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U.S. SECURITIES AND EXCHANGE COMMISSIONOFFICE OF INSPECTOR GENERALBackground and ObjectivesBackgroundTitle V of the U.S. Code (U.S.C.) authorizes Federal agencies to establish studentloan repayment programs (SLRP) to recruit or retain highly qualified personnel. 1Implementing regulations – established in 5 Code of Federal Regulations (C.F.R.)Part 537 – state that agencies may use SLRP benefits to fill positions they wouldotherwise encounter difficulty filling with highly qualified individuals. Agencies mayalso use SLRP benefits to retain current employees who are (1) otherwise likely toleave for employment outside the Federal service, and (2) are essential based on theirhigh or unique qualifications or a special need of the agency. 2 Subject to budgetaryconsiderations, agencies may repay all or part of qualifying outstanding employeestudent loans3 for employees in approved appointment types, 4 but agencies cannotexceed statutory annual and lifetime limits of 10,000 and 60,000, respectively.Employees receiving SLRP benefits must sign a service agreement to remain in theservice of the paying agency for a period of at least 3 years. Unless the agencywaives reimbursement, employees who do not fulfill their service agreements mustreimburse the paying agency for all benefits received. Finally, employees mustmaintain an acceptable level of performance to continue to receive SLRP benefits.Article 25 of the U. S. Securities and Exchange Commission’s (SEC or agency)Collective Bargaining Agreement (CBA) with the National Treasury Employees Union(NTEU) states that, subject to the availability of funds, the SEC will establish a SLRPin accordance with the C.F.R. and other applicable rules and regulations. The SECestablished its SLRP in July 2003. The SLRP Program Office in the SEC’s Office ofHuman Resources (OHR) administers the agency’s SLRP. Figure 1 shows the totalbenefits paid and total number of SLRP participants, annually, between July 2003 andDecember 2014. During those 12 years, the SEC provided employees a total of about 47.1 million in student loan repayment benefits. 5 Consequently, the SEC isconsistently among the Federal agencies that make the most extensive use of studentloan repayments. According to the Office of Personnel Management’s (OPM)calendar year (CY) 2014 report to Congress, more than 79 percent of the total cost of15 U.S.C. § 5379, Student loan repayments.25 C.F.R. § 537.105(a)(1) – (a)(2)(ii)3Loans eligible for payment are those made, insured, or guaranteed under parts B, D, or E of title IV ofthe Higher Education Act of 1965 or a health education assistance loan made or insured under part A oftitle VII or part E of title VIII of the Public Health Service Act.4Any employee (as defined in 5 U.S.C. § 2105) is eligible, except those occupying a position exceptedfrom the competitive civil service because of their confidential, policy-determining, policy-making, orpolicy-advocating nature (for example, Schedule C appointees).5Between 2003 and 2014, the SEC provided an annual average of about 3.9 million in student loanrepayment benefits to an annual average of about 473 employees.REPORT NO. 5341MARCH 31, 2016

U.S. SECURITIES AND EXCHANGE COMMISSIONOFFICE OF INSPECTOR GENERALall CY 2014 Federal student loan repayment benefits was provided by the Departmentof Justice ( 12.9 million), the Department of Defense ( 12.1 million), the Departmentof State ( 11.1 million), the Department of Veterans Affairs ( 4.1 million), and the SEC( 6.2 million). 6 As in the past, the SEC made the vast majority (almost 75 percent) ofits CY 2014 student loan repayments on behalf of employees in its mission criticaloccupations of attorney-advisor, accountant, and securities compliance examiner.Article 25 of the CBA further states that the SEC will reserve at least 20 percent of thefunds allocated to the SLRP in any fiscal year for student loan repayment benefits foreligible employees in nonprofessional job series positions. 7 7,000,000700 6,000,000600 5,000,000500 4,000,000400 3,000,000300 2,000,000200 1,000,000100Number of SLRP ParticipantsBenefits PaidFigure 1. SEC SLRP Total Benefits Paid and Total Number of Participants,Annually, Between 2003 and 2014 80 02003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014SLRP Benefits PaidSLRP ParticipantsSource: OIG-generated based on OPM annual reports to Congress.According to the SEC’s Student Loan Repayment Program Policy (SEC’s SLRP policy),dated September 2009, the SEC uses student loan repayment benefits only forretention purposes and does not use the program to recruit employees. Furthermore,the SEC does not require separating employees who did not fulfill their serviceagreements to repay SLRP benefits if (1) the employees leave the SEC for employment6U.S. Office of Personnel Management, Federal Student Loan Repayment Program Calendar Year 2014,September 2015.7OHR officials told us that they generally do not track the percentage of SLRP participants who occupynonprofessional job series positions unless there are insufficient funds to provide all approved employeesthe maximum yearly limit or maximum amount for which they are eligible each year.8According to OHR, the total number of SEC employees increased about 36 percent (from3,052 employees to 4,150 employees) between 2003 and 2014. Based on OPM’s annual reports toCongress, we determined that the SEC’s total annual number of SLRP participants and the total annualamount of SEC SLRP benefits paid also increased about 163 percent and 322 percent, respectively,during the same period (from 257 participants to 675 participants, and from 1,462,450 paid to 6,170,627 paid).REPORT NO. 5342MARCH 31, 2016

U.S. SECURITIES AND EXCHANGE COMMISSIONOFFICE OF INSPECTOR GENERALat another Federal agency, (2) the employees are involuntarily separated for reasonsother than conduct or performance, or (3) the SEC provides a waiver.SLRP Automated Application System. Beginning in 2015, SEC employees mustapply for SLRP benefits using an automated system. When applying, employees must(1) indicate whether they are on a performance improvement plan; (2) enter lenderpayment information, including the type and category of loan and whether the loan is indefault; (3) provide a written justification that demonstrates the employee’s unusuallyhigh or unique qualifications; and (4) sign the application. A recommending officialreviews the application, provides a justification statement, and indicates the employee isperforming at or above the “Meets Expectations” or “Acceptable” level and, moreover,the employee's retention is essential as his/her departure would significantly impactoffice operations.A reviewing official, typically a second line supervisor, reviews the employee’sapplication. If the reviewing official approves the application, the SLRP automatedapplication system generates a lender verification form. The employee sends theverification form to the lender. The lender verifies the employee’s loan information andreturns the verification form to the SLRP Program Office. SLRP Program Officepersonnel then review the application and loan verification form to ensure the loanqualifies under 5 U.S.C. § 5379. Additionally, Program Office personnel review thedocumentation to ensure (1) the requested SLRP payment does not exceed the loan’sprincipal balance; (2) the applicant (that is, the SEC employee) is the primary borrower;and (3) the loan is not in default status. Finally, the SLRP automated applicationsystem routes the approved application to the OHR Director for approval. If the OHRDirector approves the application, the SLRP automated application system generates aservice agreement for the employee. The service agreement specifies, among otherthings, the amount of the SLRP benefit and the length of service to which the employeeis committing.Prior Audit and Assessments. In 2008, the Office of Inspector General (OIG)identified opportunities for improvement in the SEC’s SLRP internal controls. 9Specifically, an OIG audit identified weaknesses in internal controls relating toapprovals; a lack of documentation; and deficiencies in controls over independentverifications, records management, safeguarding of personal information, andseparation of duties. In addition, the OIG reported “serious concerns with the [SEC]'sprocess to identify and collect debts from employees who leave the [SEC] withoutcompleting their employment service agreement.” The audit identified 12 individualswho left the agency without repaying a total of 129,336 in SLRP benefits owed. 109U.S. Securities and Exchange Commission, Office of Inspector General, Report No. 439, Audit of theStudent Loan Program; March 27, 2008. The report can be accessed udits/2008/439final.pdf.10According to OHR officials, two individuals were provided waivers and one individual was referred tothe U.S. Department of the Treasury for debt collection. The remaining nine individuals have repaid allSLRP benefits owed.REPORT NO. 5343MARCH 31, 2016

U.S. SECURITIES AND EXCHANGE COMMISSIONOFFICE OF INSPECTOR GENERALIn addition, OPM conducted an evaluation of the SEC’s talent management and humancapital framework. 11 In 2014, OPM reported that the SEC did not require a writtendetermination that employees were likely to leave Federal service if they did notreceive SLRP benefits, as required by 5 C.F.R. § 537.105. In its report, OPMrecommended that the SEC (1) develop a student loan repayment plan covering nonbargaining as well as bargaining unit employees, and (2) provide stronger writtenjustifications that support employees' intent to leave the agency if the SLRP ProgramOffice did not authorize student loan repayment benefits. The SEC’s September 23,2014, response to OPM’s recommendations stated:Changes are being made to the Student Loan Repayment program andare anticipated to take effect in January 2015. This requirement [forwritten justifications] will be discussed in our annual meeting with theStudent Loan Repayment Program committee that includes members ofNTEU and SEC management. The Office of Human Resources (OHR)will propose new guidance that the justification should support theemployee's intent to leave the agency if a student loan repayment is notauthorized. This change would require negotiation with NTEU.OPM closed its recommendations; however, as of the date of this report, OHR had notfinalized its guidance to require written determinations supporting employees’ intent toleave the SEC and Federal service.Finally, a 2015 OHR internal assessment identified weaknesses in internal controlsover program documentation (specifically, the SLRP application; Loan Data VerificationForm, SEC-2499; and service agreement) and assessments of written justificationssupporting SLRP applications. 12In 2014 and 2015, OHR implemented significant changes to the program. Thesechanges included, but were not limited to, migrating from (1) a paper-based processingsystem to an automated processing system, (2) a defined application period to a rollingapplication period, and (3) a one-year ineligibility period for new employees toimmediate eligibility. According to OHR officials, the automated system helps speedthe application and approval process and provides for the correct processing ofhundreds of transactions. Furthermore, the rolling application period provides theability to offer the retention incentive on an on-going basis rather than only once peryear.11U.S. Office of Personnel Management, Evaluation of SEC Adherence to Merit System Principles, Laws,and Regulations and Assessment of the Efficiency and Effectiveness in Administering Human ResourcesPrograms under the Talent Management System of the Human Capital Framework; July 14, 2014.12U.S. Securities and Exchange Commission, Office of Human Resources, Human Capital StrategyGroup, Student Loan Repayment Program Evaluation Final Report: 2015-SLRP-01; October 20, 2015.REPORT NO. 5344MARCH 31, 2016

U.S. SECURITIES AND EXCHANGE COMMISSIONOFFICE OF INSPECTOR GENERALObjectivesOur objective was to determine whether the SEC’s SLRP policies and procedurescomply with Federal requirements and whether controls are adequate to ensurecompliance with those policies and procedures. Specifically, we sought to: determine whether OHR developed and implemented SLRP policies andprocedures that comply with applicable laws and regulations, including applicablesections of the U.S.C., the C.F.R., and the SEC’s CBA; evaluate the operating effectiveness of SLRP internal controls designed andimplemented by OHR to ensure compliance with applicable laws and regulations;and determine whether OHR has implemented or effectively addressedrecommendations from prior SLRP audits and reviews.To address our audit objectives, we tested SLRP payments approved between July2003 and June 2015 and related debt collection processing. We also remained abreastof information relevant to the SEC’s SLRP throughout our audit. We reviewed (1) SECSLRP participant and benefit data; (2) OHR’s efforts to report SLRP participants andpayments to OPM, as required; and (3) prior SLRP audits, evaluations, and internalassessments. In addition, we interviewed management and staff from OHR, the Officeof Financial Management (OFM), and the Office of the Chief Operating Officer (OCOO),and assessed their responsibilities in SLRP approval, payment, and debt collectionprocesses. Finally, we assessed the design, implementation, and operatingeffectiveness of SLRP internal controls.Appendix I includes additional information on our scope and methodology, our review ofinternal controls, prior audit coverage, applicable Federal laws, regulations, andguidance, and SEC policies and procedures.REPORT NO. 5345MARCH 31, 2016

U.S. SECURITIES AND EXCHANGE COMMISSIONOFFICE OF INSPECTOR GENERALResultsFinding 1: SLRP Program Office Did Not Maintain Completeand Accurate Participant InformationThe SEC’s SLRP Program Office is responsible for administering theagency’s SLRP, including maintaining and reporting annually to OPMinformation on the number of participants and the amount of benefits paid.Program Office personnel must also identify separating SLRP participantsand, where applicable, determine whether such participants repaid SLRPbenefits. We determined that SLRP Program Office personnel could notcompletely and accurately identify in a timely manner13 all employees whoreceived SLRP benefits and the amount paid to each between July 2003and June 2015. Furthermore, although we verified that the SEC eithercollected or was collecting repayments from 95 former employees,Program Office personnel did not maintain a list of participants who left theSEC before fulfilling their service agreements. As a result, SLRP ProgramOffice personnel were unaware of 17 individuals who owed the SEC atotal of about 216,000. 14 In addition, we could not determine whether theSEC always complied with statutory annual or lifetime limits or securedrepayment from employees who did not meet their service agreementterms before leaving the agency and Federal service. The OIG’s 2008Audit of the Student Loan Program resulted in 19 recommendations forcorrective action. Although those recommendations are closed, many ofthe issues we observed are repeat findings.SLRP Program Office Could Not Completely and Accurately IdentifySLRP Participants and Benefit Amounts in a Timely MannerAccording to 5 C.F.R. § 537.110, Federal agencies that administer SLRPs must provideOPM with an annual written report that includes the number of SLRP recipients, theirjob classifications, and associated program costs for the previous calendar year.5 C.F.R. § 537.103 further states that agencies must establish a student loanrepayment plan that includes, among other things, “[d]ocumentation and recordkeepingrequirements sufficient to allow reconstruction of each action to approve a student loanrepayment benefit.” According to the SEC’s SLRP policy, “OHR will process apersonnel action for each employee who receives benefits under the program inaccordance with the OPM’s reporting requirements and a copy of the [Standard Form]50 will be maintained on the temporary side of the [Official Personnel Folder] until the13We performed fieldwork between June 2015 and March 2016. One of our first tasks was to requestlistings of SEC SLRP participants and amounts paid during the period under review.14This amount is an estimate that could increase due to interest or decrease due to payroll withholdingsthat were applied to the benefit amount received.REPORT NO. 5346MARCH 31, 2016

U.S. SECURITIES AND EXCHANGE COMMISSIONOFFICE OF INSPECTOR GENERALemployee leaves the agency.” Finally, the U.S. Government Accountability Office’s(GAO) Standards for Internal Control in the Federal Government 15 states thatdocumentation is a necessary part of an effective internal control system and it providesa means to retain organizational knowledge, mitigate the risk of having that knowledgelimited to a few personnel, and communicate that knowledge to external parties, suchas external auditors. The document further states that common control activities includepromptly, completely, and accurately recording all transactions, and clearlydocumenting transactions and other significant events “in a manner that allows thedocumentation to be readily available for examination [emphasis added].”SLRP Program Office personnel provided us listings of participants and benefitsawarded since the inception of the SEC’s program in 2003. However, the informationdid not reconcile to amounts reported to OPM and was incomplete and inaccurate.SLRP Program Office Information Did Not Reconcile to OPM Reports. SLRPProgram Office personnel provided us the number of SEC SLRP participants and theamount of benefits paid each year between 2007 and June 2015. However, as Table 1shows, this information did not reconcile to information the SEC previously reported toOPM. 16 We requested an explanation for the differences in the information provided tous and reported to OPM. OHR personnel were unable to reconcile the information.Table 1. Differences in SLRP Information Reported to OPM and Provided to OIGSEC SLRP InformationReported to OPMCostSEC SLRP InformationProvided to 69 3,390,076369 3,393,862Participants0( 3,786)Cost2008408 3,701,771406 3,667,6532 34,1182009546 3,991,316496 3,588,03150 403,2852010525 3,880,198510 3,773,44415 106,7542011575 3,900,801575 3,900,8020( 1)2012517 4,563,338517 4,558,5560 4,7822013645 5,794,070643 5,774,0712 19,9992014675 6,170,627674 6,159,0611 11,566Total4,260 35,392,1974,190 34,815,48070 576,717Source: OIG-generated based on OPM annual reports to Congress and data provided by OHR.15U.S. Government Accountability Office, Standards for Internal Control in the Federal Government(GAO/AIMD-00-21.3.1, November 1999). In September 2014, GAO issued revised standards (GAO-14704G, September 2014). The revised standards were not effective until fiscal year 2016, althoughagency management could have adopted them earlier.16U.S. Office of Personnel Management Report to Congress, Federal Student Loan Repayment Programfor fiscal year 2007 and CYs 2008 through 2014. As of the date of this report, OPM’s CY 2015 report wasnot available.REPORT NO. 5347MARCH 31, 2016

U.S. SECURITIES AND EXCHANGE COMMISSIONOFFICE OF INSPECTOR GENERALSLRP Program Office Did Not Maintain a Complete and Accurate Listing of AllSLRP Participants and Payments. We also found discrepancies in the data providedby SLRP Program O

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 OFFICE OF INSPECTOR GENERAL M E M O R A N D U M March 31, 2016 TO: Jeffery Heslop, Chief Operating Officer FROM: Carl W. Hoecker, Inspector General SUBJECT: Audit of the SEC's Student Loan Repayment Program, Report No. 534 Attached is the Office of Inspector General's (OIG) final report detailing the results of our audit