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United States General Accounting Office: 
GAO: 

Testimony: 

Before the Subcommittee on Oversight of Government Management, 
Restructuring and the District of Columbia, Committee on Governmental 
Affairs, U.S. Senate. 

For Release on Delivery: 
Expected at 10:00 a.m. EDT: 
Tuesday April 23, 2002: 

Human Capital: 

Major Human Capital Challenges at SEC and Key Trade Agencies: 

Statement of Richard J. Hillman: 
Director, Financial Markets and Community Investment, and: 

Loren Yager: 
Director, International Affairs and Trade: 

GAO-02-662T: 

Mr. Chairman and Members of the Subcommittee: 

We appreciate the opportunity to appear here today to discuss the human 
capital challenges facing the agencies that play key roles in 
monitoring publicly traded companies and enforcing our nationís trade 
laws. As you are aware, GAO has been a leading promoter of a more 
strategic approach to federal human capital issues. We are particularly 
gratified to come before this subcommittee, as you have been committed 
advocates of our efforts, sponsoring much of our work in this area. The 
leadership provided by this subcommittee and the Senate Committee on 
Governmental Affairs has been especially important in focusing 
attention on the federal governmentís human capital challenges. 

Over the past 2 years, our work in the major management challenges and 
program risks across the government has identified human capital as a 
primary factor affecting current and future agency performance. In 
fact, in January 2001, GAO designated strategic human capital 
management as a governmentwide high-risk area.[Footnote 1] As our 2001 
High-Risk Series and Performance and Accountability Series reports make 
clear, serious human capital shortfalls are eroding or threatening to 
erode the ability of many agencies to effectively perform their 
missions.[Footnote 2] We found that many agencies lack a consistent 
strategic approach to marshaling, managing, and maintaining the human 
capital needed to maximize performance and ensure accountability. Today 
we will discuss the specific challenges faced by the Securities and 
Exchange Commission (SEC), whose mission is to protect investors and 
the integrity of securities markets, which includes overseeing public 
companies. We will also discuss the Department of Commerce, the Office 
of the U.S. Trade Representative (USTR), and the U.S. Department of 
Agriculture--the key agencies that monitor and enforce our nationís 
trade agreements. 

Although these agencies have diverse responsibilities, our statement 
today will address the specific human capital challenges these agencies 
face. Specifically, this statement provides information on (1) workload 
and staffing challenges, (2) the effects of workload and staffing 
imbalances on the agenciesí ability to fulfill their missions, and (3) 
other factors that affect the fulfillment of these agenciesí respective 
missions. Our observations about the challenges faced by SEC and the 
key trade agencies are based on three reports issued between 2000 and 
2002.[Footnote 3] In addition, we updated our previous work through a 
series of meetings with appropriate agency officials. This statement 
was completed in accordance with generally accepted government auditing 
standards. 

In summary, our work at these agencies has resulted in reports that 
address the human capital challenges faced by SEC and the key trade 
agencies. In our 2002 report on SEC, we found that SEC faces a workload 
that is growing at a rate much faster than staffing in an environment 
where markets have become more complex, global, and technology-driven. 
We found that workload and staffing imbalances have affected most 
aspects of SECís regulatory and supervisory activities, from its 
inhouse technological capabilities to its ability to take enforcement 
actions against market participants. SEC also faces challenges beyond 
its resource limitations. For example in our 2001 and 2002 reports on 
SEC, we discussed the high staff turnover, which hampers its 
effectiveness and efficiency, and a strategic planning process that has 
not included a strategic reevaluation of programs and activities in 
light of current and emerging challenges. 

We also found that the key agencies that monitor U.S. trade agreements 
faced human capital challenges. As we reported in March 2000, since the 
early 1980s, the United States has entered into several hundred trade 
agreements, which has caused dramatic increases in the trade monitoring 
and enforcement workloads at USTR, Commerce, and Agriculture. This 
workload has continued to grow over the past 2 years as a result of 
such factors as the launch of major multilateral, regional, and 
bilateral trade negotiations. In our 2000 report, we found that these
agenciesí efforts to monitor and enforce trade agreements were hampered 
because they lacked sufficient staff with appropriate expertise, did 
not receive adequate support from other agencies, and had difficulty 
obtaining comprehensive input from the private sector. We found that 
since our report was issued, staffing for trade compliance efforts has 
increased at all three agencies, but we believe it is too early to 
predict the impact of these increases. Moreover, the agencies face 
other human capital challenges, including problems with recruitment and 
high turnover rates. 

Human Capital Issues at SEC Threaten Its Ability to Fulfill Its 
Mission: 

Over the last decade, securities markets have experienced unprecedented 
growth and change. Moreover, technology has fundamentally changed the 
way markets operate and how investors access markets. These changes 
have made the markets more complex. In addition, the markets have 
become more international, and legislative changes have resulted in a 
regulatory framework that requires increased coordination among 
financial regulators and requires that SEC regulate a greater range of 
products and participants. Moreover, the recent sudden collapse of 
Enron and other corporate failures have stimulated an intense debate on 
the need for broad-based reform in such areas as financial reporting 
and accounting standards, oversight of the accounting profession, and 
corporate governance, all of which could have significant repercussions 
on SECís role and oversight challenges. At the same time, SEC has been 
faced with an ever-increasing workload and ongoing human capital 
challenges, most notably high staff turnover and numerous vacancies. 

SEC Faces Significant Workload and Staff Challenges: 

As stated in our March 2002 report, we found that SECís ability to 
fulfill its mission has become increasingly strained due in part to 
imbalances between workload and staff resources.[Footnote 4] As
illustrated in figure 1, the larger, more active, and more complex 
markets just discussed have resulted in an increased aggregate workload 
(e.g., filings, complaints, inquiries, investigations, examinations, 
and inspections) for SEC. As the dotted line indicates, SECís workload 
has continued to grow at a rapid rate throughout the decade while staff 
resources, represented by the solid line, have grown little. As a 
result, SEC has been challenged to keep up with its increasing workload 
since about 1996.[Footnote 5] 

Figure 1: Percent Change in SEC Staff Years and Workload, 1991-2000: 

[Refer to PDF for image] 

This figure is a multiple line graph depicting percent change in SEC 
staff years and workload, 1991-2000. The vertical axis of the graph 
represents percent from -10 to 100. The horizontal axis of the graph 
represents years from 1991 to 2000. Lines depict the percent change in 
two categories: 
SEC staff years; 
SEC workload. 

Source: GAO analysis of SEC data. 

[End of figure] 

When we reviewed this workload on an activity basis, we found that over 
the last decade staffing within the various areas of SECís regulatory 
oversight grew between 9 and 166 percent, while workload in those same 
areas grew from 60 to 264 percent. As figure 2 illustrates, these 
disparities exist across all key SEC activities, as the increase in 
SECís workload has substantially outpaced the increases in SECís staff. 
For example: 

* the number of corporate filings increased almost 60 percent, while 
related review staff increased 29 percent; 

* the number of complaints and inquiries received increased by 100 
percent, while the enforcement staff dedicated to investigate 
complaints and other matters increased by only 16 percent; 

* the number of market and firm supervision actions increased 137 
percent, but the number of staff responsible for these activities 
increased 51 percent;[Footnote 6] 

* investment company filings increased 108 percent while staff 
increased 9 percent; and: 

* total assets under management by investment companies (IC) and 
investment advisers (IA) increased by about 264 percent, while the 
number of IC and IA examination staff increased by 166 percent. 

Figure 2: Percent Change in Workload and Staff Years for Selected SEC 
Activities, 1991-2000: 

[Refer to PDF for image] 

This figure is a multiple vertical bar graph depicting the following 
data: 

Percent Change in Workload and Staff Years for Selected SEC Activities, 
1991-2000: 

Activity: Review of corporate filings; 
Increase in workload: 60%; 
Increase in staff years: 29%. 

Activity: Complaints and inquiries; 
Increase in workload: 100%; 
Increase in staff years: 16%. 

Activity: Market and firm supervision; 
Increase in workload: 137%; 
Increase in staff years: 51%. 

Activity: Review of investment company filings; 
Increase in workload: 108%; 
Increase in staff years: 9%. 

Activity: IC and IA assets under management; 
Increase in workload: 264%; 
Increase in staff years: 166%. 

Source: GAO analysis of SEC data. 

[End of table] 

SECís Ability to Fulfill Its Mission Has Become Increasingly Strained: 

In our work at SEC, we found that its ability to fulfill its mission 
has become increasingly strained due in part to imbalances between 
SECís workload (such as filing, complaints, inquiries, investigations, 
examinations, and inspections) and staff resources (full-time 
equivalent [FTE] staff years). Although industry officials complimented 
SECís regulation of the industry given its staff size and budget, both 
SEC and industry officials identified several challenges that SEC 
faces. First, resource constraints have contributed to substantial 
delays in the turnaround time for many SEC regulatory and oversight 
activities such as approvals for rule filings and exemptive 
applications.[Footnote 7] According to industry officials, such delays 
have resulted in forgone revenue and have hampered market innovation. 
Second, resource constraints have contributed to bottlenecks in the 
examination and inspection area as SECís workload has grown. As a 
result, certain examinations and inspections take longer to complete. 
Third, limited resources have forced SEC to be selective in its 
enforcement activities and have lengthened the time required to complete
certain enforcement investigations.[Footnote 8] Fourth, SEC staff have 
reviewed certain filings less frequently and completely as workloads 
increased. Fifth, todayís technology-driven markets have created 
ongoing budgetary and staff challenges. Finally, SEC and industry 
officials said that SEC has been increasingly challenged in addressing 
emerging issues, such as the ongoing internationalization of securities 
markets and technology-driven innovations like alternative trading 
systems[Footnote 9] and exchange-traded funds. Although we address the 
implications of all of these challenges in our 2002 report, today we 
will focus our discussion on two critical aspects of SECís 
operationsóits reviews of corporate filings and enforcement activities. 

Certain Financial Statement and Other Filings Are Subject to Less 
Frequent Review by SEC Staff: 

Like other aspects of SECís workload, the number of corporate filings 
has grown at an unprecedented rate. For example, from 1991 to 2000, the 
number of corporate filings increased 60 percent. During this same 
period, the percent of all corporate filings that received some type
of review by SEC decreased from about 21 percent to 8 percent. 
[Footnote 10] We found that SECís 2001 goal was to complete a full 
financial review of each issuerís annual filings in 1 of every 3 
yearsóa review goal of about 30 to 35 percent of annual filings per 
year. According to SEC, this level of review was expected to ďensure 
that material issues are disclosed clearly and completely and that 
possible fraudulent activities are addressed promptly.Ē However, in 
2001, SEC completed full or full financial reviews of only 16 percent 
of the annual reports filed or about half of its annual goal. 

In November 2001, the Division of Corporation Finance announced that 
staffing levels were expected to remain flat while filings were 
expected to continue to increase in number and complexity. In this post-
Enron environment, SEC plans to reconsider how it will select filings
for review and how it will review the filings selected. Rather than 
conducting full reviews of fewer firms, SEC officials said SEC may 
limit its review to a specific disclosure issue and review more filings 
for that issue. For example, SEC may choose to focus on off-balance 
sheet activities and work with the companies to improve disclosure. 
However, SEC officials said that full reviews will not be completely 
abandoned, but the revised approach should help SEC better deploy 
limited staff resources and enable it to have a greater review presence 
across all types of corporate filings in the future. Further, in 
December 2001, in response to the disclosure and accounting problems of 
Enron, SEC began to review the annual filings of the 500 largest U.S.
companies. 

Workload Growth and Limited Staffing Raise Concerns about Enforcement: 

In the 2002 report, we also reported that delays in closing cases and a 
growing backlog of smaller investigations presented ongoing challenges 
for SEC. Over the past decade, SECís Division of Enforcement staff 
devoted to investigations increased 16 percent to about 482 staff 
years, while the number of cases opened increased 65 percent to 558. 
Although increased staff has allowed more work to be initiated, delays 
in completion of individual cases persist. Moreover, the number of 
cases pending at the end of the year increased 77 percent over this 
same time period. SEC officials said the increase in the number of 
cases pending was due in part to high staff turnover, which has 
resulted in old cases not being closed or ongoing cases being delayed 
until other staff can take over. For example, SEC officials reported 
that in 2000 alone, over 58 experienced staff left the division. 

As this subcommittee recognizes, enforcement activities are important 
for carrying out SECís mandate to protect investors and deter fraud and 
abuse. Because SEC has limited resources and cannot prosecute every 
case, SEC officials said they must prioritize the cases they will 
pursue. According to SEC officials, SEC generally prioritizes the cases 
in terms of (1) the message delivered to the industry and public about 
the reach of SECís enforcement efforts, (2) the amount of investor harm 
done, (3) the deterrent value of the action, and (4) SECís visibility 
in certain areas such as insider trading and financial fraud. Except 
for the length of time taken to complete an investigation, most 
industry officials said that SEC was effective in this area. Although 
SEC data show that the average length of time to complete an 
investigation has decreased, we did not perform a detailed review of 
the individual investigations to determine whether this was an
improvement or whether SEC on average pursued less time-consuming 
matters for investigation. 

SEC Faces Other Human Capital Challenges: 
In addition to the staff and workload imbalances, other factors also 
contribute to the challenges SEC currently faces. SEC officials said 
that although additional resources could help SEC do more, additional 
resources alone would not help SEC address its high turnover, which 
continues to be a challenge for the agency. As we discussed in our 2001 
report on SECís human capital practices, about one-third of SECís staff 
left the agency from 1998 to 2000.[Footnote 11] By 2001, this number 
had increased to 40 percent. SECís turnover rate for attorneys, 
accountants, and examiners averaged 15 percent in 2000, more than twice 
the rate for comparable positions governmentwide. Although the rate had 
decreased to 9 percent in 2001, turnover at SEC was still higher than 
the rate governmentwide. Further, because of its high turnover and 
inability to hire new staff quickly, about 250 positions remained 
unfilled in September 2001, which represents about 8.5 percent of SECís 
authorized positions. Likewise, industry officials agreed that many of 
the challenges SEC faces today are exacerbated by its high turnover 
rate, which results in more inexperienced staff and slower, often less 
efficient, regulatory processes. SEC and industry officials alike 
recognize that SEC will always have a certain amount of turnover 
because staff can significantly increase their salaries in the private 
sector, and some staff plan to stay at SEC for only a limited period of 
time. Many officials said pay parity with other financial regulators 
could enable SEC to attract and retain staff for a few additional years.
SEC estimates that a new employee generally takes about 2 years to 
become fully productive; in some divisions, junior staff were staying 2 
years on average. We found that from 1992 to 1999, the average tenure 
of an examiner decreased from 2.9 to 1.9 years and the average tenure 
for attorneys leaving SEC had decreased from 3.4 years to 2.5 years. 
Moreover in 2000, 76 percent of SEC examiners had been with the agency 
less than 3 years. We explored the reasons for SECís high turnover 
among its professional ranks and actions taken to address this problem 
in our 2001 human capital report.[Footnote 12] To do this, we surveyed 
current and former SEC attorneys, accountants, and examiners to 
determine why they had left or would consider leaving SEC. 
Overwhelmingly, compensation was cited as the primary reason for 
leaving SEC. However, respondents also identified other nonpay factors 
that had affected or would affect their decisions to leave, such as the 
lack of opportunities for advancement, the amount of uncompensated 
overtime, and the quality of administrative support. As illustrated in
figure 3, these factors also had a generally or very negative effect on 
morale. This graphic also illustrates that 20 percent or more of 
current staff identified other aspects of work at SEC that could 
negatively affect staff morale, including the quality of communication, 
training, and supervision; the appraisal process; and the 
organizational structure. Among other things, in our 2001 report we 
recommended that the chairman SEC identify ways to involve human capital
leaders in decision making and establish a practice that requires 
management to continually monitor and refine SECís human capital 
approaches to ensure their ongoing effectiveness. 

Figure 3: Percentage of Staff Indicating Certain Aspects of Their Job 
Had a Generally or Very Negative Effect on Morale: 

[Refer to PDF for image] 

This figure is a multiple vertical bar graph depicting the following 
data: 

Percentage of Staff Indicating Certain Aspects of Their Job Had a 
Generally or Very Negative Effect on Morale: 

Job aspect: Level of compensation; 
Current Staff: 82%; 
Former staff: 76%. 

Job aspect: Uncompensated overtime; 
Current Staff: 57%; 
Former staff: 51%. 

Job aspect: Quality of support; 
Current Staff: 56%; 
Former staff: 72%. 

Job aspect: Opportunities for advancement; 
Current Staff: 45%; 
Former staff: 46%. 

Job aspect: Quality of communication; 
Current Staff: 33%; 
Former staff: 45%. 

Job aspect: Quality of training; 
Current Staff: 25%; 
Former staff: 26%. 

Job aspect: Appraisal process; 
Current Staff: 24%; 
Former staff: 32%. 

Job aspect: Organizational structure; 
Current Staff: 24%; 
Former staff: 33%. 

Job aspect: Quality of supervision; 
Current Staff: 23%; 
Former staff: 42%. 

Job aspect: Meaningfulness of work; 
Current Staff: 8%; 
Former staff: 12%. 

Job aspect: Ability to balance work/personal life; 
Current Staff: 7%; 
Former staff: 8%. 

Source: GAO survey of current and former SEC attorneys, accountants, 
and examiners. 

[End of figure] 

Although SEC has taken numerous actions to address its high turnover 
including use of special pay rates and retention bonuses, its turnover 
rate remains higher than the governmentwide rate. The compensation 
challenges that SEC faces are indicative of the pay issues that some 
other agencies face as well, and underscore the need to consider 
governmentwide pay reform that needs to make a more direct link between 
pay and individual knowledge, skills, abilities, and performance. 

Aside from special pay rates for certain professional staff, SEC 
employees are paid according to general government pay rates. However, 
on January 16, 2002, legislation was enacted that exempted SEC from 
federal pay restrictions and provided it with the authority necessary 
to bring salaries in line with those of other federal financial 
regulators, but to date SEC has not received any additional 
appropriations to fund higher salaries. SEC estimates that an 
additional $76 million is needed to provide pay parity for the agency 
in 2003. For 2003, SEC also is seeking from its congressional 
appropriators an additional 100 staff positions. It requested 30 
accountants, lawyers, and other professionals in the Division of 
Corporation Finance to enhance its capability to review periodic 
disclosure filings of public companies. It requested 35 accountants and 
lawyers in the Division of Enforcement to deal with an increasing 
workload of financial fraud and reporting enforcement cases. It also 
requested 35 accountants, lawyers, and other professionals in other 
divisions including the Office of the Chief Accountantóto deal with 
evolving needs and policy development. Without these requested 
increases for pay parity and additional staff, SEC says that it will 
continue to be restrained from retaining and attracting experienced 
staff and from fully addressing the new regulatory challenges and 
growth of workload that it faces. 

Although SECís workload and staffing imbalances have challenged SECís 
ability to protect investors and maintain the integrity of securities 
markets, SEC has generally managed the gap between workload and staff 
by determining what basic, statutorily mandated duties it could 
accomplish with existing resource levels. This approach, while 
practical, has forced SECís activities to be largely reactive rather 
than proactive. For instance, SEC has not put mechanisms in place to 
identify what it must do to address emerging and evolving issues. 
Although SEC has a strategic plan and has periodically adjusted 
staffing or program priorities to fulfill basic obligations, SEC has 
not engaged in a much needed, systematic reevaluation of its programs 
and activities in light of current and emerging challenges. Given the 
regulatory pressures facing SEC and its ongoing human capital 
challenges, it is clear that SEC could benefit from some additional
funding. However, a comprehensive, agencywide planning effort, 
including planning for use of technology to leverage available 
resources, could help SEC better determine the optimum human capital 
and funding needed to fulfill its mission. On March 20, 2002, SEC 
announced that it had undertaken a special study of the agencyís 
operations and resources intended, in part, to implement a 
recommendation in our report. 

Commerce and Other Agencies that Oversee Trade Agreements Face Human 
Capital Challenges: 

Tradeís influence on the U.S. economy has increased dramatically over 
the past decade, with exports growing more than twice as fast as U.S. 
output (figure 4). Most of the growing volume of U.S. exports is 
governed by the terms of trade agreements. U.S. government efforts to 
monitor and enforce these agreements involve at least 17 federal 
agencies, with three key agencies, USTR and the Departments of Commerce 
and Agriculture, having significant roles. 

Figure 4: Growth of U.S. Exports as Compared to Overall U.S. Output, 
1970-2000: 

[Refer to PDF for image] 

This figure is a multiple line graph depicting percent the growth of 
U.S. exports as compared to overall U.S. output, 1970-2000. The 
vertical axis of the graph represents Index from 0 to 550 (1970 = 100). 
The horizontal axis of the graph represents years from 1970 to 2000. 
Lines depict the following: 
Exports; 
GDP. 

Source: GAO calculation based on IMF data. 

[End of figure] 

In March 2000, we reported that the creation of a vast array of U.S. 
trade agreements since the early 1980s had caused dramatic increases in 
the trade monitoring and enforcement workloads at USTR, Commerce, and 
Agriculture. Further, we found that these agenciesí ability to monitor
and enforce trade agreements was limited due to a lack of sufficient 
staff with appropriate expertise, inadequate support from other 
agencies, and difficulty obtaining comprehensive input from the private 
sector. Since our report was issued, staffing for trade compliance 
activities has increased at all three agencies, although the impact of 
these increases is uncertain. Moreover, the agencies face other human 
capital challenges, such as problems with recruitment and high
turnover rates. 

Trade Agencies Face Workload and Staffing Challenges: 

USTRís, Commerceís, and Agricultureís trade monitoring and enforcement 
workload has increased substantially in the last few years. While the 
number of staff performing these functions at the three agencies has 
also increased, their workload continues to grow in volume and 
complexity. Therefore, human capital challenges remain. Some important 
reasons for the growing workload include the rising number of U.S. 
trade agreements, the increasing number of countries that are party to 
these agreements, and the growing number of active trade disputes
involving the United States. 

Agenciesí Workload Is Increasing in Volume and Complexity: 

In recent years, the number of trade agreements has grown 
substantially. Since the early 1980s, the United States has entered 
into more than 400 trade-related agreements. USTR negotiated about 300 
of these, over 70 percent of which entered into force after 1992. 
According to USTR, the majority of these agreements have increased U.S. 
exportersí access to foreign markets. Figure 5 depicts the growth in 
the number of trade agreements that USTR negotiated since 1984. 

Figure 5: Number of USTR-Negotiated Trade Agreements in Force, 1984-
2002: 

[Refer to PDF for image] 

This figure is a line graph depicting the number of USTR-negotiated 
trade agreements in force, 1984-2002. The vertical axis of the graph 
represents the number of trade agreements currently in force from 0 to 
350. The horizontal axis of the graph represents years from 1984 
through 2002. 
 
Source: USTR, 2001 Trade Policy Agenda and 2001 Annual Report. 

[End of figure] 

At the same time, the number of nations that participate in key trade 
agreements has grown, further expanding the federal monitoring and 
enforcement workload. For example, when the Uruguay Round of 
multilateral trade negotiations was launched in 1986, 90 countries were
members of the General Agreement on Tariffs and Trade, the 
organizational structure that preceded the World Trade Organization 
(WTO). By the time that the WTO agreements were signed in 1994, the 
number of WTO members had expanded to 123. An additional 21 countries
have joined the WTO since then, including China. Chinaís WTO 
membership, in particular, will increase the agenciesí monitoring and 
enforcement workload given that the terms of its accession are 
extremely complex, totaling about 1000 pages. Figure 6 depicts the 
growth in WTO membership since 1986. 

Figure 6: World Trade Organization Membership, 1986-2002: 

[Refer to PDF for image] 

This figure is a vertical bar graph depicting the growth in WTO 
membership since 1986. 

Year: 1986; 
Number of WTO members (approximated from graph): 50. 

Year: 1994; 
Number of WTO members (approximated from graph): 125. 

Year: 2002; 
Number of WTO members (approximated from graph): 145. 

Sources: Data for 1986 and 1994 from GAO/NSIAD-00-76. Data for 2002 
from WTO. 

[End of figure] 

Further, while these far-reaching agreements have substantially 
increased U.S. trade agreement rights, they have also increased U.S. 
trade agreement obligations to other nations. As a result, the 
agenciesí dispute settlement caseload has continued to grow. This 
situation has affected USTRís workload in particular because the agency 
is responsible for advocating and defending U.S. trade agreement rights 
and obligations within North American Free Trade Agreement (NAFTA) and 
WTO. The number of active cases involving the United States has 
increased from 39 in 2000 to 46 in 2002 even as the number of resolved 
cases has grown. Moreover, a growing focus of U.S. dispute settlement 
efforts is responding to cases brought against the United States by 
other nations. More than half of these cases have focused on U.S. use 
of trade remedy laws, particularly U.S. actions taken against steel 
imports. USTR relies on support from Commerce for these cases. 
According to Commerce officials, WTO dispute settlement cases are 
especially time consuming because of the tight deadlines and numerous 
filings required. Figure 7 depicts the status of WTO dispute settlement 
cases involving the United States in 2000 and 2002. 

Figure 7: WTO Dispute Settlement Cases Involving the United States, 
2000 and 2002: 

[Refer to PDF for image] 

This figure is a vertical bar graph depicting the WTO Dispute 
Settlement Cases Involving the United States, 2000 and 2002, as 
follows: 

Resolved cases: 
2000: 42; 
2002: 69. 

Active cases: 
2000: 39; 
2002: 46. 

Source: USTR data. 

[End of figure] 

U.S. Trade Agencies Have Recently Increased Staffing in Key Areas, but 
Impact of Additions Is Uncertain: 

Human resources are the single most important asset of the agencies 
responsible for monitoring and enforcing the growing volume of trade 
agreements. This work requires country, industry, and functional 
expertise, and a mixture of economic, technical, and legal analysis. In 
March 2000, we reported that the three key trade agenciesí human 
capital capabilities had not kept pace with their increased monitoring 
and enforcement workload. Specifically, staff levels at the three key 
agencies were flat or declining. 

Since our March 2000 report, USTR, the Foreign Agricultural Service 
(FAS), and two of the three divisions in Commerceís International Trade 
Administration have received significant increases in funding for staff 
to monitor and enforce trade agreements. However, due to the recent 
nature of the increases, we believe it is too early to determine fully 
whether these additions have been effective in resolving the human 
capital issues that we cited in our report. 

These increases involved the following groups: 

* In 2001, USTR received funding to add 25 new positions, which 
increased the agencyís total FTE staff level to 203. All 25 positions 
have been filled. Thirteen of the new positions were in the area of 
trade enforcement, 11 were in negotiations, and one was administrative. 

* In 2001, Commerceís ITA received increased funding for staff, but not 
all of ITAís divisions with monitoring and enforcement responsibilities 
have actually added resources. 

- ITAís Market Access and Compliance (MAC) Divisionóone of ITAís two 
main divisions with export-related trade agreement monitoring 
responsibilitiesówas funded for an additional 35 positions. As of the 
end of 2001, MAC had filled 31 of these authorized positions. MACís new 
positions filled in 2001 included nine staff to work specifically on 
China issues and four to work on general issues involving compliance 
with trade agreement provisions. 

- ITAís Trade Development (TD) Division, which has responsibility for 
monitoring export-related trade agreements in sectors such as 
automobiles, aerospace, and telecommunications, was funded for one 
additional position in 2001. However, the divisionís actual staff 
levels declined from 380 to 363 that year. Staff levels at Commerceís 
Office of Automotive Affairs have remained flat at 16 full-time
employees for the past 4 years. 

- ITAís Import Administration Division hired 27 additional staff in 
2001. This division administers U.S. trade laws on antidumping and 
countervailing duties and monitors enforcement of sector-specific 
agreements governing U.S. imports. Most of the new positions were for 
enforcing subsidies agreements and monitoring Chinaís and Japanís 
compliance with trade agreements. 

* The FAS, which handles most of Agricultureís trade policy and 
promotion responsibilities, was funded for a total of 18 new staff 
years in 2001 and 2002. This increase in staff was for activities 
related to monitoring countriesí technical trade barriers and foreign 
regulatory measures regarding imports of products with a biotechnology 
component. 

With increased staff levels in 2001, officials at the three agencies 
generally believe they now have adequate capacity to monitor and 
enforce trade agreements. However, we believe it is too early to tell 
if the new staff will enable the agencies to fulfill their mission of 
monitoring and enforcing trade agreements. One reason is that most of 
the new staff have been on board for a year or less, so the impact of 
these new additions is uncertain. Another reason it may be difficult
to judge the effectiveness of the staff increases is the continuing 
growth in the agenciesí workload, which could potentially cause a shift 
in resources intended for trade compliance activities. According to 
USTRís 2003 budget justification, never in history have so many 
countries participated in global trade negotiations.[Footnote 13] 

To handle the expected increase in the negotiations workload, USTR is 
requesting authority for six new negotiator positions. The MAC unit in 
ITA, which will support USTR in all the negotiations, is requesting 33 
new FTEs in its 2003 budget, 21 of whom will provide support for WTO 
and FTAA negotiations. Without additional resources for negotiations, 
agency officials told us they may have to shift resources away from 
trade compliance to meet the increased workload in conducting 
negotiations. 

Past Workload Imbalances Hindered Trade Agenciesí Ability to Fulfill 
Their Missions: 

Past staffing and workload imbalances hindered the three trade 
agenciesí abilities to fulfill their trade monitoring and enforcement 
missions. As we reported in March 2000, agency officials stated that 
gaps in staff expertise had hindered their efforts to analyze and 
respond to compliance problems. In addition, officials at all three 
agencies said that steady declines in staff resources had limited the 
level of support they provide to each other. Finally, we also cited 
challenges at the three agencies in coordinating their efforts with the 
private sector. 

While trade agreements in the past focused primarily on tariffs, they 
now address a broader range of trade issues, such as product standards 
and food safety measures, making the task of monitoring and enforcing 
trade agreements more challenging. Given these developments, agencies 
need staff with the ability to perform a mixture of economic, 
technical, and legal analysis. However, most of the agencies we 
examined in our 2000 report did not have the capability to do all types 
of analysis themselves, and they required input from other offices and 
agencies. 

As we reported in March 2000, insufficient staff resources limited the 
agenciesí ability to provide each other the needed input and support. 
USTR, in particular, requires support from other agencies, as it was 
created to coordinate federal trade efforts; its staff was not intended 
to have expertise on every area covered by trade agreements. USTR 
officials as well as those at Commerce and Agriculture often stated 
that they had difficulty obtaining needed analytical support from 
offices within their own agency or from other agencies.[Footnote 14] 
USTR and Agriculture officials also reported that insufficient staff at 
other agencies limited the extent to which these agencies had supported 
their monitoring and enforcement efforts. Since our March 2000 report,
however, USTR officials noted that the level of support they receive 
from other agencies, particularly Commerce, has improved as a result of 
increased staff levels. 

In our 2000 report, we also found that the three agencies identified 
challenges in coordinating with the private sector. We found that the 
agencies were not always able to obtain comprehensive private sector 
input and unified positions on pending trade issues. As a result, we
recommended that USTR assess whether existing mechanisms for obtaining 
private sector input are adequate. USTR did undertake a self-assessment 
on one aspect of this issue in 2000 that resulted in a January 19, 
2001, report that recommended some improvements. The current 
administration is now considering these and other recommendations for 
improvement. At the request of the Senate Finance Committeeís ranking 
minority member, we are currently studying whether the statutorily 
mandated private sector advisory committee system that USTR chairs
adequately supports U.S. trade policy. 

Recruiting and Retention Issues Present Other Challenges: 

There are several other human capital challenges facing the agencies 
that monitor and enforce trade agreements. In particular, the need for 
specialized knowledge and demand for individuals with experience in 
trade compliance and litigation creates challenges in recruiting and 
retaining staff. 

While staff levels for monitoring and enforcing trade agreements have 
increased at the three key agencies, officials noted that the hiring 
process has often been slow. For example, at USTR it took most of 2001 
to hire the 25 new staff that the agency had been authorized at the 
beginning of the year. Factors that contributed to the hiring delays 
included difficulties attracting individuals with the requisite skills 
and experience. In addition, the agency needed to hire specialists for 
many of the positions, including economists, attorneys with litigation 
experience, and individuals with industry and regional expertise. 
Because of its small size, USTR does not have a formal recruitment 
program. The agency reports attracting numerous applicants for each
position. However, finding individuals with specialized experience can 
be difficult. FAS officials also told us that in some cases it took up 
to a year to hire staff because of difficulty finding applicants with 
the needed technical skills. Commerceís ITA has a formal recruitment 
program and did not experience difficulty attracting applicants. In 
addition, in 2001 they began using OPMís Outstanding Scholarship 
Program as a recruitment tool. However, ITA officials noted that since 
September 11, there have been significant delays in obtaining security 
clearances for staff hired to fill trade compliance positions overseas, 
which in turn has delayed bringing the staff on board. 

Turnover at the three trade agencies has remained high, particularly at 
USTR and Commerce. For example, while comparisons must be made with 
caution, USTRís attrition rate was almost 17 percent in 2001, more than 
triple the government wide rate of 5.4 percent that year. Attrition has
also been relatively high at Commerceís Import Administration Division, 
reaching 11 percent in 2001, or more than double the government wide 
rate. 

Attrition at both USTR and Commerceís Import Administration Division 
historically has been high. Reasons include the intensity of work and 
the long hours required to handle caseloads. In addition, as with the 
SEC, staff often leave government as they receive lucrative offers from 
the private sector due to their highly technical areas of expertise, 
such as experience with trade litigation. USTR has devoted additional 
resources to training and performance bonuses in an effort to improve 
retention. Because persons leaving USTR for jobs in the private sector 
often receive offers that are $50,000 to $100,000 higher than their 
government salary, USTR has not pursued retention bonuses as a strategy 
for stemming attrition. Commerceís ITA has also taken a number of steps 
to increase retention, including expanding their award and training 
programs and conducting surveys on employee satisfaction. The agency is 
working to have career ladders for non-supervisory personnel extend 
more routinely to the GS-14 level. For example, Import Administration 
Division officials worked with ITA management to retain current staff 
through flexibility in using promotions, such as upgrading certain 
specialized positions based on increased duties and responsibilities. 
According to ITAís deputy undersecretary, the two biggest human capital 
challenges facing ITA are turnover rates and succession planning. He 
noted that almost 60 percent of ITAís senior executive service will be 
eligible to retire by 2007. 

Concluding Remarks: 

We will end as we began, serious human capital shortfalls are eroding 
the capacity of many agencies, and threatening the ability of others, 
to economically, efficiently, and effectively perform their missions. 
Many of the challenges that we discussed today are not unique to SEC
or the key trade agencies but reflect governmentwide issues this 
subcommittee has been grappling with for years. The federal 
governmentís human capital weaknesses did not emerge overnight and will 
not be quickly or easily addressed. Committed, sustained inspired 
leadership and persistent attention on the behalf of all interested 
parties will be essential if lasting changes are to be made and the 
challenges we face successfully addressed. Although we are seeing
positive changes and developments overall, including some positive 
steps at the agencies we discussed here today, there continues to be 
much work to be done. 

As the Comptroller General recently testified before this subcommittee, 
the proposed Federal Human Capital Act of 2001 (S. 1603) represents an 
important next step to helping agencies address their human capital 
management challenges.[Footnote 15] In that testimony, we also 
discussed our model of strategic human capital management, released 
last month as an exposure draft to assist in transforming the human 
capital cultures of federal agencies. These important new developments 
have important implications for the agencies discussed today. [Footnote 
16] 

Thank you again for your continuing attention to human capital reform. 
The leadership shown by this subcommittee, by holding this and related 
hearings and in its oversight generally, has both helped to create and 
increase the needed momentum for change and highlight the need for, and 
direction of, possible solutions. We would be pleased to respond to any 
questions you or other Members of the subcommittee may have. 

[End of section] 

Footnotes: 

[1] See U.S. General Accounting Office, High-Risk Series: An Update, 
[hyperlink, http://www.gao.gov/products/GAO-01-263] (Washington, D.C.: 
Jan. 2001). 

[2] U.S. General Accounting Office, Performance and Accountability 
SeriesóMajor Management Challenges and Program Risks: A Governmentwide 
Perspective, [hyperlink, http://www.gao.gov/products/GAO-01-241] 
(Washington, D.C.: Jan. 2001). In addition, see the accompanying 21 
reports (numbered GAO-01-242 through GAO-01-262) on specific agencies. 

[3] See U.S. General Accounting Office, SEC Operations: Increased 
Workload Creates Challenges, [hyperlink, 
http://www.gao.gov/products/GAO-02-302] (Washington D.C.: Mar. 5, 
2002); International Trade: Strategy Needed to Better Monitor and 
Enforce Trade Agreements, [hyperlink, 
http://www.gao.gov/products/GAO/NSIAD-00-76] (Washington, D.C.: Mar.14, 
2000); and Securities and Exchange Commission: Human Capital Challenges 
Require Management Attention, [hyperlink, 
http://www.gao.gov/products/GAO-01-947] (Washington D.C.: Sept.17, 
2001). 

[4] Staff resources are measured in terms of full-time equivalent staff 
years. 

[5] All years are fiscal years unless otherwise noted. 

[6] Market and firm supervision actions include: self-regulatory 
organization and SEC rule proposals; interpretive guidance and 
exemptive applications; analyses of proposed enforcement actions, 
disclosure documents, and risk assessment reports; automated trading 
system analyses and automation reviews of self-regulatory organization
systems; policy papers; Congressional, governmental, industry, and 
public correspondence; and other reports and analyses of SECís Division 
of Market Regulation. 

[7] A company files an exemptive application when it seeks an SEC 
decision to exempt a new activity from existing rules and laws. 

[8] The SEC chairman has recently announced an initiative called real-
time enforcement, which is intended to protect investors by (1) 
obtaining emergency relief in federal court to stop illegal conduct 
expeditiously; (2) filing enforcement actions more quickly, thereby 
compelling disclosure of questionable conduct so that the public can
make informed investment decisions; (3) deterring future misconduct 
through imposing swift and stiff sanctions on those who commit 
egregious frauds, repeatedly abuse investor trust, or attempt to impede 
the SECís investigatory processes. According to the SEC, insufficient 
resources may inhibit the effectiveness of this initiative, which
depends upon prompt action by enforcement staff. 

[9] An alternative trading system is an entity that performs the 
functions commonly performed by a stock exchange. 

[10] SECís review of corporate filings may involve a full review, a 
full financial review, or monitoring for specific disclosure items. A 
full review involves an in-depth examination of the accounting, 
financial, and legal aspects of an issuerís filing. A full financial 
review involves an in-depth accounting analysis of an issuerís 
financial statements and managementís discussion and analysis or 
business plan disclosure. 

[11] [hyperlink, http://www.gao.gov/products/GAO-01-947]. 

[12] [hyperlink, http://www.gao.gov/products/GAO-01-947]. 

[13] The WTO Ministerial Declaration that launched new multilateral 
trade negotiations in 2002 sets an ambitious timetable, with the 
negotiations scheduled for completion by 2005. At the same time, USTR 
is pursuing another major negotiating initiative, the Free Trade Area 
of the Americas (FTAA), which would establish the largest free trade 
zone in the world. In addition to these multilateral negotiations, the 
United States intends to complete bilateral free trade agreements with 
Chile and Singapore this year. Further, the United States is exploring 
a free trade agreement with five countries of Central America. 

[14] Although USTR is the lead trade agency and was intended to 
coordinate federal trade efforts, the multiple agencies responsible for 
monitoring and helping USTR enforce trade agreements still 
independently estimate their staffing and budget needs, and USTR has no 
input into their staffing or budget requests. However, officials are 
making efforts at the operational level within the agencies to 
coordinate on staffing needs. For example, Commerce and State co-chair 
an Interagency Compliance Coordination Committee that is focused on 
determining whether the trade-related agencies have adequate staff with 
the right skills working on trade agreement compliance issues at U.S.
posts overseas and at headquarters in Washington, D.C. 

[15] U.S. General Accounting Office, Managing for Results: Building on 
the Momentum for Strategic Human Capital Reform, [hyperlink, 
http://www.gao.gov/products/GAO-02-528T] (Washington, D.C.: Mar. 18, 
2002). 

[16] U.S. General Accounting Office, A Model of Strategic Human Capital 
Management, Exposure Draft, [hyperlink, 
http://www.gao.gov/products/GAO-02-373SP] (Washington, D.C.: Mar. 
2002). 

[End of section] 

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