OIG Recommends Specific Changes Following SEC’s Madoff Failure

The Office of Inspector General (OIG) is an independent office within the U.S. Securities and Exchange Commission that conducts audits of programs and operations of the Commission and investigations into allegations of misconduct by staff or contractors. The mission of the OIG is to detect fraud, waste and abuse, and to promote integrity, economy, efficiency and effectiveness, in the Commission’s programs and operations. Today, the OIG announced nearly two dozen changes that the SEC should adopt in the wake of its failure to timely discover the Madoff fraud.

 Among the OIG’s recommendations for the SEC:
(1) Establish formal guidance for evaluating various types of complaints (e.g., Ponzi schemes) and train appropriate staff on the use of the guidance.
(2) Ensure the SEC’s tip and complaint handling system provides for data capture of relevant information relating to the vetting process to document why a complaint was or was not acted upon and who made that determination.
(3) Require tips and complaints to be reviewed by at least two individuals experienced in the subject matter prior to deciding not to take further action.
(4) Establish guidance to require that all complaints that appear on the surface to be credible and compelling be probed further by in-depth interviews with the sources to assess the complaints validity and to determine what issues need to be investigated.
(5) Annually review and test the effectiveness of its policies and procedures with regard to its new tip and complaint handling system.
(6) Put in place procedures to ensure that investigations are assigned to teams where at least one individual on the team has specific and sufficient knowledge of the subject matter (e.g. Ponzi schemes) and the team has access to at least one additional individual who also has such expertise or knowledge.
(7) Conduct periodic internal reviews of any newly implemented policies and procedures related to information sharing with Divisions and Offices outside of Enforcement to ensure they are operating efficiently and effectively and necessary changes are made.
(8) Ensure that sufficient resources, both supervisory and support, are dedicated to investigations upfront to provide for adequate and thorough supervision of cases and effective handling of the investigations.
(9) Establish or utilize an existing working group to analyze the OIG survey information regarding staff concerns over communication of program priorities and make recommended improvements to the Director of Enforcement.
(10) Establish or utilize an existing working group to analyze the OIG survey information regarding staff concerns over working relationships within Enforcement and make recommended improvements to the Director of Enforcement.