Inside the Securities and Exchange Commission’s Washington, D.C. headquarters, about 1,750 employees are in the midst of a long, drawn-out version of musical chairs costing nearly $4 million.

The SEC has been moving the staffers’ workspaces, going on the assumption that if people within the same department work more closely together, they’ll work better. But employees have since complained about that notion, believing the months-long move — which includes nine phases, 40,000 square feet of construction, and a nine-month delay — has been “a waste of Commission resources,” according to a report published by the agency’s inspector-general late last month.

The 56-page report outlines the background and fallout of the SEC’s so-called restacking project, started by former chairman Christopher Cox in February 2007. The inspector general, H. David Kotz, criticizes the SEC for not conducting a cost-benefit study to see if rearranging workspaces would be worth the time and cost.

Kotz also slams the commission for not complying with federal regulations that requires agencies to document the analysis and justification for major capital investments with the U.S. Office of Management Budget. A former head of the SEC’s administrative services division was given “marching orders” to move forward with the project despite having reservations about it, Kotz wrote.

Most of the SEC employees surveyed by Kotz’s office believe the benefits of rearranging desks do not outweigh the costs and “disruptiveness to their work.” If the SEC had conducted a cost-benefit analysis, “it may have led to the conclusion that the restacking project was not worth the costs and disruption to the Commission,” Kotz wrote.

Set to be completed this summer, the project will change the SEC’s office layout so that staffers working in the same department aren’t spread out among multiple floors. Previously, some employees had to take an elevator ride to meet with co-workers within their own division. Even small departments, such as the Office of the Chief Accountant, were split up physically at the headquarters.

However, in the age of IM, e-mail, and telecommuting, some employees weren’t bothered by the distance between them and their colleagues. From a survey of more than 1,000  staffers, Kotz reported that employees preferred to use e-mail for communicating with their coworkers and management over face-to-face meetings. One staffer said, “it is really not that difficult to take the elevator from one floor to another if you must have a face-to-face meeting with someone.”

In a 10-page letter dated March 26, Diego Ruiz, executive director of the SEC, disputed many of Kotz’s facts, including the estimated cost of the moves, which he prices at about $3.5 million, a tad less than Kotz’s $3.9 million estimate. He believes that by consolidating workspaces, the SEC will effectively pay itself back over time “by making more efficient use of headquarters office space.”

Ruiz then defends the SEC for not submitting an OMB cost analysis form for the office moves, saying the project would not be considered a “major” capital investment when stacked up against other the outlays of other agencies, such as the quarter of billion dollars that can be spent on a federal prison.

Kotz, however, contends that the SEC, taking into account the size of its budget, should have submitted the document: “It should be noted that what qualifies as a ‘major investment’ for the SEC will, of course, naturally be much smaller than a ‘major investment’ for a large cabinet level department,” such as the Department of Homeland Security or Department of Justice. For the fiscal year ended September 30, 2008, the SEC was budgeted to spend $906 million.

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