
    Senator Voinovich. Yes?
    Mr. Yager. The USTR has had, I think, a more difficult time 
from our data collection with the hiring than ITA. It appears 
that they place a premium, as I said in my statement, on 
personnel with particular experiences in litigation or 
economists with significant experience rather than hiring at 
the entry level. So, for example, when they were trying to 
increase their staffing for the 2001 year, it took them nearly 
a year to get the staff on board that they were trying to get, 
and I think that was significantly more time than they had 
anticipated.
    One thing I will mention also about USTR which is unique is 
they have a very significant program of detailees. They 
apparently at most times have about 30 to 40 detailees from 
other agencies in order to get the kind of expertise----
    Mr. Aldonas. That is part of our retention problem. 
[Laughter.]
    Mr. Yager. Well, they do, as a matter of fact. They take 
detailees from some of the other agencies and sometimes they do 
stay at USTR.
    Senator Voinovich. Can you explain the concept of detailing 
employees to other Federal agencies?
    Mr. Yager. A detailee would be a person, an employee of 
another Federal agency who is working full-time at the U.S. 
Trade Representative's Office for 1 to 2 years, and oftentimes 
they are asked to do that because of specialized expertise they 
may have, for example, in food safety issues or in other----
    Senator Voinovich. Are they in the budget of USTR, then, 
or----
    Mr. Yager. No. They would be on the originating agency's 
budget at that time.
    Senator Voinovich. So they are still on the agency that is 
detailing them over to the U.S. Trade Representative?
    Mr. Yager. That is right.
    Senator Voinovich. So it is difficult to capture the true 
operating cost of an agency with a lot of detailees.
    Mr. Yager. Right, but it has been very effective because 
USTR is a small agency and sometimes they need the staff for a 
limited amount of time. In other cases, it may be that they 
determine through the course of the detail that they do need 
someone on staff with that particular expertise. So in some 
ways, this is an innovative approach for an agency to get the 
expertise that they need and also have some flexibility with 
the use of those slots that they do have, the limited number of 
slots at USTR, which is only about 200.
    Senator Voinovich. I am particularly interested in the 
impediments of hiring mid-level career employees from the 
private sector. As you know, one of the items in my legislation 
provides more vacation time to mid-career employees who are 
hired from the private sector. I know it sounds like a minor 
item, but I think it is a nice incentive. Do you agree?
    Mr. Yager. I can imagine that would be quite an irritant, 
particularly if you were coming in at mid-level, for example, 
to USTR, which is really quite a difficult agency in terms of 
the number of hours worked and the travel schedule and things 
like that. So you come in at a mid-level and you are asked 
immediately to take on significant responsibilities and working 
long hours while at the same time you are told that you get 4 
hours of leave per pay period. I do not know that would be a 
major factor, but certainly that would be an irritant in trying 
to understand just how they value their employees.
    And so I think the kind of changes that you have talked 
about, such as making leave more liberal, I think would 
certainly send the right signal to those kind of applicants 
that they recognize the value that they provide to the agency 
and they also recognize the kind of sacrifices that they are 
making when they take a job at USTR or in the Import 
Administration.
    Senator Voinovich. We are working with David Walker on this 
legislation and I would like you to go back and talk to him a 
little bit about maybe just zeroing in on those bills that we 
have introduced to see if there is anything else that, from 
your experience, you think we might add that might make it more 
easy for the agencies, the three that deal with trade. I am 
sure that if they would be helpful there, they probably would 
be helpful for the SEC and in many other places.
    Mr. Yager. I will do that, Mr. Voinovich.
    Senator Voinovich. Does anyone want to make any other 
comments before we go to the next panel?
    [No response.]
    Senator Voinovich. Thank you very much for coming here, and 
again, I would like you to go back to your respective shops and 
talk to Evans and see if there is a possibility that he is in 
the administration and maybe get the word to Mitch Daniels. In 
fact, I am going to try to mention it to Mitch, that somehow in 
the next budget they clarify where these dollars are going so 
that Congress can understand this is money that is going in to 
deal with the human capital crisis.
    Mr. Blansitt, I would like to hear from you in about 3 
months about how Mr. McConnell is doing on filling the hole.
    Mr. Blansitt. Actually we are responsible for Mr. Aldonas's 
programs.
    Senator Voinovich. Oh, I am sorry----
    Mr. Aldonas. But we would be happy to have him look at Mr. 
McConnell for the next 3 months. [Laughter.]
    Senator Voinovich. Well, you can do that, too. [Laughter.]
    Mr. Blansitt. But we will definitely get back to you in 
about 3 months.
    Senator Voinovich. Thanks very much.
    Our next two panelists, Lynn Turner is Professor of 
Accounting at the Center for Quality Financial Reporting at 
Colorado State University and former chief accountant at the 
Securities and Exchange Commission, and Ms. Troy Cribb is Trade 
Counsel at Steptoe and Johnson and former Assistant Secretary 
for International Trade, U.S. Department of Commerce.
    You have heard the testimony and I would be interested in 
knowing, how do we keep some of the good people in the 
agencies, since both of you have left. [Laughter.]
    If you would stand up, I would like to swear you in. Do you 
swear to give the testimony as the whole truth and nothing but 
the truth, so help you, God?
    Ms. Cribb. I do.
    Mr. Turner. I do.
    Senator Voinovich. Let the record show that they answered 
in the affirmative.
    Ms. Cribb, we will start with your testimony this morning.

TESTIMONY OF TROY CRIBB,\1\ TRADE COUNSEL, STEPTOE AND JOHNSON, 
                             L.L.P.

    Ms. Cribb. Thank you, Senator Voinovich. It really is a 
pleasure for me to be here this morning to appear before your 
Subcommittee on a topic that I feel very strongly about. I have 
been following the fiscal and human capital needs of the 
Commerce Department since my days I spent up here as staff to 
the Senate Commerce Committee, and, of course, then while I was 
at the Department serving first in Trade Development and then 
as Assistant Secretary for the Import Administration, and now 
in the private sector practicing international trade law.
---------------------------------------------------------------------------
    \1\ The prepared statement of Ms. Cribb appears in the Appendix on 
page 87.
---------------------------------------------------------------------------
    I think much of what is in my statement mirrors what Under 
Secretary Aldonas was saying. I think it is important for the 
Subcommittee to hear that message from someone like me, who is 
now in the private sector, because I do not have to say these 
things. Of course, Grant does not really have to, either, but I 
feel very strongly, even though it is a Republican 
administration that has taken over now and I was very sad to 
have to walk out the door when I had to leave the Commerce 
Department, I cannot think of anyone I would rather have in 
there than Grant Aldonas. He is really doing just a fantastic 
job.
    One of the pleasures about working at the Commerce 
Department was that the mission of ITA is truly bipartisan. Now 
that I am on the other side, I do want to do my part to help 
make sure that remains the case.
    I do want to second what the Under Secretary was saying 
about the extraordinary staff at ITA. It is a very talented, 
hard working group of people and I think that the business 
community has largely recognized that and has lent good support 
to the Department.
    As you know, the array of trade issues these days is 
extraordinarily complex and growing day by day. Often, trade 
issues get into very complicated issues involving, for example, 
health or safety standards or transportation or 
telecommunications, and I think ITA really deserves credit for 
evolving over the years to develop the expertise to handle 
these new issues as they come along.
    I also want to second Under Secretary Aldonas's comments 
about the really critical role that ITA plays in supporting 
USTR, from the negotiating stage to implementation to dispute 
settlement. ITA is really fundamental to what USTR does, and as 
you know, USTR is deliberately a small agency within the 
Executive Office of the President and it has to rely on other 
agencies to help fulfill its mission. Certainly, ITA every day 
is working hand-in-hand with USTR on a number of fronts. Of 
course, once the ink is dry on an agreement, it is ITA's 
primary responsibility to enforce those agreements.
    Furthermore, I think that one role obviously very important 
for ITA is trying to help resolve these often difficult market 
access issues before they get into a lengthy and costly dispute 
settlement proceedings. As you know, these WTO cases can go on 
for a long, long time and that is also true under some of the 
other dispute settlement proceedings under other agreements. 
Furthermore, we have to be careful about overloading the WTO 
with a large number of disputes. So, certainly, a large part of 
what ITA does is to try to get in early, identify the problem, 
and work with the U.S. businesses and the foreign governments 
to see if we can reach a resolution of these before kicking off 
official disputes.
    Furthermore, as I think Congress has fully recognized, ITA 
does a really terrific job of reaching out to smaller and 
medium-sized businesses and help them understand export 
opportunities. I ran into so many businesses during my years at 
Commerce who would not be in the business of exporting were it 
not for the help that they got from ITA, and so there really 
are a large number of success stories there and those are 
crucial to help maintain and further the support of the 
American people for new trade agreements.
    With respect to the Import Administration, where I served, 
I think I carry an important message today because my firm 
represents both respondents and petitioners, and for both sides 
it is very important to have adequate staff and a very talented 
staff there to process the cases and then make sure that there 
is a fair outcome. I would be happy when we get to the question 
section to try to elaborate on some of the comments people have 
already made about trying to attract and maintain good staff.
    Just a couple of other things I would throw out as 
suggestions, having served in the Department. I think that the 
Department benefits by having people rotate throughout the 
offices. Of course, you want to maintain industry expertise and 
country expertise, but I think especially with the younger 
staff that it benefits both the Department and the staff if 
they have exposure to different offices and different issues.
    I also think that Congress could work with ITA on its 
recruiting effort to make sure that it is an ITA-wide 
recruiting effort. I think too often it has fallen to the 
different components to do their own recruiting.
    And finally, any support that you could give to the 
Department for helping upgrade its technology would be greatly 
appreciated. Often, the offices work on different computer 
systems. With respect to the Import Administration, they need 
to move to the point where parties can do electronic filings, 
as a lot of the courts are doing now. I realize that is a 
costly issue, as well, but certainly one to which I would like 
to lend my support.
    Thank you very much and I would be happy to answer any 
questions.
    Senator Voinovich. Thank you. Mr. Turner.

 TESTIMONY OF LYNN TURNER,\1\ PROFESSOR OF ACCOUNTING, CENTER 
   FOR QUALITY FINANCIAL REPORTING, COLORADO STATE UNIVERSITY

    Mr. Turner. Thank you, Senator Voinovich, for the 
opportunity to be here and address some of these serious issues 
regarding the human capital crisis.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Turner appears in the Appendix on 
page 89.
---------------------------------------------------------------------------
    I was listening to your questions to the first panel and it 
brought back some memories, not all fond. In fact, the 
particular question about how long it takes to hire someone 
brought back some real memories, and so I commend you and 
Chairman Durbin for holding these hearings on a very important 
issue. The human capital part of the government is very 
important today. A very important asset to the government walks 
out of the office every night.
    Let me state that the SEC staff are some of the hardest 
working, most dedicated employees I have ever had the privilege 
to work with, including those that I worked with in private 
practice. However, as Enron and the growing trend in restated 
financial statements has demonstrated, one of the critical 
issues facing American investors is the lack of adequate 
resources for the SEC. As you heard earlier, resource shortages 
at the SEC have been highlighted by the recent study of the 
GAO. This problem has occurred at a time when U.S. capital 
markets have experienced explosive growth, as highlighted in my 
testimony which I ask be included in the record.
    In fact, the recent history of the SEC tells the story of 
an agency captured and held hostage by the chains of its 
budgetary constraints, budgetary constraints that take on more 
of a flavor of a back-door attempt to stop regulation and 
oversight by ceasing to fund the regulator in what I would 
consider to be an adequate fashion. But let me take you inside 
the agency and discuss the implication for investors of some of 
the restraints placed on the SEC, and as you noted, Senator, 
that is literally one out of every two adult Americans today.
    Investors do need to be sure that the SEC is on the beat 
after the litany of financial fraud cases that have cost them 
approximately $200 billion in recent years. Time and time 
again, I saw practical limitations placed on the staff's 
ability to conduct timely, effective investigations as a result 
of the staffing constraints. These limitations were the direct 
result of an insufficient number of staff to investigate the 
current financial fraud caseload, some 200 to 250 cases at the 
SEC.
    Cases were understaffed and the staff faced insurmountable 
odds against some of the finest defense attorneys in the 
country. The defense was often able to outgun the SEC due to 
sufficiently more resources, including staff and experts. 
Adding 25 to 50 accountants to the accounting staff at the SEC 
Division of Enforcement is long overdue. It will help ensure 
investors and those who break the law receive timely justice.
    The staffing needs of the Division of Corporation Finance 
has also been shortchanged. Total filings with the SEC in 2000 
were over 98,000. That comes out to about 1,200 filings per 
accountant. At the same time, below-market wages have almost 
single-handedly increased the turnover levels of the staff well 
beyond those of other governmental agencies. That has left the 
Commission with the task of hiring and training less 
experienced, albeit dedicated, staff.
    In order for the SEC to effectively review the filings it 
receives, there needs to be a 50 to 100 percent increase in the 
number of accounting staff in the Division of Corporation 
Finance. The staff need to be fairly compensated at market 
rates for the work they are performing rather than receiving 
wages well below what they can earn elsewhere.
    Based on my experience as a CFO, an audit partner, and the 
chief accountant, I believe increasing the staffing levels will 
provide significant benefits to the markets and investors and 
these benefits will greatly outweigh the costs. We need to 
remember that the costs to investors and creditors in the case 
of Enron have been estimated as high as $93 billion. The cost 
of adding these additional staff is but a drop in the bucket to 
that number.
    Let me switch to my experience as chief accountant. In that 
office where I had the lead, we functioned much in the same 
role and capacity as the national office of the Big Five 
accounting firms in all respects but one. We had less than half 
of the staff. Those offices typically had 70, 75 people in 
them. We were working in the neighborhood of 20 to 25 staff 
much of the time. Amazingly, in light of Enron and a rise in 
the financial fraud restatements, the original SEC budget 
estimate for 2000 stated an actual decrease in the staffing of 
that office.
    But the SEC, and I think you have pointed this out, needs 
more than just people to allow it to do its job properly. It 
needs tools, such as updated information, personnel management 
systems that allow improved management of the agency, more 
effective utilization of personnel, greater information 
technology know-how, and a quicker deliver of the product to 
the investing public in companies they invest in. These needs 
must also include improved training.
    In light of the various resource needs the SEC has to carry 
out its duties, its original budget estimate for 2003 falls 
considerably short of the target. The proposed budget 
represents a 6.6 percent increase over the appropriated funding 
for fiscal year 2002 and would actually reduce total budgeted 
positions from 2,716 to 2,670 positions. In light of the losses 
investors have suffered due to abuses and fraud in our capital 
markets, it is hard and perhaps impossible to reconcile the 
budget request with good, responsible government.
    The House of Representatives marked up a bill last week 
that provides for little real reform. However, that legislation 
does, perhaps realizing its intended effect, greatly increase 
the budget of the SEC to $776 million. I agree with the members 
of the House and support this increase and hope the Senate 
will, too. At this time of crisis in our capital markets, 
American investors and the employees and families of the SEC 
deserve no less.
    Thank you, and I would be more than happy to answer any 
questions you have, as well.
    Senator Voinovich. Thank you very much.
    Ms. Cribb, how serious do you think the nations that we 
have trade agreements with take our Department of Commerce's 
efforts to enforce the trade laws? How much respect do we have 
from our partners around the world?
    I am a free trader. As Governor of Ohio, we had wonderful 
experiences with the Foreign Commercial Service officers. They 
really helped our businesses and I made trade one of my four 
goals in terms of economic development for the State of Ohio.
    But the impression that I received was that there was not a 
lot of respect for what we are doing. In fact, I believe that 
we need to have the right people with the right qualifications 
working in our trade agencies. We need to hire employees who 
will wake up early in the morning and go to bed late at night 
and stay energized about their jobs. This will help spread the 
word out across the world that we are serious about this, and 
if we do this, we might see a different approach.
    To be candid, if I were out there, and knew what was going 
on, I would run against us every day I could, down the field as 
far as I could go, and get away with as much as I could because 
I would figure that the flag would not be thrown until I got 
pretty close to the goal line. That is my attitude from what I 
have picked up as I have traveled the world for 8 years on 
these trade missions. I would like your reaction.
    Ms. Cribb. I actually think that there is a great deal of 
respect around the world for both the Commerce Department and 
USTR. In fact, a lot of governments will send delegations from 
their government to come visit the Department and have the 
Department help teach them how to set up their own trade 
departments.
    So I think you are right in that as a matter of negotiating 
posture with us, of course, a lot of other countries are going 
to try to push the limits of what they can do. But at the same 
time, I think that they largely look to our regulatory agencies 
as models for what they can do in their own countries.
    Certainly the dumping laws, provide a perfect example. Of 
course, a lot of our trading partners have complaints about not 
only the way we administer the law, but the very existence of 
the law. Meanwhile, they are busy setting up their own 
departments at home and making active use of the laws, as was 
referenced before.
    Senator Voinovich. In your opinion the Chinese, Taiwanese, 
South Koreans, Brazilians, and our European friends, respect 
the way we have established our trade agencies and that they 
come over here to learn from our lessons, but how serious do 
they take our efforts to enforce the trade laws?
    Ms. Cribb. I think this goes back to the comments made from 
the first panel that it is absolutely vital that we make sure 
that we have the staff to do compliance in addition to 
negotiations. As Senator Durbin was saying, you cannot just be 
racing ahead, constantly negotiating, without looking back and 
enforcing.
    I think that, certainly over the last few years, that the 
Congress has given more money to ITA to help beef up staff and 
do those activities. The Compliance Center was set up several 
years ago to be the focal point within ITA for initiating these 
compliance activities.
    I think that it is going to be a constant struggle and that 
there will be more resource needs within ITA to make sure that 
the staff levels are what they need to be.
    Senator Voinovich. Excuse me for interrupting you, but one 
of the things we called for in our legislation, and I would 
like to send you a copy of it, maybe you could look at it--have 
you seen it yet at all?
    Ms. Cribb. I have not.
    Senator Voinovich. I would like you to look at it, just 
from your experience.
    Ms. Cribb. Yes.
    Senator Voinovich. When you were at the Department, do you 
really think that human capital was given the attention that it 
really deserved and needed?
    Ms. Cribb. I think so, and as I say, it is hard for any 
administration, and even in the years of budget surpluses when 
we finally turned the corner on that, it was still a very 
difficult budget environment, and it is even more so now when 
so much of everyone's attention is focused on security issues. 
It is hard to get attention for international trade.
    But certainly I think that in the years I was there, that 
the administration always tried to make international trade an 
important part of both our U.S. economic agenda and our foreign 
agenda, and as I said, it has been a very bipartisan effort on 
that score.
    Senator Voinovich. Did you have somebody in the Department 
whose soul responsibility was to focus on human capital? One of 
the things we are requiring in this legislation is a designated 
person dealing with human capital that gets up early and works 
on it constantly and looks at whether or not the workforce is 
where it should be and shapes it and is on top of it. Do you 
think it was given enough attention when you were there?
    Ms. Cribb. One of the things I think Under Secretary 
Aldonas has done that has provided a continuity is to pick up 
on those efforts that we had started. As I mentioned in my 
remarks, I do think that there is more that can be done ITA-
wide to ensure that there is a better recruiting effort, and 
that may be one thing that the Congress should work with ITA 
on, to closely examine.
    As I said, a lot of times with recruiting, it just falls to 
the various offices to go out themselves and try to find 
people, whereas I think that there could be a much more 
effective, coordinated effort to go out and attract recruits--
especially young people coming out of law and graduate schools. 
ITA has a lot to offer that the private sector can never offer. 
As Grant said, it is a perception of wearing the white hat and 
it is a great feeling. I mean, there is really nothing like 
going to work and knowing that your job is to be out there 
looking out for the interests of the U.S. people. That is a 
feeling that a law firm cannot offer, no matter how much they 
pay.
    I think that the travel opportunities are exciting for 
young people. I think young people are very interested in all 
the international issues. So I think that even though it is 
tough not always being able to offer competitive salaries, that 
these are certainly things ITA can go out and sell itself on.
    Senator Voinovich. Thank you. Mr. Turner, what is it going 
to take for us to get your brightest and best accounting 
students to come to work for the Securities and Exchange 
Commission? Once they get there, how do we keep them?
    Mr. Turner. Without a doubt, I think during my entire time 
at the SEC, the No. 1 issue as I watched people walk out the 
door was the pay parity issue. The compensation, you have got 
to keep in mind that the staff, they are, on average, I think, 
dedicating about 25 percent of their hours each year as 
contributed hours, so they are not getting paid but they are 
putting in the hours and yet maybe they are getting 70 percent 
of pay. So you have this where they are working 25 percent more 
but getting 30 percent less in terms of compensation.
    Senator Voinovich. You are saying that your people are 
salaried people----
    Mr. Turner. Right.
    Senator Voinovich [continuing]. And they are putting in 25 
percent--you are talking about overtime?
    Mr. Turner. Overtime.
    Senator Voinovich. So you are going over 40, 25 percent, 
and then they are not compensated for that, and then if they 
look at the pay they are getting for the 40 hours, it is about 
30 percent less than what they would get in the private sector, 
is that--do I get it?
    Mr. Turner. That is--you have got it. Instead of here, you 
are going this way. When people have to put food on the table, 
you can only do that for so long.
    The people do not expect to be compensated at private 
sector wages. They are not even asking for that. They are just 
asking to be treated fairly, and they know that when, sooner or 
later, they will have kids going to college and have to pay for 
college education or schooling needs or something, they really 
do love the public service and do a great job at it. That is 
why they put in the 25 percent donated hours. But at some point 
in time, the bills do mount up and come home and the rooster 
comes home, so to speak, and they can just not afford to do it 
any longer.
    As you heard earlier, whereas in the past you could maybe 
keep an accountant for 2, 3, or 4 years--I was at the 
Commission from 1989 to 1991 and it was not unusual to see the 
staff stay 3 or 4 years--this last go-around, 18 months is what 
they were spending. So it just does not keep them there.
    So pay is one thing, and when you have that turnover, then 
you have problems with inexperienced people, as well. It takes 
additional supervision. You do not have the supervision because 
they are not there, either. You talked about the SES turnover, 
so you do not have that. That impacts the markets and the 
people trying to come in because it makes it more difficult, 
since they are dealing with less experienced people, just to 
communicate and talk about what is going on and get over their 
filing issues. So it creates probably more struggles in the 
system, as well, both for people inside the Commission and for 
people outside the Commission.
    And I do think if we had had enough staff to review filings 
on a timely basis on Enron, we would have seen it. Those 
financial statements were restated for 1997, 1998, 1999, 2000, 
and now it looks like 2001. It used to be the staff did try to 
get through filings of every company at least once every 3 
years. They did not do that on Enron, and, in fact, in the fall 
of 1999, I remember a meeting in the office of Chairman Levitt 
at the time where we all got together. We did not even have the 
staff at that point in time to review all the public offerings 
at the time. We would just run out of staff, I mean, literally 
could not do it. We are all struggling----
    Senator Voinovich. Is that because you did not have the 
budget to hire them?
    Mr. Turner. Yes.
    Senator Voinovich. While you were at the SEC, you did not 
have the budget to hire more employees, and even if you did, 
the levels of compensation were not as competitive as they 
should be, is this correct?.
    Mr. Turner. Right, and you still saw then the 250 open 
slots, so it was you did not have the money, you could not get 
them, and so you did not have the slots, you did not have----
    Senator Voinovich. And you also suffered, did you not, from 
the fact that other financial regulatory agencies were able to 
change their pay schedules. So some of the SEC employees float 
from one Federal agency to another because they wanted equally 
challenging work, but they wanted more money as well?
    Mr. Turner. Yes. I actually loved working with my 
counterparts down at the Federal Reserve but I hated to go down 
to meetings with them, because if I took my staff with them, 
they might decide to stay. [Laughter.]
    They could get these 30, 40 percent increases down there, 
and out of our office, we did have people that made those type 
of jumps and you cannot blame them for that, certainly, so----
    Senator Voinovich. Is the new SEC pay schedule, from your 
observation, competitive now with other financial regulatory 
agencies?
    Mr. Turner. I have not seen where they are coming out with 
their new pay schedules. I have seen what the discussions have 
been and how they are redoing it, so I honestly do not know if 
they are coming out. They did need to jump up quite a bit, and 
the people are good, talented people.
    I remember one fellow in my office who left in the summer 
of 2000 and had been with the Commission 10 or 12 years. He was 
very good, excellent. He had been in industry, been in with a 
Big Five firm, done very well every place he had been, really 
wanted to stay. I was able to pay him around $85,000, plus we 
could do some things with bonuses, retention bonuses, and we 
did have to actively use that. If we could not have been 
actively using retention bonuses, we would have lost a lot more 
people, although there were some restrictions. But I could pay 
him $85,000 plus maybe a $15,000 bonus, max.
    He left to go join one of the Big Five firms as a partner, 
that is the type of caliber people we had in that office. He 
went out for half-a-million dollars a year. So these people can 
jump. Now, in his particular case, if we could have just bumped 
his pay, I would say another--if we could have gotten him up in 
the $115,000 range, there is no question in my mind he would 
have stayed. I mean, everyone knows they can jump for that type 
of compensation, but he loved the work, but he had two 
daughters starting college and he just could not afford to pay 
it. I know if I had had that--the guy almost came in and 
pleaded, but you did not have it in the budget and you did not 
have the flexibility to do that.
    Senator Voinovich. I have seen that during my years in 
government, also, people that come in that do not want to 
leave, but they have to, and you do not blame them for leaving 
because they have got family responsibilities they have to take 
care of, particularly those that have got children that are 
college age.
    Let us go back to Colorado. What is it going to take to get 
some of your bright people to come, in terms of the procedure? 
Have starting salaries got to be up, or tell me what you think.
    Mr. Turner. Starting salaries have got to be up. I think 
you have got to give the people the tools that they need to do 
their jobs right, technology, information systems. When I 
walked out of private enterprise as a CFO and walked into the 
Commission, it was like going into the dark ages with respect 
to technology.
    Senator Voinovich. Now, do your students know that?
    Mr. Turner. Yes. I think--in fact, it is interesting. A 
couple of weeks ago, we had a discussion. Some of the kids were 
talking about where they might go in terms of employment. I was 
trying to encourage them to think about public service and some 
government service for at least some period of time. I do think 
they have a perception that if they go into the government, 
they are not going to get the ability to work with some of the 
things like the new technologies that they might otherwise get 
in one of the accounting firms. They will not get that level of 
training.
    They certainly do not see the type of recruiting that 
emphasizes that. In fact, when I first got into----
    Senator Voinovich. Yes, how about the recruiting? I have 
heard stories that Federal Government recruiting is not as good 
as it should be, that agency websites leave a lot to be 
desired. How do you feel about that?
    Mr. Turner. I would agree with that. I think that if you 
were to benchmark the recruiting done, that I did when I was 
one of the recruiting partners at one of the Big Five 
accounting firms versus what I did as a CFO versus what was 
done at the government agencies, they are just on different 
playing fields. The government is going to lose out every time. 
We did not have the type of recruiting brochures. We did not 
have the type of outreach and contact. People do not create the 
image in the students' mind that you see being created by 
private enterprise. It is a non-competitive recruiting effort.
    So if you have a non-competitive recruiting effort in terms 
of really saying what you can do, and I have got to tell you, 
the jobs at the SEC are absolutely fabulous. There is a very 
compelling, great story to tell to students that should make it 
very attractive to them. If you tell that story in a 
competitive fashion and then get to where salaries are 
competitive for those new accountants we hired like into the 
compliance and inspection program at the SEC, I think they will 
be able to get and attract people.
    But you have got to do those two things and then you have 
got to let them know that when they come into the Commission, 
they are going to have the level of training that they should 
have to continue their education and the technology tools----
    Senator Voinovich. That is the other thing. I have added a 
comprehensive training provision to my human capital 
legislation, because when I came in, I asked the 12 departments 
how much they spent on training and they could not tell me. 
When you were at the SEC, how much emphasis was placed on 
training and upgrading the skills of individuals, because, 
again, you are pointing out, that is important. If I am a new 
employee, I want to know if I will work on exciting projects 
and what type of training opportunities are available to help 
me grow professionally. While you were at the SEC, how much 
attention was given to training the employees?
    Mr. Turner. Training, almost--initially, it was an 
afterthought, and I will tell you why. They were so short of 
staff and people were already working 25 percent overtime----
    Senator Voinovich. Right.
    Mr. Turner [continuing]. That when you went and said, let 
us have a training session, in people's mind, it was, like, OK, 
now you have put me up to about 30, 40 percent overtime. I 
would love to do it. The problem is, that created a bad 
environment for training that made it difficult to get it done, 
so the training was not there. The coordinated training effort 
absolutely was not there, no question about it.
    People did want training. We did go out periodically to the 
Big Five accounting firms and they were very helpful. They 
would bring in people. So you had the ability to do it. You had 
the ability to get the resources. We just had no one to 
coordinate it, and quite frankly, then again, there was not 
time allocated to go do it because everyone was already buried.
    Senator Voinovich. I have co-sponsored legislation that 
increases the student loan repayment amount from $40,000 to 
$80,000. If you work for the Federal Government and you pay off 
the loan, I guess you have to add it to your income, and if you 
work for somebody else in the private sector, you do not have 
to do that. Do you think increasing the student loan repayment 
amount will help recruit and retain qualified employees?
    Mr. Turner. Yes, I actually do think that would make a 
difference. I actually think that is a very fine program and I 
think people realistically could work through any 
implementation. I do not see the implementation issues being 
that big on that. So I think that would actually be a fine 
program, and certainly for the students in my classes that have 
just spent 4 or 5 years and they are tired of being poor, the 
opportunity for them to walk out and think, I am going to have 
that school loan, at least some piece of that forgiven, I think 
that would be a big ticket item to them, so I would commend you 
for moving in that direction.
    Senator Voinovich. So it is higher starting wages that are 
more comparable. They do not have to as well as in the private 
sector, but somewhere in the ballpark.
    Mr. Turner. Yes.
    Senator Voinovich. Potential employees must have an 
understanding of the type of technology, equipment and training 
available at the Federal agency they are applying to. We don't 
want them to feel like they are, as you said, going into the 
dark ages. An opportunity to upgrade their skills with 
training, help get their loans paid off. That would make a big 
difference, you think?
    Mr. Turner. Yes. I think there is one other thing I picked 
up on, if I heard you right. You talked about each of the 
agencies really having a dedicated human capital strategic 
plan, a human capital resource officer----
    Senator Voinovich. Right.
    Mr. Turner [continuing]. Where that is their focus, that is 
their job and they are trying to stay on the front edge, not be 
so far behind where private enterprise and all is. I would 
commend you for that, too. We do not manage that asset in the 
government nearly as well as what I think is done in the 
private enterprise area. The resources are not devoted to it. 
People do think about it in budget, give me X-amount of budget, 
but they are not thinking about, how do I turn those dollars 
into real good management of my people so I get what I am 
paying for, because you have got good people there. That needs 
to be part of any agency's plan, and an important part and then 
well managed.
    I think we had a lot of opportunity and challenges in that 
area at the SEC, but I think we had a lot of improvements that 
we could have been making and I just do not think we fit within 
the notion of what you were looking for. I just do not think we 
were there.
    Senator Voinovich. My legislation will require that. 
Furthermore, it is important for agencies to add their human 
capital plans in the Government Performance and Results Act 
process. This is a main focus in my legislation. Unfortunately, 
agencies are not tying their human capital plans into the goals 
of their agency. Would you agree that this is a key management 
concept that needs to be addressed?
    Mr. Turner. Yes.
    Senator Voinovich. So we need to emphasize that more.
    Mr. Turner. I definitely agree with you.
    Senator Voinovich. Ms. Cribb, how about your experience in 
terms of people coming into the agency? What is needed to 
really make them competitive?
    Ms. Cribb. Again, more competitive salaries always would 
help. I would also say that training is an area where I think 
ITA could improve a good bit. The resources are stretched so 
thin that it is hard to have money left over for the training 
opportunities, and I think a lot of the staff are interested in 
expanding their skills, especially in language skills, which 
would be helpful to their performance in ITA.
    We did run into a lot of the problems you were describing 
about also finding the time for training. It is a long work day 
as it is and it is hard to get people to stick around sometimes 
for after-hour training.
    But I also would add, I think that while across the whole 
GS spectrum it would help to have higher salaries, I think that 
at some of the highest levels, you have a group of people who 
have made a decision to stay in the government as a career. 
They have already made that decision. It is really at more of 
the mid-level where you tend to lose people, who get frustrated 
that----
    Senator Voinovich. But you do not----
    Ms. Cribb [continuing]. There are not as many people, and 
so I think the compensation----
    Senator Voinovich. But the compression problem, that is 
another thing. At the Senior Executive level, 70, 75 percent of 
the people make the same amount of money is what we are 
hearing. Again, it is anecdotal. If I am here and I have got an 
opportunity to retire, I am kind of locked, and I get more of 
an increase in my annuity every year than I do if I stay with 
the agency.
    Ms. Cribb. Right.
    Senator Voinovich. So you finally sit down and figure the 
numbers out and say goodbye. Do you think that is something 
that needs to be looked at?
    Ms. Cribb. Sure. I also think that as you move up the GS 
scale, that often, getting the highest scale is dependent on 
managing a team of people. I am not quite sure if that is a 
Commerce-specific rule or if it is more OPM-wide. I think it is 
governmentwide.
    Within ITA, often, you want to reward someone for their 
expertise, which is not always tied directly to how many people 
they are managing. So I think something that the Department 
could look at, too, is how to get higher grades for a lot of 
those people who are bumping up against situations in which 
there are only so many jobs within ITA that are going to be 
supervising a number of people, but there is plenty of need for 
the expertise. We need to make sure we reward the expertise.
    Senator Voinovich. So, salary levels are a problem. It is 
like in the teaching profession. If you teach in a classroom, 
you get X and the only way you can get it is to become 
assistant principal and then become principal.
    Ms. Cribb. Right.
    Senator Voinovich. Even though you may be a marvelous 
teacher, you move out of the classroom.
    Ms. Cribb. Right.
    Senator Voinovich. So you are saying you have certain 
expertise in the agency, but there is still a problem there. If 
you want more money, then you have got to go into a 
supervisory----
    Ms. Cribb. Exactly.
    Senator Voinovich [continuing]. So that should be looked 
at, too, from a comparability point of view.
    Ms. Cribb. Exactly.
    Senator Voinovich. I really appreciate your both being here 
today. This is a subject that I am very interested in and I 
really appreciate Senator Durbin's continuing to work on it. I 
know it is going to take a long time to get this across. I feel 
that my biggest asset is my years of experience as an 
executive. I know that I have to constantly educate my 
collegues on the importance of sound management practices. I 
really want to break through the bureaucratic barriers that 
have been impeding change for so many years.
    Mr. Turner. Stick with it and you will get there, Senator.
    Senator Voinovich. Thanks very much for being here.
    Ms. Cribb. Thank you.
    Mr. Turner. Thank you.
    Senator Voinovich. The Subcommittee is adjourned.
    [Whereupon, at 12:07 p.m., the Subcommittee was adjourned.]












                            A P P E N D I X

                              ----------                              

                     [GRAPHICS NOT AVAILABLE IN TIFF]

