At a time when the Securities and Exchange Commission is scrambling for resources, a new report by the agency's internal watchdog says the agency has wasted millions of dollars in a "deeply flawed" system for leasing office space.
The report by Inspector General H. David Kotz—issued last week but not made public by the SEC until Tuesday—focuses on space leased by the SEC last year, most of which, it turns out, the agency did not need.
The report says that after getting an increase in its budget for this fiscal year, SEC officials promptly signed a $556 million, 10-year lease on 900,000 square feet of office space in Washington, only to find out three months later that the agency did not need two-thirds of the space after all.
By the time agency officials figure out the mix-up, it was too late as far as the landlord was concerned. That company, David Nassif Associates, is demanding nearly $94 million in damages from the SEC. The SEC is contesting the claim, the report notes.
Kotz says the episode "represents another in a long history of missteps and misguided leasing decisions made by the SEC" since Congress gave the agency authority in 1990 to lease its own space. In fact, the report notes that despite being granted that authority, the SEC did not implement policies on leasing space until last year—20 years later.
The report says that last year's decision to lease the additional space in Washington came soon after the passage of the Dodd-Frank financial reform law last year. After the law passed, the SEC's Office of Administrative Services estimated that meeting the new law's requirements would require quadrupling the size of the SEC's headquarters. But the report calls that conclusion "groundless and unsupportable," based on "a deeply flawed and unsound analysis."
The report notes that SEC Chairwoman Mary Schapiro and her chief of staff questioned the need for the space, pointing out that even if as many new personnel were hired as administrators estimated, many of them would be deployed not in Washington, but at SEC regional offices. Administrators signed the deal anyway.
What's more, the report says, the Office of Administrative Services did not put together a required government report to justify the expense until one month after the lease was signed, at which point the OAS backdated the report to cover its tracks.
It is not the first time the SEC has wasted money on office space, according to the report.
When the SEC built its current headquarters near Washington's Union Station in 2005, it incurred $48 million in cost overruns, according to a disclosure to Congress at the time. Just two years later, the agency spent more than $3 million to rearrange offices in the building.
The report blames the waste on a "rigid and closed atmosphere" within the administrative office, where "senior management is surrounded by yes men."
The report recommends a comprehensive review of "all matters currently under the purview of the OAS," as well as possible disciplinary action.