[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]



 
                THE SECURITIES AND EXCHANGE COMMISSION'S
                    $500 MILLION FLEECING OF AMERICA

=======================================================================


                                (112-37)

                                HEARING

                               BEFORE THE

                            SUBCOMMITTEE ON

    ECONOMIC DEVELOPMENT, PUBLIC BUILDINGS, AND EMERGENCY MANAGEMENT

                                 OF THE

                              COMMITTEE ON

                   TRANSPORTATION AND INFRASTRUCTURE

                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED TWELFTH CONGRESS

                             FIRST SESSION

                               __________

                             JUNE 16, 2011

                               __________

                       Printed for the use of the
             Committee on Transportation and Infrastructure


         Available online at: http://www.gpo.gov/fdsys/browse/
        committee.action?chamber=house&committee=transportation




                  U.S. GOVERNMENT PRINTING OFFICE
66-920                    WASHINGTON : 2012
-----------------------------------------------------------------------
For sale by the Superintendent of Documents, U.S. Government Printing 
Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; DC 
area (202) 512-1800 Fax: (202) 512-2104  Mail: Stop IDCC, Washington, DC 
20402-0001





             COMMITTEE ON TRANSPORTATION AND INFRASTRUCTURE

                    JOHN L. MICA, Florida, Chairman

DON YOUNG, Alaska                    NICK J. RAHALL II, West Virginia
THOMAS E. PETRI, Wisconsin           PETER A. DeFAZIO, Oregon
HOWARD COBLE, North Carolina         JERRY F. COSTELLO, Illinois
JOHN J. DUNCAN, Jr., Tennessee       ELEANOR HOLMES NORTON, District of 
FRANK A. LoBIONDO, New Jersey        Columbia
GARY G. MILLER, California           JERROLD NADLER, New York
TIMOTHY V. JOHNSON, Illinois         CORRINE BROWN, Florida
SAM GRAVES, Missouri                 BOB FILNER, California
BILL SHUSTER, Pennsylvania           EDDIE BERNICE JOHNSON, Texas
SHELLEY MOORE CAPITO, West Virginia  ELIJAH E. CUMMINGS, Maryland
JEAN SCHMIDT, Ohio                   LEONARD L. BOSWELL, Iowa
CANDICE S. MILLER, Michigan          TIM HOLDEN, Pennsylvania
DUNCAN HUNTER, California            RICK LARSEN, Washington
ANDY HARRIS, Maryland                MICHAEL E. CAPUANO, Massachusetts
ERIC A. ``RICK'' CRAWFORD, Arkansas  TIMOTHY H. BISHOP, New York
JAIME HERRERA BEUTLER, Washington    MICHAEL H. MICHAUD, Maine
FRANK C. GUINTA, New Hampshire       RUSS CARNAHAN, Missouri
RANDY HULTGREN, Illinois             GRACE F. NAPOLITANO, California
LOU BARLETTA, Pennsylvania           DANIEL LIPINSKI, Illinois
CHIP CRAVAACK, Minnesota             MAZIE K. HIRONO, Hawaii
BLAKE FARENTHOLD, Texas              JASON ALTMIRE, Pennsylvania
LARRY BUCSHON, Indiana               TIMOTHY J. WALZ, Minnesota
BILLY LONG, Missouri                 HEATH SHULER, North Carolina
BOB GIBBS, Ohio                      STEVE COHEN, Tennessee
PATRICK MEEHAN, Pennsylvania         LAURA RICHARDSON, California
RICHARD L. HANNA, New York           ALBIO SIRES, New Jersey
JEFFREY M. LANDRY, Louisiana         DONNA F. EDWARDS, Maryland
STEVE SOUTHERLAND II, Florida
JEFF DENHAM, California
JAMES LANKFORD, Oklahoma
REID J. RIBBLE, Wisconsin
CHARLES J. ``CHUCK'' FLEISCHMANN, 
Tennessee

                                 7_____

 Subcommittee on Economic Development, Public Buildings, and Emergency 
                               Management

                   JEFF DENHAM, California, Chairman
TIMOTHY V. JOHNSON, Illinois         ELEANOR HOLMES NORTON, District of 
ERIC A. ``RICK'' CRAWFORD,               Columbia
    Arkansas,                        HEATH SHULER, North Carolina
  Vice Chair                         MICHAEL H. MICHAUD, Maine
RANDY HULTGREN, Illinois             RUSS CARNAHAN, Missouri
LOU BARLETTA, Pennsylvania           TIMOTHY J. WALZ, Minnesota
BOB GIBBS, Ohio                      DONNA F. EDWARDS, Maryland
PATRICK MEEHAN, Pennsylvania         BOB FILNER, California
RICHARD L. HANNA, New York           NICK J. RAHALL II, West Virginia
JOHN L. MICA, Florida (Ex Officio)     (Ex Officio)
VACANCY

                                  (ii)

                                CONTENTS

                                                                   Page

Summary of Subject Matter........................................    iv

                               TESTIMONY

Clancy, Elaine, Director of Leasing, National Capital Region, 
  U.S. General Services Administration...........................     6
Heslop, Jeffery, Chief Operating Officer and Acting Executive 
  Director, U.S. Securities and Exchange Commission, accompanied 
  by Mark D. Cahn, General Counsel, U.S. Securities and Exchange 
  Commission.....................................................     6
Kotz, Hon. H. David, Inspector General, U.S. Securities and 
  Exchange Commission............................................     6

          PREPARED STATEMENTS SUBMITTED BY MEMBERS OF CONGRESS

Norton, Hon. Eleanor Holmes, of the District of Columbia.........    33

               PREPARED STATEMENTS SUBMITTED BY WITNESSES

Clancy, Elaine...................................................    35
Heslop, Jeffery..................................................    40
Kotz, Hon. H. David..............................................    49
[GRAPHIC] [TIFF OMITTED] 66920.001

[GRAPHIC] [TIFF OMITTED] 66920.002

[GRAPHIC] [TIFF OMITTED] 66920.003

[GRAPHIC] [TIFF OMITTED] 66920.004

[GRAPHIC] [TIFF OMITTED] 66920.005

[GRAPHIC] [TIFF OMITTED] 66920.006

[GRAPHIC] [TIFF OMITTED] 66920.007

[GRAPHIC] [TIFF OMITTED] 66920.008

[GRAPHIC] [TIFF OMITTED] 66920.009



                      THE SECURITIES AND EXCHANGE



                       COMMISSION'S $500 MILLION



                          FLEECING OF AMERICA

                              ----------                              


                        THURSDAY, JUNE 16, 2011

                  House of Representatives,
       Subcommittee on Economic Development, Public
               Buildings, and Emergency Management,
            Committee on Transportation and Infrastructure,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 10:10 a.m. in 
room 2167, Rayburn House Office Building, Hon. Jeff Denham 
(chairman of the subcommittee) presiding.
    Mr. Denham. The subcommittee will come to order. First, let 
me welcome our witnesses and thank them for testifying today.
    After reading the inspector general's report, it is hard to 
comprehend how easily the SEC can just commit to spending $500 
million of the American people's money in just a few days. It 
is as though the SEC did not get the memo that Congress and the 
administration have both been talking about cutting the waste 
in our Federal buildings. But it seems the SEC thought it was 
business as usual, and operated with a Congress-is-throwing-
money-at-us mentality, in total disregard that it is not their 
money, but the American people's money.
    Our subcommittee has been working to cut waste in Federal 
buildings. Billions of taxpayer dollars are wasted in underused 
property, the overbuilding of Federal facilities, and in our 
over-reliance on costly leases to meet long-term space needs. 
Unfortunately, examples of waste abound in our management of 
Federal real property. But the SEC's massive half-a-billion-
dollar lease for space it did not need goes far beyond 
mismanagement. There must be accountability and consequences 
for this type of cavalier spending of taxpayer money.
    As outlined in the inspector general's report issued last 
month on July 28, 2010, the Securities and Exchange Commission 
signed a letter contract to lease space at Constitution Center 
in Washington, DC. The agreement was more than 900,000 square 
feet of space, with an option to lease an additional 500,000 
square feet.
    Let's put this in perspective. This is a total of 1.4 
million square feet of space for an agency that has just over 
3,000 personnel working in the national capital region. The 1.4 
million would be on top of the 1.3 million square feet the SEC 
leases for its headquarters at station--near Union Station. 
Just to give you an example, 3,000 employees, by GSA's 
standards, we would have enough room between these 2 facilities 
for 12,000 employees. That is by GSA standards.
    Constitution Center is the former location of the DOT 
headquarters, and was completely renovated and upgraded by the 
owner. And we will start the slides now.
    [Slide.]
    Mr. Denham. This first slide is the interior courtyard of 
the building. Next slide.
    [Slide.]
    Mr. Denham. Here is an image of one of the lobby areas 
overlooking the courtyard. Next slide.
    [Slide.]
    Mr. Denham. This slide is taken from one of the top floors 
facing northwest, towards the Capitol building. Next slide.
    [Slide.]
    Mr. Denham. Another view looking north.
    [Slide.]
    Mr. Denham. And finally, a view looking southwest towards 
the water and the airport.
    [Slide.]
    Mr. Denham. This last view is from the quadrant of the 
remaining 300,000 square feet of space SEC insisted the 
building owner reserve for them.
    The total cost of this lease is over $550 million over 10 
years. The findings of the inspector general are breathtaking. 
The SEC bound the taxpayer to more than a half-a-billion 
dollars based on the back-of-the-envelope calculations that 
were inflated, and just simply wrong.
    There was no formal written approval process. In fact, the 
final decision was made orally, after only a 10-minute meeting 
with the chairman of the SEC. There was no OMB approval and no 
ional approval. And, on top of that, SEC proceeded with a sole 
source contract negotiated over the course of just days.
    The justification for this, as required by law, was 
completed after the fact, and three of the four signatures were 
signed before the document was even completed. One of the 
signatures was back-dated. And then the date was later altered, 
giving the impression that justification for the sole source 
procurement was completed more than a month before it actually 
was.
    And there is a serious question as to whether the 
Antideficiency Act was violated. It appears someone at the SEC 
saw Constitution Center and decided that's where they wanted 
the SEC to move, and then everything else had to fit: the 
staffing figures, space needs, and justification.
    But today, in addition to the investigation, what led to 
this lease agreement, we are also examining whether the SEC 
should keep its independent leasing authority. And we know that 
this is not the first time SEC has mismanaged its leasing 
authority. Next slide.
    [Slide.]
    Mr. Denham. Here we have a slide showing a timeline of just 
some of the instances of mismanagement by the SEC, and the cost 
to the taxpayer. What this shows is a number of troubling 
trends.
    The SEC has a history of sole-source leases that even GSA, 
in its management of over 180 million square feet of leased 
space, rarely uses. SEC has a history of bad leasing decisions 
that cost the taxpayer millions: double rent payments in New 
York, unbudgeted cost in SEC's headquarters, and holdover fees 
in San Francisco.
    In addition to these, we know the SEC is now paying nearly 
$20 more per square foot for its more recent Station Place 
headquarters lease than comparable Federal leases near it. And 
SEC has paid $200,000 a year of taxpayer dollars for off-duty 
officers to provide security at a Virginia facility already 
secured by the Federal agency in the building, the Commerce 
Department.
    It is bad decision after bad decision, and it is the 
taxpayer that loses. The SEC must realize that it is real money 
they have spent, and that it is accountable to the American 
people who expect all of us to be good stewards of Federal 
resources.
    At some point the waste has to end. There are very serious 
issues raised in the IG report. And the more our subcommittee 
investigates, more questions are raised.
    I would like to state for the record that we formally 
requested the presence of certain current and former employees 
of the SEC, including associate executive director Sharon 
Sheehan, and former executive director Diego Ruiz. And they 
either refused to testify, or failed to respond to our request.
    I will be listening closely to the responses of the 
witnesses today. And based on the responses we get, I will be 
talking further with Ranking Member Norton, the IG, and the 
GAO, to determine the appropriate next steps in our 
investigation.
    I would now like to recognize Ranking Member Norton from 
the District of Columbia for 5 minutes to make any opening 
statements she may have.
    Ms. Norton. Thank you. Thank you very much, Mr. Chairman. 
And thank you for calling today's hearing. I certainly want to 
welcome today's witnesses to the hearing on the inspector 
general's May 16, 2011, report on the SEC leasing deal for the 
Constitution Center building located here in southeast 
Washington.
    The shocking findings by the IG on a leasing agreement for 
more than half-a-billion dollars painted an outrageous picture 
of an agency that was incompetent to engage in real estate 
transactions, and consequently developed a culture that allowed 
bureaucrats to make major unsupported financial commitments on 
behalf of the agency using outright deceit, and possibly fraud.
    The IG findings are so serious that they point towards 
possible criminal violations by Federal employees in the course 
of official activities, leading to the execution of the leasing 
agreement. According to the IG, several SEC employees worked in 
concert to repeatedly subvert the direction provided by the SEC 
chairwoman on the placement of new employees, made false 
representations, and doctored documents to justify a sole-
source leasing agreement.
    SEC employees relied on the self-delusion that Congress 
would appropriate all the authorized funds under Dodd-Frank, 
the new regulatory reform legislation, although the notion that 
SEC would obtain an appropriation for a full authorization for 
new employees was historically inconsistent with SEC's budget, 
and flies in the face of the simple fact and widespread 
knowledge that authorization of funding never has ensured full 
appropriation of those funds.
    More importantly, the notion that all the new employees 
would be housed at the SEC headquarters was found to be 
completely unsupported, and at odds with the express direction 
by the SEC chair to the staff that most of the growth should be 
concentrated in regional offices.
    The abuse did not end there. Contrary to the General 
Services Administration standard of 230 square feet per person 
in an office, the SEC Office of Administrative Services, or 
OAS, provided an estimated need for 400 square feet per person, 
nearly double the GSA standard. This overly generous standard 
was later inflated by a factor of 49 percent for auxiliary 
staff, even though the 400 square feet per person actually was 
meant to accommodate the auxiliary staff.
    The IG concluded that this inflation by the SEC OAS 
``employed a series of unfounded egregiously flawed and 
irresponsible projections to derive the purported need to lease 
900,000 square feet.''
    Even if the SEC had received all the authorized funds 
provided by Dodd-Frank, the SEC would have needed, at most, an 
additional 300,000 square feet, only a third of the 900,000 the 
Agency eventually leased. Why, then, did the SEC lease 900,000 
square feet? The answer provided by the IG is that a few SEC 
OAS officials had what he called grandiose plans to lease the 
upscale Constitution Center. Having set the target square 
footage, they worked backwards, using a ``deeply flawed and 
unsound analysis'' to justify the lease, according to the IG.
    To compound the damage, the $556 million lease agreement 
was conducted as the Government never does, as a sole-source 
contract that was completed in over 3 days, just over 3 days. 
Only after the contract was signed was a justification and 
approval for other than full and open competition prepared. 
And, according to the IG, it was inadequate, not properly 
reviewed, and back-dated, and prepared well past the deadline--
regulatory deadline for such contracts.
    The IG also has raised the serious question that this 
leasing agreement may have violated the Antideficiency Act, 
which prohibits officers or employees of the Government from 
committing the Government to a payment of money before an 
appropriation is made, authorized by law.
    Astonishingly, this transaction represents a pattern, since 
the SEC was granted leasing authority in 1990. The Agency has 
made repeated missteps from the build-to-suit lease for the SEC 
headquarters behind Union Station that led to $48 million in 
construction overages, and the mishandling of lease 
transactions in San Francisco and New York, forming a leasing 
division only 19 years after receiving leasing authority.
    The SEC was granted its own leasing authority, with the 
expectation that the authority would be ``exercised vigorously 
by the Commission to achieve cost savings and to increase the 
Commission's productivity and efficiency.'' Sadly, the opposite 
has been the case, and calls into serious question the grant of 
leasing authority to the SEC or to any Federal agency.
    This subcommittee has an obligation to taxpayers to 
understand the steps that led to the Constitution Center lease, 
to take corrective measures to ensure the SEC can no longer 
engage in leasing activities, and to ensure that appropriate 
action regarding the employees involved is taken.
    Notably, several employees implicated in this leasing 
transaction have refused the invitation of this subcommittee to 
testify. And at least one of the principal players named in the 
IG report still has oversight of the SEC leasing program.
    The SEC leadership is on notice that if there is 
retaliation against the employees that provided testimony to 
the SEC IG, we will respond immediately. I appreciate the 
testimony that has been prepared. I look forward to hearing 
from today's witnesses.
    Mr. Chairman, I have served on this subcommittee for 20 
years. I have seen mishaps by agencies of various kinds, some 
of them deliberate. I doubt that I or any other Member of 
Congress has ever seen an abuse approaching this, that was as 
determinedly done by the employees involved. I have, therefore, 
drafted a bill to revoke SEC's leasing authority. I recognize 
that the BRAC bill which you and I are working on now will, in 
fact, revoke the authority of agencies outside of the GSA to 
engage in such leasing, agencies that may have expertise in the 
mission assigned to them by Congress, but certainly not in a 
very complicated different area of enterprise, and that is real 
estate areas.
    I believe that taxpayers would not be content if we said, 
``Don't worry, we will get to this when the BRAC bill is 
done.'' That takes two Houses, it takes going to the floor. I 
believe an immediate response by this committee is necessary, 
particularly since it has always been doubtful that agencies 
outside the GSA should have such authority.
    So, I will be asking you, Mr. Chairman, to look at the bill 
I have drafted, and hope that you will cosponsor that bill with 
me. And perhaps we can get that bill to the floor before this 
calendar year is over.
    Mr. Denham. Thank you. I look forward to that. This abuse 
is not going to be tolerated, and we will look forward to 
seeing that, and working with you on the issue.
    Today we are going to ask the witnesses to provide 
testimony under oath. I would ask each of the witnesses to 
please stand and raise their right hand to be sworn in under 
oath.
    Do you swear that the testimony you are about to provide to 
the subcommittee is the truth, the whole truth, and nothing but 
the truth, so help you, God?
    Witnesses. I do.
    Mr. Denham. You may be seated. Our first and only panel 
will be the Honorable David Kotz, inspector general, U.S. 
Securities and Exchange Commission; Mr. Jeff Heslop, chief 
operating officer and executive director, U.S. Securities and 
Exchange Commission--and Mr. Heslop is accompanied by Mr. Mark 
Cahn, SEC general counsel; and Ms. Elaine Clancy, director of 
leasing, national capital region, U.S. General Services 
Administration.
    I ask unanimous consent that our witnesses' full statements 
be included in the record.
    [No response.]
    Mr. Denham. Without objection, so ordered. Since your 
testimony has been made part of the record, the subcommittee 
would request that you limit your oral testimony to 5 minutes.
    Mr. Kotz, you may proceed.

 TESTIMONY OF THE HONORABLE H. DAVID KOTZ, INSPECTOR GENERAL, 
U.S. SECURITIES AND EXCHANGE COMMISSION; JEFFERY HESLOP, CHIEF 
     OPERATING OFFICER AND ACTING EXECUTIVE DIRECTOR, U.S. 
   SECURITIES AND EXCHANGE COMMISSION; MARK D. CAHN, GENERAL 
 COUNSEL, U.S. SECURITIES AND EXCHANGE COMMISSION; AND ELAINE 
  CLANCY, DIRECTOR OF LEASING, NATIONAL CAPITAL REGION, U.S. 
                GENERAL SERVICES ADMINISTRATION

    Mr. Kotz. Thank you. Thank you for the opportunity to 
testify before this subcommittee. I appreciate the interest of 
the chairman, the ranking member, and the other members of the 
subcommittee in the SEC and the Office of Inspector General.
    On November 16, 2010, we opened an investigation as a 
result of receiving numerous written complaints concerning the 
SEC's decisions and actions related to the leasing of office 
space at Constitution Center.
    As part of our investigative efforts, we obtained and 
searched over 1.5 million emails, for a total of 27 current and 
former SEC employees for various time periods pertinent to the 
investigation. We carefully reviewed and analyzed thousands of 
pages of documents, and interviewed or took the testimony of 29 
witnesses with knowledge of facts or circumstances surrounding 
the SEC's activities.
    On May 16, 2011, we issued a comprehensive report of our 
investigation containing over 90 pages of analysis, and over 
150 exhibits. Our investigation concluded that the 
circumstances surrounding the SEC's entering into a lease for 
900,000 square feet of space at the Constitution Center 
facility in July 2010 represented another in a long history of 
missteps and misguided leasing decisions made by the SEC since 
it was granted independent leasing authority by Congress in 
1990.
    We found that, based on estimates of increased funding, 
primarily to meet the requirements of Dodd-Frank, between June 
and July of 2010 the SEC's Office of Administrative Services, 
OAS, conducted a deeply flawed and unsound analysis to justify 
the need for the SEC to lease 900,000 square feet of space at 
the Constitution Center facility. We found that OAS grossly 
over-estimated the amount of space needed for the SEC's 
projected expansion by more than 300 percent, and used these 
groundless and unsupportable figures to justify the SEC 
committing to an expenditure of over $556 million over 10 
years.
    We found that OAS used the standard of 400 square feet per 
person to calculate how much space would be needed for the 
additional positions it believed it was gaining. The 400-
square-foot standard was described by one of the people working 
on the lease as a back-of-the-envelope calculation.
    The standard was an all-inclusive number that included 
common space and amenities, an additional 10 percent for 
contractors, 10 percent for interns and temporary staff, and 5 
percent for future growth. Notwithstanding this all-inclusive 
number, when OAS later did its calculations to justify the 
Constitution Center lease, it added even more unnecessary space 
by double-counting for contractors, interns, and temporary 
staff. We also found that each one of these estimates was 
wildly inflated, and unsupported by the data OAS was using.
    After the SEC committed itself to the 10-year lease term at 
a cost of over $556 million, it entered into a justification 
and approval for other than full and open competition, which is 
required by the Federal Acquisition Regulation, FAR, when an 
agency decides not to allow for full and open competition on a 
procurement or lease. The FAR permits other than full and open 
competition when the agency's need is of such an unusual and 
compelling urgency that the Government would be seriously 
injured unless the agency is permitted to limit the number of 
sources from which it solicits bids.
    The IG investigation found that the justification and 
approval to lease space at Constitution Center without 
competition was inadequate, not properly reviewed, and back-
dated. The OAS analyst who signed the justification and 
approval as the SEC's competition advocate acknowledged in 
testimony that the SEC would not, in fact, be seriously injured 
if it lost the opportunity to rent this space. She admitted 
that she took no substantive steps to verify that the 
information in the justification and approval was accurate, and 
that when she signed the document she was not aware that the 
funding had not been appropriated, and she did not have an 
understanding of when the projected personnel were expected to 
be hired.
    The FAR also requires that the justification and approval 
be publicly posted within 30 days after contract award. As the 
letter contract for Constitution Center was signed on July 
28th, the deadline for publication of the justification of 
approval was August 27. On September 3rd, the SEC publicly 
posted the justification and approval, which was signed by 4 
individuals as dated August 2nd.
    Our investigation found, however, that the justification 
and approval was not finalized until September 2nd, and that 
substantial revisions were being made up to that date. We found 
that three of the four signatories executed the signature page 
on August 2nd, before a draft even remotely close to the final 
version existed. We found that the SEC's competition advocate 
executed the signature page on August 31st, initially back-
dated her signature to August 27th, and then subsequently 
whited out the ``7'' to make it appear that she signed the 
document on August 2nd.
    The actions of the signatory to the justification and 
approval gave the public the false impression that the document 
was finalized a few days after the letter contract was signed, 
and that there was only a minor delay in its publication.
    Based on these findings, we issued a report recommending 
that a thorough and comprehensive review and assessment of all 
matters currently under OAS's purview be conducted, and that 
the SEC determine the appropriate disciplinary and/or 
performance-based actions to be taken for the matters discussed 
in the investigation.
    Thank you, and I am happy to answer any questions.
    Mr. Denham. Thank you, Mr. Kotz.
    Mr. Heslop, you may proceed.
    Mr. Heslop. My name is Jeff Heslop, chief operating officer 
and acting executive director of the U.S. Securities and 
Exchange Commission. I appreciate the opportunity to testify on 
behalf of the Commission with respect to the Agency's lease of 
office space at Constitution Center, and to share with you 
information on the actions the SEC is taking in response to the 
IG report.
    The IG report on the leasing of Constitution Center 
revealed a number of flaws in the SEC's leasing process. 
Although the SEC has not paid any rent, and is no longer 
obligated for the majority of the space, it is clear that this 
leasing decision lacked the rigor and attention to detail 
demanded for decisions of this magnitude. As such, we are 
committed to implementing whatever changes are needed to 
improve the process, starting with the retention of outside 
experts to conduct an assessment, a comprehensive assessment, 
of our entire leasing organization.
    On July 28th of 2010, the SEC entered into an agreement to 
lease approximately 900,000 rentable square feet of office 
space at Constitution Center to house new staff necessitated by 
the Dodd-Frank Act and to address the facilities needs created 
by expiring leases in Alexandria, Virginia, at our back office 
operations center. The SEC's agreement contained a 10-year 
term, and envisioned space being delivered to the SEC in 
phases.
    In the fall of 2010, when it became apparent that the SEC 
would be limited by the continuing resolution and would not be 
receiving further funding for fiscal year 2011 to hire 
additional staff for the new responsibilities it received under 
regulatory reform, and in light of significant uncertainty 
regarding the Agency's budget for fiscal year 2012, the 
Agency's leasing branch worked with the Constitution Center 
landlord to identify two non-appropriated financial regulatory 
agencies--the Office of the Comptroller of Currency and the 
Federal Housing Finance Agency--that were able to take the 
majority of the space allocated to the SEC, a total of 
approximately 558,000 square feet. The SEC's releases that 
enabled the landlord to lease space to other Federal tenants 
were conditioned upon the SEC being released from all 
obligations for the space.
    With respect to the remaining space, the SEC earlier this 
year determined that the uncertainty of the Agency's budget for 
fiscal year 2012 and beyond counsels against retaining it. To 
this end, SEC staff is currently working with the General 
Services Administration to identify other Federal Government 
agencies to fill the remaining space.
    The inspector general has identified a number of flaws with 
the leasing process. My charge from the commissioner--from the 
chairman is to address the issues identified in the IG report, 
and improve that process.
    The SEC is actively at work, implementing the inspector 
general's recommendations, and taking steps to strengthen our 
real property leasing program. For example, the authority 
previously exercised by the executive director has been 
transferred to me, as the chief operating officer. All future 
property leasing decisions must be approved by me, as the COO, 
before any leases are signed.
    Second, as I mentioned, we're conducting a comprehensive, 
independent assessment of our leasing operations with outside 
experts.
    Third, all future leasing obligations will require 
consultation with an executive senior-level facilities 
management committee before they can be incurred or recommended 
for approval. This cross-organizational committee will provide 
oversight and guidance to the SEC leasing process, and will 
serve as a forum for the executive-level discussion of the 
Agency's leasing decisions.
    Fourth, we're in the process of developing a more clearly 
defined leasing policy and associated process.
    And, fifth, we have initiated efforts to acquire technology 
that will permit us to automate, and will provide more 
efficient space planning, move management, and asset 
management. Such systems, available on an off-the-shelf basis, 
and commonly used in private industry as a best practice, 
should provide managers with significantly more timely and 
accurate analysis and planning to deliver these efficient space 
utilization at our office locations.
    In addition, the IG report recommends that the Agency 
consider whether disciplinary action should be taken against 
current staff members. The SEC has begun this review, in 
accordance with Federal personnel law. At present, the Office 
of Human Resources and the Office of General Counsel are 
analyzing the investigative record, and will recommend 
appropriate disciplinary action to me. I would then decide any 
appropriate disciplinary action that should be taken.
    In conclusion, the SEC is actively at work on a number of 
fronts to strengthen the Agency's real property leasing 
program. Although the SEC has paid no rent on the space, and 
has worked with the landlord to identify substitute tenants, 
the OIG report identified flaws in the leasing process in need 
of correction. We are endeavoring to take all necessary and 
appropriate steps, including implementing new controls and 
procedures to ensure that we address the significant issues 
identified in the IG's report.
    I would be happy to answer any questions at this time.
    Mr. Denham. Thank you, Mr. Heslop.
    Ms. Clancy, you may proceed.
    Ms. Clancy. Good morning, Chairman Denham, Ranking Member 
Norton, and members of the committee. I appreciate the 
opportunity to be here today, and be invited to discuss the 
GSA's approach to acquiring lease space for Federal agencies.
    The GSA searches for effective ways to provide space for 
Federal agencies, to help them achieve their missions while 
protecting the public's interest. In order to accomplish these 
goals, the GSA implements a deliberate and comprehensive 
process that ensures adequate competition, and considers other 
public interest. We manage an inventory of over 370 million 
square feet of space, approximately half of which is leased 
space.
    The GSA effectively manages our leased space, which 
currently has a vacancy rate of less than 1 percent. Leases 
under the current prospectus threshold represent approximately 
98 percent of all of our leases. Prospectus-level leases 
represent 2 percent of our leases transacted, and 33 percent of 
the annual GSA rent pays--that the GSA pays to lessors.
    The requirements development evaluation process of these 
leases is more extensive, due to the size and the cost. These 
large leases require review and clearance by GSA's central 
office and OMB prior to submission to Congress. OMB ensures 
that proposed leases comply with lease scoring rules, and 
ensures that the proposed action is consistent with personnel 
and resource estimated in the President's budget.
    Once the GSA has worked with an agency to carefully define 
their requirements, and assess that their needs are based on 
accurate projections and available funds, GSA's lease 
acquisitions process runs through a carefully sequenced set of 
steps to ensure adequate competition and a fair rental rate for 
taxpayers.
    One of GSA's fundamental strategies is to promote 
competition by attempting to maximize the number of potential 
qualified offerors for a lease solicitation. By improving 
communication with the commercial real estate sector, GSA's 
presence in the market is strengthened, and a sense of 
partnership with leasing industry practitioners emerges, 
resulting in increased competition for GSA leases.
    GSA follows a sequenced and efficient leasing acquisition 
process, which includes market advertising, surveying 
assessments, evaluation, negotiations, and contract execution, 
which are outlined in detail in my written statement. GSA 
constantly looks for ways to streamline, standardize, and 
simplify our leasing process, to minimize the cost associated 
with acquiring a lease.
    We also constantly assess our performance against other 
rental rates in the market. GSA is committed to adapting its 
internal processes to mirror leasing in the private sector, and 
to fully utilize the market leverage that results from the 
Federal Government being a reliable and desirable tenant.
    In regards to the SEC--the lease procured by the SEC at 
Constitution Center in Washington, DC, the SEC has recently 
reached out to the GSA to request our assistance in filling the 
remaining vacant space. The GSA is gathering additional details 
pertaining to this contract, and the conditions under which the 
SEC procured the lease. To the extent that we can reasonably 
assist in protecting the public's interest and meeting the 
space needs of other agencies, we will consider doing so.
    In conclusion, the GSA's approach to leasing Federal space 
allows agencies to achieve their mission effectively, and 
protect the public's interest in ensuring that space is 
acquired at a fair rate, while being flexible to ensure that 
the highest levels of controls are placed on the largest 
potential leasing actions.
    In addition, we aim to constantly improve our processes, to 
attract further competition from the private sector, and to 
minimize cost to the taxpayers.
    Thank you for inviting me to appear before you today, and I 
appreciate the opportunity to discuss the GSA's leasing 
practices and expertise. I welcome your questions.
    Mr. Denham. Thank you, Ms. Clancy. We will now start our 
first round of questioning. We expect that there will be 
several rounds today, because I don't think there is any 
shortage of questions that need to be answered here.
    First, Mr. Heslop, can you state for the record your 
position and responsibilities at the SEC?
    Mr. Heslop. I am the chief operating officer and acting 
executive director of the SEC. My responsibilities include 
oversight of our IT operation, our human resources operation, 
the Office of Administrative Services, FOIA, and records 
management, and Office of Financial Management.
    Mr. Denham. Leasing authority under one of those?
    Mr. Heslop. Yes, the Office of Administrative Services.
    Mr. Denham. And does the SEC intend to issue a formal 
response to the IG report issued in May?
    Mr. Heslop. We are taking appropriate action against the 
IG's report that was issued. We are, as I stated, having a 
comprehensive independent outside assessment done of the OAS 
organization, and looking at every recommendation in the IG's 
report, and taking appropriate action against them.
    Mr. Denham. So are you going to be issuing a formal 
response to the IG report?
    Mr. Heslop. At this time there is no intent to issue a 
formal response.
    Mr. Denham. Why? Why wouldn't you respond to them formally?
    Mr. Heslop. There is no requirement to respond to them 
formally.
    Mr. Cahn. If I could, Chairman Denham, if I could?
    Mr. Denham. Sure, Mr. Cahn.
    Mr. Cahn. Mark Cahn, I am the general counsel at the SEC. 
Typically, when the inspector general issues investigative 
reports such as this, the agency reviews the report and 
responds, as Mr. Heslop describes, to take responsive action--
--
    Mr. Denham. Will you pull your microphone closer, please?
    Mr. Cahn. Oh, I'm sorry--to take responsive action in 
response to the report. It is not the practice of the Agency, 
in response to investigative reports such as these, to issue 
any sort of formal response. That is as distinguished from 
audits that the inspector general prepares, in which the 
practice is to have a management response to the audit. But I 
suppose the inspector general could speak more directly to 
that.
    Mr. Denham. What is customary, Mr. Kotz?
    Mr. Kotz. Yes, I mean we don't generally have a formal 
response to our investigative reports. What we do expect is 
that the recommendations in our report be implemented, that a 
process be put in place, and that our disciplinary action 
recommendations be implemented, as well.
    So, I mean, I am not sure we need a formal response. What 
we need them to do is fix the problems in the Office of 
Administrative Services, and discipline the people who we found 
to have violated the rules.
    Mr. Denham. I will look at it from a business perspective. 
When a Government agency comes down on a business, they are not 
only expected to have the recommendations implemented, but to 
have a quick, rapid response on the timeline on when you are 
going to get these things done.
    So, I would expect to see some type of response, you know. 
I want to know. Is it going to take you a year to fix this? Ten 
years? I want to know what the response is to the American 
taxpayers. So I am looking for how long--what you are going to 
do to correct the action, how long it is going to take. And I 
would think a simple response to the IG's report would at least 
be a good starting point.
    Mr. Heslop, one of the critical steps in space planning and 
determining how much new space is needed is developing a 
program of requirements. Was there a program of requirements 
developed prior to July 28, 2010?
    Mr. Heslop. To my knowledge, I don't know. I have recently 
inherited this function. Again, my role is to try to fix the 
process, a very flawed process that led us to this situation. 
We are in the process of doing it, taking a number of steps 
that I outlined in my testimony. So I can't address the 
question about the history.
    Mr. Denham. And how long has it been since you have assumed 
these new--this new role?
    Mr. Heslop. Approximately 7 weeks.
    Mr. Denham. Mr. Cahn, same question.
    Mr. Cahn. I am not--I don't know whether a program of 
requirements was prepared. The inspector general reviewed the 
documentation in connection with this particular leasing 
activity. So he may be aware of whether that sort of 
documentation was prepared. I just don't know.
    Mr. Denham. You guys were both aware you were going to 
testify in front of Congress today, correct?
    Mr. Cahn. Yes, sir.
    Mr. Denham. This seems like a pretty basic question. I mean 
this is standard procedure, is it not?
    Mr. Cahn. I assume it is. I just don't--I was not involved 
in the transaction. I assumed the position of general counsel 
in March of this year. That is not to say that the general 
counsel position would have been involved in that level of 
detail of documentation of a leasing decision; I just don't 
know what documentation was prepared by the Office of 
Administrative Services, but we will be happy to look into that 
inquiry and get back to you.
    Mr. Denham. Chief operating officer, is this not part of 
standard operating procedure?
    Mr. Heslop. Again, I am new to the position, I am reviewing 
the current process, and trying to improve and fix that 
process, going forward. So I can't speak to past operating 
practices, other than to tell you, as you have seen, they were 
deeply flawed, and we are doing our best to turn them around.
    Mr. Denham. Ms. Clancy, the GSA's--when GSA goes out and 
does a lease--program of requirements?
    Ms. Clancy. Yes. For a lease of this size, we would work 
with an agency initially to develop that program of 
requirements, specifically looking at their existing space use, 
the use of their existing space, how we might house that agency 
efficiently, given the current Presidential directives, and 
then directives from OMB to reduce their space requirements, 
overall.
    And as we were developing that requirement, we would then--
we have a number of checks and balances that we use, because we 
work with those agencies at the NCR level. Then it goes, again, 
as I said before, to our central office, and then to OMB. Once 
it reaches OMB, it is not just the GSA's examiners who are 
looking at the space requirements, but it is also the agency's 
examiners who would be looking at those requirements in 
conjunction with ours, to confirm that those requirements are, 
in fact, what the agency actually needs.
    Mr. Denham. Standard operating procedure. GSA goes out for 
a very large-size lease, you put together a program of 
requirements. You know what you are going out there to lease, 
for how many employees, how big of a space you need, what 
location you need. I mean there has got to be a program of 
requirements that you are looking at before you go out and 
secure space, do you not?
    Ms. Clancy. That is correct. And it is a fairly extensive 
process that we use.
    Mr. Denham. Mr. Kotz, just a quick follow-up. Standard 
operating procedure between different agencies, program of 
requirements?
    Mr. Kotz. Yes, I do believe it is a standard operating 
procedure, and I don't believe it was done in this case.
    Mr. Denham. Thank you. And more of a statement than a 
question, because I am out of time and will come back to this. 
But you have been the chief operating officer prior to assuming 
the new duties, have you not?
    Mr. Heslop. That is correct, for about half of the duties I 
outlined when you asked me the original question. I did not 
have oversight of the Office of Administrative Services, which 
is where this leasing branch resides.
    Mr. Denham. But as chief operating officer--I am a new guy 
here, but I can understanding a program of requirements in--
both from a business perspective, as well as from GSA and the 
IG. You've been COO--I mean that seems pretty basic, that you 
would at least know that a program of requirements is something 
that every agency, every business, would be going out to get 
some specific requirements on.
    Ranking Member Norton?
    Ms. Norton. Thank you, Mr. Chairman. The chairman asked 
about your response to the IG report. I can understand that it 
is an interesting response, very much along protocol lines, 
even though the actions of the Agency have tended to ignore 
rules, as well as protocol.
    So, let me take his question even further. Have you taken--
Mr. Heslop and Mr. Cahn, have you taken any action of the kind 
recommended by the IG, such as disciplining employees, such as 
issuing--getting--asking for a formal opinion from the GAO 
about whether there has been a violation of the Antideficiency 
Act?
    Mr. Cahn. I can start, Congresswoman Norton. As to the last 
matter, the--with regard to the Antideficiency Act, yes, we 
have. We have recently sent over a formal request for an 
opinion from the comptroller general on the question of whether 
the manner in which we obligate funds in connection with our 
multiyear leases is consistent with the Antideficiency Act. So 
that letter has gone over.
    And I know that Mr. Heslop can speak to the other 
recommendations in the inspector general's report.
    Ms. Norton. Thank you, Mr. Cahn. That is minimally 
necessary, to know whether there has been--of course, Mr.--the 
IG indicated that there may have been, he is not an expert on 
that. You need to know that. The appropriators will need to 
know that very, very much, especially in light of your new 
responsibilities.
    And I must say it grieves me that this Agency has had to 
deal with a real estate problem outside of its mission, and now 
faces an aura of abuse, right at the time when we are expecting 
the Agency to zero in on what it is Dodd-Frank asked you to do. 
Talking about a distraction, they are distractions. And they 
are distractions that an agency cannot afford.
    What about the other recommendations, Mr. Heslop?
    Mr. Heslop. With regard to disciplinary action, we are 
aggressively managing it. Federal personnel law affords the 
named individuals due process, and we are letting that process 
play itself out.
    Ms. Norton. So what processes have been instituted, as to 
these employees?
    Mr. Heslop. Again, our general counsel and our Office of 
Human Resources are reviewing the investigative record. Upon 
completion of that review, they will provide me with 
recommendations for disciplinary action. I am the deciding 
official. I will take--I will make those decisions at that 
time----
    Ms. Norton. So, Mr. Cahn, you have not--the Agency has 
taken no action against the employees who were involved in this 
matter.
    Mr. Cahn. The Agency has commenced the review, the 
disciplinary process review, which----
    Ms. Norton. When will that review be over?
    Mr. Cahn. I can't predict precisely when that will be over. 
I imagine it can be completed quickly. The process that is 
required under the Federal personnel laws requires some degree 
of time lapse----
    Ms. Norton. Mr. Cahn, you are going to have your head 
handed to you by the appropriators, given the great amount of 
process that is involved here, when there was very little 
process----
    Mr. Cahn. We recognize----
    Ms. Norton [continuing]. Very little process involved, with 
respect to these transactions.
    I am the first to want due process. But the notion that no 
process has even begun, even though the IG had to take--has 
issued a report, is very troubling.
    Let me ask you about an employee that--whose name runs 
repeatedly through the IG report. The name is Sharon Sheehan. 
She is named as one of the principal players in signing the 
Constitution Center deal. Is Sharon Sheehan still on staff?
    Mr. Heslop. Yes, Sharon Sheehan is still on staff.
    Ms. Norton. Does her--do her responsibilities--does she 
have responsibilities in the SEC's OAS office?
    Mr. Heslop. Yes, she does. She is the director of the OAS 
office.
    Ms. Norton. Why is she still the director of the office?
    Mr. Heslop. Again, we are following Federal personnel law, 
and letting that process play out. Once that process has played 
out----
    Ms. Norton. Say that again.
    Mr. Heslop. We are following Federal personnel law, and 
letting that process play out.
    Ms. Norton. Is she still doing oversight of the leasing 
program?
    Mr. Heslop. She is in that capacity. I have retained all--
--
    Ms. Norton. Mr. Cahn----
    Mr. Heslop [continuing]. Oversight of the leasing program.
    Ms. Norton [continuing]. Don't you think, as an attorney, 
officer of the court, that you should advise Mr. Heslop that he 
has, under Federal law and regulations, no obligation to retain 
a person in the position where abuses have been charged by the 
IG? You now are taking it on the Agency, when you maintain her 
in that position.
    What--we are moving people out of positions all the time. I 
insist upon it, as a matter of due process, that they not be 
deprived, ultimately, of what they are entitled to. At the same 
time, the Government requires the Agency to take action to make 
certain that someone charged with abuse is not sitting there, 
doing exactly what she was doing when the charges were laid. So 
you will have to explain to me, as counsel, how this individual 
cited repeatedly in the IG report is left doing precisely what 
she was doing before.
    And I understand the chairman just said that we asked her 
that she be made available to come here, and the Agency refused 
to make her available. So you then have to respond for her, 
sir, because you, the Agency, have the ability to move this 
person or not. Why have you chosen not to do so?
    Mr. Cahn. Congresswoman Norton, my understanding is that 
this particular employee is under heightened supervision right 
now, under the direction of Mr. Heslop.
    Ms. Norton. Why have you chosen not to remove her? 
Obviously, she has to be under some kind of supervision. But 
she is a supervisory employee, herself. Why are you spending 
the time and energy of Agency officials supervising a 
supervisor? Why do you not remove her? What is the reason for 
not removing her from the position of supervising leasing 
activities at the SEC? I need an answer to that question.
    Mr. Heslop. Yes, ma'am. As mentioned in the IG report, the 
recommendation was to conduct a comprehensive assessment of the 
report, and post that review, look at disciplinary action. It 
is very clearly stated.
    Ms. Norton. All right. Let me--I want to make sure I am not 
violating law and regulations here. Let me ask the IG.
    Is there anything that, in your judgement, requires the 
Agency to keep this employee doing what she was doing at the 
time your report was issued? Must they do that? Must they do a 
review before they even move her to another position, paying 
her in the same salary? Are they required to leave her at the 
helm, doing exactly what you criticized her for doing?
    Mr. Kotz. Yes, I don't believe they are. Before they go 
forward with a disciplinary process, you can move an employee 
into another office, as long as they are getting the same 
salary, has the same equivalence. That person could be moved to 
another office, so they are not involved in those duties. There 
are also other methods that could be used under personnel law, 
to my understanding.
    The disciplinary process, if one were to terminate Ms. 
Sheehan, which we are recommending in our report, that action 
be taken up to and including dismissal, that would take more 
time, and there would have to be a proposal and a decision made 
on that.
    Ms. Norton. Mr. Chairman, I know my time is up.
    You have heard the opinion of the IG. Are you willing to 
consider removing this employee from presiding over or being 
involved in leasing activities at the SEC? Yes or no?
    Mr. Heslop. Yes, ma'am. As I mentioned, I am the deciding 
official on the disciplinary action, and that is one of----
    Ms. Norton. Before disciplinary action is taken, Mr. 
Heslop, are you willing to remove her tomorrow to another 
position so she is not sitting there, in oversight of leasing 
activities still going on at the SEC? Yes or no?
    Mr. Heslop. I will take it under consideration.
    Ms. Norton. Thank you, Mr. Chairman.
    Mr. Denham. Amazing. We ought to take some other things 
under consideration.
    Mr. Heslop, your testimony suggests that the reason the 
space at Constitution Center was not needed is because Congress 
did not provide full funding for the new staff that SEC had 
anticipated. Putting aside the appropriateness of entering into 
a lease before funding is secured, the IG report suggests--and 
I would agree--that the SEC's anticipated staffing levels still 
would not have justified 900,000 square feet of space, and 
certainly not a sole-source procurement.
    Are you suggesting that the amount of the space procured by 
the SEC was an appropriate amount of space?
    Mr. Heslop. No, sir, I am not suggesting that at all.
    Mr. Denham. What do you believe an appropriate amount of 
space is?
    Mr. Heslop. An appropriate amount of space will be 
determined once we get the resources for the requirements that 
Congress has given us to execute our new responsibilities, 
based upon consideration of regional strategy.
    By the way, I should mention that we are undergoing a 
review of our regional strategy, which may influence our 
regional footprint, and how many people we put in those 
regions, as well as a determination in the local capital region 
of how many employees of the different mixes will require--will 
need to be housed.
    We intend to land on an industry best practice, Government 
best practice square-footage estimate, and use that in our 
calculations. We intend to cooperate closely with GSA to obtain 
their wise counsel and subject matter expertise. It is 
something we haven't done in the past, it is part of our plan.
    Mr. Denham. Your plan. So your plan is to develop a program 
of requirements?
    Mr. Heslop. Our plan--I would expect very surely to develop 
a program of requirements.
    Mr. Denham. So we should have had a program of requirements 
prior to this.
    Mr. Heslop. It is quite apparent that we should have, yes. 
The previous process was very flawed. And our role is to fix 
that process going forward, so this does not happen again. That 
is my role.
    Mr. Denham. Mr. Kotz, the inflation of the numbers, as 
detailed in your report--breathtaking. The increase in numbers 
for contractors, interns, temporary workers, coupled with the 
400-square-foot per person standard used is disturbing, at 
best.
    What do you believe the needed space--shot out from under 
300,000 square feet, what it originally was, all the way up to 
900,000 square feet in just the course of 1 month--was it some 
big change in Government that we, you know, go through, some 
new operation nationally that would suggest that all of a 
sudden we were going to get a huge number of employees, and we 
absolutely had to have this space?
    Mr. Kotz. No, I think it was that they looked into 
Constitution Center and saw how beautiful it was, and what a 
nice space it was, and so that's what happened in that interim 
period. And they decided only to focus on Constitution Center, 
as opposed to all other options. And the Constitution Center 
was a larger place, and that needed 900,000 square feet.
    Mr. Denham. So, in your report, do you see any 
justification to go to a 900,000-square-foot building?
    Mr. Kotz. No, no. The numbers were wildly inflated. There 
was no basis for it. Even if you assumed, as you indicated, 
that the SEC was going to get all the money, there still 
wouldn't have been need for 900,000 square feet, no less an 
additional 500,000 square feet, as you indicated, which would 
be 1.4 million. It was completely fabricated. And we believe it 
was simply to be able to acquire beautiful space with fancy 
views, like you indicated on that slide show.
    Mr. Denham. How about the current 1.3 million space that 
they currently occupy? Is that 100 percent utilized?
    Mr. Kotz. No. And, in fact, during that time there were 
open offices there. There continue to be some open offices. I 
think it is mostly utilized, but there still are open offices 
in Station Place.
    Mr. Denham. So we've got 1.3 million in current space with 
availability. Went out to get 300,000 square feet, which 
inflated to 900,000 square feet, with an option of 500,000 
square feet. Can you give me the timeline of that course of 
decisionmaking?
    Mr. Kotz. Sure. This is all within the period from June 
2010 through July 2010. There was the briefing in June 2010, 
where there was discussion about 280,000 to 315,000 square 
feet. By July 2010 it turned into 900,000 square feet with the 
option for the additional 500. So it was 1 month.
    Mr. Denham. Is that normal?
    Mr. Kotz. No, no. I mean it----
    Mr. Denham. This is half-a-billion dollars. I mean I would 
think you would need congressional approval to spend a half-a-
billion dollars, or certainly you would go through other 
agencies.
    Probably this would rise to the level of the President, to 
say, you know, ``I realize you are going to cut a lot of 
different programs this year that are very important to the 
people of this Nation. We are thinking about going out and 
getting enough square footage, and spending a half-a-billion 
dollars. Mr. President, what do you think about that?''
    I mean the process of going out and getting this type of 
leased space, the sign-off?
    Mr. Kotz. Yes. I mean the negotiation was done, 
essentially, over a weekend. They got the OK to go forward on 
Friday. By Wednesday they had signed the deal. The process of 
coming up with the numbers was very, very quick. You know, not 
scientific, not thorough, you know, no program put forward, you 
know, no rational basis put forward, no approvals outside the 
SEC.
    Mr. Denham. Thank you, Mr. Kotz. My time has expired. Mr. 
Walz?
    Mr. Walz. Well, thank you, Mr. Chairman and Ranking Member. 
This entire situation is troubling on many layers. I guess the 
school teacher in me--the one good thing about this whole thing 
is is, Mr. Heslop, you have done what I didn't think was 
possible. You certainly brought us together in a bipartisan 
manner for a common cause. Because the frustration here is 
palatable. I associate myself with both my colleagues' remarks.
    I often times sometimes laugh about the names of hearings. 
This one is serious, and I think it was appropriately named, 
and that is very frustrating to me, one, as a watchdog of the 
taxpayers' money, but two, as I think everyone in this room 
recognizes, is the incredible importance of the SEC, and the 
job that it does, and the importance now more than maybe any 
time in the last 75 years is on trial today, if you will, 
because of a stupid, possibly illegal, decisionmaking.
    And I again associate, I think, with the chairman on this 
one is I can't imagine a private business just getting to 
decide they will get around to this when they decide, ``It is 
OK, we will fix this,'' or whatever. That is not going to 
happen. They are going to have somebody hammering on them. And 
I am incredibly frustrated by that.
    And this whole idea of leasing--and I don't like to pile 
on, Mr. Heslop, but we, as Members of Congress--I review my 
leases through GSA, and I follow those rules. We go out and 
look for space in Rochester, Minnesota, in Mankato, look for 
the best space, try and get the best dollar for it, negotiate a 
good deal, and I look it over to make sure it is legal. That is 
my responsibility, in addition to other responsibilities. So 
there is a frustration.
    But I do think the good news is I am a huge fan of our IG 
programs, Mr. Kotz, on--and across the board. I spend a lot of 
time in the VA committee, and the inspector general in the VA 
returns about 12 to 1 in terms of what we give them for a 
budget. For every dollar they return 12 back to the taxpayer. 
Do you happen to know, in your Agency, what that number is, or 
could we get it?
    Mr. Kotz. Our office's budget?
    Mr. Walz. No, what you get on what we give to you.
    Mr. Kotz. Oh.
    Mr. Walz. I am going to come to that----
    Mr. Kotz. Oh.
    Mr. Walz [continuing]. On what we get, a return on the 
dollar in terms of stopping fraud, waste, and abuse, both 
internally and in private contractings. In the VA, that is the 
number they can come up with.
    Mr. Kotz. Yes, I don't know that we have calculated a 
specific number. I mean in each one of our semi-annual reports 
we identify cost savings. Routinely, those are in the millions.
    Mr. Walz. You get to count $500 million on this one. That 
will up the odds.
    Mr. Kotz. Right, right, yes.
    Mr. Walz. But it--but in all seriousness, I will move to 
the next question on this.
    Yesterday's number from the Financial Services cut the 
budget for the SEC by 18.7 percent. You are probably going to 
take your share of the cut in that. My concern on this is all 
of us want to see good responsibility, I think, at this time in 
history. And for the importance of responsibility of enforcing 
new enforcement laws to make sure we don't get a melt-down, it 
will be tragic to me if we are not able to give you the 
resources. Because as those resources go down--how does your 
office decide how you look at things, how you go after things? 
Because you are limited, I would assume.
    Mr. Kotz. Right. Well, you know, we get a lot of 
complaints. And where we get complaints--every complaint that 
comes in, we look at it in some way or another. We triage the 
process to determine how much resources we should put to a 
certain complaint. In this case, we got so many complaints 
about this leasing decision that it was very clear it would 
have to be looked at.
    And then, many folks from that office, the Office of 
Administrative Services, came to us--many anonymously--with 
other concerns about that. So it was very clear that this one 
had to be looked at. But, you know, we strive to look at 
whatever we can. We do have a small staff, but we are very 
efficient, and we do produce a lot of work, because it is 
important for the taxpayer that there be a watchdog in place.
    Mr. Walz. In this case, would it be fair to say the system 
did work? We have an agency, we have the IG, the complaints 
came in, they were taken, they were investigated, you brought 
it to Congress.
    And I will say ``worked,'' because I get a very strong 
feeling here, Mr. Heslop, this thing will be resolved. I can be 
pretty certain of that. It will be resolved in a satisfactory 
manner to the taxpayer and to the system.
    But would you think the system worked here, so far, at this 
point?
    Mr. Kotz. Yes, in that manner, certainly. I mean we 
identified the issues, we issued a report. We didn't pull any 
punches in that report. The Agency has accepted the report.
    Now, the next stage, obviously, is to fix the problem and 
to engage in disciplinary action, as appropriate. But I do say, 
as of now, the system has worked, yes.
    Mr. Walz. Would it be possible--and I don't know if it's 
you, yourself, Mr. Kotz, or someone in your office--to see if 
you have that data, on return for the dollar, what you are 
doing?
    I am very concerned, when I make the argument where we do 
have to cut--and the chairman is right about that, there is 
tough decisions to be made--as I said, I am a long-time fan of 
the IG because of what I think it saves and does what it's 
supposed to do for the taxpayer.
    Could I get that information?
    Mr. Kotz. Sure, we would be happy to provide that to you.
    Mr. Walz. Thank you for that. I yield back, Mr. Chairman. 
Again, thank you for this hearing.
    Mr. Denham. Thank you, Mr. Walz. Mr. Heslop, did the SEC 
leasing regulations and policies in July of 2010 require 
written approval by the chairman or commissioners of the SEC?
    Mr. Heslop. Not to my knowledge.
    Mr. Denham. Not the chairman or the commissioners? A half-
a-billion dollars, you go out and spend a half-a-billion, 
commission and chairman not needed?
    Mr. Heslop. To my knowledge, it was a delegated 
responsibility.
    Mr. Denham. What approval process did they require?
    Mr. Cahn. That responsibility, or the delegated 
responsibility for approval of leases, resided with the 
executive director of the Agency. And I do not know, at the 
time, what approval underneath him was required for him to 
execute an approval.
    Mr. Denham. And what type of expenditures is the executive 
director authorized to make?
    Mr. Cahn. I don't know the level of his approval. I don't 
know whether there is a particular cap. I just know with regard 
to leasing decisions, that was delegated from the chairman to 
the executive director at the time of this lease.
    Mr. Denham. What is the largest expenditure that has been 
done in the past?
    Mr. Cahn. I don't know the answer to that, but I would be 
happy to have that information pulled together and provided to 
the committee.
    Mr. Denham. Do you have any idea? Ballpark?
    Mr. Cahn. (No response.)
    Mr. Denham. Is this the largest?
    Mr. Cahn. I do not--I just--I do not know, I'm sorry.
    Mr. Denham. Have you ever heard of the executive director 
spending $1 billion?
    [No response.]
    Mr. Denham. $1 trillion?
    Mr. Cahn. No, no. I do not know how the size--these lease 
payments compare to the size, for instance, of the lease 
payments in connection with the Station Place headquarters 
location, which I believe is a larger footprint.
    Obviously, the numbers we are talking about are the 
aggregate amount over the lifetime of the lease, as opposed to 
an annual expenditure. I do not know, with regard to particular 
line items, what is the largest expenditure in an--on an annual 
basis that the executive director has authority to approve. But 
I would be happy to get that information to you.
    Mr. Denham. So are you saying, then, because it is over a 
term, that the SEC would look at this on an annual basis, and 
spending authority may have been less than the half-a-billion?
    Mr. Cahn. No. You were asking about----
    Mr. Denham. You are just saying you have no idea.
    Mr. Cahn. You asked me what the largest expenditure was, 
whether half-a-billion, and it depended, I guess, on how you 
measured it, whether you measured it on what the annual impact 
was, or over the lifetime of the commitment. And I was just 
saying that I didn't know the answer to the question of what 
the largest one was that the executive director had approved, 
but we would be happy to get that information to you.
    Mr. Denham. And approval process that is currently 
required?
    Mr. Cahn. I believe right now, with regard to leases, that 
authority resides with Mr. Heslop.
    Mr. Denham. And prior to this?
    Mr. Cahn. Prior to the immediate--immediacy, I believe it 
resided with the executive director. Those authorities have 
been transferred to Mr. Heslop, so he now has the authority--
all leases need to be approved by him.
    Mr. Denham. So Mr. Heslop has the authority to commit our 
Federal Government to a half-a-billion dollars with no other 
authority at all?
    Mr. Heslop. Sir, as I stated, we are conducting, in 
process, as we speak, an independent----
    Mr. Denham. Oh, I understand that there is a process that 
you are----
    Mr. Heslop [continuing]. Analysis of all of our----
    Mr. Denham [continuing]. You are looking at going after----
    Mr. Heslop [continuing]. Of our policies----
    Mr. Denham [continuing]. But I just want to know right now, 
today, do you have the authority to go out and spend a half-a-
billion dollars?
    Mr. Heslop. I don't believe that I do, sir. But the policy 
that we typically follow is we have an annual budgeting 
process. That budgeting process is approved by our financial 
management oversight committee.
    So, first of all, we are limited within the confines of the 
SEC's budget on an annual basis. And then, expenditures from 
within that are taken through a governance process of our 
financial management oversight committee. And as a rational 
man, sir, I would not take a decision of half-a-billion dollars 
independently. I would run it through the committee, and run it 
through the chairman.
    Mr. Denham. And, as COO, you oversaw annual budgeting 
processes in the past. So this isn't something--an annual 
budget process is not something new you guys have just 
implemented in the last few weeks, is it?
    Mr. Heslop. No, sir.
    Mr. Denham. OK. So you oversaw that as COO prior to this.
    Mr. Heslop. I did not last year, sir. I have just assumed 
these responsibilities within the last 7 weeks.
    Mr. Denham. So the executive director went over the annual 
budget process.
    Mr. Heslop. The executive director previous to me was on 
top of the annual budgeting process, yes.
    Mr. Denham. And, as COO, do you not look at the budget?
    Mr. Heslop. As COO, I looked at the budget as it related to 
those functions underneath my umbrella of responsibility. And 
at that time that did not include budget management. It did not 
include the Office of Administrative Services.
    Mr. Denham. I just want to, for the record--COO does stand 
for chief operating officer, correct?
    Mr. Heslop. Sir, the Commission had a bifurcated approach 
to oversight of the back office functions in the past. It is 
a--it was a recommendation recently we had--as you know, Dodd-
Frank requested an independent assessment of the Agency. The 
Dodd-Frank study recommended that those functions be 
consolidated under one head. It was consolidated under me, 
approximately 7 weeks ago.
    Mr. Denham. OK. So, under your testimony, prior to your new 
duties you were not authorized to look at the annual budget.
    Mr. Heslop. I was certainly authorized to look at the 
annual budget----
    Mr. Denham. You just chose not to.
    Mr. Heslop. I looked at it with respect to those functions 
that were under my tutelage: Office of Information Technology, 
Office of Freedom of Information Act, Privacy, and Records 
Management.
    Mr. Denham. So was a half-a-billion dollars under last 
year's annual budget?
    Mr. Heslop. Again, sir, I don't know. I did not look at 
that component of it.
    Mr. Denham. You missed that piece of it. How big is the 
annual budget?
    Mr. Heslop. I think we are at approximately $1.1 billion.
    Mr. Denham. I would at least, as CEO, expect that you 
would--even if you chose not to look at the entire annual 
budget, that you at least looked at a top line. Would you not?
    Mr. Heslop. I reviewed the budget, sir. Yes, sir.
    Mr. Denham. OK. So you said $1.1 billion is the annual 
budget?
    Mr. Heslop. Approximately, yes.
    Mr. Denham. And we went out and spent a half-a-billion 
dollars. That did not even take a jump on the radar screen to 
say, ``Wait a minute, this is--I must need to look into the 
budget further, because this is a big jump in what our annual 
budget authorizes.''
    Mr. Heslop. Again, sir, I was not privy to any real estate 
decisions, this one in particular.
    Mr. Denham. I just want to understand. You know, as CEO 
your decisionmaking process--obviously, if you have got to at 
least look at the top line--maybe you weren't inquisitive 
enough to look at the entire budget.
    But if you are at least looking at the top line budget 
numbers, and your budget went from $1.1 billion to $1.6 
billion, that somewhere there must be a big issue there. If you 
are looking across the Nation and we are making cuts, the 
President has made a decision that we are going to cut 
spending, or at least, at the time, freeze spending, and you, 
as chief operating officer, saw the top line budget, $1.1 
billion increasing to a large amount, did you not think, as 
chief operating officer, that maybe you ought to look deeper 
into the budget and figure out where the discrepancy is?
    Mr. Cahn. If I may?
    Mr. Denham. Mr. Cahn, if he doesn't understand the 
question, maybe you can answer for him.
    Mr. Cahn. Let me try, Chairman Denham. I mean I think that 
it is a very important question. I think the issue focuses on 
the Antideficiency Act issue, because the question, as I 
understand it presented by the Antideficiency Act, the issue is 
whether, as an agency with independent leasing authority, and 
authority to enter into multiyear leases, whether we are 
required, consistent with the Antideficiency Act, to obligate 
funds for the entire amount of the contract in the first year 
of the contract, or whether, consistent with the Antideficiency 
Act, we are permitted to obligate funds only on an annual basis 
for what amounts are due.
    Certainly agencies, such as GSA, it is clear that they may 
obligate their long-term leases on an annual basis. We have 
understood since 1990, when we received independent leasing 
authority, that we could, consistent with the Antideficiency 
Act, obligate those funds on an annual basis, and that is 
something that hasn't been questioned by OMB or GAO in the 
course of their audits of us.
    But, having said that, that is the question that the 
inspector general has legitimately raised in connection with 
his investigative report. And that is why we have submitted 
that question to the comptroller general. Because if, 
consistent with our interpretation of the Antideficiency Act, 
it is permissible to present in our budget our long-term leases 
on an annual basis, I think that answers your question.
    Obviously, if the determination comes back----
    Mr. Denham. It doesn't answer my question. It doesn't even 
scratch the surface. I am out of time right now.
    But I am just--I am amazed that chief operating officer and 
his legal counsel, you know, whether it is over the course of a 
10-year obligation--if you are at $1.1 billion and it jumps to 
$1.2 billion, or 1.1 to 1.15, somebody needs to be asking some 
questions. And if we don't have the right people in charge to 
be able to ask those questions, then we need to make some 
changes.
    Ms. Norton?
    Ms. Norton. Thank you, Mr. Chairman. One of the problems we 
are experiencing here you need to really take into account. We 
see no energy for reform coming from these witnesses. We 
understand what the IG said.
    That is befuddling to me. I don't know if you understand 
the gift you are giving to those who oppose Dodd-Frank, while 
many of us are up here trying to remind people that the way we 
got into this hole was, if you will excuse me, some of the 
problems that were raised at SEC and the problems that Dodd-
Frank is meant to cure.
    So, what--your failure to even want to remove an employee 
who has been named as the source of the abuse is like going to 
those who oppose Dodd-Frank and said, ``Here is something 
further for you.'' It is befuddling to me.
    And, Mr. Heslop, your testimony--you are big and bold. 
``Although the SEC is no longer pursuing space in Constitution 
Center, the Agency continues to believe that significant staff 
will be required to carry out the new responsibilities''--good 
luck, good luck getting it from this Congress--``assigned to 
the Agency under Dodd-Frank. To this end, the SEC will continue 
to assess its space needs''--``Congress, we are going to 
continue to look at our space needs''--``in the context of its 
current budget, and the overall resources available to the 
Agency.''
    I looked through your testimony. I didn't see anything in 
the testimony that says--and I will tell you what, Mr. 
Chairman, any resources we get will be devoted to the regional 
offices the way the chairwoman said it should, in the first 
place. Instead, you refer increasingly in your testimony--I 
have pulled it out to new responsibilities, need for space 
because you've got new responsibilities, continuing resolution 
didn't give you all the money you needed to carry out these 
responsibilities.
    Nowhere do you indicate that the chair said you were to 
carry out those responsibilities in the regional office, so you 
probably won't need any more space in the District of Columbia. 
Isn't that the case?
    Mr. Heslop. Ma'am, as I mentioned earlier, the BCG study 
that was done as a result of the Dodd-Frank Reform Act required 
us to take a look--basically, do an independent assessment of 
the SEC. And as a result of that study, one of the 
recommendations was to look at our regional strategy. And that 
is exactly what we are doing. That analysis----
    Ms. Norton. You don't mention that in your testimony. You 
don't mention in your testimony that any resources that you are 
lucky enough to get would go certainly not to a Washington, 
DC--now, this is my district, I always love to have people 
lease in my district, but I do have an oath to be a Member of 
Congress first, and responsible to taxpayers--you don't even 
say that no more space would be sought in the District of 
Columbia. Can you at least say that this morning?
    Mr. Heslop. It will be totally dependent, ma'am, on the 
level of resourcing that we get to execute the new 
responsibilities that we have been given under the Dodd-Frank 
Act.
    Ms. Norton. All right, Mr.--what you are saying is on the 
record and under oath.
    Mr. Heslop. Yes, ma'am.
    Ms. Norton. And that is going to be repeated back to you 
time and time again.
    Mr. Heslop. It is----
    Ms. Norton. Not only with respect to this issue, but with 
respect to your very important mission.
    Now, I am--with--and when I say Congress would like to see, 
whenever we see a problem, that there is somebody who is gung-
ho on fixing the problem. I don't see anything like that from 
anybody, except the IG, who can't fix it, because that's not 
his job.
    I asked staff to pull up what leases were coming up. And 
that is one of the reasons why I think we have to, Mr. 
Chairman, do a bill. Because they have got some leases coming 
up in the very near term. And let's look at Atlanta, where they 
are 383 feet above the standard level of other Government 
employees. That is coming up--well, that is already done.
    Would you--I want to--perhaps you don't have off the top of 
your head. I would like to know whether you--would you get to 
the chairman on whether or not you have renewed the Atlanta 
lease, which ran out on June 19, 2011, for 114 people for the 
same amount of space?
    But let's move on. On 2012, January, Chicago. It is rented 
at--it is leased at 419 per person. At--and that is coming up 
in 2012. In Los Angeles you have got 336 per person. Understand 
we are talking about 200 square feet per person, and some law 
firms in this town are going down to 175 square feet per 
person, because they don't want to spend all their money, what 
they have left, on leasing. In Miami, 449 square feet per 
person. Your total regional offices are at 492, on the average, 
per square--square feet per person.
    Now, let me ask this, in case--if you are left with leasing 
authority, would you agree today to draw down the utilization 
rate to the standard utilization rate of 200 square feet, or 
230 square feet, so as to reduce your utilization rate in any 
new contracts you would be fortunate enough to make?
    Mr. Heslop. Yes, ma'am, we would certainly consider that 
figure.
    Ms. Norton. Seems to me that you will have some difficulty 
doing that if you are leasing--if you are renewing leases. But 
that is something that any competent real estate operator would 
be doing now, he would be renegotiating every single lease you 
have.
    I think the chairman asked about are there other buildings 
with this kind of lease. I just want to record that you have 
made the top 10 of leased space ever in the District of 
Columbia.
    Could I ask the IG whether you think, in light of your 
report, that Congress would be well advised to revoke the 
leasing authority of the SEC?
    Mr. Kotz. Yes, obviously it is something that requires 
serious consideration. I would say this. You know, looking at 
the way the leasing practices have been run to date, I would 
say there is no question that the leasing authority should be 
taken away.
    If significant changes are made, if there is a complete 
cleaned house at the Office of Administrative Services, if 
everything is done differently going forward, then I think 
there would be a possibility to allow that to go forward. But 
certainly, from what we saw, I don't think that the SEC has 
done a capable job of exercising that leasing authority.
    I would think that there would have to be a drastic and 
significant change in the way----
    Ms. Norton. Well, let me--all right. Let's consider this 
drastic change.
    Mr. Heslop, in the present staff, who has had any 
background or experience in real estate transactions of the 
kind, for example, that GSA requires in the ordinary course of 
doing business? And what has that experience been?
    Mr. Heslop. There are a number of current staff that have 
actually had GSA experience. We have a lead realty specialist 
with 20 years of GSA realty contracting and policy experience, 
and has been at the SEC 2 years. We have a lead realty 
specialist with nearly 10 years of GSA realty contracting and 
policy experience. We have a realty specialist with 11 years of 
GSA realty contracting experience, and----
    Ms. Norton. Mr. Heslop, the IG--read the IG's report. The 
IG said that those with any real estate experience, those are 
fairly minor--those with fairly minor roles, even at GSA, were 
routinely ignored.
    Does Sharon Sheehan have any significant real estate 
experience? And she is the woman in charge, and the person the 
IG finds was deeply involved in these abuses. Has she any real 
estate experience?
    Mr. Heslop. I am not aware of what her professional history 
and how deep it is----
    Ms. Norton. Would you see to it that the chairman receives 
her resume?
    Mr. Heslop. Sure.
    Ms. Norton. Within the next 10 days. Let me ask about the 
status of Constitution Center. I have toured Constitution 
Center. It is an extraordinary facility. This is a facility 
that was apparently built for--as a secure facility, 
recognizing that, after 9/11, the Government would be looking 
for secure facilities for certain kinds of agencies. Is the SEC 
classified as a secure facility?
    [No response.]
    Ms. Norton. Are you like the Defense Department? Are you 
like the Department of Homeland Security?
    Mr. Heslop. I am not aware of the classification system 
that----
    Ms. Norton. What kinds of employees would have or are now 
in Constitution Center from the SEC? What are their duties?
    Mr. Heslop. I am not aware of any employees in Constitution 
Center at the moment, ma'am.
    Ms. Norton. All of the employees are out?
    Mr. Heslop. Yes, ma'am.
    Ms. Norton. What kinds of employees were housed there 
before you got GSA to help you try to find others for this 
space?
    Mr. Cahn. Congresswoman Norton, I don't believe any SEC 
employees have been at Constitution Center at any time.
    Ms. Norton. So nobody ever made it into Constitution 
Center?
    Mr. Cahn. That is correct.
    Mr. Denham. And I would like to follow up on the same round 
of questioning. What was the intent? Is there a specific reason 
why this building was picked? Does the SEC have specific 
requirements that would require a secure building?
    Mr. Heslop. Not to my knowledge. The way the Department of 
Defense--you know, a specific type that the Department of 
Defense organization might have. Based on my two decades of 
experience in the military, I don't believe the SEC has the 
kinds of requirements that you might find with several of the 
DOD-type activities.
    Mr. Denham. Let me switch the line of questioning back 
again, Mr. Heslop. Last week you and Mr. Cahn, you met with my 
staff, subcommittee staff. When we requested the SEC provide 
the subcommittee with an unredacted copy of the IG report, 
committee staff was informed ``a formal written request should 
be made so that the SEC commissioners could review the request 
and approve it.''
    What types of administrative decisions do the commissioners 
review and approve, and why are leasing actions, especially one 
binding the Federal Government to a half-a-billion dollars, not 
included among them?
    Mr. Cahn. Chairman Denham, as I mentioned, the--well, as 
you know, we have produced the unredacted report and exhibits 
to the committee in connection----
    Mr. Denham. Well, I understand. And my concern is, for a 
simple report, before you come before a congressional committee 
to testify, you required a written notification to go to the 
commissioners, so the commissioners could vote on whether or 
not you just were going to provide a simple piece of paper that 
should be open to the public.
    Now, if you have got to go to the commission to ask for 
approval and a vote to give Congress some information, but you 
don't have to go to the commission for a half-a-billion 
dollars, I would assume there is something wrong with the 
approval process there, or your priorities are deeply skewed.
    Mr. Cahn. I appreciate that, Chairman. And I think 
certainly, going forward, we need to look at whether we need a 
process that involves going to the commission, as opposed to 
the delegated authority that we have now. The delegation to the 
executive director is in accordance with the manner in which 
certain administrative functions, as opposed to adjudicative 
and other functions, are delegated within the commission.
    But I think you obviously raise a very significant point, 
and one that we are currently evaluating right now.
    Mr. Denham. You are evaluating a lot of things with no 
answers.
    You know, we had invited Commissioner Shapiro to be here to 
testify today. I understand that she is wrapping up her 
testimony in Financial Services. Mr. Manley, I would ask you to 
go over to Financial Services, and if she wraps up her 
testimony, maybe she can come here and provide some answers and 
some greater detail.
    I know you are new, Mr. Heslop, with some new duties, but 
some of these questions are pretty basic questions. If somebody 
in my company answered these questions in the manner that you 
guys are, there would be a lot of people fired. I mean this is 
just amazing, that half-a-billion dollars--you want us to go 
back to the commission just in asking for the unredacted copy 
of the IG report and take a vote by the commissioners, but the 
commission doesn't require you to go to them with a half-a-
billion dollars? And, Mr. Heslop, you oversee the annual 
budget, but you don't notice when a large expenditure like this 
is being proposed? That's amazing.
    Ms. Clancy, in your testimony you provide an overview of 
how GSA normally reviews and approves leases. During GSA's 
process, does GSA keep track of necessary approvals orally, or 
do you get approvals in written documentation?
    Ms. Clancy. Our process is fairly extensive, and we 
actually have a formal written process that tracks those, both 
electronically as well as through a paper process which gets 
input later on into our electronic system. So it's two--at two 
levels.
    Mr. Denham. Mr. Heslop, in your testimony you mentioned 
that the SEC has worked with the landlord of Constitution 
Center to find other Federal tenants to release ``part of our 
obligation under the lease.'' You also indicate the SEC is 
working with GSA on filling the remaining space. Can we assume, 
then, that the SEC has concluded that the lease obligation is a 
valid one?
    Mr. Heslop. [No response.]
    Mr. Denham. Are you obligated to the lease?
    Mr. Heslop. Yes. Yes, it is----
    Mr. Denham. Somebody signed it.
    Mr. Heslop. It is a valid lease.
    Mr. Denham. OK. So, the Federal Government is on the hook 
for this long-term lease. Where are we, as far as getting out 
of that obligation, or releasing that to others?
    Mr. Cahn. Right, we are--we have been working closely and 
we are working closely with GSA and other entities, and we are 
hopeful that we can do that. And I would defer to the GSA to be 
able to respond more to the----
    Mr. Denham. You are hopeful? Where are we in the process?
    Mr. Cahn. We have been in discussions with them, and we 
are----
    Mr. Denham. When did you realize this was a problem? Was it 
before the IG report came out, or----
    Mr. Cahn. We have been in discussions with GSA, I think, 
going back to the fall, yes. So we have been----
    Mr. Denham. OK. So you have been working on it since the 
fall. Where are we?
    Mr. Cahn. We are still working with them. I think it is a 
matter of them----
    Mr. Denham. You are working with them. That is the best 
answer you can give us today? How far are you working with 
them? Do you have any--are there any proposals out there? Are 
there any signed agreements? Do we have anybody under lease 
today?
    Mr. Cahn. With regard to the remaining space, there isn't 
anyone yet that is under obligation to take that remaining 
space.
    Mr. Denham. So we were able, over a weekend, to approve a 
half-a-billion dollars of taxpayers' money without any 
authority from the commission, from Congress, from the 
President. We were able to, over a weekend, go out and secure 
half-a-billion dollars worth of space, and over the course of a 
year we have not been able to get out of that lease or find 
anybody else who was willing to lease that property.
    Mr. Cahn. I think, as Mr. Heslop's testimony mentioned, we 
were able to identify two tenants to take the majority of the 
space. There is still a balance, you are correct, and----
    Mr. Denham. You have identified, or they are under new 
contract?
    Mr. Cahn. They are under new contract for the--for most of 
the space. There is about 340,000 square feet that remains that 
we are working with GSA on.
    Mr. Denham. And who are those new tenants?
    Mr. Cahn. FHFA and OCC.
    Mr. Denham. And GSA? Have they already--each of those 
agencies already gone out for proposal on new space?
    Ms. Clancy. I believe--we were not involved in either one 
of those leases for OCC or FHFA. I believe that both of those 
agencies have their own leasing authority. And so those leases, 
to my understanding, were negotiated directly with the 
landlord.
    Mr. Denham. The landlord being?
    Ms. Clancy. The landlord at the Constitution Center.
    Mr. Denham. But had to renegotiate. Now we are subleasing 
this space. SEC is subleasing this space to two other 
Government agencies that also have their own leasing authority 
to help come in and fix the problem.
    Mr. Cahn. My understanding is that we released the space, 
so they are in direct--they have a direct lease agreement with 
the landlord. So we are not subleasing that space to FHFA and 
OCC.
    Mr. Denham. But SEC----
    Mr. Cahn. I can confirm that.
    Mr. Denham [continuing]. Is still on the hook for the rest 
of the lease.
    Mr. Cahn. Yes, sir.
    Mr. Denham. Thank you. Mr. Walz?
    Mr. Walz. Thank you, Mr. Chairman. Mr. Heslop, I want to 
get back at something just a little bit here, trying to 
understand this on how something like this happens. It is going 
to be--the details are going to come out, as I said, and we 
will get it all right.
    You come to this job with private sector experience. I want 
to go back to where--you were at Capital One, is that correct?
    Mr. Heslop. That is correct.
    Mr. Walz. And Capital One is the thirteenth largest 
financial institution in the United States?
    Mr. Heslop. I believe that is correct, sir.
    Mr. Walz. OK. And you were there about 12 years?
    Mr. Heslop. Yes, sir.
    Mr. Walz. So you got a chance to understand their internal 
culture and how things work and how they would go about 
leasing, expanding, and those decisions?
    Mr. Heslop. I was very familiar with the risk management 
internal controls component during my tenure at Capital One. I 
did have some small degree of leasing interface, as well. It 
was not huge.
    Mr. Walz. For the critics that are always there--and in 
this case it looks like rightfully so--that Government can't 
get things right, would Capital One have made a mistake like 
this?
    Mr. Heslop. I can't speculate as to whether they would have 
made one.
    Mr. Walz. Would there have been safeguards, culturally, 
that would have prevented it from happening, in your opinion?
    Mr. Heslop. It is actually an interesting question. I 
believe when I first got there, there was not a strong culture 
of internal controls and process and rigorous discipline. One 
of my roles, while I was there during my tenure, was to 
implement, on a global basis, a very strong disciplined 
internal control program, which, over time, you know, was 
instituted into the culture, and became very successful.
    So, I would say the answer to your question would be early 
on it could well have happened. Later on, toward the end of my 
tenure, I think we had a rigorous control environment in place.
    Mr. Walz. And I know that the--and it comes with the nature 
of leadership--you are going to take a lot of responsibility 
for things, one way or another, and that is the way it should 
work, to a certain degree.
    My questions are that I often times see inside of 
Government agencies is sometimes a career staff there, maybe 
working at cross purposes to the person who is put in into the 
leadership position. Do you feel there is a problem at SEC, in 
terms of management and your ability to be able to dictate, or 
at least oversee, if that's a better term?
    Mr. Heslop. I would not characterize it as a problem. I 
would say that there is an opportunity to change the culture, 
as it relates to, you know, a more disciplined approach to 
controls, in general. I think that with the IG we have been 
making good strides in that direction, and we have evidence of 
that in some specific areas over the course of the last year. 
We have more to go. The OAS organization is one of those, which 
is now under my tutelage, and I very much intend to bring that 
organization under control as well, with specific--specifically 
focused around the leasing of facility space.
    Mr. Walz. Do you share the chairman's frustration on--that 
it is not moving faster? I understand there is a relative 
amount of time--the one thing I think I see, and I think the 
public gets a frustration with--and I think it's a valid 
concern--even large bureaucratic--which I think you could argue 
Capital One is big enough to have some of that--they seem to be 
more nimble at times on being able to do that.
    Are we still hampered with not moving at the pace of the 
way the world moves now inside our agencies? Because I don't 
know how long this takes. I am not--I don't have a best 
practices that says how long it should take GSA and everyone to 
work on this. My intuitive sense tells me, like the chairman is 
saying, it should move a hell of a lot faster.
    And I want to know. How do we determine that? Or how do we 
make sure that is happening? And that is something where you 
and leadership could implement, I would think.
    Mr. Heslop. I think I would definitely agree with you, that 
I would like to see it move faster. There are a number of 
constraints that one faces in an organization like this that 
you don't face necessarily on the private sector that impede 
progress along a more rapid glide path. We are trying to work, 
you know, as effectively and efficiently as possible, tackle 
those obstacles, and move the ball down the path.
    Mr. Walz. Well, I think that is our charge right now, that 
those of us--and, as I said, I am going to be fighting for a 
proper amount of funding, making sure it is used right, making 
sure the IG has their ability, making sure you have the ability 
to oversee what I think was reckless disregard for the public 
welfare and the economy that collapsed this economy. But right 
now I think the ranking member is right. We have given them--
not only teed it up, we have given them a damn beach ball to 
hit over center field that ``These guys are reckless, can't do 
anything right, how dare they oversee us in the private 
sector?''
    So, I am looking for you or someone to stand up, the 
director, whoever it is, to stand up and say, ``We are going to 
implement these things, we are going to move faster, we are 
going to take these IG recommendations from some experts, we 
are going to look at them and see if we can implement it,'' and 
then come back to us if this is the case.
    And I know that there is no one, other than the ranking 
member, no one in Congress, that cares more about due process, 
but her frustration with employees--we don't--we are not just 
going to jack somebody, move them out, and not give them due 
process or whatever. But I think if someone has made such a 
gross error, there has got to be ability to, if you will, move 
her to the corner and sharpen pencils until we figure this out. 
That should be able to happen.
    Is that true? I mean don't you think--come to us if we are 
hampering you with some of those. Come to us and say, ``We need 
the ability to have more flexibility to move some of this 
stuff.''
    So I just--I offer that to you. I want--as I said, you are 
going to take your lumps on this. You are experienced, you have 
been in the private sector and done this. But I think what the 
chairman is looking for, too, is, yes, a fix of this initial 
problem. Certainly what I am looking for is what we are going 
to do, moving forward.
    And this economic difficulties we are having presents 
golden opportunities to streamline our operations and make it 
work better.
    And so, with that, I yield back.
    Mr. Denham. Thank you, Mr. Walz. I have just been informed 
by Mr. Manley that the commissioner is still testifying, she is 
going to be unable to come back after our votes. We have been 
called to votes now.
    So, I made the determination we are going to be having a 
second hearing. There are just too many unanswered questions 
here. But in this next hearing I will expect to know who has 
been fired during this whole process. If we can all agree that 
there has been some wrongdoing done here, which--I would at 
least hope that we could agree to that--I would expect to see 
who is being held accountable on this.
    I also want to know the budget oversight process, because 
this seems like a gross abuse of taxpayer dollars.
    And I also know that the Agency would not make available 
Ms. Sheehan to testify. And before we close the hearing, I have 
got a couple of documents that we are going to show. But I will 
just inform this panel, as well as the SEC, that this committee 
does plan on using its subpoena authority. We will have people 
here, and we will demand answers for the taxpayers.
    With that, I know that Ms. Norton is on a tough time 
schedule, so I would like to recognize her for a brief 
statement.
    Ms. Norton. I thank you, Mr. Chairman, for your indulgence. 
What I regret is that you have infected your important mission 
here, and we really don't need that up here. You've got to 
separate out these two missions, and you've got to do it very 
quickly.
    I want to just clarify the IG's statement. He had said, 
well, if they had--you know, perhaps they could carry on such 
activities if, you know, they changed everything. Let me ask 
you whether--two things, whether they could carry it on with 
the same person in charge, and whether you think that, in light 
of their core mission, they would be better off devoting most 
of their time or all of their time to their core mission.
    Mr. Kotz. Certainly with respect to the first question, no. 
They would need to have new people in charge. I think if the 
same people were in place, they wouldn't be able to carry on in 
an appropriate way.
    In terms of their overall mission, I think that is a very 
valid point, that obviously, what the SEC is trying to do is 
enforcement, other matters related to the financial system. And 
certainly, time spent dealing with these issues is not 
productive to their mission.
    You know, in terms of how that would come out, that is 
really up to Congress to decide.
    Ms. Norton. Thank you very much. Those were definitive 
enough responses.
    Mr. Denham. Thank you, Ms. Norton. Mr. Kotz, your 
investigation found that the dates on the signature page of the 
justification for sole-source procurement was misleading, to 
say the least.
    Put the slides up here.
    [Slide.]
    Mr. Denham. On the screen is a copy of the signature page. 
Can you explain what the issues are, and why they are 
significant?
    Mr. Kotz. Sure. If you can see on the signature page, the 
signatures are dated August 2nd. However, the document was not 
finalized on August 2nd. It was signed, and then revised 
substantially. It was not finalized until September 2nd. And, 
in fact, one of the signatures that was written, it was signed 
on August 31st, but they wrote in ``August 27th.''
    But then, when they saw that the other signatures were 
August 2nd, they whited out the 7 so it would appear like it's 
August 2nd. And you can see there is a space. You can see there 
is a space under that second signature from the bottom, where 
it is pretty clear that there was a 7 or another number there, 
and that was whited out to make it appear that they were all 
signed on the same day.
    In fact, the document was not finalized until a month 
later.
    Mr. Denham. Mr. Heslop, have you seen these documents 
before?
    Mr. Heslop. I have.
    Mr. Denham. Can you at least recognize that there is an 
issue here?
    Mr. Heslop. Absolutely. We do not condone back-dating of 
documents. We are managing the disciplinary action process 
aggressively, and we will take appropriate action, upon 
completion of the recommendations to me.
    Mr. Denham. What type of recommendations are you waiting 
for?
    Mr. Heslop. I am waiting for the general counsel and the 
Office of Human Resources to provide me recommendations as to 
appropriate disciplinary action with respect to each of the 
individuals named.
    [Pause.]
    Mr. Denham. You know, I am not somebody who is normally at 
a loss for words. But I got to tell you, this is amazing. It is 
a complete gross abuse of taxpayer dollars.
    Mr. Heslop, I am--quite frankly, I am amazed at your 
testimony today. You are the COO of a very large agency with a 
very large budget, huge responsibilities. I would assume you 
are a pretty bright individual to be able to sit in this spot.
    I am--I will look forward to our next hearing, and I will 
expect some answers. We will give the SEC plenty of notice, we 
will give you plenty of time. But I will expect everybody that 
we send an invitation to to not only respond to that invitation 
and make sure their schedules are available, but we will 
subpoena them. We will bring them in. But we expect 
accountability. And the answers that we have received today are 
just completely unsatisfactory. We have votes taking place on 
the floor right now.
    I would like to thank each of our witnesses for their 
testimony, or lack thereof. We will be following up with 
questions for the record. And I would ask that you provide your 
responses in a timely manner.
    I ask unanimous consent that the record of today's hearing 
remain open until such time as our witnesses have provided 
answers to any questions that may be submitted to them in 
writing, and unanimous consent that the record remain open for 
15 days for additional comments and information submitted by 
Members or witnesses to be included in the record of today's 
hearing.
    [No response.]
    Mr. Denham. Without objection, so ordered. If no other 
Members have anything to add, this subcommittee stands 
adjourned.
    [Whereupon, at 11:51 a.m., the subcommittee was adjourned.]
