Financial Audit: Securities and Exchange Commission's Financial  
Statements for Fiscal Years 2007 and 2006 (16-NOV-07,		 
GAO-08-167).							 
                                                                 
Established in 1934 to enforce the securities laws and protect	 
investors, the Securities and Exchange Commission (SEC) plays an 
important role in maintaining the integrity of the U.S. 	 
securities markets. Pursuant to the Accountability of Tax Dollars
Act of 2002, SEC is required to prepare and submit to Congress	 
and the Office of Management and Budget audited financial	 
statements. GAO agreed, under its audit authority, to perform the
audit of SEC's financial statements. GAO's audit was done to	 
determine whether, in all material respects, (1) SEC's fiscal	 
year 2007 financial statements were reliable and (2) SEC's	 
management maintained effective internal control over financial  
reporting and compliance with laws and regulations. GAO also	 
tested SEC's compliance with certain laws and regulations.	 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-08-167 					        
    ACCNO:   A78269						        
  TITLE:     Financial Audit: Securities and Exchange Commission's    
Financial Statements for Fiscal Years 2007 and 2006		 
     DATE:   11/16/2007 
  SUBJECT:   Accountability					 
	     Accounting standards				 
	     Auditing standards 				 
	     Federal regulations				 
	     Financial management				 
	     Financial management systems			 
	     Financial records					 
	     Financial statement audits 			 
	     Financial statements				 
	     Information security				 
	     Internal controls					 
	     Program evaluation 				 
	     Reporting requirements				 
	     Reports management 				 
	     Risk assessment					 
	     Securities 					 
	     Stock exchanges					 

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GAO-08-167

   

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United States Government Accountability Office: 
GAO: 

Report to the Chairman, United States Securities and Exchange 
Commission: 

November 2007: 

Financial Audit: 

Securities and Exchange Commissionï¿½s Financial Statements for Fiscal 
Years 2007 and 2006: 

GAO-08-167: 

GAO Highlights: 

Highlights of GAO-08-167, a report to the Chairman, United States 
Securities and Exchange Commission. 

Why GAO Did This Study: 

Established in 1934 to enforce the securities laws and protect 
investors, the Securities and Exchange Commission (SEC) plays an 
important role in maintaining the integrity of the U.S. securities 
markets. 

Pursuant to the Accountability of Tax Dollars Act of 2002, SEC is 
required to prepare and submit to Congress and the Office of Management 
and Budget audited financial statements. GAO agreed, under its audit 
authority, to perform the audit of SECï¿½s financial statements. GAOï¿½s 
audit was done to determine whether, in all material respects, (1) 
SECï¿½s fiscal year 2007 financial statements were reliable and 

(2) SECï¿½s management maintained effective internal control over 
financial reporting and compliance with laws and regulations. GAO also 
tested SECï¿½s compliance with certain laws and regulations. 

What GAO Found: 

In GAOï¿½s opinion, SECï¿½s fiscal year 2007 and 2006 financial statements 
were fairly presented in all material respects. 

However, because of a material weakness in internal control over SECï¿½s 
financial reporting process, in GAOï¿½s opinion, SEC did not have effective 
internal control over financial reporting as of September 30, 2007. 
Recommendations for corrective action will be included in a separate report. 

Although certain compliance controls should be improved, SEC did maintain 
in all material respects effective internal control over compliance with 
laws and regulations material in relation to the financial statements as of 
September 30, 2007. 

In addition, GAO did not find reportable instances of noncompliance with 
the laws and regulations it tested. 

In its 2006 report, GAO reported on weaknesses in the areas of SECï¿½s
(1) recording and reporting of disgorgements and penalties, (2) 
information systems controls, and (3) property and equipment controls. 

During fiscal year 2007, SEC improved its controls over the accuracy, 
timeliness, and completeness of the disgorgement and penalty data and 
used a much improved database for the initial recording and tracking of 
these data. 

However, the processing of these data for financial reporting purposes 
is still done through a manual process that is prone to error. 

GAO found that the internal controls that compensated for the manual 
processing of the related accounts receivable balances in fiscal year 
2006 were not effective in fiscal year 2007. 

This issue is included in the material weakness in SECï¿½s financial reporting 
process for fiscal year 2007. Other control deficiencies included in this 
material weakness concern SECï¿½s period-end closing process, accounting 
for transaction fee revenue, and preparation of financial statement 
disclosures. 

GAO also identified three significant deficiencies in internal control 
during fiscal year 2007. 

Although SEC has taken steps to strengthen its information security, 
some of the weaknesses identified in GAOï¿½s previous audit persisted and 
GAO found new weaknesses during this yearï¿½s audit. 

Therefore, GAO is reporting information security as a significant 
deficiency as of September 30, 2007. 

In addition, GAO continued to identify the same weaknesses in controls 
over property and equipment and therefore considers this area a significant 
deficiency as of September 30, 2007. 

GAO also identified a new significant deficiency concerning SECï¿½s accounting 
for budgetary transactions. 

In commenting on a draft of this report, SECï¿½s Chairman emphasized 
SECï¿½s commitment to enhance its controls in all operational areas and 
to ensure reliability of financial reporting, soundness of operations, 
and public confidence in SECï¿½s mission. 

For a fuller understanding of GAOï¿½s opinion on SECï¿½s financial 
statements for fiscal years 2007 and 2006, readers should refer to the 
complete audit report, available by clicking on [hyperlink, 
http://www.GAO-08-167] which includes information on audit objectives, 
scope and methodology. For more information, contact Jeanette Franzel, 
202-512-9471, [email protected]. 

[End of section] 

Contents: 

Letter: 

Opinion on Financial Statements: 

Opinion on Internal Control: 

Material Weakness: 

Significant Deficiencies: 

Compliance with Laws and Regulations: 

Consistency of Other Information: 

Objectives, Scope, and Methodology: 

SEC Comments and Our Evaluation: 

Appendix I: Managementï¿½s Discussion and Analysis: 

Appendix II: Financial Statements: 

Appendix III: Comments from the Securities and Exchange Commission: 

Abbreviations: 

FMFIA: Federal Managersï¿½ Financial Integrity Act: 
OMB: Office of Management and Budget: 
SEC: United States Securities and Exchange Commission:
SRO: self-regulatory organizations: 

[End of section] 

United States Government Accountability Office: 
Washington, DC 20548: 

November 16, 2007: 

The Honorable Christopher Cox: 
Chairman: 
U.S. Securities and Exchange Commission: 

Dear Mr. Cox: 

This report presents our opinion on whether the financial statements of 
the Securities and Exchange Commission (SEC) for the fiscal years ended 
September 30, 2007, and 2006 are presented fairly, in all material 
respects, in conformity with U.S. generally accepted accounting 
principles. This report also presents (1) our opinion on the 
effectiveness of SECï¿½s internal control over financial reporting and 
compliance as of September 30, 2007, and (2) the results of our 
evaluation of SECï¿½s compliance with selected laws and regulations 
during 2007. 

The Accountability of Tax Dollars Act of 2002 requires that SEC prepare 
and submit to Congress and the Office of Management and Budget (OMB) 
audited financial statements. We decided, under our audit authority, to 
audit SECï¿½s financial statements. We conducted this audit in accordance 
with U.S. generally accepted government auditing standards and OMB 
guidance. 

We are sending copies of this report to the Chairman and Ranking 
Minority Members of the Senate Committee on Banking, Housing, and Urban 
Affairs; the Senate Committee on Homeland Security and Governmental 
Affairs; the House Committee on Financial Services; and the House 
Committee on Oversight and Government Reform. We are also sending 
copies to the Secretary of the Treasury, the Director of the Office of 
Management and Budget, and other interested parties. In addition, this 
report will be available at no charge on our Web site at [hyperlink, 
http://www.gao.gov]. 

This report was prepared under the direction of Jeanette M. Franzel, 
Director, Financial Management and Assurance, who can be reached at 
(202) 512-9471 or [email protected]. If I can be of further assistance, 
please call me at (202) 512-5500. 

Sincerely yours, 

Signed by: 

David M. Walker: 
Controller General of the United States: 

[End of section] 

To the Chairman of the United States Securities and Exchange Commission
In our audits of the United States Securities and Exchange Commission 
(SEC) for fiscal years 2007 and 2006, we found: 

* the financial statements as of and for the fiscal years ended 
September 30, 2007, and 2006, including the accompanying notes, are 
presented fairly, in all material respects, in conformity with U.S. 
generally accepted accounting principles; 

* SEC did not have effective internal control over financial reporting; 
although certain compliance controls should be improved, SEC had 
effective control over compliance with laws and regulations that could 
have a direct and material effect on the financial statements as of 
September 30, 2007; and; 

* no reportable noncompliance with laws and regulations we tested. 

The following sections discuss in more detail these conclusions as well 
as our conclusions on Managementï¿½s Discussion and Analysis and other 
supplementary information. They also present information on the 
objectives, scope, and methodology of our audit and our discussion of 
SEC managementï¿½s comments on a draft of this report. 

Opinion on Financial Statements: 

SECï¿½s financial statements, including the accompanying notes, present 
fairly, in all material respects, in conformity with U.S. generally 
accepted accounting principles, SECï¿½s assets, liabilities, net 
position, net costs, changes in net position, budgetary resources, and 
custodial activity as of, and for the fiscal years ended, September 30, 
2007, and September 30, 2006. However, misstatements may nevertheless 
occur in other financial information reported by SEC and may not be 
prevented or detected because of the internal control deficiencies 
described in this report. 

As disclosed in footnote 1.C. to SECï¿½s financial statements, in fiscal 
year 2007, SEC changed its method of accounting for user fees collected 
in excess of current-year appropriations. 

Opinion on Internal Control: 

Because of the material weakness [Footnote 1] and significant 
deficiencies [Footnote 2] in internal control discussed below, SEC did 
not maintain effective internal control over financial reporting as of 
September 30, 2007, and thus did not have reasonable assurance that 
misstatements material in relation to the financial statements would be 
prevented or detected on a timely basis. Although certain compliance 
controls should be improved, SEC maintained, in all material respects, 
effective internal control over compliance with laws and regulations as 
of September 30, 2007, that provided reasonable assurance that 
noncompliance with laws and regulations that could have a direct and 
material effect on the financial statements would be prevented or 
detected on a timely basis. Our opinion on internal control is based on 
criteria established under 31 U.S.C. ï¿½ 3512(c)(d), commonly referred to 
as the Federal Managersï¿½ Financial Integrity Act (FMFIA) and the Office 
of Management and Budget (OMB) Circular No. A-123, Management 
Accountability and Control. 

During this yearï¿½s audit, we identified significant control 
deficiencies in SECï¿½s financial reporting process, which taken 
collectively, result in more than a remote likelihood that a material 
misstatement of the financial statements will not be prevented or 
detected. Therefore, we considered the combination of the following 
control deficiencies to collectively constitute a material weakness in 
SECï¿½s financial reporting process: 

* period-end financial reporting process; 

* disgorgements and penalties accounts receivable; 

* accounting for transaction fee revenue, and; 

* preparing financial statement disclosures. 

In addition to the material weakness discussed above, we identified 
three significant deficiencies in internal control, which although not 
material weaknesses, represent significant deficiencies in the design 
or operation of internal control. Although we are considering these 
issues separately from the material weakness described above, they 
nevertheless adversely affect SECï¿½s ability to meet financial reporting 
and other internal control objectives. These deficiencies concern: 

* information security controls; 

* property and equipment, and; 

* accounting for budgetary resources. 

In our prior year audit, [Footnote 3] we reported on weaknesses we 
identified in the areas of SECï¿½s (1) recording and reporting of 
disgorgements and penalties, (2) information systems controls, and (3) 
property and equipment controls. [Footnote 4] During fiscal year 2007, 
SEC improved its controls over the accuracy, timeliness, and 
completeness of the disgorgement and penalty data and used a much 
improved database for the initial recording and tracking of these data. 
However, the processing of these data for financial reporting purposes 
is still done through a manual process that is prone to error. We found 
that the internal controls that compensated for the manual processing 
of the related accounts receivable balances in fiscal year 2006 were 
not effective in fiscal year 2007. This issue is included in the 
material weakness in SECï¿½s financial reporting process for fiscal year 
2007. 

SEC continues to make progress in resolving the information security 
weaknesses. Previously identified weaknesses, though, still need to be 
addressed, along with new weaknesses we found during this yearï¿½s audit. 
Therefore, we consider information security to be a significant 
deficiency as of September 30, 2007. In addition, we continued to 
identify the same weaknesses in controls over property and equipment 
during this yearï¿½s audit, and therefore, we considered this area to be 
a significant deficiency as of September 30, 2007. 

Although SEC had one material weakness and three significant control 
deficiencies in internal control, SECï¿½s financial statements were 
fairly stated in all material respects for fiscal years 2007 and 2006. 
However, the weaknesses in internal control noted above may adversely 
affect decisions by SEC management that is based, in whole or in part, 
on information that is inaccurate because of this weakness. In 
addition, unaudited financial information reported by SEC, including 
performance information, may also contain misstatements resulting from 
these weaknesses. 

We will be reporting additional details concerning the material 
weakness and the significant deficiencies separately to SEC management, 
along with recommendations for corrective actions. We will also be 
reporting less significant matters involving SECï¿½s system of internal 
controls separately to SEC management. 

Material Weakness: 

Financial Reporting Process: 

During this yearï¿½s audit, we found control deficiencies in SECï¿½s period-
end financial reporting process, in its calculation of accounts 
receivable for disgorgements and penalties, in its accounting for 
transaction fee revenue, and in preparing its financial statement 
disclosures. We believe these control deficiencies, collectively, 
constitute a material weakness. 

Period-End Financial Reporting Process: 

SECï¿½s financial management system does not conform to the systems 
requirements of OMB Circular No. A-127, Financial Management Systems. 
Specifically, Circular No. A-127 requires that financial management 
systems be designed to provide for effective and efficient 
interrelationships between software, hardware, personnel, procedures, 
controls, and data contained within the systems. Circular No. A-127 
further states that financial systems must have common data elements, 
common transaction processing, consistent internal controls, and 
efficient transaction entry, and that reports produced by the systems 
shall provide financial data that can be traced directly to the general 
ledger accounts. 

SECï¿½s period-end financial reporting process for recording 
transactions, maintaining account balances, and preparing financial 
statements and disclosures are supported to varying degrees by a 
collection of automated systems that are not integrated or compatible 
with its general ledger system. These automated systemsï¿½ lack of 
integration and compatibility require that extensive compensating 
manual and labor-intensive accounting procedures, involving large 
spreadsheets and numerous posting and routine correcting journal 
entries, dominate SECï¿½s period-end financial reporting process. Some of 
SECï¿½s subsidiary systems, such as that for property and equipment and 
for disgorgements and penalties, do not share common data elements and 
common transaction processing with the general ledger system. 
Therefore, intermediary information processing steps, including 
extensive use of spreadsheets, manipulation of data, and manual journal 
entries, are needed to process the information in SECï¿½s general ledger. 
This processing complicates review of the transactions and greatly 
increases the risk that the transactions are not recorded completely, 
properly, or consistently, ultimately affecting the reliability of the 
data presented in the financial statements. Our identification this 
year of errors in SECï¿½s calculation of disgorgement and penalty 
accounts receivable, discussed below, illustrates this risk. 

The risk to data reliability is further increased because basic 
controls over electronic data, such as worksheet and password 
protection, change history, and controls over data verification, such 
as control totals and record counts, were not consistently used during 
the data processing between the source systems and the general ledger. 
In addition, currently, SECï¿½s general ledger has several unconventional 
posting models and other limitations that prevent proper recording of 
certain transactions. As a result, SECï¿½s year-end reporting process 
requires extensive routine correcting journal entries to correct errors 
created by incorrectly posted transactions in its general ledger. We 
also noted that SECï¿½s documentation used to crosswalk individual 
accounts to the financial statement line items contained an incorrect 
routing to a line item on SECï¿½s Statement of Budgetary Resources for 
SECï¿½s year-end financial statement preparation process, which caused a 
material error in SECï¿½s draft financial statements. Also, SEC did not 
have detailed written documentation of its methodologies and processes 
for preparing financial statements and disclosures, increasing the risk 
of inconsistent and improper reporting and the risk that disruptions 
and error may arise when staff turnover occurs. 

Disgorgements and Penalties Accounts Receivable: 

As part of its enforcement responsibilities, SEC issues orders and 
administers judgments ordering, among other things, disgorgements, 
civil monetary penalties, and interest against violators of federal 
securities laws. [Footnote 5] SEC recognizes a receivable when SEC is 
designated in an order or a final judgment to collect the assessed 
disgorgements, penalties, and interest. At September 30, 2007, the 
gross amount of disgorgements and penalties accounts receivable was 
$330 million, with a corresponding allowance of $266 million resulting 
in a net receivable of $64 million. 

In our reviews of the interim June 30, 2007, and year-end September 30, 
2007, balances of accounts receivable for disgorgements and penalties, 
we found errors in SECï¿½s spreadsheet formulas resulting in 
overstatements of these receivable balances for both periods. These 
errors consisted of incorrectly changed spreadsheet formulas that 
affected the final calculated balances. SEC subsequently detected and 
corrected the June 30 errors, but then made different spreadsheet 
calculation errors in the year-end balances as of September 30, 2007, 
which we detected as part of our audit. SEC made adjustments to correct 
the errors, which were not material. However, SECï¿½s process for 
calculating its accounts receivable for disgorgements and penalties 
presents a high risk that significant errors could occur and not be 
detected. The main cause of these errors is the breakdown this year in 
the manual controls that were intended to compensate for the lack of an 
integrated accounting system for disgorgements and penalties, as 
discussed above. Specifically, although the journal entries posting the 
amounts to the general ledger were reviewed, this review did not extend 
to the preparation of the spreadsheet SEC used to document the accounts 
receivable calculation at June 30 and September 30, 2007, and 
therefore, was not sufficient to detect significant spreadsheet formula 
errors. 

Accounting for Transaction Fee Revenue: 

As one of its sources of revenue, SEC collects securities transaction 
fees paid by self-regulatory organizations (SRO) to SEC for stock 
transactions. SRO transaction fees are payable to the SEC twice a year 
ï¿½in March for the previous months September through December, and in 
September for the previous months January through August. Since the 
SROs are not required to report the actual volume of transactions until 
10 business days after each month end, SEC estimates and records an 
amount receivable for fees payable by the SROs to SEC for activity 
during the month of September. At September 30, 2007, SEC estimated 
this receivable amount at $100.6 million. Based on information SEC 
received in mid-October concerning the actual volume of transactions, 
the amount of claims receivable at September 30, 2007, should have been 
$74.4 million. 

In previous years, SEC made adjustments to reflect the 
actual volume of transactions; however, SEC does not have written 
procedures to help ensure that this adjustment is made as a routine 
part of its year-end financial reporting process. 

We proposed, and SEC 
posted, the necessary audit adjustment to correct the amount of 
transaction fee revenue for fiscal year 2007. 

Statement on Auditing Standards No.1, Codification of Auditing 
Standards and Procedures, which explains the accounting requirements 
for subsequent events, requires that events or transactions that 
existed at the date of the balance sheet and affect the estimates 
inherent in the process of preparing financial statements should be 
considered for adjustment to or disclosure in the financial statements 
through the date that the financial statements are issued. In addition, 
the concept of consistency in financial reporting provides that 
accounting methods, including those for determining estimates, once 
adopted, should be used consistently from period to period unless there 
is good cause to change. 

Preparing Financial Statement Disclosures: 

In our review of SECï¿½s year-end draft financial statement disclosures, 
we noted numerous errors including misstated amounts, improper break 
out of line items, and amounts from fiscal year-end 2006 incorrectly 
brought forward as beginning balances for fiscal year 2007. For 
example, in its disclosure for Custodial Revenues and Liabilities, SEC 
improperly excluded approximately $320 million in collections. In 
another example, for its disclosure on Fund Balance with Treasury, SEC 
misclassified approximately $90 million into incorrect line items. 
Also, in its disclosure for Fiduciary Assets and Liabilities, SECï¿½s 
beginning balances for Fund Balance with Treasury and for Liability for 
Fiduciary Activity were each misstated by $8.9 million due to errors in 
carrying forward ending balances from September 30, 2006. SEC revised 
the financial statement disclosures to correct the errors that we 
noted. We believe the cause of these and numerous other errors in the 
disclosures is due mainly to the lack of a documented timeline and 
process for completing the fiscal year 2007 financial statements and 
disclosures, including review of the disclosures. In addition, the 
cumbersome and complicated nature of SECï¿½s financial reporting process 
discussed above did not allow SEC finance staff sufficient time to 
carry out thorough and complete reviews of the disclosures in light of 
the November 15 reporting deadline. [Footnote 6] 

Significant Deficiencies: 

We also identified three control deficiencies that adversely affect 
SECï¿½s ability to meet its internal control objectives. These conditions 
concern deficiencies in controls over (1) information security, (2) 
property and equipment, and (3) accounting for budgetary resources, 
which are summarized below. 

Information Security: 

SEC relies extensively on computerized information systems to process, 
account for, and report on its financial activities and make payments. 
To provide reasonable assurance that financial information and 
financial assets are adequately safeguarded from inadvertent or 
deliberate misuse, fraudulent use, improper disclosure, or destruction, 
effective information security controls are essential. These controls 
include security management, access controls, configuration management, 
physical security, and contingency planning. Weaknesses in these 
controls can impair the accuracy, completeness, and timeliness of 
information used by management and increase the potential for 
undetected material misstatements in the agencyï¿½s financial statements. 

During fiscal year 2007, SEC made important progress in mitigating 
certain control weaknesses that were previously reported as unresolved 
at the time of our prior review. For example, SEC developed a 
comprehensive program for monitoring access activities to its computer 
network environment, tested and evaluated the effectiveness of controls 
for the general ledger system, and documented authorizations for 
software modifications. SEC also took corrective action to restrict 
access to sensitive files on its servers, change default database 
accounts that had known or weak passwords, and apply strong encryption 
key management practices for managing secure connections. 

Despite this progress, SEC has not consistently implemented certain key 
information security controls to effectively safeguard the 
confidentiality, integrity, and availability of its financial and 
sensitive information and information systems. During this yearï¿½s 
audit, we identified continuing and new information security weaknesses 
that increase the risk that (1) computer resources (programs and data) 
will not be adequately protected from unauthorized disclosure, 
modification, and destruction; (2) access to facilities by unauthorized 
individuals will not be adequately controlled; and (3) computer 
resources will not be adequately protected and controlled to ensure the 
continuity of data processing operations when unexpected interruptions 
occur. For example, SEC had not yet mitigated weaknesses related to 
malicious code attacks on SECï¿½s workstations, had not yet adequately 
documented access privileges for a major application, and had not yet 
implemented an effective intrusion detection system. New control 
weaknesses in authorization, boundary protection, configuration 
management, and audit and monitoring that we identified this year 
include for example, the use of a single, shared user account for 
posting journal vouchers in a financial application, inadequate 
patching of enterprise databases, and inadequate auditing and 
monitoring capabilities on its database servers. Lapses in physical 
security enabled unauthorized network access from a publicly accessible 
location within SEC Headquarters. In addition, SEC did not have 
contingency plans for key desktops that support manual processes such 
as the preparation of spreadsheets. These weaknesses existed, in part, 
because SEC has not yet fully implemented its information security 
program. 

Collectively, these problems represent a significant deficiency in 
SECï¿½s internal control over information systems and data. Specifically, 
the continuing and newly identified weaknesses decreased assurances 
regarding the reliability of the data processed by the systems and 
increased the risk that unauthorized individuals could gain access to 
critical hardware and software and intentionally or inadvertently 
access, alter, or delete sensitive data or computer programs. Until SEC 
consistently implements all key elements of its information security 
program, the information that is processed, stored, and transmitted on 
its systems will remain vulnerable, and management will not have 
sufficient assurance that financial information and financial assets 
are adequately safeguarded from inadvertent or deliberate misuse, 
fraudulent use, improper disclosure, or destruction. We will be issuing 
a separate report on issues we identified regarding information 
security concerns at SEC. 

Property and Equipment: 

SECï¿½s property and equipment consists of general-purpose equipment used 
by the agency; capital improvements made to buildings leased by SEC for 
office space; and internal-use software development costs for projects 
in development and production. SEC acquired approximately $27 million 
dollars in property and equipment during fiscal year 2007. 

Similar to our last yearï¿½s audit, during the course of testing fiscal 
year 2007 additions, we noted numerous instances of inaccuracies in 
recorded acquisition costs and dates for property and equipment 
purchases, as well as unrecorded property and equipment purchases, and 
errors in amounts capitalized and amortized for internal-use software 
projects. In addition, errors were carried forward from the previous 
year. These systemic errors did not materially affect the balances 
reported for property and equipment or the corresponding 
depreciation/amortization expense amounts in SECï¿½s financial statements 
for fiscal year 2007; however, these conditions evidence a significant 
deficiency in control over the recording of property and equipment that 
affects the reliability of its recorded balances for property and 
equipment. Specifically, SEC lacks a process that integrates controls 
over capitalizing and recording property and equipment purchases. For 
example, SEC does not have a formalized, documented process for 
comparing quantity and type of item received against the corresponding 
order for property purchases. In addition, SEC does not have sufficient 
oversight of the recording of acquisition dates and values of the 
capitalized property. Further, SECï¿½s lack of an integrated financial 
management system for accounting for property and equipment, as 
discussed above, requires compensating procedures, which were not 
effective, to ensure that manual calculations, such as those for 
depreciation and amortization, are accurate. Until it has a systemic 
process that incorporates effective controls over receiving, recording, 
capitalizing, and amortizing property and equipment purchases, SEC will 
not have sufficient assurance over the accuracy and completeness of its 
reported balances for property and equipment. 

Accounting for Budgetary Resources: 

For fiscal year 2007, SEC incurred $877 million in obligations, which 
represents legal liabilities against funds available to SEC to pay for 
goods and services ordered. At September 30, 2007, SEC reported that 
the amount of budgetary resources obligated for undelivered orders was 
$255 million, which reflects obligations for goods or services that had 
not been delivered or received as of that date. In our testing of 
undelivered order transactions for this yearï¿½s audit, we identified 
several concerns over SECï¿½s accounting for obligations and undelivered 
orders. Specifically, we found numerous instances in which SEC (1) 
recorded obligations prior to having documentary evidence of a binding 
agreement for the goods or services, (2) recorded invalid undelivered 
order transactions due to an incorrect posting configuration in SECï¿½s 
general ledger, and (3) made errors in recording new obligations and 
deobligations due to the use of incorrect accounts and by posting 
incorrect amounts in the general ledger. 

The majority of exceptions related to these issues, amounting to 
approximately $76 million, were corrected by SEC through adjusting 
journal entries. While the remaining uncorrected amounts did not 
materially affect the balances on the Statement of Budgetary Resources 
at September 30, 2007, ineffective processes that caused these errors 
constitute a significant deficiency in SECï¿½s internal control over 
recording and reporting of obligations, and puts SEC at risk that the 
amounts recorded in the general ledger and reported on SECï¿½s Statement 
of Budgetary Resources are misstated. Specifically, SECï¿½s general 
ledger is not configured to properly post related entries, thereby 
resulting in the need to routinely correct entries. Extensive reviews 
of the budgetary transactions, along with significant adjusting journal 
entries, are needed to compensate for the system limitations. The 
errors in recording new obligations and deobligations that we found in 
our audit indicate a lack of effective review over those transactions. 
Further, SEC does not have policies or internal controls to prevent 
recording of obligations that are not valid. Recording obligations 
prior to having documentary evidence of a binding agreement for the 
goods and services is a violation of the recording statute, [Footnote 
7] and may result in funds being reserved unnecessarily and therefore 
made unavailable for other uses should the agreement not materialize. 
In addition, early recording of obligations may result in charging 
incorrect fiscal year funds for an agreement executed in a later fiscal 
year. 

Compliance with Laws and Regulations: 

Our tests for compliance with selected provisions of laws and 
regulations disclosed no instances of noncompliance that would be 
reportable under U.S. generally accepted government auditing standards 
or OMB audit guidance. However, the objective of our audit was not to 
provide an opinion on overall compliance with laws and regulations. 
Accordingly, we do not express such an opinion. 

Consistency of Other Information: 

SECï¿½s Managementï¿½s Discussion and Analysis and other accompanying 
information contain a wide range of data, some of which are not 
directly related to the financial statements. We do not express an 
opinion on this information. However, we compared this information for 
consistency with the financial statements and discussed the methods of 
measurement and presentation with SEC officials. Based on this limited 
work, we found no material inconsistencies with the financial 
statements or nonconformance with OMB guidance. However, because of the 
internal control weaknesses noted above, misstatements may occur in 
related performance information. 

Objectives, Scope, and Methodology: 

SEC management is responsible for (1) preparing the financial 
statements in conformity with U.S. generally accepted accounting 
principles; (2) establishing, maintaining, and assessing internal 
control to provide reasonable assurance that the broad control 
objectives of FMFIA are met; and (3) complying with applicable laws and 
regulations. 

We are responsible for obtaining reasonable assurance about whether (1) 
the financial statements are presented fairly, in all material 
respects, in conformity with U.S. generally accepted accounting 
principles; and (2) management maintained effective internal control, 
the objectives of which are the following: 

* Financial reporting: Transactions are properly recorded, processed, 
and summarized to permit the timely and reliable preparation of 
financial statements in conformity with U.S. generally accepted 
accounting principles, and assets are safeguarded against loss from 
unauthorized acquisition, use, or disposition. 

* Compliance with applicable laws and regulations: Transactions are 
executed in accordance with (1) laws governing the use of budgetary 
authority, (2) other laws and regulations that could have a direct and 
material effect on the financial statements, and (3) any other laws, 
regulations, or governmentwide policies identified by OMB audit 
guidance. 

We are also responsible for (1) testing compliance with selected 
provisions of laws and regulations that could have a direct and 
material effect on the financial statements and for which OMB audit 
guidance requires testing and (2) performing limited procedures with 
respect to certain other information appearing in SECï¿½s Performance and 
Accountability Report. In order to fulfill these responsibilities, we: 

* examined, on a test basis, evidence supporting the amounts and 
disclosures in the financial statements; 

* assessed the accounting principles used and significant estimates 
made by SEC management; 

* evaluated the overall presentation of the financial statements; 

* obtained an understanding of SEC and its operations, including its 
internal control related to financial reporting (including safeguarding 
of assets) and compliance with laws and regulations (including 
execution of transactions in accordance with budget authority); 

* obtained an understanding of the design of internal controls related 
to the existence and completeness assertions relating to performance 
measures as reported in Managementï¿½s Discussion and Analysis, and 
determined whether the internal controls have been placed in operation; 

* tested relevant internal controls over financial reporting and 
compliance with applicable laws and regulations, and evaluated the 
design and operating effectiveness of internal control; 

* considered SECï¿½s process for evaluating and reporting on internal 
control and financial management systems under the FMFIA; and 

* tested compliance with selected provisions of the following laws and 
their related regulations:
- the Securities Exchange Act of 1934, as amended;
- the Securities Act of 1933, as amended;
- the Antideficiency Act;
- laws governing the pay and allowance system for SEC employees;
- the Prompt Payment Act; and
- the Federal Employeesï¿½ Retirement System Act of 1986. 

We did not evaluate all internal controls relevant to operating 
objectives as broadly defined by the FMFIA, such as those controls 
relevant to preparing statistical reports and ensuring efficient 
operations. We limited our internal control testing to controls over 
financial reporting and compliance. Because of inherent limitations in 
internal control, misstatements due to error or fraud, losses, or 
noncompliance may nevertheless occur and not be detected. We also 
caution that projecting our evaluation to future periods is subject to 
the risk that controls may become inadequate because of changes in 
conditions or that the degree of compliance with controls may 
deteriorate. 

We did not test compliance with all laws and regulations applicable to 
SEC. We limited our tests of compliance to those required by OMB audit 
guidance and other laws and regulations that had a direct and material 
effect on, or that we deemed applicable to, SECï¿½s financial statements 
for the fiscal year ended September 30, 2007. We caution that 
noncompliance may occur and not be detected by these tests and that 
this testing may not be sufficient for other purposes. 

We performed our work in accordance with U.S. generally accepted 
government auditing standards and OMB audit guidance. 

SECï¿½s management provided comments on a draft of this report. They are 
discussed and evaluated below and are reprinted in appendix III. 

SEC Comments and Our Evaluation: 

In commenting on a draft of this report, SECï¿½s Chairman said he was 
pleased to receive an unqualified opinion on SECï¿½s financial 
statements. 

The Chairman discussed SECï¿½s plans to remediate this 
material weakness before the end of fiscal 2008, and to address each of 
the findings and recommendations identified during the audit. 

The 
Chairman emphasized SECï¿½s commitment to enhance its controls in all 
operational areas and to ensure reliability of financial reporting, 
soundness of operations, and public confidence in SECï¿½s mission. 

The complete text of SECï¿½s comments is reprinted in appendix III. 

Signed by: 

David M. Walker: 
Comptroller General of the United States: 
November 13, 2007: 

[End of section] 

Appendix I: Managementï¿½s Discussion and Analysis: 

The Securities and Exchange Commission (SEC) administers the federal 
laws governing the U.S. securities markets. As such, the SEC plays a 
fundamental role in maintaining the integrity and vitality of America's 
markets and protecting the interests of investors. The following 
section provides high-lights of the agency's efforts during fiscal year 
(FY) 2007. It contains information on the agency's mission and 
strategic goals, notable achievements, performance results, financial 
highlights, and management assurances. 

The Securities and Exchange Commission aims to be the standard against 
which federal agencies are measured. The SEC's vision is to strengthen 
the integrity and soundness of U.S. securities markets for the benefit 
of investors and other market participants, and to conduct its work in 
a manner that is as sophisticated, flexible, and dynamic as the 
securities markets it regulates. 

The mission of the SEC is to protect investors; maintain fair, orderly, 
and efficient markets; and facilitate capital formation. 

* Integrity; 
* Fairness; 
* Teamwork; 
* Accountability; 
* Resourcefulness; 
* Commitment to Excellence. 

* Enforce compliance with federal securities laws: 
The Commission seeks to detect problems in the securities markets, 
prevent and deter violations of federal securities laws, and alert 
investors to possible wrongdoing. When violations occur, the SEC aims 
to take prompt action to halt the misconduct, sanction wrongdoers 
effectively, and, where possible, return funds to harmed investors. 

* Promote healthy capital markets through an effective and flexible 
regulatory environment: 
The savings and investments of every American are dependent upon 
healthy capital markets. The Commission seeks to sustain an effective 
and flexible regulatory environment that will facilitate innovation, 
competition, and capital formation to ensure that our economy can 
continue to grow and create jobs for our nation's future. Enhancing the 
productivity of America is a key goal that the SEC works to achieve by 
increasing investor confidence in the capital markets. 

* Foster informed investment decision making: 
An educated investing public ultimately provides the best defense 
against fraud and costly mistakes. The Commission works to promote 
informed investment decisions through two main approaches: reviewing 
disclosures of companies and mutual funds to ensure that clear, 
complete, and accurate information is available to investors; and 
implementing a variety of investor education initiatives. 

* Maximize the use of SEC resources: 
The investing public and the securities markets are best served by an 
efficient, well-managed, and proactive SEC. The Commission strives to 
improve its organizational effectiveness by making sound investments in 
human capital and new technologies, and by enhancing internal controls. 

The SEC is an independent federal agency established pursuant to the 
Securities Exchange Act of 1934. It is headed by a bipartisan five-
member Commission, comprised of the Chairman and four Commissioners, 
who are appointed by the President and confirmed by the Senate (see 
Appendix A: Commissioners). The Chairman serves as the chief executive 
officer. The SEC is organized into four main divisions: Corporation 
Finance, Enforcement, Investment Management, and Market Regulation. It 
also has 18 functional offices. The Commission's headquarters are in 
Washington, D.C., and it has 11 regional offices throughout the 
country. In FY 2007, SEC received budget authority of $882 million. At 
September 30, 2007, the SEC had utilized 3,470 Full-time Equivalents 
(FTE), including 3,431 permanent and 39 temporary FTE. 

Table 1.1: SEC Organization Chart: 

Top Level: 
* Chairman, Office of the Chairman; 
* Commissioner; 
* Commissioner; 
* Commissioner; 
* Commissioner. 

Second Level: 
* Corporation Finance; 
* Administrative Law Judges; 
* Enforcement; 
* Risk Assessment; 
* Investment Management; 
* Economic Analysis; 
* Market Regulation; 
* Equal Employment Opportunity; 
* Executive Director;
- Financial Management; 
- Human Resources; 
- Administrative Services; 
* Information Technology; 
* Investor Education and Advocacy; 
* Inspector General; 
* Compliance, Inspection and Examinations; 
* International Affairs; 
* General Counsel; 
* Legislative and Intergovernmental Affairs; 
* Chief Accountant; 
* Secretary; 
* Public Affairs. 

Third Level (direct link to Enforcement and Compliance, Inspection and 
Examinations: 
* New York Regional Office; 
* Boston Regional Office; 
* Philadelphia Regional Office; 
* Atlanta Regional Office; 
* Miami Regional Office; 
* Chicago Regional Office; 
* Fort Worth Regional Office; 
* Denver Regional Office; 
* Salt Lake Regional Office; 
* Los Angeles Regional Office; 
* San Francisco Regional Office. 

[End of table] 

The following are highlights of the SEC's activities during fiscal year 
2007: 

Enforcing Compliance with Securities Law: 

Increased Protection for Investors in Fledge Funds: 
During the past year, the SEC created a hedge fund working group within 
the Division of Enforcement. Working with other federal law enforcement 
agencies and self-regulatory organizations, the group leads agency 
efforts to combat hedge fund insider trading. In the most significant 
insider trading case in 20 years, the SEC filed charges against 14 
defendants in a scheme involving hedge funds that netted more than $15 
million in illegal profits on thousands of trades, using information 
stolen from UBS Securities LLC and Morgan Stanley. 

Combating Senior Fraud: 
In 2007 the SEC maintained its significant enforcement, examination, 
and investor education initiatives designed to prevent and punish fraud 
aimed at seniors. We partnered with other regulators and law 
enforcement agencies in several significant enforcement actions and 
examination sweeps, and we joined with the North American Securities 
Administrators Association, the Financial Industry Regulatory 
Authority, and consumer organizations including AARP to sponsor events 
to educate senior investors across the U.S. Through this initiative, 
the Commission is targeting fraudulent investment schemes and 
aggressive sales tactics, including abusive "free lunch" sales 
seminars, and working to arm older Americans with information they can 
use to identify and avoid them. These efforts are targeted not only at 
seniors but also their caregivers, as well as pre-retirement workers, 
who are encouraged to plan for contingencies later in life. 

Anti-Spam Initiative: 
In March 2007, the SEC launched an initiative to combat spam-driven 
stock market manipulations, which resulted in the trading suspension of 
39 companies susceptible to spam stock promotions. This stepped-up SEC 
effort to protect investors from potentially fraudulent e-mail 
solicitations hyping small company stocks also brought several spam-
related enforcement actions. The agency's effort was credited for a 
significant reduction in financial spam in a report by a major private-
sector Internet security firm, which stated that a 30 percent decrease 
in stock market spam "was triggered by actions taken by the U.S. 
Securities and Exchange Commission, which limited the profitability of 
this type of spam." In addition, spam-related complaints to the SEC's 
Online Complaint Center were cut in half. 

Alerting Investors to Marketplace Impostors: 
The SEC introduced a new Web site to alert investors worldwide about 
unregistered entities engaged in solicitations of securities 
transactions. Through the "Public Alert: Unregistered Soliciting 
Entities" (PAUSE) program, the Commission publishes factual information 
on our Web site about unregistered soliciting entities that have been 
the subject of complaints forwarded by investors and others around the 
globe, including foreign securities regulators. By immediately alerting 
the public to information we receive in complaints, the SEC aims to 
help retail investors discover the true nature of question-able 
investment solicitations before they invest. 

Internet Enforcement: 
In 2007, the Commission and its Office of Internet Enforcement 
concentrated significant efforts to combat the growing threats of
identity theft and account intrusions. One case resulted in the capture 
of $3 million in a Latvian bank accountï¿½one of the largest asset 
freezes in agency history. Another landmark case, brought in 
conjunction with the Omaha U.S. Attorney's Office, marked the first 
joint criminal and civil prosecution of an account intrusion. 

Micro-Cap Fraud: 
In 2007, in addition to bringing several important cases in the area, 
the Commission announced the creation of a new group within the 
Division of Enforcement to lead the SEC's efforts against micro-cap 
fraud. The Commission created the unit in response to the growing 
threat of fraud involving small issuers whose securities are not traded 
on registered exchanges. The new group will primarily focus on market 
manipulation and offering frauds, as well as other market violations. 
It also will act as an expert within the SEC and a liaison with 
domestic and foreign authorities regarding micro-cap fraud issues. 

Improving Disclosure for Investors: 

Interactive Data: 
In 2007, the SEC created the Office of Interactive Disclosure to lead 
the agency's global efforts to transform the nature of financial 
reporting by public companies. Nearly 100 countries are involved in the 
development of eXtensible Business Reporting Language, or XBRL. The use 
of XBRL can make the information in financial reports completely 
interactive, so that investors, analysts, journalists, and preparers of 
financial statements can use the information in ways never before 
possible. If public companies in many nations file financial reports 
using interactive data, users of those statements would be able to make 
immediate comparisons of a wide range of industry peers. The new Office 
is working with key public and private sector stakeholders in the 
United States and around the world to advance the use of interactive
data in financial reporting. It is also working with the SEC's Office 
of Information Technology to transform the agency's financial reporting 
database, EDGAR, into an interactive data platform. 

Over the last few years, the SEC has encouraged public companies to 
file their financial reports with the agency using interactive data as 
part of a voluntary pilot program. During the year, the SEC's 
interactive data initiative continued to grow, with the market 
capitalization of companies participating in the program topping $2 
trillion. In 2007, NYSE Euronext became the first stock exchange to 
submit financial reporting information in the U.S. using interactive 
data. 

The Commission also adopted rules permitting mutual funds to submit 
risk/return summary information from their prospectuses using 
interactive data under the voluntary program. In the near future, 
investors will find it far easier to access information about a 
participating fund's investment objectives and strategies, risks, 
costs, and historical performance via the agency's Web site. 

During 2007, the Commission also announced the completion of all work 
on developing interactive data tags for the entire system of U.S. 
generally accepted accounting principles (GAAP). 

Protecting Investors in Municipal Securities: 
The Commission is redoubling its efforts to improve disclosure and 
accounting practices in this sizable market affecting millions of 
individual investors. The Commission entered an order sanctioning the 
City of San Diego for committing securities fraud by failing to 
disclose billions of dollars in pension and retiree health care 
obligations in its sale of its municipal bonds. The agency delivered a 
white paper to Congress outlining our recent enforcement actions and 
highlighting areas of possible legislative reform, in light of the 
growing size and importance of the municipal securities market and the 
significant ways in which it has changed over time. The white paper 
proposed, among other things, that offering documents and periodic 
reports provided to investors contain information similar to what is
required for all other securities offerings, that information on 
municipal securities be made available on a more timely basis, and that 
municipal issuers be required to use generally accepted governmental 
accounting standards. 

Understandable Disclosure of Executive Compensation: 
The Commission's new rules governing executive compensation disclosure 
took effect in fiscal 2007. These rules have significantly improved the 
quality and clarity of public company information about how, and how 
much, top executives are paid. To gauge the effectiveness of the new 
disclosures, the Commission conducted an across-the-board review of the 
first year's experience under the new rules. The review determined that 
investors are in fact receiving more comprehensive information on 
executive compensation under the new rules than has been available in 
the pastï¿½and that for the first time, investors can quickly see each 
executive's total compensation from all sources, and compare these 
figures from company to company. 

Reducing Complexity in Financial Reporting: 
The SEC created an advisory committee to examine the causes of, and 
remedies for, excessive complexity in the U.S. financial reporting 
system. The committee will provide recommendations about how to improve 
the usefulness of financial information to investors, reduce 
unnecessary complexity for U.S. companies, and better utilize advances 
in technology to enhance all aspects of financial reporting. 

Promoting an Effective and Flexible Regulatory Environment: 

Rationalizing Implementation of the Sarbanes-Oxley Act: 
The SEC voted to repeal the Public Company Accounting Oversight Board's 
(PCAOB) audit standard under Section 404 of the Sarbanes-Oxley Act, and 
to replace it with a new standard that is risk-based, materiality 
focused, top-down, and scalable to company size and complexity. As a 
result, investors will benefit from reduced compliance costs and more 
focused audits of internal controls The Commission also voted to 
approve new interpretive guidance to help public companies strengthen 
their internal controls over financial reporting while reducing 
unnecessary costs, particularly at smaller companies. In writing this 
guidance, the Commission worked closely with the PCAOB to align the 
interpretive guidance and the new audit standard. Together, the new 
interpretive guidance and the new audit standard will help focus 
discussions between managers and auditors on what matters most to 
investorsï¿½the risk that material misstatements in the company's 
financials will not be prevented or detected in a timely manner. 

Improving Competition in Securities Brokerage: 
The SEC and the Board of Governors of the Federal Reserve System 
announced the adoption of final joint rules to define when banks have 
to register as securities broker-dealers under the Gramm-Leach-Bliley 
Act. The rules will foster greater competition in the financial 
services industry to the benefit of investors. 

Establishment of FINRA: 
The Commission approved the creation of the Financial Industry 
Regulatory Authority (FINRA), which is now responsible for regulatory 
oversight of all securities firms that do business with the public. The 
new entity replaces the National Association of Securities Dealers and 
the New York Stock Exchange's member regulation operations. The 
creation of FINRA will enable the establishment of a single set of 
rules that can operate across markets, eliminating regulatory "seams" 
that often made enforcement difficult. 

Protecting Investors in Expanding Markets: 

Global Affiliation of Exchanges: 
The Commission approved the consolidation of the businesses of NYSE 
Group, Inc., the publicly-traded company that owns the New York Stock 
Exchange and NYSE Area, and Euronext N.V., a company organized under 
the laws of the Netherlands and owner of five European exchanges. NYSE 
Group and Euronext are now wholly-owned subsidiaries of a new publicly-
traded holding company, NYSE Euronext. The combination was conditioned 
on a number of important regulatory improvements for the benefit of 
investors. 

International Regulatory Cooperation: 
The Commission entered into an information-sharing arrangement with the 
College of Euronext Regulators (comprised of the five European 
authorities overseeing the Euronext markets). The agreement provides a 
framework for coordination and consultation in connection with the 
oversight of NYSE Euronext and its markets. 

The SEC also increased efforts to formalize regulatory information-
sharing arrangements with other international counterparts. These allow 
confidential sharing of issuer-specific information, with the ultimate 
goal of encouraging high-quality and consistent application of 
accounting standards. Additionally, the SEC finalized cooperative 
arrangements related to the supervision and oversight of markets and 
market participants, and handled over 800 requests related to 
enforcement investigations and cases. 

International Financial Reporting Standards: 
The Commission announced a series of actions in connection with its 
consideration of the effect of international financial reporting 
standards on U.S. markets, including a proposal to accept financial 
statements from foreign private issuers prepared in accordance with 
International Financial Reporting Standards (IFRS) as published by the 
International Accounting Standards Board (IASB) without requiring 
reconciliation to GAAP. 

The Commission also issued a concept release seeking comment on whether 
U.S. issuers should have the option of preparing financial statements 
in accordance with IFRS. Under the SEC's current rules, U.S. issuers 
are required to prepare financial statements in accordance with GAAP. 
Nearly 100 countries require or allow the use of IFRS. 

Foreign Private Issuer Exchange Act Deregistration: 
In March 2007, the Commission approved changes to rules for foreign 
private issuer deregistration eliminating conditions that had been 
considered a barrier to entry. The rules provide foreign private 
issuers with greater flexibility in accessing and exiting U.S. capital 
markets, encouraging participation in U.S. markets and providing 
increased investor choice. 

This fiscal year, the Commission worked diligently to meet or exceed 
performance targets. Of the 24 performance measures the Commission is 
reporting on in FY 2007, the SEC met or exceeded 21 of 28 planned 
performance levels. The agency also is reporting four indicators which 
provide further context for understanding the agency's activities. The 
indicators are not included in the following table, because it is 
inappropriate for the agency to conduct these activities with an eye 
towards hitting predetermined targets. 

A summary of the SEC's performance levels for FYs 2006 and 2007, 
organized by goal, is presented in Table 1.2. A discussion of the 
agency's program achievements and specific performance results is 
located in Section 2: Performance Section. 

Table 1.2, Performance Results Summary: 

Key: Level Of Performance Attained: 

Goal 1: Enforce Compliance With The Federal Securities Laws: 

1. Distribution of cases across core enforcement areas: 
FY06: Performance Level Met;
FY07: Performance Level Met. 

2. Enforcement cases successfully resolved: 
FY06: Performance Level Exceeded;
FY07: Performance Level Exceeded. 

3. Percentage of first enforcement cases filed within two years: 
FY06: Performance Level Not Met;
FY07: Performance Level Not Met. 

4. Number of requests to and by foreign regulators for enforcement 
assistance: 
FY06: Performance Level Exceeded;
FY07: Performance Level Exceeded. 

5. Investment advisers and investment companies examined; 

a. Investment advisers: 
FY06: Performance Level Not Met;
FY07: Performance Level Met. 

b. Investment companies: 
FY06: Performance Level Not Met;
FY07: Performance Level Not Met. 

Goal 2: Promote Healthy Capital Markets Through An Effective And 
Flexible Regulatory Environment: 

1. Percentage of responses to exemptive, no-action letter, and 
interpretive requests issued within six months; 
FY06: Performance Level Exceeded;
FY07: Performance Level Exceeded. 
	
2. Percentage of U.S. households owning mutual funds: 
FY06: Performance Level Exceeded;
FY07: Performance Level Met. 

3. Mutual fund share of total retirement assets; 
FY06: Performance Level Exceeded;
FY07: Performance Level Exceeded. 

4. Equity portfolio holdings of U.S. investment companies as a 
percentage of total U.S. stock market capitalization; 
FY06: Performance Level Exceeded;
FY07: Performance Level Exceeded. 

5. Percentage of SRO rule filings closed in less than 60 days; 
FY06: Performance Level Exceeded;
FY07: Performance Level Exceeded. 

6. Global access to U.S. markets: 
a. Number of new foreign private issuers registering; 
FY06: Performance Level Exceeded;
FY07: Performance Level Exceeded. 

b. Dollar amount of securities registered by foreign private issuers; 
FY06: Performance Level Not Met;
FY07: Performance Level Not Met. 

7. Milestones for international regulatory cooperation: 
FY06: Performance Level Met;
FY07: Performance Level Met. 

Goal 3: Foster Informed Investment Decision Making: 

1. Number and percentage of investor complaints, questions, and 
requests completed by the Office of Investor Education and Advocacy 
(OIEA) within seven calendar days; 
FY06: Performance Level Not Met;
FY07: Performance Level Met. 

2. OIEA publications distributed by the General Services Administration 
(GSA): 
FY06: [Empty];
FY07: Performance Level Exceeded. 

3. Annual number of on-line searches for EDGAR filings; 
FY06: Performance Level Exceeded;
FY07: Performance Level Exceeded. 

4. Percentage of reporting corporations and investment companies with 
disclosures reviewed by the SEC:
a. Corporations: 
FY06: Performance Level Not Met;
FY07: Performance Level Exceeded. 

b. Investment companies; 
FY06: Performance Level Exceeded;
FY07: Performance Level Exceeded. 

5. Percentage of investment adviser and investment company 
transactional reviews completed within timeliness goals; 
FY06: Performance Level Exceeded;
FY07: Performance Level Exceeded. 

6. Average time to issue initial comments on Securities Act filings; 
FY06: Performance Level Met;
FY07: Performance Level Met. 

7. Percentage of forms and submissions filed electronically and In a 
structured format; 
FY06: Performance Level Met;
FY07: [Empty]. 

Goal 4: Maximize The Use Of Sec Resources: 

1. Percentage of IT projects that adhere to the agency's capital 
planning investment control process; 
FY06: Performance Level Not Met;
FY07: Performance Level Exceeded. 

2. Milestones for major IT projects; 
FY06: Performance Level Met;
FY07: Performance Level Met. 

3. Receive an unqualified audit opinion on the SEC's audited financial 
statements with no material weaknesses noted in internal controls over 
financial reporting ICFR: 
a. Audit opinion; 
FY06: Performance Level Met;
FY07: Performance Level Met. 

b. Material weaknesses; 
FY06: Performance Level Met;
FY07: Performance Level Not Met. 

4. Staff turnover rate: 
FY06: Performance Level Not Met;
FY07: Performance Level Not Met. 

5. Milestones achieved on major human capital initiatives: 
FY06: Performance Level Met;
FY07: Performance Level Not Met. 

[End of table] 

The principal financial statements included in Section 3: Financial 
Section have been prepared to report the financial position and results 
of operations of the SEC, pursuant to the requirements of 31 U.S.C. 
3515 (b). While the statements have been prepared from the books and 
records of the SEC in accordance with GAAP for Federal entities and the 
formats prescribed by the Office of Management and Budget (OMB), the 
statements are in addition to the financial reports used to monitor and 
control budgetary resources which are prepared from the same books and 
records. 
 
The statements should be read with the realization that they are for a 
component of the U.S. Government, a sovereign entity. 

The Improper Payments Information Act (IPIA) of 2002 requires federal 
agencies to review all programs and activities, identify those that are 
susceptible to significant erroneous payments, determine an annual 
estimated amount of erroneous payments made in those programs, and 
report the actions it is taking to reduce erroneous payments. In FY 
2007, the SEC identified and reviewed two programs that had a potential 
high risk for improper payments. For IPIA reporting purposes, 
significant erroneous payments are defined as annual payments exceeding 
both 2.5 percent of program payments and $10 million. SEC projections 
are well below both thresholds. IPIA reporting details are provided in 
Section 4: Other Accompanying Information. 

Overview: 

The SEC's financial statements were prepared in conformity with U.S. 
GAAP and OMB Circular A-136, Financial Reporting Requirements. The 
financial statements, footnotes, and auditor's opinion appear in 
Section 3 of this Performance and Accountability Report. A summary of 
the SEC's major financial activities in FY 2007 and FY 2006 is 
presented below. 

Balance	Sheet and Net Position: 

Presented below is a condensed Balance Sheet for comparison and 
analysis. 

Table 1.3: Condensed Balance Sheet, as of September 30, 2007 and 
September 30, 2006, (in Thousands):	 

Fund Balance with Treasury: 
FY 2007: $5,888,039; 	
FY 2006: $5,178,893; 	
$ Change: $709,146; 	
% Change: 14. 

Investments: 
FY 2007: 3,602,511; 	
FY 2006: 3,674,528; 	
$ Change: (72,017); 	
% Change: -2. 

Accounts Receivableï¿½Federal Agencies: 
FY 2007: 155; 	
FY 2006: 154,506; 	
$ Change: (154,351); 	
% Change: -100. 

Accounts Receivableï¿½Public: 
FY 2007: 138,693; 	
FY 2006: 177,491; 	
$ Change: (38,798); 	
% Change: -22. 

Advances and Prepayments: 
FY 2007: 2,100; 	
FY 2006: 974; 	
$ Change: 1,126; 	
% Change: 116. 

Property, Plant and Equipment: 
FY 2007: 98,280; 	
FY 2006: 103,631; 	
$ Change: (5,351); 	
% Change: -5. 

Total Assets: 
FY 2007: 9,729,778; 	
FY 2006: 9,290,023; 	
$ Change: 439,755; 	
% Change: 5. 

Accounts Payable: 
FY 2007: 49,249; 	
FY 2006: 62,135; 	
$ Change: (12,886); 	
% Change: -21. 

Accrued Payroll, Benefits & Leave: 
FY 2007: 62,360; 	
FY 2006: 59,615; 	
$ Change: 2,745; 	
% Change: 5. 

Registrants' Deposit Accounts: 
FY 2007: 61,689; 	
FY 2006: 57,464; 	
$ Change: 4,225; 	
% Change: 7. 

Fiduciary Liability: 
FY 2007: 3,615,760; 	
FY 2006: 3,834,662; 	
$ Change: (218,902); 	
% Change: -6. 

Custodial Liability: 
FY 2007: 63,614; 	
FY 2006: 71,545; 	
$ Change: (7,931); 	
% Change: -11. 

Capital Lease Liability: 
FY 2007: 16,865; 	
FY 2006: 27,641; 	
$ Change: (10,776); 	
% Change: -39. 

Other Accrued Liabilities: 
FY 2007: 6,473; 	
FY 2006: 14,839; 	
$ Change: (8,366); 	
% Change: -56. 

Total Liabilities: 
FY 2007: 3,876,010; 	
FY 2006: 4,127,901; 	
$ Change: (251,891); 	
% Change: -6. 

Unexpended Appropriations: 
FY 2007: [Empty]; 	
FY 2006: 9,201;	
$ Change: (9,201); 	
% Change: -100. 

Cumulative Results of Operations: 
FY 2007: 5,853,768; 	
FY 2006: 5,152,921; 	
$ Change: 700,847; 	
% Change: 14. 

Total Net Position: 
FY 2007: 5,853,768; 	
FY 2006: 5,162,122; 
$ Change: 691,646; 
% Change: 13. 

Total Liabilities and Net Position: 
FY 2007: $9,729,778; 	
FY 2006: $9,290,023; 
$ Change: $439,755; 
% Change: 5. 

[End of table] 

Assets: 

Fund Balance with Treasury: 
In FY 2007, Fund Balance with Treasury increased to 60.5 percent of 
total assets from 55.7 percent of total assets in FY 2006. The increase 
in funds held by the SEC is attributed to collections in excess of the 
current year's appropriated funding. The revenues collected include 
securities transaction fees, securities registration fees and other 
fees as described below under "Net Cost of Operations." 

Investments: 
The SEC's Investments balance consists entirely of disgorgement and 
penalties collected from securities law violators plus related interest 
earned. These funds are held by the SEC pending future distribution to 
harmed investors. The SEC invests these funds in overnight and short-
term market-based Treasury bills issued through the Treasury 
Department's Bureau of Public Debt. Investments held by the SEC have 
increased dramatically since FY 2005. This increase is the result of 
provisions in the Sarbanes-Oxley Act of 2002 which allowed for the 
distribution of penalties to harmed investors augmented by certain 
unusually large disgorgement collections in FY 2006. The investment 
balance is expected to decrease as fund distributions accelerate. In FY 
2007, new collections transferred to investments of $314.5 million were 
offset by distributions to harmed investors of $580.5 million. 

Accounts Receivable: 
At September 30, 2007 and 2006, the SEC's Accounts Receivable from the 
public is $404.7 million and $353.6 million, respectively, offset by an 
estimated allowance for doubtful accounts of $266.0 million and $176.1 
million, respectively. The $38.8 million decrease in net Accounts 
Receivables from the public is related to a decrease in receivables 
established from enforcement-related actions and a decrease in 
securities-related receivables as a result of the reduction in fee 
rates in FY 2007. 

The $154.3 million decrease in Federal Receivables is due to a 
receivable at the end of 2006 relating to an order to transfer funds 
from a Federal court late in September 2006. 

Liabilities: 

The SEC's liabilities consist of routine operating accounts payable, 
accrued payroll and benefits, registrant deposit accounts, and 
fiduciary and custodial liabilities associated with disgorgement and 
penalties assessed against securities law violators. 

Custodial Liability: 
The Custodial Liability relates to disgorgement and penalty receivables 
assessed against securities law violators. The SEC records a custodial 
liability for the net amount of such receivables, after taking into 
account the estimated allowance for doubtful accounts. Upon collection, 
these amounts will either be transferred to the fiduciary accounts or 
transferred to the General Fund of the Treasury. The net decrease is 
due to a lower volume of high penalty financial fraud cases in FY 2007. 

Fiduciary Liability: 
The SEC's largest liability is the Fiduciary Liability. This liability 
reflects amounts collected by the SEC in enforcement proceedings that 
are held for future distribution to harmed investors. When collected, 
these receipts are held as fiduciary assets in Fund Balance with 
Treasury or Investments, pending distribution to investors, and this 
equal and offsetting liability is reported on the Balance Sheet. The 
net decrease of $218.9 million in Fiduciary Liability is due to efforts 
by the SEC to accelerate the process of distributing funds to harmed 
investors. 

Net Position: 

The increase in Net Position of $691.6 million in FY 2007 is the result 
of collections of securities transaction, registration and other fees 
in excess of program costs for current year operations. 

Net Cost of Operations: 

The Statement of Net Cost of Operations represents the gross cost 
incurred by the SEC less exchange revenue earned 

Table 1.4: Condensed Statement of Net Cost, For the years ended 
September 30, 2007 and September 30, 2006 (In Thousands): 

Enforce compliance with federal securities laws: 
FY 2007: $529,454; 
FY 2006: $579,076; 
$ CHANGE: $(49,622); 
% CHANGE: -9. 

Promote healthy capital markets through an effective and flexible 
regulatory environment: 
FY 2007: 79,704; 
FY 2006: 77,263; 
$ CHANGE: 2,441; 
% CHANGE: 3. 

Foster informed investment decision making: 
FY 2007: 135,917; 
FY 2006: 135,856; 
$ CHANGE: 61; 
% CHANGE: 0. 

Maximize the use of SEC resources: 
FY 2007: 97,466; 
FY 2006: 96,728; 
$ CHANGE: 738; 
% CHANGE: 1. 

Total Gross Program Cost: 
FY 2007: 842,541; 
FY 2006: 888,923; 
$ CHANGE: (46,382); 
% CHANGE: -5. 

Less: Earned Revenue Not Attributed to Programs: 
FY 2007: 1,507,750; 
FY 2006: 1,882,619; 
$ CHANGE: (374,869); 
% CHANGE: -20. 

Net (Income) from Operations: 
FY 2007: $(665,209); 
FY 2006: $(993,696); 
$ CHANGE: $328,487; 
% CHANGE: -33. 
				
[End of table] 

For FY 2007 and 2006, the SEC's net income from operations totaled 
$665.2 million and $993.7 million, respectively. 

The SEC's Earned Revenue Not Attributed to Programs consists of 
revenues from fees paid pursuant to the Securities Act of 1933 and the 
Securities Exchange Act of 1934. These fees consist of securities 
transaction fees paid by securities exchanges, and securities 
registration, tender offer, merger, and other fees paid by issuers. The 
fees are used to fund SEC programs and operations up to the limits 
established through the annual appropriation process. The SEC reports 
this revenue as "not attributed to programs" since the fees are 
generated by the operations of the SEC as a whole, rather than the 
efforts of one program or operating activity. 

Exchange revenue decreased by $374.9 million due to a decrease in the 
exchange fee rates in 2007. The rates changed as follows: (i) proxy 
solicitations and statements in corporate control transactions fees 
decreased to $30.70 per million from $107.00 per million; (ii) 
securities transaction fees on the exchange and in the over-the-counter 
markets decreased to $15.30 per million from $30.70 per million; and 
(iii) the assessment or security futures transactions decreased to 
$0.0042 for each round turn transaction from the rate of $0.009 for 
each such transaction. 

The 5 percent decrease in program costs reflects the fact that the SEC 
and most other government agencies operated on a continuing resolution 
appropriation in FY 2007. In addition, FY 2006 included certain non-
recurring costs related to the occupancy of new operating locations in 
Washington D.C. and New York. 

Budgetary Resources and Outlays: 

The Statement of Budgetary Resources provides information on the 
budgetary resources that were made available to the SEC during the 
fiscal year and the status of those resources at the end of the fiscal 
year. The SEC receives its funding from fee revenue earned, which must 
be appropriated by Congress before it can be used by the Commission. 

Table 1.5: Selected Budgetary Resources, for the years ended September 
30 2007 and September 30, 2006 (In Thousands):	 

Budgetary Resources: 
FY 2007: $966,607; 
FY 2006: $5,775,491; 
$ Change: $(4,808,884); 
% Change: -83. 

Collections: 
FY 2007: 1,538,749; 
FY 2006: 1,903,648; 
$ Change: (364,899); 
% Change: -19. 

Non-Reimbursable Obligations: 
FY 2007: 876,274; 
FY 2006: 896,911; 
$ Change: (20,637); 
% Change: -2. 

Net Outlays/(Collections): 
FY 2007: 710,848; 
FY 2006: 981,734; 
$ Change: (270,886); 
% Change: -28. 

[End of table] 

Budgetary Resources consist of the resources available to the SEC at 
the beginning of the year, plus the appropriations, spending authority 
from offsetting collections, and other budgetary resources received 
during the year. Total resources decreased by $4.8 billion in FY 2007. 
This decrease is primarily due to a change in accounting principle 
related to prior year collections in excess of budgetary authority. As 
a result of this change, the financial statement fine, Unobligated 
Balance, Brought Forward, October 1, decreased to $186.7 million from 
the reported $4,878 million FY 2006 ending balances of unobligated 
funds. The prior year collections previously reported in this line 
continue to be reported on the Balance Sheet in Fund Balance with 
Treasury and Cumulative Results of Operations. However, these amounts 
are no longer reported as budgetary resources of the SEC. See Note 1.0 
Change in Accounting Principle in the Financial Section for additional 
discussion of this accounting change. The reduction in collections of 
$364.9 million is a direct result of the reduction in rates, as 
referred to in the Net Cost of Operations. 

Obligations and Outlays: 

The decrease of $20.6 million in non-reimbursable obligations for FY 
2007 reflects the fact that the SEC and most other government agencies 
operated on a continuing resolution appropriation in FY 2007.
Net Outlays reflect disbursements net of offsetting collections and 
distributed offsetting receipts. The decrease in Net Collections was 
primarily due to the FY 2007 reduction in exchange fee rates as 
mentioned above. 

Custodial Activity: 

The Statement of Custodial Activity reports the collections by the SEC 
of disgorgement and penalty amounts from securities laws violators. 
These collections constitute non-exchange revenue, as they arise from 
the SEC's authority to demand payment from violators of the law. 

Table 1.6: Condensed Statement of Custodial Activity, for the years 
ended September 30. 2007 and September 30, 2006	(In Thousands):	 

Sources of Collections: Disgorgement & Penalties: 
FY 2007: $496,386; 
FY 2006: $1,804,043; 
$ Change: $(1,307,657); 
% Change: -72. 

Sources of Collections: Other: 
FY 2007: 138; 
FY 2006: 90; 
$ Change: 48; 
% Change: 53. 

Accrual Adjustment: 
FY 2007: (7,931); 
FY 2006: (23,967); 
$ Change: 16,036; 
% Change: 67. 

Total Custodial Revenue: 
FY 2007: 488,593; 
FY 2006: 1,780,166; 
$ Change: (1,291,573); 
% Change: -73. 

Disbursed to: Department of Treasury: 
FY 2007: 176,761; 
FY 2006: 122,030; 
$ Change: 54,731; 
% Change: 45. 

Disbursed to: Other: 
FY 2007: 319,763; 
FY 2006: 1,682,103; 
$ Change: (1,362,340); 
% Change: -81. 

Change in Liability Accounts: 
FY 2007: (7,931); 
FY 2006: (23,967); 
$ Change: 16,036; 
% Change: 67. 

Total Disposition of Collections: 
FY 2007: $488,593; 
FY 2006: $1,780,166; 
$ Change: $(1,291,573); 
% Change: -73. 

[End of table] 

Collections: 
The variance in collection activity is due to a reduction in fair funds 
collections of $1,307.6 million for 2007, due to a lower volume of 
financial fraud cases with large settlements, In FY 2006, the SEC won 
fines and penalties in several large cases. These collections are 
expected to be distributed to harmed investors in subsequent years. 

Distributions: 
FY 2007 distributions included $176.8 million transferred to the 
General Fund of the Treasury, $580.5 million distributed to harmed 
investors, with $260.7 million of that total transferred from the 
Fiduciary Fund to cover distributions to the public. FY 2006 
distributions included $122.0 million transferred to the General Fund 
of the Treasury, $108.5 million distributed to investors, and $1,573.6 
million held pending future distribution. The decrease in amounts 
transferred to the fiduciary fund is directly related to the total 
decrease in collections discussed above. The $54.7 million increase in 
funds transferred to the General Fund of the Treasury is due to an 
increased ability to collect on fines and penalties. 

In FY 2007, the current year distributions exceeded the current year 
collections due to a significant decrease in collections relative to 
prior years. In addition to the decrease in collections, the SEC 
undertook an initiative to distribute more funds to harmed investors 
relative to prior years. 

Federal Managers' Financial Integrity Act: 

The Federal Managers' Financial Integrity Act (FMFIA) of 1982 is 
implemented by the Office of Management and Budget (OMB) Circular No. A-
123, revised, Management's Responsibility for Internal Control. 

Section 2 of the FMFIA requires federal agencies to report, on the 
basis of annual assessments, any material weaknesses that have been 
identified in connection with its internal and administrative controls 
The reviews that took place during FY 2007 provide qualified assurance 
that SEC systems and management controls comply with the requirements 
of the FMFIA, with the exception of a material weakness in internal 
control over financial reporting. 

Section 4 of the FMFIA requires that agencies annually evaluate and 
report on whether financial management systems conform to government-
wide requirements. The SEC evaluated its financial management systems 
for the fiscal year ending September 30, 2007 in accordance with the 
FMFIA and OMB Circular No. A-127, Financial Management Systems, as 
applicable. This evaluation identified system non-conformances. 

Internal controls were also evaluated by the SEC's independent 
auditors, the Government Accountability Office (GAO). 

Chairman's Assurance Statement: 
The management of the SEC is responsible for establishing and 
maintaining effective internal control and financial management systems 
that meet the objectives of the FMFIA. Internal control is an integral 
component of the Commission's management that provides reasonable 
assurance that the following objectives are being achieved: 
effectiveness and efficiency of operations, reliability of financial 
reporting, and compliance with applicable laws and regulations. The 
Commission is able to provide a qualified statement of assurance that 
the internal controls and financial management systems meet the 
objectives of FMFIA, with the exception of a material weakness and 
system non-conformances as discussed below. 

The Commission conducted its evaluation of internal control over the 
effectiveness and efficiency of operations and compliance with 
applicable laws and regulations in accordance with OMB Circular A-123. 
A material weakness in internal controls over financial reporting and 
system non-conformances surfaced in FY 2007 as a result of this 
evaluation. Other than the exceptions noted, the internal controls were 
operating effectively and no other material weaknesses were found in 
the design or operation of the internal controls. 

Signed by: 

Christopher Cox: 
Chairman: 
November 15, 2007: 

The SEC conducted its annual assessment of the effectiveness of 
internal control in accordance with the requirement of OMB Circular No. 
A-123, Management's Responsibility for Internal Control. 

In accordance with guidance issued by the SEC's Office of the Executive 
Director, 32 office heads con-ducted reviews of their financial, 
administrative, and program management controls in FY 2007. The offices 
range in size from 8 to 486 positions, with an average of 117 positions 
at the end of FY 2007. This segmentation ensures comprehensive coverage 
of all SEC offices. 

Each office head prepared an annual assurance statement that identified 
any control deficiencies that merit the attention of the Chairman. 
Those statements were based on information gathered from various 
sources, including, among other things:
* Management's personal knowledge gained from the daily operation of 
the office;
* Management reviews and dashboard reports (which are monthly reports 
used to track the progress on operational, budgetary, and staffing 
objectives, and to adjust processes and resources as necessary);
* GAO and Office of Inspector General reports;
* Self-assessments;
* Annual performance plans and reports;
* Audits of the agency's financial statements;
* Reports and other information from Congress or the Office of 
Management and Budget, and; 
* Additional reviews relating to the office's operations, including 
those discussed in the Other Reviews section below. 

Each year, the agency's Financial Management Oversight Committee (FMOC) 
evaluates the Section 2 and 4 submissions, recommendations from the 
Office of the Inspector General, and other supplemental sources of 
information. Based on this review, the FMOC advises the Chairman as to 
whether the SEC had any internal control or system design deficiencies 
serious enough to be reported as a material weakness or non-
conformance. 

Other Reviews: 
Also during the year, the Office of Inspector General and the Office of 
Information Technology conducted a combined total of 21 alternative 
reviews. The reviews covered 18 of the 32 assessable units (56 
percent). Some components had multiple reviews. 

Further, the Office of Information Technology certified and accredited 
26 major applications; recertified the agency's accounting and general 
support systems because of major upgrades; and completed 16 electronic 
authentication risk assessments. E-authentication is a review process 
at the transaction level designed to help agencies ensure that 
authentication processes provide the appropriate level of assurance. 

Finally, GAO audited the Commission's financial statements. GAO's 
procedures included audits of the FY 2007 financial statements, 
internal control over financial reporting and compliance with laws and 
regulations, the SEC's compliance with selected provisions of law and 
regulations applicable to the management of financial resources, and 
actions taken in response to prior GAO audit recommendations. 

Internal Controls Over Financial Reporting: 

During FY 2007, increased rigor was applied to further compliance with 
laws and regulations over the past years' standard. Overall, greater 
discipline was instilled over the financial reporting process, 
increasing transparency, reliability, and integrity. In FY 2008, Office 
of Financial Management (OFM) will continue to improve compensating 
controls. However, transitioning from manual interfaces to full 
integration of core and feeder financial systems will be critical to 
improving efficiency and effectiveness of controls over financial 
reporting. The need is clear for integrating data with the core 
accounting system in order to reduce the amount of manual calculations 
and data entry. currently required. Efficiencies will be put into 
practice to ensure sustainable processes. 

Description: 
In FY 2007, due to changes in key personnel including the Chief 
Financial Officer and Chief of the Financial Statements and Policy 
Branch, certain processes were subjected to internal review revealing 
deficiencies in internal control and instances of non-conformance with 
federal financial system requirements. The GAO identified a material 
weakness in the SEC's internal controls over its financial reporting 
process, with specific deficiencies cited concerning the period-end 
financial reporting process, disgorgements and penalties accounts 
receivable, accounting for transaction fee revenue, and preparing 
financial statement disclosures. 

Corrective Actions Taken: 
Improved oversight processes were implemented to ensure compliance with 
GAAP and OMB requirements relative to period-end financial reporting 
process and preparation of footnote disclosures. 

The SEC is dedicated to proactively identifying and correcting control 
deficiencies such as those manifested in the use of manual journal 
entries, and improper posting models and processes as cited by GAO in 
the FY 2007 audit report. Financial information integrity improvements 
are evidenced by significant advances in many areas. The SEC increased 
the transparency of the financial reporting process. Process and 
control documentation was improved or developed, as necessary, over the 
past year. Position papers have been developed articulating SEC policy. 
Standard Operating Procedures have been drafted for the preparation of 
financial statements. Through the documentation and review process, 
inadequate controls over several of the SEC's business processes were 
identified. As a short-term solution, incremental improvements were 
made to compensating controls. As a long-term solution, improvements to 
financial management systems are planned. The improvements made this 
year have set the stage for the upgrade of the SEC's financial systems, 
created efficiencies, and begun the institution of sustainable 
processes.
* Monthly financial reporting and review processes were instituted; 
* Ongoing monitoring processes were established to ensure data 
integrity; 
* Quarterly certification processes were strengthened; 
* An undelivered order review process was instituted; 
* A process was put in place to accomplish bulk loading of manual 
journal entries, eliminating duplicative data entry. 

In the 4th quarter, OFM established a monthly cycle for General Ledger 
close and preparation of financial reports. The monthly generation and 
review of balances and reports, previously only performed quarterly, 
are expected to result in more timely and useful information that will 
facilitate the use of financial information in management decision 
making. 

In addition, the SEC implemented the use of standard analytical reports 
to highlight key operational risk. These reports include, but are not 
limited to, Abnormal Balances, Variance Analysis, Suspense Aging, 
Reporting Consistency Checks, and the early implementation of U.S. 
Treasury Tie-Point Project analytics. These analytic reviews of 
financial data were conducted to ensure the quality of financial data, 
and used to proactively detect and correct data anomalies. Through the 
use of these standard reports, OFM was able to capture and remedy 
several process deficiencies throughout the year. 

Control over manual data entry has been improved. The Branch Chief, 
Financial Statements and Policy, approves all entries manually posted 
to the General Ledger and posting' models established by Branch staff. 

In FY 2006, the SEC had a reportable condition related to its recording 
and reporting of disgorgement and penalties ordered as a result of SEC 
enforcement actions. During FY 2007, the SEC took a number of important 
steps to ensure the integrity of enforcement-related disgorgement and 
penalty data. The agency implemented a new financial management system 
(Phoenix) as part of a multi-year effort to replace its existing case 
tracking database. Phoenix provides enhanced management, 
administrative, and monitoring controls that reasonably ensure that (a) 
the initial recording of disgorgement and penalties ordered as a result 
of enforcement actions is accurate and timely, (b) ongoing activities 
such as payments, termination of collection activity, and amended 
orders are documented and reported, and (c) disgorgement and penalty 
data are consistently reviewed for reliability, timeliness and 
completeness. In addition, the system provides for enhanced audit trail 
capabilities, increased transparency of information which allows 
management to monitor the activities within the system, the ability to 
attach the documentation supporting all transactions within the system 
itself, and increased management reporting functions. The SEC also 
implemented new policies and procedures as well as mandatory computer-
based training modules for mid- and senior-level managers. Nonetheless, 
integration of disgorgement and penalty receivable amounts from Phoenix 
is through manual processes and significant analysis is performed 
outside the system to determine the general ledger postings of 
transactions, as addressed in the next section. 

Based on an internal review of compliance with required form and 
content, changes were made this year to the presentation of the 
financial statements and footnote disclosures. Examples of the changes 
made to more closely conform to OMB A-136 guidance include presentation 
of costs on the Statement of Net Cost by strategic goal, and improved 
footnote disclosures related to valuation of marketable securities, 
segregation of entity/non-entity asset balances and differences between 
the Statement of Budgetary Resources and the President's Budget. A 
change in accounting principle this year eliminated material prior year 
differences between the Statement of Budgetary Resources and the Budget 
of the United States Government. 

A more rigorous methodology to achieve compliance with the Improper 
Payments Information Act (IPIA) of 2002 was deployed in FY 2007, 
following the guidance prescribed by OMB for implementation. [Footnote 
8] Methodology and results were both fully documented and made 
available to the auditors. 

The Prompt Payment Final Rule (formerly OMB Circular A-125, "Prompt 
Payment") requires payment of commercial obligations within certain 
time periods and interest penalties when payments are late. In fiscal 
year 2007, the SEC improved the timeliness of vendor invoice payments 
and corrected a system problem with the calculation of the interest for 
returned vendor invoices. This resulted in a significant reduction of 
late payments and interest paid. The number of late payments was 
reduced by 38 percent and the dollar amount of interest paid was 
reduced by 36 percent from the previous fiscal year. 

Corrective Actions Planned: 
Corrective actions will be taken in the short term to mitigate the 
control deficiencies cited by GAO. Plans are under development to 
implement short-term solutions to reduce intermediary information 
processing steps, including extensive use of spreadsheets, manipulation 
of data, and manual journal entries, in FY 2008. The process will be 
reviewed and SEC will tighten compensating controls supporting the 
calculation of receivable balances until automated integration is 
achieved. SEC will continue to replace routine manual entries and 
adjustments with approved posting models when feasible. For example, 
pro-forma SGL compliant entries for operating under a continuing 
resolution were recently implemented to replace manual journal entries 
made in the first quarter of FY 2007. 

Process and control documentation efforts are on-going. A project plan 
has been developed to document each significant activity recorded in 
the general ledger, including the closing process and the preparation 
of the financial statements. The anticipated delivery date for the 
initial draft procedural manual to the SEC is March 31, 2008, with the 
final delivery and completion date being June 30, 2008. Nonetheless, 
the risks cited are mitigated by managerial review of consistency 
reports and other review processes put in place in the last quarter of 
this fiscal year. 

Financial Management System Non-conformance: 

Although the SEC is not required to comply with the FFMIA, the agency 
assesses its financial management systems annually for conformance with 
the requirements of OMB Circular A-127 and other Federal financial 
system requirements. The agency also makes continuous efforts to 
strengthen and integrate its financial management systems. 

Description: 
SEC systems supporting Receivables, Property and Equipment, and 
Investments balances do not conform to financial management system 
requirements. Moreover, subsystems are integrated with the SEC's core 
accounting system through manual processes in which summary level data 
is posted to the core accounting system on a periodic basis. With 
manual data entry, the inherent risk of error increases. Associated 
with the system non-conformances are risks due to use of unconventional 
posting models, inference of certain data attributes (rather than 
maintaining at a transaction level consistent with the SGL) and the 
inability to readily trace certain adjusting summary level entries to 
source documents. To illustrate, a major limitation of Phoenix is its 
inability to capture the related accounting impact of each financial 
event. 

Corrective Actions Taken: 
In 2007, the SEC put a variety of controls in place to compensate for 
this non-conformance as previously discussed. 

The SEC has begun an upgrade of its core financial system. System 
requirement development is underway for automated interfaces to the 
core financial system related to Receivables, Investments, and Property 
and Equipment. 

Corrective Actions Planned: 
System integration will eliminate the need for the bulk of the manual 
journal entries currently being used, which will enhance the 
timeliness, accuracy and reliability of the data while reducing the 
need to maintain redundant schedules. The upgrade of the core financial 
system will incorporate accurate configuration for the SEC's business 
processes, development of pro-forma entries validated against the SGL, 
replacement of the routine use of manual entries with pro-forma 
entries, and integration of appropriate preventative edits for pro-
forma entries. The upgrade is expected to be completed in FY 2008. 

Most accounts receivable data is captured in Phoenix, the SEC's system 
for managing disgorgements and penalties resulting from the agency's 
enforcement cases. The SEC is developing system requirements for an 
automated interface for Phoenix to ensure that receivable transactions 
posted to the core accounting system are compliant with the SGL at the 
transaction level. In addition, the SEC is reviewing alternatives for 
automating, upgrading or replacing subsidiary systems for Investments 
and Property and Equipment, along with the associated interfaces. As a 
short-term, stopgap measure, the SEC will utilize database solutions to 
minimize manual intervention and increase compensating controls over 
the financial reporting process. 

Federal Information Security Management Act (FISMA): 

FISMA requires federal agencies to conduct an annual self-assessment of 
their IT security programs, to develop and implement remediation 
efforts for identified security weaknesses and vulnerabilities, and to 
report compliance to OMB. The SEC's Inspector General and Chief 
Information Officer performed a joint review of the agency's compliance 
with FISMA requirements, and submitted the report to OMB in late 
September. The report showed that the agency has continued to make 
progress in mitigating information security risk and complying with 
FISMA requirements, and no significant deficiencies were identified. In 
particular, the SEC has completed the implementation of its incident 
response program, successfully reaccredited its "general support 
system" (the agency's foundational IT infrastructure), and achieved 
over 99 percent compliance with security and privacy awareness 
training. The review also identified some additional opportunities for 
improvement, in particular with respect to the documentation associated 
with the certification and accreditation process; these findings will 
be addressed in the coming year. 

[End of section] 

Appendix II: Financial Statements: 

The following financial statements present the financial position, net 
cost of operations, changes in net position, budgetary resources, and 
custodial and fiduciary activities of the SEC's core business 
activities as required by the Accountability of Tax Dollars Act of 
2002. 

These financial statements and accompanying notes are prepared in 
conformity with U.S. generally accepted accounting principles (GAAP) 
and presented in accordance with the form and content guidelines 
established by OMB Circular A-136. 

Kristine M. Chadwick: 
Chief Financial Officer and Associate Executive Director, Finance: 

{See PDF for image] 
 
I am delighted to join Chairman Cox in presenting the Commission's FY 
2007 Performance and Accountability Report (PAR). The PAR summarizes 
the agency's annual accomplishments, in addition to providing financial 
and performance information. I am pleased that the SEC sustained an 
unqualified audit opinion on the financial statements this year. This 
performance benchmark validates our efforts to ensure that the 
financial statements of the agency, and of the funds for which we are 
stewards, are fairly presented. This achievement is also a testament to 
the hard work and dedication of SEC staff. 

In 2006, the SEC received the Association of Government Accountants' 
Certificate for Excellence in Accountability Reporting (CEAR) award for 
our FY 2006 Performance and Accountability Report. The SEC also 
received an industry-based award for its efforts in automating and 
integrating the agency's budget and performance processes. Our activity-
based costing and performance-based budgeting system was used this year 
to produce the agency's budget submissions and Statement of Net Cost, 
and to provide greater detail on the agency's costs by strategic goal. 

The SEC is committed to effective and efficient management of its 
resources. During FY 2007, the SEC took a number of important steps to 
ensure the integrity of enforcement-related disgorgements and penalties 
data, held extensive training sessions on internal control issues with 
process owners; and drafted documentation of key processes, risks and 
controls. 

The agency undertook a comprehensive review of the financial reporting 
process, and overlaid identified deficiencies with compensating 
controls. A material weakness in internal control, and system non-
conformances were identified. The SEC will develop and execute a 
corrective action plan to remedy the control design deficiencies in FY 
2008 and continue to evaluate and strengthen controls throughout the 
year. We will also develop a plan to achieve greater integration of 
budget, performance and financial management systems, addressing the 
system non-conformances as well as facilitating better performance 
management and decision making. I look forward to another productive 
year in FY 2008 to continue the same high level of financial management 
that resulted in our past successes. 

Sincerely, 

Signed by: 

Kristine M. Chadwick
Chief Financial Officer and Associate Executive Director, Finance: 

November 15, 2007: 

[End of letter] 

U.S. Securities And Exchange Commission: 

Balance Sheet: As of September 30 2007 and 2006 (dollars in thousands): 

Assets, Intragovernmental: 
Fund Balance with Treasury (Notes 1.H, 2, 3 and 16): 
FY 2007: $5,888,039; 
FY 2006: $5,178,893. 

Assets, Intragovernmental, Investments (Notes 1.1, 2, 4 and 16): 
FY 2007: 3,602,511; 
FY 2006: 3,674,528. 

Assets, Intragovernmental, Accounts Receivable (Notes 1.J, 2, 5 and 
16): 
FY 2007: 155; 
FY 2006: 154,506. 

Assets, Intragovernmental, Advances and Prepayments (Note 1.K): 
FY 2007: 1,198; 
FY 2006: [Empty]. 

Assets, Total Intragovernmental: 
FY 2007: 9,491,903; 
FY 2006: 9,007,927. 

Assets, Accounts Receivable, Net (Notes 1.J and 5): 
FY 2007: 138,693; 
FY 2006: 177,491. 

Assets, Advances and Prepayments (Note 1.K): 
FY 2007: 902; 
FY 2006: 974. 

Assets, Property and Equipment, Net (Notes 1.L and 6): 
FY 2007: 98,280; 
FY 2006: 103,631. 

Total Assets: 
FY 2007: $9,729,778; 
FY 2006: $9,290,023. 

Liabilities, Intragovernmental, Accounts Payable (Notes 1.M and 7): 
FY 2007: $6,153; 
FY 2006: $14,527. 

Liabilities, Intragovernmental, Employee Benefits (Notes 1.N and 7): 
FY 2007: 2,699; 
FY 2006: 2,687. 

Liabilities, Intragovernmental, Unfunded FECA and Unemployment 
Liability (Notes 1.0 and 7): 
FY 2007: 1,109; 
FY 2006: 992. 

Liabilities, Total Intragovernmental:
FY 2007: 9,961. 
FY 2006: 18,206. 

Liabilities, Accounts Payable (Notes 1.M and 7): 		
FY 2007: 43,096; 
FY 2006: 47,608. 

Liabilities, Accrued Payroll and Benefits (Notes 1.M and 7): 
FY 2007: 18,176; 
FY 2006: 18,149. 

Liabilities, Accrued Leave (Notes 1.P and 7): 
FY 2007: 35,296; 
FY 2006: 32,974. 

Liabilities, Registrant Deposits (Notes 1.Q, 2 and 7): 
FY 2007: 61,689; 
FY 2006: 57,464. 

Liabilities, Actuarial FECA Liability (Notes 1.0, 7 and 8): 
FY 2007: 5,080; 
FY 2006: 4,813. 		 

Liabilities, Fiduciary Liability (Notes 1.T, 2, 7 and 16): 	
FY 2007: 3,615,760; 
FY 2006: 3,834.662. 

Liabilities, Custodial Liability (Notes 1.S, 2, 7 and 15): 
FY 2007: 63,614; 
FY 2006: 71,545. 

Liabilities, Other Accrued Liabilities (Notes 7 and 9): 
FY 2007: 23,338; 
FY 2006: 42,480. 

Total Liabilities: 

FY 2007: $3,876,010; 
FY 2006: $4,121,901. 
Commitments and Contingencies (Notes 7 and 11). 

Net Position, Unexpended Appropriationsï¿½Other Funds:
FY 2007: [Empty]; 
FY 2006: 9,201. 

Net Position, Cumulative Results of Operationsï¿½Other Funds: 
FY 2007: 5,853,768; 
FY 2006: 5,152,921. 

Total Net Position: 
FY 2007: $5,853,768. 
FY 2006: $5,162,122. 

Total Liabilities and Net Position: 
FY 2007: $9,729,778; 
FY 2006: $9,290,023. 
	
The accompanying notes are an integral part of these financial 
statements. 

[End of balance sheet] 

Statement of Net Cost, For the fiscal years ended September 30, 2007 
and 2006 (Dollars In Thousands):	 

Costs By Strategic Goal And Objective (Notes 1.B and 12): 

Enforce compliance with federal securities laws, Total Gross Cost: 
FY 2007: $529,454; 
FY 2006: $579,076. 

Promote healthy capital markets through an effective and flexible 
regulatory environment, Total Gross Cost: 
FY 2007: 79,704; 
FY 2006: 77,263. 

Foster informed investment decision making, Total Gross Cost: 
FY 2007: 135,917; 
FY 2006: 135,856. 

Maximize the use of SEC resources, Total Gross Cost: 
FY 2007: 97,466; 
FY 2006: 96,728. 

Total Entity, Total Gross Program Cost: 
FY 2007: 842,541; 
FY 2006: 888,923. 

Total Entity, Less: Earned Revenue Not Attributed to Programs (Note 
13): 
FY 2007: 1,507,750; 
FY 2006: 1,882,619. 

Net (Income) from Operations (Note 17): 
FY 2007: $(665,209); 
FY 2006: $(993,696). 
		
The accompanying notes are an integral part of these financial 
statements. 

[End of statement of net cost] 

Statement of Changes in Net Position, for the years ended September 30, 
2007 and 2006 (Dollars In thousands):	 

Cumulative Results Of Operations, Beginning Balance: 	
FY 2007: $5,152,921; 
FY 2006: $4,133,526. 

Cumulative Results Of Operations, Budgetary Financing Sources, 
Appropriations Used: 
FY 2007: 9,201; 
FY 2006: [Empty]. 

Cumulative Results Of Operations, Budgetary Financing Sources, 
Appropriations Not Available: 
FY 2007: [Empty]; 
FY 2006: (1,151). 

Cumulative Results Of Operations, Other Financing Sources, Imputed 
Financing (Note 10): 
FY 2007: 26,437; 
FY 2006: 26,850. 

Cumulative Results Of Operations, Total Financing Sources: 
FY 2007: 35,638; 
FY 2006: 25,699. 

Cumulative Results Of Operations, Net Income from Operationsï¿½Other 
Funds: 
FY 2007: 665,209; 
FY 2006: 993,696. 

Cumulative Results Of Operations, Net Changeï¿½Other Funds: 
FY 2007: 700,847; 
FY 2006: 1,019,395. 

Cumulative Results Of Operations: 

FY 2007: 5,853,766; 
FY 2006: 5,152,921. 

Unexpended Appropriations, Beginning Balance: 
FY 2007: 9,201; 
FY 2006: 9,791. 

Unexpended Appropriations, Budgetary Financing Sources, Unexpended 
Appropriationsï¿½Used: 
FY 2007: (9,201); 
FY 2006: [Empty]. 

Unexpended Appropriations, Budgetary Financing Sources, Appropriations 
Not Available: 	
FY 2007: [Empty]; 
FY 2006: (590). 

Total Unexpended Appropriations: 
FY 2007: [Empty];
FY 2006: 9,201. 	 

Unexpended Appropriations, Net Position, End of Periodï¿½Other 
Funds: 		
FY 2007: $5,853,768; 
FY 2006: $5,162,122. 
			
The accompanying notes are an integral part of these financial 
statements. 

[End of Statement of Changes in Net Position] 

Statement of Budgetary Resources, for the years ended September 30, 
2007 and 2006 (Dollars In Thousands): 

Budgetary Resources, Unobligated Balance, Brought Forward, October 1: 	
FY 2007: $4,878,061; 
FY 2006: $3,840,573. 

Budgetary Resources, Change in Accounting Principle (Note 1.C): 
FY 2007: (4,691,392}; 
FY 2006: [Empty]. 

Budgetary Resources, Unobligated Balance, Brought Forward, October 1, 
Revised (Note 1.C): 
FY 2007: 186,669; 
FY 2006: 3,840,573. 

Budgetary Resources, Recoveries of Prior Year Unpaid Obligations: 
FY 2007: 23,030; 
FY 2006: 32,410. 

Budgetary Resources, Budget Authority: Spending Authority from 
Offsetting Collections Earned: Collected: 
FY 2007: 1,538,749; 
FY 2006: 1,903,648. 

Budgetary Resources, Budget Authority: Spending Authority from 
Offsetting Collections Earned: Change In Receivables from Federal 
Sources: 
FY 2007: (131); 
FY 2006: (63). 
	
Budgetary Resources, Budget Authority: Spending Authority from 
Offsetting Collections: Change in Unfilled Customer Orders without 
Advance Received: 
FY 2007: (663); 
FY 2006: 663. 

Budgetary Resources, Budget Authority, Subtotal: 

FY 2007: 1,537,955; 
FY 2006: 1,904,248. 

Budgetary Resources, Temporarily Not Available Pursuant to Public Law: 
FY 2007: (781,047); 
FY 2006: [Empty]. 

Budgetary Resources, Permanently Not Available: 
FY 2007: [Empty]; 
FY 2006: (1,740). 	 

Total Budgetary Resources: 	
FY 2007: $966,607; 
FY 2006: $5,775,491. 

Status Of Budgetary Resources, Obligations Incurred: Direct (Note 14): 
FY 2007: $816,274; 
FY 2006: $896,911. 

Status Of Budgetary Resources, Obligations Incurred: Reimbursable (Note 
14): 
FY 2007: 321; 
FY 2006: 519. 

Status Of Budgetary Resources, Unobligated Balance Available: Realized 
and Apportioned for Current Period: 

FY 2007: 6,068; 
FY 2006: 14,978. 	 

Status Of Budgetary Resources, Unobligated Balance Not Available: 
FY 2007: 83,944; 
FY 2006: 4,863,083. 

Total Status of Budgetary Resources: 
FY 2007: $966,607; 
FY 2006: $5,775,491. 

Change In Obligated Balance: Obligated Balance, Net; Unpaid 
Obligations, Brought Forward, October 1: 
FY 2007: $230,102; 
FY 2006: $235,702. 

Change In Obligated Balance: Obligated Balance, Net; Less: Uncollected 
Customer Payments from Federal Sources, Brought Forward, October 1: 
FY 2007: (794); 
FY 2006: (194). 

Change In Obligated Balance: Obligated Balance, Net; Total Unpaid 
Obligated Balance, Net:
FY 2007: 229,308; 
FY 2006: 235,508. 

Change In Obligated Balance: Obligations Incurred, Net: 		
FY 2007: 876,595; 
FY 2006: 897,430. 

Change In Obligated Balance: Less: Gross Outlays: 
FY 2007: (829,006); 
FY 2006: (870,620). 

Change In Obligated Balance: Less: Recoveries of Prior Year Unpaid, 
Obligations, Actual: 
FY 2007: (23,030); 
FY 2006: (32,410). 

Change In Obligated Balance: Change in Uncollected Customer Payments 
from Federal Sources: 
FY 2007: 793; 
FY 2006: (600). 

Change In Obligated Balance: Obligated Balance, Net, End of Period, 
Unpaid Obligations: 
FY 2007: 254,660; 
FY 2006: 230,102. 	 

Change In Obligated Balance: Obligated Balance, Net, End of Period, 
Less Uncollected Customer Payments from Federal Sources: 		
FY 2007: [Empty]; 
FY 2006: (794). 

Change In Obligated Balance: Obligated Balance, Net, End of Period, 
Total Unpaid Obligated Balance, Net, End of Period (Note 11):
FY 2007: $254,660; 
FY 2006: $229,308. 

Net Outlays, Gross Outlays: 
FY 2007: $829,006; 
FY 2006: $870,620. 

Net Outlays, Offsetting Collections: 
FY 2007: (1,538,749); 
FY 2006: (1,903,648). 

Net Outlays, Distributed Offsetting Receipts: 
FY 2007: (1,105); 
FY 2006: 51,294. 		 

Net Outlays, Net Outlays/(Net Collections): 	
FY 2007: $(710,848); 
FY 2006: $(981.134). 	
		
The accompanying notes are an integral part of these financial 
statements. 

[End of Statement of Budgetary Resources] 

Statement of Custodial Activity, for the years ended September 30, 2007 
and 2006 (Dollars In Thousands): 

Revenue Activity, Sources of Cash Collections, Disgorgement and 
Penalties: 
FY 2007: $496,386; 
FY 2006: $1,804,043. 

Revenue Activity, Sources of Cash Collections, Other: 
FY 2007: 138; 
FY 2006: 90. 

Revenue Activity, Net Collections: 
FY 2007: 496,524; 
FY 2006: 1,804,133. 

Revenue Activity, Accrual Adjustments: 
FY 2007: (7,931); 
FY 2006: (23,967). 

Total Custodial Revenue (Notes 1S, 15 and 16): 
FY 2007: $488,593; 
FY 2006: $1,780,166. 

Disposition Of Collections, Amounts Transferred to Department of the 
Treasury: 
FY 2007: $176,761; 
FY 2006: $122,030. 

Disposition Of Collections, Amounts Transferred to Other: 
FY 2007: 319,763; 
FY 2006: 1,682,103. 

Disposition Of Collections, Net Disbursements: 
FY 2007: 496,524; 
FY 2006: 1,804,133. 

Disposition Of Collections, Change in Liability Accounts: 
FY 2007: (7,931); 
FY 2006: (23,967). 

Total Disposition of Collections (Notes 1S, 15 and 16): 	
FY 2007: $488,593; 
FY 2006: $1,780,166. 

Net Custodial Activity: 
FY 2007: [Empty]; 
FY 2006: [Empty]. 
		
The accompanying notes are an integral part of these financial 
statements. 

[End of Statement of Custodial Activity] 

Note 1. Summary of Significant Accounting Policies: 

A. Reporting Entity: 
The United States Securities and Exchange Commission (SEC) is an 
independent agency of the United States established pursuant to the 
Securities Exchange Act of 1934. The SEC's mission is to protect 
investors; maintain fair, orderly, and efficient securities markets; 
and facilitate capital formation. The SEC works with the Congress, 
other Executive Branch departments and agencies, self-regulatory 
organizations (SROs) (e.g., stock exchanges and the Financial Industry 
Regulatory Authority (FINRA)), the Public Company Accounting Oversight 
Board (PCAOB), state securities regulators, and many other 
organizations in support of the agency's mission. 

These financial statements report on the SEC's four strategic goals as 
performed by six major program areas: Compliance Inspections and 
Examinations; Corporation Finance; Enforcement; Investment Management; 
Market Regulation; and Other Offices. These programs promote the public 
interest by, among other activities: promoting compliance through 
inspections and examinations of regulated entities; facilitating 
capital formation through full disclosure; enforcing the federal 
securities laws; regulating investment companies and investment 
advisors; overseeing the operations of the nation's securities markets 
and participants; promoting technological innovation in the securities 
markets; encouraging international regulatory and enforcement 
cooperation; and educating and assisting investors. 

B. Basis of Presentation and Accounting: 
The accompanying financial statements present the financial position, 
net cost of operations, changes in net position, budgetary resources, 
and custodial and fiduciary activities of the SEC's core business 
activities as required by the Accountability of Tax Dollars Act of 
2002. They may differ from other financial reports submitted pursuant 
to Office of Management and Budget (OMB) directives for the purpose of 
monitoring and controlling the use of SEC budgetary resources. The 
SEC's books and records serve as the source of the information 
presented in the accompanying financial statements. Assets, 
liabilities, revenues, and costs have been classified in these 
financial statements according to the type of entity associated with 
the transactions. Intragovernmental assets and liabilities are those 
from or to other federal entities. Intragovemmental earned revenues are 
collections or accruals of revenue from other federal entities, and 
intragovemmental costs are payments or accruals to other federal 
entities. 

The financial statements and accompanying notes are prepared in 
conformity with U.S. generally accepted accounting principles (GAAP) 
and presented in accordance with the form and content guidelines 
established by OMB in Circular A-136, Financial Reporting Requirements. 
Certain information, including the Statement of Net Cost (SNC) and Note 
4. Investments, is presented differently than the SEC's FY 2006 
Performance and Accountability Report to conform with reporting 
requirements in OMB A-136. The format used to present the SNC has 
changed to better align costs by major program as prescribed by OMB A-
136. The new format presents strategic goals that align directly with 
the major goal(s) and output(s) described in the SEC's strategic and 
performance budgets required by Government Performance Results Act 
(GPRA). 

Effective for FY 2007, the Statement of Financing (SOF) is presented as 
a note per OMB's authority under SFFAS No. 7, Accounting for Revenue 
and Other Financing Sources and Concepts for Reconciling Budgetary and 
Financial Accounting, and will no longer be considered a Basic 
Statement. The Statement of Financing will now be displayed in Note 17 
and referred to as 'Reconciliation of Not Cost of Operations 
(proprietary) to Budget." The FY 2006 Statement of Financing is also 
shown in this note. 

Transactions are recorded on the accrual basis of accounting. Under the 
accrual method, revenues are recognized when earned and expenses arc 
recognized when a liability is incurred, without regard to receipt or 
payment of cash. 

C. Change in Accounting Principle: 
The SEC changed its method of accounting for user fees collected in 
excess of current-year appropriations. This change is reflected in 
external reports resulting in a change in the Unobligated Balance, 
Brought Forward in the Statement of Budgetary Resources (SBR).
Starting in FY 2007, the current year offsetting collections that are 
not available for immediate obligation, but may be available for future 
use, will be reflected as Temporarily Not Available Pursuant to Public 
Law. An adjustment was made to the Unobligated Balance, Brought Forward 
from October 1 to reflect the cumulative effect on the historical 
offsetting collections. The offset to this adjustment is reflected in 
the Unobligated Balance Not Available line item. 

D. Use of Estimates: 
The preparation of financial statements in conformity with U.S. GAAP 
requires management to make estimates and assumptions that affect the 
reported amounts of assets and liabilities and the disclosure of 
contingent assets and liabilities at the date of the financial 
statements and the reported amounts of revenues and expenses during the 
reporting period. Actual results will invariably differ from those 
estimates. 

E. Intra- and Inter-Agency Relationships: 
The SEC does not have transactions among its own operating units, and 
therefore, intra-entity eliminations are not necessary. The SEC has 
certain oversight responsibilities with respect to the Financial 
Accounting Standards Board (FASB); the Securities Investor Protection 
Corporation (SIPC) (See Note 11. Commitments and Contingencies); and 
the PCAOB; however, these entities are not subject to consolidation. 

F. Fund Accounting Structure: 
The SEC's financial activities are accounted for by Treasury Account 
Fund symbol, summarized as follows: 

* General Fund (X0100) includes the appropriated general funds used to 
carry out the SEC's missions and functions and revenues collected by 
the SEC in excess of appropriated funds for FY 2005 through 2007 (See 
Note 3. Fund Balance with Treasury). 

* Salaries and Expenses (0100) includes the appropriated general funds 
used to carry out the SEC's missions and functions for FY 2002 through 
2004. 

* Deposit and Suspense Funds (X6563, F3875 and F3880) carry 
disgorgement, penalties, and interest collected and held on behalf of 
harmed investors, registrant monies held temporarily until earned by 
the SEC, and collections awaiting disposition or reclassification. 

* Miscellaneous Receipt Accounts (1099 and 3220) hold non-entity 
receipts and accounts receivable from SEC custodial and fiduciary 
activities that cannot be deposited into funds under SEC control. These 
include amounts received pursuant to enforcement cases that are to be 
sent to the Treasury. 

The SEC does not have lending or borrowing authority, except as 
discussed in Note 11. Commitments and Contingencies. The SEC has 
custodial and fiduciary responsibilities, as described in Note 15. 
Custodial Revenues and Liabilities and Note 16. Fiduciary Assets and 
Liabilities. 

G. Entity/Non-Entity Assets: 
Assets that an agency is authorized to use in its operations are entity 
assets. Assets that are held by the SEC on behalf of another federal 
agency or a third party, and are not available for the agency's use, 
are non-entity assets. The SEC's non-entity assets include the 
following: (i) fiduciary assets, representing disgorgement, penalties, 
and interest collected and held or invested by the SEC pending 
distribution to harmed investors; (ii) custodial accounts receivable in 
respect of disgorgement, penalties, and interest owed by securities law 
violators; and (iii) registrant deposits, representing excess filing 
fees remitted by registrants. 

H. Fund Balance with Treasury: 
Fund Balance with Treasury includes certain funds held on behalf of 
third parties. These include registrant deposits, representing excess 
filing fees remitted by registrants, and uninvested fiduciary assets, 
representing disgorgement, penalties, and interest held by the SEC 
pending distribution to harmed investors. 

All SEC banking activity is conducted in accordance with directives 
issued by the Treasury, Financial Management Service (FMS). All revenue 
and receipts are deposited in commercial bank accounts maintained by 
the FMS or wired directly to a Federal Reserve Bank. The Treasury 
processes all disbursements made by the SEC. All monies maintained in 
commercial bank accounts are transferred to the Federal Reserve Bank on 
the next business day following the day of deposit. 

I. Investments: 
The SEC invests fiduciary assets in short-term Treasury securities, 
whenever practicable. Once these funds are collected, they are 
generally transferred to the SEC's deposit fund account and invested in 
short-term market-based Treasury bills through a facility provided by 
the Treasury, Bureau of the Public Debt (BPD), pending their 
distribution to investors. Interest earned is added to the funds 
available for distribution to investors. 

J. Accounts Receivable and Allowance for Uncollectable Accounts: 
Both entity and non-entity accounts receivable consist of amounts due 
primarily from the public. Entity accounts receivable are amounts that 
will be retained by the SEC upon collection. These generally include 
claims arising from: (i) securities transaction fees paid by exchanges, 
(ii) filing fees paid by registrants, (iii) goods or services that the 
SEC has provided to another federal agency pursuant to an inter-agency 
agreement, (iv) host reimbursement of SEC employee travel, (v) requests 
pertaining to Freedom of Information Act (FOIA), and (vi) employee-
related debt. Entity accounts receivable represent a small portion of 
the SEC's business activities because agency fee legislation generally 
requires payment of filing fees at the time of filing, and SRO 
transaction fees are payable to the SEC twice a year--in March for the 
period September through December, and in September for the period 
January through August. Accordingly, the year-end accounts receivable 
accrual generally represents only fees payable by the SROs to the SEC 
for activity during the month of September. 

Non-entity accounts receivable are amounts that will not be retained by 
the SEC upon collection. These mainly include disgorgement, penalties, 
and interest assessments. These accounts receivable are recognized when 
the SEC is designated in an order of the Commission or a court to 
collect the assessed disgorgement, penalties, and interest. SEC 
maintains a custodial responsibility over these non-entity accounts 
receivable. When collected, these funds are either transferred to the 
Treasury, or they are held for future distribution to harmed investors. 

The SEC is also party to orders directing the court or a receiver to 
collect the disgorgement, penalties, and interest assessed against 
violators of federal securities laws. These orders are not recognized 
as accounts receivable by the SEC because the debts are payable to 
another party. However, these debts are subject to change based on 
future orders issued by the presiding court that could result in the 
SEC recognizing a receivable at a later date. The SEC's policy is to 
record a receivable in those cases at the point in time when the debtor 
is required, as a result of a court order or other legally binding 
instrument, to remit funds to the SEC. 

The allowance for uncollectible amounts and the related provision for 
estimated losses for disgorgement and penalties and FOIA accounts 
receivable is based on an analysis of the collectibility of individual 
account balances for the largest debts and on historical collection 
data to determine on a percentage basis the value of gross accounts 
receivable that are likely to be collected by the SEC. This percentage 
is applied to the remaining disgorgement and penalties and FOIA 
accounts receivable to reflect the balances at their estimated net 
realizable value. The allowance for uncollectible amounts and the 
related provision for estimated losses for filing fees and other 
accounts receivable is based on historical collection data to determine 
on a percentage basis the value of gross accounts receivable that are 
likely to be collected by the SEC; and no allowance for uncollectible 
amounts and the related provision for estimated losses has been 
established for Due for Reimbursable Agreements and Exchange Fees, as 
these gross accounts receivable are deemed to represent their net 
realizable value. In addition, the SEC does not recognize interest as 
accounts receivable, unless a court or administrative order specifies 
the amount of pre-judgment interest. 

K. Advances and Prepayments: 
The SEC may prepay amounts in anticipation of receiving future 
benefits; the benefits include training and supplemental health 
benefits for SEC employees. These payments are expensed when the goods 
have been received or services have been performed. The SEC may also 
advance funds to its personnel for travel costs, and these amounts are 
expensed when the travel takes place. 

L. Property and Equipment, Net: 
The SEC's property and equipment consists of software and general 
purpose equipment used by the agency: capital improvements made to 
buildings leased by the SEC for office space; and internal-use software
development costs for projects in development. Property and equipment 
purchases and additions are stated at cost. Property and equipment 
acquisitions that do not meet the capitalization criteria, normal 
repairs, and maintenance are charged to expense as received or incurred 
by the SEC. 

Property and equipment are depreciated over their estimated useful 
lives using the straight-line method of depreciation. Property and 
equipment are removed from the SEC's asset accounts in the period of 
disposal, retirement, or removal from service. Any difference between 
the book value of the property and equipment and amounts realized is 
recognized as a gain or loss in the same period that the asset is 
removed. 

M. Liabilities: 
The SEC records liabilities for amounts that are likely to be paid as 
the result of events that have occurred as of September 30, 2007 and 
2006. The SEC's liabilities consist of routine operating accounts 
payable, accrued payroll and benefits, registrant deposit accounts, and 
fiduciary and custodial liabilities associated with monetary sanctions 
imposed on violators of securities laws. 

Fiduciary and custodial liabilities represent the largest portion of 
the SEC's liabilities. Custodial liabilities arise in respect of 
accounts receivable for disgorgement, penalties, and interest assessed 
against securities law violators. The SEC records a custodial liability 
for the net amount of such receivables, after taking into account the 
estimated allowance for doubtful accounts. When the SEC collects this 
revenue, it is either transferred to the Treasury or it is held by the 
SEC in a fiduciary capacity on behalf of harmed investors to whom the 
SEC intends to return the funds. Fiduciary liabilities arise when the 
SEC collects disgorgement, penalties, and interest from securities law 
violators which will be returned to harmed investors. When collected, 
fiduciary receipts are held in Fund Balance with Treasury or invested 
in Treasury securities pending distribution to harmed investors, and an 
equal and offsetting fiduciary liability for assets held by the SEC at 
the Treasury is reported as a non-entity liability on the balance 
sheet. 

The SEC recognizes liabilities covered by three types of resources: 
realized budgetary resources; unrealized budgetary resources that 
become available without further Congressional action; and cash and 
amounts held in Fund Balance with Treasury that do not require the use 
of a budgetary resource. Realized budgetary resources include obligated 
balances that fund existing liabilities and unobligated balances at 
September 30, 2007 and 2006. Unrealized budgetary resources represent 
fee collections in excess of amounts appropriated for current fiscal 
year spending. These resources are used to cover liabilities when 
appropriation language makes these unrealized budgetary resources 
available in the fiscal year without further Congressional action. 

N. Employee Retirement Systems and Benefits: 

SEC employees participate in either the Civil Service Retirement System 
(CSRS) or the Federal Employees Retirement System (FERS), depending on 
when they were hired by the federal government. The FERS was 
established by enactment of Public Law 99-335. Pursuant to this law, 
the FERS and Social Security automatically cover most employees hired 
after December 31, 1983. Employees who are rehired after a break in 
service of more than one year and who had five years of federal 
civilian service prior to 1987 are placed in the CSRS offset retirement 
system or may elect to join the FERS. 

The SEC's financial statements do not report CSRS or FERS assets or 
accumulated plan benefits that may be applicable to its employees as 
they are reported by the U.S. Office of Personnel Management (OPM). 
While the SEC reports no liability for future payments to employees 
under these programs, the federal government is liable for future 
payments. to employees through the various agencies administering these 
programs. The SEC does not fund post-retirement benefits such as the 
Federal Employees Health Benefit Program (FEHB) and the Federal 
Employees Group Life Insurance Program (FEGLI). The SEC is also not 
required to fully fund the CSRS pension liabilities. Instead, the 
financial statements of the SEC recognize an imputed financing source 
and corresponding expense that represent the SEC's share of the cost to 
the federal government of providing pension, post-retirement health, 
and life insurance benefits to all eligible SEC employees. For the 
fiscal year ended September 30, 2007, the SEC made contributions based 
on OPM cost factors equivalent to approximately 6.74 percent and 10.87 
percent of the employee's basic pay for those employees covered by CSRS 
and FERS, respectively. For the fiscal year ended September 30, 2006, 
the SEC made contributions based on OPM cost factors equivalent to 
approximately 6.78 percent and 10.91 percent of the employee's basic 
pay for those employees covered by CSRS and FERS, respectively. All 
employees are eligible to contribute to a thrift savings plan. For 
those employees participating in the FERS, a thrift savings plan is 
automatically established, and the SEC makes a mandatory 1 percent
contribution to this plan. In addition, the SEC makes matching 
contributions ranging from 1 to 4 percent for FERS-eligible employees 
who contribute to their thrift savings plans. FERS participating 
employees are also covered under the Federal Insurance Contributions 
Act (FICA), for which the SEC contributes a matching amount to the 
Social Security Administration. No matching contributions are made to 
the thrift savings plans for employees participating in the CSRS. 

O. Injury and Post-employment Compensation: 
Claims brought by SEC employees for on-the-job injuries are addressed 
under the Federal Employees' Compensation Act (FECA) administered by 
the United States Department of Labor (DOL). The DOL bills each agency 
annually as its claims are paid, but payment on these bills is deferred 
for two years to allow for funding through the budget process. 
Similarly, SEC employees who are terminated without cause may receive 
unemployment compensation benefits under the unemployment insurance 
program also administered by the DOL, which bills each agency quarterly 
for paid claims. 

P. Annual, Sick, and Other: 
Annual leave and compensatory time are accrued as earned and the 
accrual is reduced when leave is taken. Each fiscal quarter an 
adjustment is made so that the balances in the accrued leave accounts 
reflect current leave balances and pay rates. No portion of this 
liability has been obligated. Funding will be obtained from future 
financing sources to the extent current or prior year funding is not 
available to pay for leave earned but not taken. Sick leave and other 
types of non-vested leave are expensed as used. 

Q. Revenue and Other Financing Sources: 
The SEC's revenue and financing sources include exchange revenues, 
which are generated from arm's length transactions, and non-exchange 
revenues, which arise from the government's ability to demand payment.
The SEC's exchange revenues consist of mainly fees collected from SROs 
and registrants. The SEC's non-exchange revenue consists of amounts 
collected in enforcement proceedings from violators of securities laws. 

The SEC's funding is through primarily the collection of securities 
transaction fees from SROs, and securities registration, tender offer, 
merger, and other fees from registrants. The SEC's fee rates are 
established by law and are applied to volumes of activity reported by 
SROs or to filings submitted by registrants. When received, these fees 
are recorded as exchange revenue. The SEC is permitted by law to 
include these amounts in its obligational authority or to offset its 
expenditures and liabilities upon collection up to authorized limits. 
All amounts remitted by registrants in excess of the fees for specific 
filings are recorded as liabilities in deposit accounts until earned by 
the SEC from registrant filings or returned to the registrant pursuant 
to SEC policy, which calls for the return of registrant deposits when 
an account is dormant for six months. 

The SEC also recognizes revenue from enforcement proceedings that 
result in the assessment of disgorgement, penalties, and interest 
against violators of federal securities laws. This activity is 
recognized as non-exchange revenue and presented on the Statement of 
Custodial Activity. When the SEC collects this revenue, it is either 
transferred to the Treasury or it is held by the SEC in a fiduciary 
capacity on behalf of harmed investors to whom the SEC intends to 
return the funds. An equal and offsetting liability for the fiduciary 
assets held by the SEC is reported on the Balance Sheet. The SEC does 
not record fiduciary assessments collected and held by another 
government entity, such as a court registry, or a non-government 
entity, such as a receiver. 

R. Budgets and Budgetary Accounting: 
The SEC is subject to certain restrictions on its use of statutory 
fees. All fee revenues are deposited in a designated account at the 
U.S. Department of the Treasury (Treasury). However, the SEC may use 
funds from this account only as authorized by Congress, made available 
by OMB apportionment, and upon issuance of a Treasury warrant. Revenue 
collected in excess of appropriated amounts is restricted for use by 
the SEC. 

Fees other than the restricted excess fees can be used for SEC 
operations subject to an annual Congressional limitation of $867.5 
million and $888.7 million for the budget FYs 2007 and 2006, 
respectively. Funds appropriated but not used in a given fiscal year 
are maintained in a designated account for use in future periods, as 
appropriated by the Congress. 

Each fiscal year, the SEC receives its appropriation through Category A 
apportionments, which are quarterly distributions of budgetary 
resources made by OMB. The SEC also receives a small amount of Category 
B funds for reimbursable activity which are exempt from quarterly 
apportionment. 

S. Custodial Activities: 
The Statement of Custodial Activity presents the sources and 
disposition of SEC custodial activity that consists of primarily 
disgorgement, penalties, and interest assessed against violators of 
securities laws. When collected, the funds are either returned to the 
Treasury or held for future distribution to harmed investors as 
discussed in Note 1. J. Accounts Receivable and Allowance for Uncoiled-
61e Accounts. 

T. Fiduciary Activities: 
Fiduciary activities represent the receipt, management, accounting, and 
disposition by the SEC of cash or other assets in which harmed 
investors will ultimately have an ownership interest, pursuant to an 
approved distribution plan and disbursement order, that the SEC must
uphold. The SEC also recognizes an equal and offsetting liability for 
these assets. See Note 1.M. Liabilities. 

The SEC's fiduciary assets consist of disgorgement. penalties, and 
interest assessed against securities laws violators where the 
Commission, and administrative law judge, or, in some cases, a court 
has determined that the SEC should return such funds to harmed 
investors. The funds are held as fiduciary assets by the SEC pending 
distribution to harmed investors pursuant to an approved distribution 
plan. The SEC does not record fiduciary asset amounts collected and 
held by another government entity, such as a court, or a non-
governmental entity, such as a receiver. 

Note 2. Non-Entity Assets: 
SEC non-entity assets consist entirely of public assets. At September 
30, non-entity assets consisted of the following, (Dollars In 
Thousands): 

Public, Registrant Deposits (Fund Balance with Treasury): 
FY 2007: $61,689; 
FY 2006: $57,464. 

Public, Fiduciary Assets (Fund Balance with Treasury, Investments, and 
Accounts Receivable): 
FY 2007: 3,615,760; 
FY 2006: 3,834,662. 

Public, Custodial Assets (Accounts Receivable): 
FY 2007: 63,614. 
FY 2006: 71,545. 

Public, Securities Transaction Fee Refund (Fund Balance with Treasury): 
FY 2007: [Empty]; 
FY 2006: 8,901. 

Total Non-Entity Assets: 
FY 2007: $3,741,063; 
FY 2006: $3,972,572. 

[End of Note 2. Non-Entity Assets] 

Note 3. Fund Balance with Treasury: 
Fund balances with Treasury, by type of fund, as of September 30, are 
as follows, (Dollars In Thousands): 

General Funds: 
FY 2007: $5,817,111; 
FY 2006: $5,107,369. 

Fund Balance, Other Funds: 
FY 2007: 70,928; 
FY 2006: 71,524. 

Total Fund Balance with Treasury: 
FY 2007: $5,888,039; 
FY 2006: $5,178,893. 

Status of Fund Balance with Treasury, Unobligated Balance, Available: 
FY 2007: 6,068; 
FY 2006: 14,978. 

Status of Fund Balance with Treasury, Unobligated Balance, Unavailable: 
FY 2007: 83,944; 
FY 2006: 4,863,083. 

 

Status of Fund Balance with Treasury, Obligated Balance not yet 
Disbursed: 	
FY 2007: 254,660; 
FY 2006: 229,308. 

Non-Budgetary Fund Balance with Treasury: 
FY 2007: 5,543,367; 
FY 2006: 71,524. 

Total Fund Balance with Treasury: 
FY 2007: $5,888,039; 
FY 2006: $5,178,893. 

[End of Note 3] 

Starting in FY 2007 the SEC changed its method of accounting for the 
user fees collected in excess of the current year appropriations. This 
change in accounting principle resulted in a change in the Status of 
Fund Balance with Treasury in the FY 2006 Unavailable amount to be 
recorded as a Non-Budgetary Fund Balance with Treasury transaction in 
the current year. Refer to Note 1.C. Change in Accounting Principle and 
Note 1.R. Budgets and Budgetary Accounting. 

Note 4. Investments: 
At September 30, 2007, investments consist of the following, (Dollars 
in Thousands): 

Non-Marketable Market Based Securities: 
Cost: $3,588,309; 
Amortization Method: S/L; 
Amortized (Premium) Discount: $14,202; 
Investment Net: $3,602,511; 
Market Value Disclosure: $3,605,239. 
			
At September 30. 2006, investments consist of the following: 

Non-Marketable Market Based Securities: 
Cost: $3,652,749; 
Amortization Method: S/L; 
Amortized (Premium) Discount: $21,779; 
Investment Net: $3,674,528; 
Market Value Disclosure: $3,576.439. 

The SEC invests these funds in Overnight and Short-Term Market-Based 
Treasury Bills. Interest earned on investments of qualified settlement 
funds is subject to income tax under Section 468B(b) of the Internal 
Revenue Code. 

Treasury Bills are securities traded in the primary and secondary U.S. 
Treasury market. Originally, Treasury Bills are auctioned directly by 
the U.S. government in the primary U.S. Treasury market and are 
subsequently traded among investors in the secondary U.S. Treasury 
market. In accordance with GAAP, SEC records the value of its 
investments in U.S. Treasury Bills at cost and amortizes the discount 
on a straight line basis through the maturity date of these securities. 
The market value is determined by the secondary U.S. Treasury market 
and represents the value an individual investor is willing to pay for 
these securities, at a given point in time. 

[End of Note 4] 

Note 5. Accounts Receivable, Net: 

At September 30, 2007, accounts receivable consisted of the following 
(Dollars in Thousands): 

Non-Entity Intragovernmental Assets, Interest on Investments: 
Gross Receivables: $155; 
Allowance: [Empty]; 
Net Receivables: $155. 

Subtotal Intragovernmental Assets: 
Gross Receivables: $155; 
Allowance: [Empty]; 
Net Receivables: $155. 

Entity Non-Intragovernmental Assets, Exchange Fees: 
Gross Receivables: 74,422; 
Allowance: [Empty]; 
Net Receivables: 74,422. 

Entity Non-Intragovernmental Assets, Filing Fees: 
Gross Receivables: 355; 
Allowance: 11; 
Net Receivables: 344. 

Entity Non-Intragovernmental Assets, Other: 
Gross Receivables: 318; 
Allowance: 5; 
Net Receivables: 313. 

Non-Entity Assets, Disgorgement and Penalties: 
Gross Receivables: 329,584; 
Allowance: 265,974; 
Net Receivables: 63,610. 

Non-Entity Assets, FOIA: 
Gross Receivables: 6; 
Allowance: 2; 
Net Receivables: 4. 

Subtotal Non-Intragovernmental Assets: 
Gross Receivables: 404,685; 
Allowance: 265,992; 
Net Receivables: 138,693. 

Total: 
Gross Receivables: $404,840; 
Allowance: $265,992; 
Net Receivables: $138,848. 

At September 30, 2006, accounts receivable consisted of the following, 
(Dollars In Thousands):	 

Entity Intragovernmental Assets, Due for Reimbursable Agreements: 
Gross Receivables: $131; 
Allowance: [Empty]; 
Net Receivables: $131. 

Non-Entity Intragovernmental Assets, Disgorgement and Penalties: 
Gross Receivables: 154,375; 
Allowance: [Empty]; 
Net Receivables: 154,375. 

Subtotal Intragovernmental Assets: 

Gross Receivables: 154,375; 
Allowance: [Empty]; 
Net Receivables: 154,375. 

Entity Non-Intragovernmental Assets, Exchange Fees: 
Gross Receivables: 105,416; 
Allowance: [Empty]; 
Net Receivables: 105,416. 

Entity Non-Intragovernmental Assets, Filing Fees: 
Gross Receivables: 232; 
Allowance: 5; 
Net Receivables: 227. 

Entity Non-Intragovernmental Assets, Other: 
Gross Receivables: 305; 
Allowance: 2; 
Net Receivables: 303. 

Non-Entity Assets, Fines and Penalties: 
Gross Receivables: 247,631; 
Allowance: 176,086; 
Net Receivables: 71,545. 

Subtotal Non-Intragovernmental Assets: 
Gross Receivables: 353,584; 
Allowance: 176,093; 
Net Receivables: 177,491. 

Total: 
Gross Receivables: $508,090; 
Allowance: $176,093; 
Net Receivables: $331,997. 
			
The SEC writes off debts that are two or more years old by removing the 
amount of the debts from the gross accounts receivable and any related 
allowance for doubtful accounts. Refer to Note i.J Accounts Receivable 
and Allowance for Uncollectible Accounts for methods used to estimate 
allowances. 

[End of Note 5] 

Note 6. Property and Equipment, Net: 

At September 30, 2007, property and equipment consisted of the 
following (dollars in thousands): 

Class Of Property: Furniture; 
Depreciation Amortization Method: S/L; 
Capitalization Threshold For Individual Purchases: $15; 
Capitalization Threshold For Bulk Purchases: 

$50; 
Service Life (Years): 5; 
Acquisition Value: $9,975; 
Accumulated Depreciation Amortization: $4,227; 
Book Value: $5,748. 

Class Of Property: Equipment; 
Depreciation Amortization Method: S/L; 
Capitalization Threshold For Individual Purchases: $15; 
Capitalization Threshold For Bulk Purchases: $500; 
Service Life (Years): 3; 
Acquisition Value: 48,509; 
Accumulated Depreciation Amortization: 37,866; 
Book Value: 10,643. 

Class Of Property: Software; 
Depreciation Amortization Method: S/L; 
Capitalization Threshold For Individual Purchases: 300; 
Capitalization Threshold For Bulk Purchases: 300; 
Service Life (Years): 3-5; 
Acquisition Value: 68,119; 
Accumulated Depreciation Amortization: 47,117; 
Book Value: 21,002. 

Class Of Property: Leasehold Improvements; 
Depreciation Amortization Method: S/L; 
Capitalization Threshold For Individual Purchases: 300; 
Capitalization Threshold For Bulk Purchases: N/A; 
Service Life (Years): 10; 
Acquisition Value: 74,167; 
Accumulated Depreciation Amortization: 133,280; 
Book Value: 60,887. 

Class Of Property: Total; 
Depreciation Amortization Method: [Empty]; 
Capitalization Threshold For Individual Purchases: [Empty]; 

Capitalization Threshold For Bulk Purchases: [Empty]; 
Service Life (Years): [Empty]; 

Acquisition Value: $200,770; 
Accumulated Depreciation Amortization: $102,490; 
Book Value: $98,280. 

At September 30, 2006, property and equipment consisted of the 
following (dollars in thousands): 

Class Of Property: Furniture; 
Depreciation Amortization Method: S/L; 
Capitalization Threshold For Individual Purchases: $15; 
Capitalization Threshold For Bulk Purchases: 

$50; 
Service Life (Years): 5; 
Acquisition Value: $8,569; 
Accumulated Depreciation Amortization: $2,165; 
Book Value: $6,404. 

Class Of Property: Equipment; 
Depreciation Amortization Method: S/L; 
Capitalization Threshold For Individual Purchases: $15; 
Capitalization Threshold For Bulk Purchases: $500; 
Service Life (Years): 3; 
Acquisition Value: 37,155; 
Accumulated Depreciation Amortization: 25,778; 
Book Value: 11,367. 

Class Of Property: Software; 
Depreciation Amortization Method: S/L; 
Capitalization Threshold For Individual Purchases: 300; 
Capitalization Threshold For Bulk Purchases: 300; 
Service Life (Years): 3-5; 
Acquisition Value: 58,828; 
Accumulated Depreciation Amortization: 36,032; 
Book Value: 22,796. 

Class Of Property: Leasehold Improvements; 
Depreciation Amortization Method: S/L; 
Capitalization Threshold For Individual Purchases: 300; 
Capitalization Threshold For Bulk Purchases: N/A; 
Service Life (Years): 10; 
Acquisition Value: 69,104; 
Accumulated Depreciation Amortization: 6,040; 
Book Value: 63,064. 

Class Of Property: Total; 
Depreciation Amortization Method: [Empty]; 
Capitalization Threshold For Individual Purchases: [Empty]; 

Capitalization Threshold For Bulk Purchases: [Empty]; 
Service Life (Years): [Empty]; 

Acquisition Value: $173,656; 
Accumulated Depreciation Amortization: $70,025; 
Book Value: $103,631. 

[End of Note 6] 

Note 7. Liabilities Not Covered by Budgetary Resources: 

At September 30, liabilities consisted of the following, (Dollars In 
Thousands): 

Liabilities Not Covered by Budgetary Resources, Intragovernmental, 	
Unfunded FECA and Unemployment Liability: 
FY 2007: $1,109; 
FY 2006: $992. 

Total Intragoverntnental Liabilities: 
FY 2007: 1,109; 
FY 2006: 992. 

Other Accrued Liabilitiesï¿½Recognition of Lease Liability: 
FY 2007: 16,865; 
FY 2006: 27,641. 

Accrued Leave: 
FY 2007: 35,296; 
FY 2006: 32,974. 

Actuarial FECA Liability: 
FY 2007: 5,080; 
FY 2006: 4,813. 

Total Liabilities Not Covered by Budgetary Resources: 	
FY 2007: 58,350; 
FY 2006: 66,420. 

Liabilities Not Requiring Budgetary Resources, Registrant Deposits: 
FY 2007: 61,689; 
FY 2006: 57,464; 

Liabilities Not Requiring Budgetary Resources, Custodial Liability: 
FY 2007: 63,614; 
FY 2006: 71,545. 

Liabilities Not Requiring Budgetary Resources, Fiduciary Liability: 
FY 2007: 3,615,760; 
FY 2006: 3,834,662. 

Total Liabilities Not Requiring Budgetary Resources: 
FY 2007: 3,741,063; 
FY 2006: 3,963,671. 	 

Liabilities Covered by Budgetary Resources, Intragovernmental, Accounts 
Payable: 
FY 2007: 6,153; 
FY 2006: 14,527. 

Liabilities Covered by Budgetary Resources, Intragovernmental, Employee 
Benefits: 
FY 2007: 2,699; 
FY 2006: 2,687. 

Total Intragovernmental Liabilities: 
FY 2007: 8,852; 
FY 2006: 17,214. 

Accounts Payable: 
FY 2007: 43,096; 
FY 2006: 47,608. 

Accrued Payroll and Benefits: 
FY 2007: 18,176; 
FY 2006: 18,149. 		 

Other: 	
FY 2007: 6,473; 
FY 2006: 14,839. 

Total Liabilities Covered by Budgetary Resources: 
FY 2007: 76,597; 
FY 2006: 97,810. 

Total Liabilities: 
FY 2007: $3,876,010; 
FY 2006: $4,127,901. 
		
SEC's liabilities include amounts that will never require the use of a 
budgetary resource. These liabilities consist of registrant deposit 
accounts; accounts receivable for disgorgement, penalties, and interest 
assessed against securities laws violators; and invested and uninvested 
fiduciary assets held by the SEC on behalf of harmed investors. 

[End of Note 7] 

Note 8. Actuarial FECA Liability: 

The FECA provides income and medical cost protection to covered federal 
civilian employees harmed on the job and for those who have contracted 
a work-related occupational disease, and dependents of employees whose 
death is attributable to a job-related injury or occupational disease. 
Claims incurred for benefits under the FECA for the SEC's employees are 
administered by the DOL and, ultimately, are paid by the SEC. 

The SEC's estimate is based on the DOLs model for estimating the FECA 
actuarial liability for federal agencies not specified in the DOLs FECA 
model. The model considers the average amount of benefit payments 
incurred by the SEC for the past three fiscal years, multiplied by the 
medical and compensation liability to benefits paid (LBP) ratio for the 
whole FECA program, estimated at approximately 11 times the annual 
payments. To capture variability, the model estimates the liability 
using three sets of LBP ratios, summarized as follows: 

For FY 2007, the LBP ratios were as follows: 

LBP Category: Highest; 
Medical: 9.50%; 
Compensation: 12.20%. 

LBP Category: Overall Average; 
Medical: 8.00%; 
Compensation: 11.80%. 

LBP Category: Lowest; 
Medical: 7.20%; 
Compensation: 11.50%. 

For FY 2006, the LBP ratios were as follows: 

LBP Category: Highest; 
Medical: 9.70%; 
Compensation: 12.80%. 

LBP Category: Overall Average; 
Medical: 8.00%; 
Compensation: 11.90%. 

LBP Category: Lowest; 
Medical: 7.10%; 
Compensation: 11.40%. 

For FY 2007 and 2006, the SEC used the overall average LBP ratios to 
calculate the $5.1 million and $4.8 million FECA actuarial liabilities 
for those years, respectively. 

[End of Note 8] 

Note 9. Leases: 

The SEC has the authority to negotiate long-term leases for office 
space. At September 30, 2007, the SEC leased office space at 18 
locations under operating lease agreements that expire between 2008 and 
2021. The SEC paid $85,497 thousand and $80,958 thousand for rent for 
FY 2007 and 2006, respectively. Under existing commitments, the minimum 
lease payments through FY 2012 and thereafter are as follows: 

Fiscal Year (Dollars In Thousands): 2008; 	
Minimum Lease Payments: $80,848. 

Fiscal Year (Dollars In Thousands): 2009; 	
Minimum Lease Payments: 78,566. 

Fiscal Year (Dollars In Thousands): 2010; 	
Minimum Lease Payments: 76,692. 

Fiscal Year (Dollars In Thousands): 2011; 
Minimum Lease Payments: 76,595. 

Fiscal Year (Dollars In Thousands): 2012; 	
Minimum Lease Payments: 67,723. 

Fiscal Year (Dollars In Thousands): 2013 and thereafter; 
Minimum Lease Payments: 403,683. 
 	
Total Future Minimum Lease Payments: $784,107. 

The total future minimum lease payments summarized above include a 
liability the SEC has recognized for office space leased in Washington, 
D.C. and New York. During FY 2006, the SEC moved into new office space 
and vacated old office space in Washington, D.C. While the SEC is 
marketing the old office space for potential tenants, the SEC is 
responsible for the remaining $1,909 thousand of lease payments that 
end in FY 2008. 

Fiscal Year (Dollars In Thousands): 2008; 
Required Lease Payments, New York: $2,722; 
Required Lease Payments, Washington, DC: $1,909
Required Lease Payments, Total: $4,631. 

Fiscal Year (Dollars In Thousands): 2009; 
Required Lease Payments, New York: 2,722; 
Required Lease Payments, Washington, DC: [Empty]; 
Required Lease Payments, Total: 2,722. 

Fiscal Year (Dollars In Thousands): 2010; 
Required Lease Payments, New York: 2,722; 
Required Lease Payments, Washington, DC: [Empty];
Required Lease Payments, Total: 2,722. 

Fiscal Year (Dollars In Thousands): 2011; 
Required Lease Payments, New York: 2,469; 
Required Lease Payments, Washington, DC: [Empty];
Required Lease Payments, Total: 2,469. 

Fiscal Year (Dollars In Thousands): 2012; 
Required Lease Payments, New York: 1,192; 
Required Lease Payments, Washington, DC: [Empty];
Required Lease Payments, Total: 1,192. 

Total Future Estimated Lease Payments: 
Required Lease Payments, New York: $11,827; 
Required Lease Payments, Washington, DC: $1,909; 
Required Lease Payments, Total: $13,736. 

During FY 2005, the SEC also entered into a lease agreement for new 
office space in New York. With respect to its prior New York office 
space, the SEC and U.S. General Services Administration (GSA) entered 
into separate agreements with the lessor. The GSA has agreed to rent 
the office space from the lessor for the next five years of the SEC's 
lease. At that time, the GSA has the option to renew the agreement for 
the remaining 15 months of the SEC's lease. As part of the SEC's 
agreement with the lessor, the SEC was responsible for the estimated 
$18 million difference between its annual lease liability and the 
annual lease liability negotiated by the GSA with the lessor. As of FY 
2007, the SEC is responsible for the remaining $11,827 thousand of 
lease payments that end in FY 2012. 

In FY 2006, the SEC recorded an additional six months of rent expense 
totaling approximately $4.4 million and recorded a reduction to the 
liability for six months totaling $0.3 million. In FY 2007, the SEC 
recorded a reduction to the liability totaling $10.7 million. For FY 
2007 and 2006, the SEC recognized an unfunded liability of $16.9 
million and $27.6 million, respectively to cover the three lease 
obligations (See Note 7 Liabilities Not Covered by Budgetary 
Resources). 

[End of Note 9] 

Note 10. Imputed Financing: 

The SEC recognizes an imputed financing source and corresponding 
expense to represent its share of the cost to the federal government of 
providing pension and post-retirement health and life insurance 
benefits (Pension/Other Retirements Benefits (ORB)) to all eligible SEC 
employees. For September 30, 2007 and 2006, the components of the 
imputed financing sources and corresponding expenses were as follows: 

Pension/ORB Category (Dollars In Thousands): CSRS;	
FY 2007: $6,113; 
FY 2006: $6,956. 
	
Pension/ORB Category (Dollars In Thousands): FERS; 	
FY 2007: 1,386; 
FY 2006: 1,269. 

Pension/ORB Category (Dollars In Thousands): FEHB; 	
FY 2007: 18,838; 
FY 2006: 18,525. 

Pension/ORB Category (Dollars In Thousands): FEGLI; 	
FY 2007: 89; 
FY 2006: 93. 

Pension/ORB Category (Dollars In Thousands): Other; 	
FY 2007: 11; 
FY 2006: 7. 

Total Pension/ORB (Dollars In Thousands): 	
FY 2007: $26,437; 
FY 2006: $26,850. 

[End of Note 10] 

Note 11. Commitments and Contingencies: 

A. Commitments: 
The Securities Investor Protection Act of 1970 (SIPA), as amended 
created the SIPC to provide certain financial protections to customers 
of insolvent registered securities brokers, dealers, firms, and members 
of national securities exchanges for up to $500,000 per customer. The 
SIPA authorizes the SIPC to create a fund to maintain all moneys 
received and disbursed by the SIPC. The SIPA also gives the SIPC the 
authority to borrow funds from the SEC in an amount not to exceed in 
the aggregate $t billion in the event that the SIPC fund is or may 
appear insufficient for purposes of the SIPA. If necessary, these funds 
would be made avail-able to the SEC through the purchase by the 
Treasury of notes or other obligating instruments issued by the SEC. 
Such notes or other obligating instruments would bear interest at a 
rate determined by the Secretary of the Treasury. As of September 30, 
2007, the SEC had not loaned any funds to the SIPC, and there are no 
outstanding notes or other obligating instruments issued by the SEC. 

In addition to future lease commitments discussed in Note 9. Leases, 
the SEC is obligated for the purchase of goods and services that have 
been ordered, but not yet received. For FY 2007, net obligations for 
all of SEC's activities were $254,660 thousand and of this amount 
$80,731 thousand were delivered and unpaid. For FY 2006, net 
obligations for all of SEC's activities were $229,308 thousand and of 
this amount $89,507 thou-sand were delivered and unpaid. 

B. Contingencies: 
Contingent liabilities are recognized when a past event or exchange 
transaction has occurred, a future outflow or other sacrifice of 
resources is probable, and the future outflow or sacrifice of resources 
is measurable. 

The SEC is party to various routine administrative proceedings, legal 
actions, and claims brought by or against it, including threatened or 
pending litigation involving labor relations claims, some of which may 
ultimately result in settlements or decisions against the federal 
government. As of September 30, 2007, SEC management does not owe for 
claims. 

[End of Note 11] 

Note 12. Intragovernmental Costs and Exchange Revenue: 

All costs incurred during FY 2007 and 2006 were assigned to specific 
goals, but exchange revenue is not directly assignable to a specific 
goal, and is presented in total. Total intragovernmental and public 
costs at September 30, are summarized below. 

Program Goals, (Dollars In Thousands): Enforce compliance with federal	
securities laws, Intragovernmental costs; 
FY 2007: $82,118; 
FY 2006: $95,152. 
	
Program Goals, (Dollars In Thousands): Enforce compliance with federal	
securities laws, Public costs; 
FY 2007: 447,336; 
FY 2006: 483,924. 

Program Goals, (Dollars In Thousands): Subtotal-Enforce compliance with 
federal securities laws; 
FY 2007: 529,454; 
FY 2006: 579,076. 

Program Goals, (Dollars In Thousands): Promote healthy capital markets 
through an effective and flexible regulatory environment, 
Intragovernmental costs: 
FY 2007: 12,362; 
FY 2006: 12,695. 

Program Goals, (Dollars In Thousands): Promote healthy capital markets 
through an effective and flexible regulatory environment, Public 
costs; 

FY 2007: 67,342; 
FY 2006: 64,568. 

Program Goals, (Dollars In Thousands): Subtotal-Promote healthy capital 
markets through an effective and flexible regulatory environment: 	
FY 2007: 79,704; 
FY 2006: 77,263. 
	
Program Goals, (Dollars In Thousands): Foster informed investment 
decision making, Intragovernmental costs; 
FY 2007: 21,081; 
FY 2006: 22,323. 

Program Goals, (Dollars In Thousands): Foster informed investment 
decision making, Public costs; 
FY 2007: 114,836; 
FY 2006: 113,533. 

Program Goals, (Dollars In Thousands): Subtotal -Foster informed 
investment decision making; 
FY 2007: 135,917; 
FY 2006: 135,856. 

Program Goals, (Dollars In Thousands): Maximize the use of SEC 
resources, Intragovernmental costs; 
FY 2007: 15,117; 
FY 2006: 15,894. 

Program Goals, (Dollars In Thousands): Maximize the use of SEC 
resources, Public costs; 
FY 2007: 82,349; 
FY 2006: 80,834. 
		
Program Goals, (Dollars In Thousands): Subtotal-- Maximize the use of 
SEC resources; 
FY 2007: 97,466; 
FY 2006: 96,728. 

Program Goals, (Dollars In Thousands): Total Entity, Intragovernmental 
Costs: 
FY 2007: 130,678; 
FY 2006: 146,064. 

Program Goals, (Dollars In Thousands): Total Entity, Public Costs; 
FY 2007: 711,863; 
FY 2006: 742,859. 

Total Costs: 
FY 2007: $842,541; 
FY 2006: $888,923. 

Less Exchange Revenues: 
FY 2007: 1,507,750; 
FY 2006: 1,882,619. 		 

Net (Income) from Operations: 
FY 2007: $(665,209); 
FY 2006: $(993,696). 

[End of Note 12] 

Note 13. Exchange Revenues: 

For FY 2007 and 2006, exchange revenues consisted of the following, 
(Dollars in Thousands): 

Securities Transactions Fees: 
FY 2007: $1,249,019; 
FY 2006: $1,382,805. 

Securities Registration, Tender Offer, and Merger Fees: 
FY 2007: 258,490; 
FY 2006: 499,236. 

Other: 
FY 2007: 241; 
FY 2006: 578. 

Total Exchange Revenues: 
FY 2007: $1,507,750; 
FY 2006: $1,882,619. 

[End of Note 13] 

Note 14. Status of Budgetary Resources: 

A. Apportionment Categories of Obligations Incurred: 
The distinction between Category A and B funds is that Category A funds 
are subject to quarterly apportionment by the OMB, while Category B 
funds are available for use by the agency without being subject to 
quarterly apportionment. For FY 2007 and 2006, obligations incurred as 
reported on the Statement of Budgetary Resources consisted of the 
following: 

Obligations Incurred, (Dollars In Thousands): Direct Obligations, 
Category A; 
FY 2007: $876,274; 
FY 2006: $896,911. 

Obligations Incurred, (Dollars In Thousands): Total Direct Obligations; 
FY 2007: $876,274; 
FY 2006: $896,911. 

Obligations Incurred, (Dollars In Thousands): Reimbursable Obligations, 
Category B; 
FY 2007: 321; 
FY 2006: 519. 

Obligations Incurred, (Dollars In Thousands): Total Reimbursable 
Obligations;
FY 2007: 321; 
FY 2006: 519. 

Obligations Incurred, (Dollars In Thousands): Total Obligations 
Incurred; 
FY 2007: $876,595; 
FY 2006: $897,430. 	
		
In addition, the amounts of budgetary resources obligated for 
undelivered orders include $173,929 thousand and $140,595 thousand as 
of September 30, 2007 and 2006, respectively. 

B. Explanation of Differences between the Statement of Budgetary 
Resources and the Budget of the United States Government: 
A comparison between the Statements of Budgetary Resources and the 
actual FY 2007 data in the President's Budget cannot be performed as 
the FY 2009 President's Budget is not yet available; the comparison 
will be presented in next year's financial statements. A comparison 
between the FY 2006 Statement of Budgetary Resources and the FY 2006 
data in the President's Budget is as follows (Dollars in millions): 

SBR: 
Total Budgetary Resources/Status Of Budgetary Resources: 
$5,775; 		
Total New Obligations: $897; 
Temporarily Not Available Pursuant To Public Law: [Empty]; 
Unobligated Balanceï¿½End Of Year: $4,878; 
Obligations Incurred: $897; 
Net Outlays: $(982). 

Reconciling Items: 
Total Budgetary Resources/Status Of Budgetary Resources: 
4,861; 		
Total New Obligations: 19; 
Temporarily Not Available Pursuant To Public Law: 1,041; 
Unobligated Balanceï¿½End Of Year: 4,842; 
Obligations Incurred: 19; 
Net Outlays: 51. 

Budget of the U.S. Government: 
Total Budgetary Resources/Status Of Budgetary Resources: $914; 		
Total New Obligations: $878; 
Temporarily Not Available Pursuant To Public Law: $(1,041)
Unobligated Balanceï¿½End Of Year: $36; 
Obligations Incurred: $878; 
Net Outlays: $(1,033). 

In the past, the SEC recorded excess collections as unapportioned 
authority. This amount is presented on the SBR as Unobligated Balance, 
Brought Forward, October 1 and as Unobligated Balance Not Available. 
This SBR presentation differs from the treatment of these balances on 
the Program and Financing (P&F) Statement included in the Budget of the 
United States, in that this amount is presented in a memorandum account 
on the P&F rather than as a component of agency resources. 

Under a change in accounting methodology made in the third quarter, SEC 
will reflect the current years' excess offsetting collections as 
Temporarily Not Available Pursuant to Public Law. Accordingly, the SBA, 
Unobligated Balance, Brought Forward, October 1 will appear net of 
excess collections resolving the reconciling items. To effect this 
change, an adjustment in the amount of $4,691 million was made 
decreasing both Unobligated Balance, Brought Forward, October 7 and 
Unobligated Balance Not Available. 

The SBR reports all obligations incurred while the President's Budget 
excludes expired accounts that are no longer available for new 
obligations. The net outlays do not agree, due to the fact that the P&F 
does not include Distributed Offsetting Receipts. 

[End of Note 14] 

Note 15. Custodial Revenues and Liabilities: 

For FY 2007, the source of custodial revenues consisted of the 
following, (Dollars In Thousands): 

Cash Collections: 
Disgorgement And Penalties: $496,386; 
Other: $138; 
Total: $496,524. 

Less: Refunds: 
Disgorgement And Penalties: [Empty]; 
Other: [Empty]; 
Total: [Empty]. 

Net Cash Collections: 
Disgorgement And Penalties: 496,386; 
Other: 138; 
Total: 496,524. 

Increase/(Decrease) in Amounts to be Collected: 
Disgorgement And Penalties: (7,935); 
Other: 4; 
Total: (7,931). 

Total Non-Exchange Revenues: 
Disgorgement And Penalties: $488,451; 
Other: $142; 
Total: $488,593. 

For FY 2007, the source of custodial liabilities consisted of the 
following: 

Gross Custodial Accounts Receivable: 
Disgorgement And Penalties: $329,584; 
FOIA: $6; 
Total: $329,590. 

Less: Allowance for Doubtful Accounts: 
Disgorgement And Penalties: (265,974); 
FOIA: (2); 
Total: (265,976). 

Net Custodial Liability: 
Disgorgement And Penalties: $63,610; 
FOIA: $4; 
Total: $63,614. 

For FY 2006, the source of custodial revenues consisted of the 
following: 

Cash Collections: 
Disgorgement And Penalties: $1,804,043; 

Other: $90; 
Total: $$1,804,133. 

Less: Refunds: 
Disgorgement And Penalties: [Empty]; 
Other: [Empty]; 
Total: [Empty]. 

Net Cash Collections: 
Disgorgement And Penalties: $1,804,043; 

Other: $90; 
Total: $$1,804,133. 

Increase/(Decrease) in Amounts to be Collected: 
Disgorgement And Penalties: (23,967); 
Other: [Empty]; 
Total: (23,967). 

Total Non-Exchange Revenues: 
Disgorgement And Penalties: $1,780,076; 
Other: $90; 
Total: $1,780,166. 

For FY 2007, the source of custodial liabilities consisted of the 
following: 

Gross Custodial Accounts Receivable: 
Disgorgement And Penalties: $247,631; 
FOIA: [Empty]; 
Total: $247,631. 

Less: Allowance for Doubtful Accounts: 
Disgorgement And Penalties: (176,086); 
FOIA: [Empty]; 
Total: (176,086). 

Net Custodial Liability: 
Disgorgement And Penalties: $71,545; 
FOIA: [Empty]; 
Total: $71,545. 

[End of Note 15] 

Note 16. Fiduciary Assets and Liabilities: 

At September 30, 2007 and 2006, the assets held by the SEC in a 
fiduciary capacity and its offsetting liability consisted of the 
following: 

Fiduciary Activities (Dollars in thousands): Assets, Fund Balance with 
Treasury; 	
FY 2007: $13,094; 
FY 2006: $5,759. 

Fiduciary Activities (Dollars in thousands): Assets, Investments; 	
FY 2007: 3,602,511; 
FY 2006: 3,674,528. 

Fiduciary Activities (Dollars in thousands): Assets, Accounts 
Receivable; 	
FY 2007: 155; 
FY 2006: 154,375. 

Fiduciary Activities (Dollars in thousands): Total Assets; 
FY 2007: $3,615,760; 
FY 2006: $3,834,662. 

Fiduciary Activities (Dollars in thousands): Liabilities, Liability for 
Fiduciary Activity; 

FY 2007: $3,615,760; 
FY 2006: $3,834,662. 

Fiduciary Activities (Dollars in thousands): Total Liabilities; 
FY 2007: $3,615,760; 
FY 2006: $3,834,662. 
		
At September 30, 2007 and 2006, the source and disposition of the SEC's 
fiduciary activities consisted of the following: 

Fiduciary Activities (Dollars in thousands): Fund Balance with 
Treasury, Beginning Balance; 
FY 2007: $5,759; 
FY 2006: $207,529. 

Fiduciary Activities (Dollars in thousands): Fund Balance with 
Treasury, Disgorgement and Penalties; 
FY 2007: 321,866; 
FY 2006: 1,639,914. 

Fiduciary Activities (Dollars in thousands): Fund Balance with 
Treasury, Transfer to Investments; 
FY 2007: (314,531); 
FY 2006: (1,841,684). 

Fiduciary Activities (Dollars in thousands): Total Fund Balance with 
Treasury; 
FY 2007: 13,094; 
FY 2006: 5,759. 
	
Fiduciary Activities (Dollars in thousands): Investments, Beginning 
Balance: 
FY 2007: 3,674,528; 
FY 2006: 1,768,024. 

Fiduciary Activities (Dollars in thousands): Investments, Net 
Investments Activity, Disgorgement and Penalties; 
FY 2007: (72,017); 
FY 2006: 1,906,504. 

Fiduciary Activities (Dollars in thousands): Total Investments; 
FY 2007: 3,602,511; 
FY 2006: 3,674,528. 

Fiduciary Activities (Dollars in thousands): Accounts Receivable, 
Beginning Balance; 
FY 2007: 154,375; 
FY 2006: [Empty]. 
	
Fiduciary Activities (Dollars in thousands): Accounts Receivable, Net 
Activity--Accounts Receivable; 
FY 2007: (154,220); 
FY 2006: 154,375. 

Fiduciary Activities (Dollars in thousands): Total Accounts Receivable; 
FY 2007: 155; 
FY 2006: 154,375. 

Fiduciary Activities (Dollars in thousands): Total Assets; 
FY 2007: $3,615,760; 
FY 2006: $3,834,662. 

Fiduciary Activities (Dollars in thousands): Liability for Fiduciary 
Activity, Beginning Balance; 
FY 2007: $3,834,662; 
FY 2006: $1,975,553. 
	
Fiduciary Activities (Dollars in thousands): Liability for Fiduciary 
Activity, Disgorgement and Penalties; 
FY 2007: (218,902); 
FY 2006: 1,859,109. 

Fiduciary Activities (Dollars in thousands): Total Liabilities; 
FY 2007: $3,615,760; 
FY 2006: $3,834,662. 

[End of Note 16] 

Note 17. Reconciliation of Net Cost of Operations (Proprietary) to 
Budget (formerly the Statement of Financing)(Dollars In Thousands): 

Resources Used To Finance Activities: 
Budgetary Resources Obligated, Obligations Incurred (Note 14); 

FY 2007: $876,595; 
FY 2006: $897,430. 

Resources Used To Finance Activities: 
Budgetary Resources Obligated, Less: Spending Authority from Offsetting 
Collections and Recoveries; 
FY 2007: (1,560.985); 
FY 2006: (1,936,658). 

Resources Used To Finance Activities: 
Net Obligations; 
FY 2007: (684,390); 
FY 2006: (1,039.228). 

Resources Used To Finance Activities: 
Other Resources: Imputed Financing from Cost Absorbed by Others (Note 
10); 
FY 2007: 26,437; 
FY 2006: 26,850. 

Total Resources Used to Finance Activities: 
FY 2007: (657,953); 
FY 2006: (1,012,378). 

Resources Used To Finance Items Not Part Of The Net Cost Of Operations: 
Change in Budgetary Resources Obligated for Goods, Services and 
Benefits Ordered But Not Yet Provided: 
FY 2007: (35,123); 
FY 2006: 21,831. 

Resources Used To Finance Items Not Part Of The Net Cost Of Operations: 
Resources That Finance the Acquisition of Assets Capitalized on the 
Balance Sheet; 
FY 2007: (31,793); 
FY 2006: (57,658). 

Resources Used To Finance Items Not Part Of The Net Cost Of Operations: 
Net Decrease in Revenue Receivables Not Generating Resources until 
Collected; 
FY 2007: 30,855; 
FY 2006: 20,941. 

Resources Used To Finance Items Not Part Of The Net Cost Of Operations: 
Total Resources Used to Finance Items Not Part of the Net Cost of 
Operations; 
FY 2007: (36,061); 
FY 2006: (14,886). 

Resources Used To Finance Items Not Part Of The Net Cost Of Operations: 
Total Resources Used to Finance the Net Cost of Operations; 
FY 2007: (694,014); 
FY 2006: (1,027,264). 

Components Of Net Cost Of Operations That Will Not Require Or Generate 
Resources In The Current Period: Components Requiring or Generating 
Resources in Future Periods: Costs That Will Be Funded by Resources in 
Future Periods; 
FY 2007: 2,322; 
FY 2006: 950. 

Components Of Net Cost Of Operations That Will Not Require Or Generate 
Resources In The Current Period: Components Requiring or Generating 
Resources in Future Periods: Change in Lease Liability; 
FY 2007: (10,776); 
FY 2006: 5,994. 

Components Of Net Cost Of Operations That Will Not Require Or Generate 
Resources In The Current Period: Components Requiring or Generating 
Resources in Future Periods: Change in Unfunded Liability; 
FY 2007: 385; 
FY 2006: (715). 

Components Of Net Cost Of Operations That Will Not Require Or Generate 
Resources In The Current Period: Total Components of Net Cost of 
Operations That Will Require or Generate Resources in Future Periods; 
FY 2007: (8,069); 
FY 2006: 6,229. 

Components Not Requiring or Generating Resources: Depreciation and 
Amortization; 
FY 2007: 35,912; 
FY 2006: 26,265. 

Components Not Requiring or Generating Resources: Revaluation of Assets 
or Liabilities; 
FY 2007: 950; 
FY 2006: 1,071. 

Components Not Requiring or Generating Resources: Other Costs That Will 
Not Require Resources; 
FY 2007: 12; 
FY 2006: 3. 

Total Components of Net Cost of Operations That Will Not Require or 
Generate Resources in Future Periods: 
FY 2007: 36,874; 
FY 2006: 27,339. 

Total Components of Net Cost of Operations That Will Not Require or 
Generate Resources in the Current Period: 
FY 2007: 28,805; 
FY 2006: 33,568. 

Net (Income) from Operations: 
FY 2007: $(665,209); 
FY 2006: $(993,696). 

[End of Note 17] 

[End of section] 

Appendix III: Comments from the Securities and Exchange Commission: 

United States: 
Securities And Exchange Commission: 
Christopher Cox: 
Chairman: 
Headquarters: 
100 F Street, NE: 
Washington, DC 20549: 

Regional Offices: 
Atlanta, Boston, Chicago, Denver, Fort Worth, Los Angeles, Miami, New 
York, Philadelphia, Salt Lake City, San Francisco: 

November 14, 2007: 

The Honorable David M. Walker: 
Comptroller General of the United States: 
Government Accountability Office: 
441 G Street, NW: 
Washington, D.C. 20548: 

Dear Mr. Walker: 

Thank you for the opportunity to respond to the Government 
Accountability Office's (GAO) draft report entitled Financial Audit: 
Securities and Exchange Commission's Financial Statements for Fiscal 
Years 2007 and 2006. I would like to personally acknowledge and commend 
you and the GAO staff for your efforts and dedication in working with 
the SEC again this year to meet the reporting deadline for our audited 
financial statements. 

I am pleased that once again the audit found that the statements and 
notes are presented fairly, in all material respects, and in conformity 
with U.S. generally accepted accounting principles, and that it found 
no instances of reportable noncompliance with laws and regulations 
tested. I also appreciate the progress that you have helped the SEC 
make during the past year in strengthening our internal controls over 
financial reporting. As you know, in 2008 the agency will introduce 
several new technology upgrades designed to support the preparation of 
reliable audited financial statements. The phase-in of these new 
software systems is designed to eliminate the material weakness in the 
SEC's internal controls cited in the draft report, stemming in 
substantial part from the lack of integration and compatibility in the 
agency's legacy automated systems. The SEC intends to remediate this 
material weakness before the end of fiscal 2008, and to address each of 
the findings and recommendations identified during the audit. We will 
continue to work with you and your staff to enhance the SEC's controls 
in all operational areas, and ensure reliability of financial 
reporting, soundness of operations, and public confidence in the 
agency's mission. 

If you have any questions relating to our response, please contact 
Kristine Chadwick, Chief Financial Officer, at (202) 551-7840. 

Signed by: 

Christopher Cox: 
Chairman: 

[email protected]: 

[hyperlink, http://WWW.SEC.GOV]: 

[End of section] 

Footnotes: 

[1] A material weakness is a significant deficiency or combination of 
significant deficiencies that results in more than a remote likelihood 
that a material misstatement of the financial statements will not be 
prevented or detected. 

[2] A significant deficiency is a control deficiency, or combination of 
deficiencies, that adversely affects the entityï¿½s ability to initiate, 
authorize, record, process, or report financial data reliably in 
accordance with generally accepted accounting principles such that 
there is more than a remote likelihood that a misstatement of the 
entityï¿½s financial statements that is more than inconsequential will 
not be prevented or detected. 

[3] GAO, Financial Audit: Securities and Exchange Commissionï¿½s 
Financial Statements for Fiscal Year 2006 and 2005, GAO 07 134 
(Washington, D.C.: Nov. 15, 2006). 

[4] In our previous report, we considered those weaknesses to be 
reportable conditions. Reportable conditions involved matters coming to 
the auditorï¿½s attention that, in the auditorï¿½s judgment, should be 
communicated because they represent significant deficiencies in the 
design or operation of internal control, and could adversely affect an 
agencyï¿½s ability to meet key control objectives. In May 2006, the 
American Institute of Certified Public Accountants issued Statement on 
Auditing Standards (SAS) 112, and subsequently made conforming changes 
to the Statements on Standards for Attestation Engagements (AT 501). 
The new standards eliminated the term reportable condition and 
introduced new definitions for the terms ï¿½significant deficiencyï¿½ and 
ï¿½material weakness.ï¿½ Under these new standards, the auditor is required 
to communicate control deficiencies that are considered to be 
significant deficiencies or material weaknesses in internal controls. 

[5] A disgorgement is the repayment of illegally gained profits (or 
avoided losses) for distribution to harmed investors whenever feasible. 
A penalty is a monetary payment from a violator of securities law that 
SEC obtains pursuant to statutory authority. A penalty is fundamentally 
a punitive measure, although penalties occasionally can be used to 
compensate harmed investors. 

[6] OMB directs executive branch agencies to issue their audited 
financial statements by November 15 for the preceding fiscal year 
ending on September 30. OMB Circular No. A-136, Financial Reporting 
Requirements, ï¿½ I.5 (rev. June 27, 2007). 

[7] 31 U.S.C. ï¿½ 1501(a)(1). 

[8] Appendix C, Part l to OMB Circular A-123, Management's 
Responsibility for Internal Controls, issued through OMB Memorandum M-
06-23 dated August 10, 2006. 

[End of section] 

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