PERFORMANCE AND 

ACCOUNTABILITY 

REPORT 

FISCAL YEAR 2005 
About the Report 

This Fiscal Year (FY) 2005 Performance and Accountability Report is the Federal Trade 

Commission’s (FTC) third consolidated report prepared pursuant to the requirements of the 

Accountability of Tax Dollars Act of FY 2002 (Public Law 107-289) and subject to regulations 

issued by the Office of Management and Budget (OMB). Unless otherwise noted, the examples and 

statistics used in the report represent FY 2005 activities, spanning the period of October 1, 2004, 

to September 30, 2005. The report is presented in three parts and an appendix: 

•	 Part I: Management’s Discussion and Analysis (MD&A) 

This section provides an overview of the information contained in the Performance and 

Financial sections. The MD&A also contains a discussion about the FTC’s history, 

activities, consumer resources, organization, challenges, and significant events. It also 

presents the FTC’s mission, vision, and strategic goals and objectives. 

•	 Part II: Program Performance 

This section contains the annual performance information required by the OMB’s Circular 

A-11 and the Government Performance Results Act (GPRA). Included in this section is a 

detailed discussion and analysis of the FTC’s performance related to its two GPRA strategic 

goals and related objectives. 

•	 Part III: Audited Financial Statements 

This section contains the details of the FTC’s finances, including an introductory letter from 

the Acting Chief Financial Officer, the Inspector General’s Opinion Letter, the audited 

financial statements, and supplementary audit and financial information. 

The FTC has worked to present information in a clear and understandable manner and will continue 

to refine its process and format in future years to make this report a valuable tool for FTC managers, 

stakeholders, and members of the public interested in the accountability, performance, and activities 

of the agency. Comments from readers are encouraged and can be sent to the report coordinator via 

the following e-mail, fax, or mailing address. The report is available to the public via: 

•	 accessing the Internet at http://www.ftc.gov/par; 

•	 e-mailing gpra@ftc.gov; 

•	 calling Darlene Cossette at 202-326-3255; 

•	 faxing 202-326-2329; and 

•	 mailing the Federal Trade Commission, 600 Pennsylvania Avenue, NW, H-774, 

Attention PAR, Washington, DC 20580. 
A Message From The Chairman


I am pleased to present the Federal Trade Commission’s Performance and 

Accountability Report for Fiscal Year 2005. I recently completed my first 

year as Chairman of the FTC, and have been impressed with the evident 

dedication of the staff to the mission of the agency, as well as with their 

significant accomplishments, which have benefitted consumers across the 

nation. This report provides an overview of the FTC’s mission, 

accomplishments, performance, and financial management. 

As we say at the agency, the FTC works For The Consumer, an apt capsule 

summary of the agency’s consumer protection and competition missions, both of which have the 

shared goal of improving consumer welfare. To achieve this goal we apply three objectives – 

identify illegal practices, stop illegal practices through law enforcement, and prevent consumer 

injury through education of consumers and businesses. 

A current example of our important work is our immediate response to protect consumers made 

vulnerable by Hurricane Katrina’s impact. To identify fraud and scams, the FTC joined a federal 

task force and became the central clearinghouse for consumer complaint data for all levels of law 

enforcement. Consumers can file complaints by phone, by mail, or on the FTC Web site. In 

addition, through our gasoline monitoring project, the FTC receives data on retail and wholesale 

gasoline prices across the country. We will use this information to identify possible anticompetitive 

conduct during the short-term gasoline product shortage that may result in higher prices. The FTC 

will investigate and stop illegal practices through law enforcement actions. The FTC is offering 

consumer education in print and on its Web site to prevent victims from being injured by the frauds 

and scams that have proliferated following the disaster. Beyond the immediate need to prevent fraud 

and deception, the FTC also is offering materials to assist consumers to rebuild their financial lives. 

Our Hurricane Recovery Web site can be accessed through ftc.gov. This effort demonstrates the 

FTC’s ongoing commitment to stop fraudulent fundraising through law enforcement and consumer 

education. 

The National Do Not Call Registry, which commemorated its two-year anniversary in June 2005, 

is an ongoing example of the FTC’s commitment to consumers. The Registry now includes over 100 

million telephone numbers. Consumers are receiving far fewer telemarketing calls, and the Registry 

has been hailed by Congress, themedia, and consumers as a beneficial and cost-effective government 

program. This report also highlights our accomplishments in such areas as promoting competition 

i 
and innovation, in energy, health care, and technology industries, among others, and in protecting 

and educating consumers in such areas as data security, identity theft, spam, and childhood obesity. 

In the coming year, the FTC will continue to address these and other challenges of high priority to 

consumers. More information on the FTC’s activities and its wealth of consumer and business 

education materials can be found at its Web site at ftc.gov. In addition, as part of our Hispanic law 

enforcement and outreach initiative, we have a Spanish version of our Web page and have translated 

over 100 of our education publications. These materials can be found at ftc.gov/ojo. 

Another important goal of the FTC is to implement good financial management practices to ensure 

that our resources are well-managed and wisely used. The FY 2005 independent financial audit 

resulted in the FTC’s ninth consecutive unqualified opinion, the highest audit opinion available. The 

audit of the FTC’s financial statements, which includes tests of internal control and compliance with 

laws and regulations, is conducted in accordance with Government Auditing Standards and the 

Office of Management and Budget (OMB) Bulletin No. 01-02. In addition, progress has been made 

to advance our goal to migrate to a new core financial management system that will facilitate the 

integration of financial and performance systems. 

The Reports Consolidation Act of 2000 requires an assessment of the completeness and reliability 

of the program and financial data contained in this report. Based on criteria issued by OMB, I 

conclude that the data are complete and reliable. In addition, the FTC evaluated its management 

controls and financial management systems, as required by the FederalManagers’ Financial Integrity 

Act. On the basis of the comprehensive management control program, I can certify, with reasonable 

assurance, that the agency is in compliance with the provisions of the Act. 

The FTC continuously strives to improve its practices in the five management initiative areas of the 

President’s Management Agenda. In FY 2005, we continued to focus on information technology 

(IT) security. The inspector general has acknowledged our substantial progress in this area, although 

there are still challenges to meet. The FTC is working to further strengthen its IT security and 

remain vigilant to current and future threats. The agency also began to examine its performance 

goals and measures in preparation of updating its GPRA Strategic Plan in FY 2006. 

I look forward to working with agency staff in the coming year to continue providing high-quality 

service to American consumers. 

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Table of Contents 

PageNumbers 

About the Report .................................. . back of front cover


A Message from the Chairman .................................. ...... i 


Part I: Management’s Discussion and Analysis


About the FTC .................................. .............. 1 


Strategic Goals and Objectives .................................. . 6 


Program Performance Overview .................................. 8 


Ongoing and Future Challenges ................................. 18


Significant Program Events .................................. . . 22


Financial Performance Overview ................................ 30


Management Controls, Systems, and Compliance with 


Laws and Regulations .................................. ....... 32


Part II: Program Performance


Goal 1: Protect Consumers .................................. . . 35


Goal 2: Maintain Competition ................................. 47


Part III: Audited Financial Statements


Message from the Chief Financial Officer ........................ 61


Limitations of the Financial Statements ........................... 62


Audit of FTC’s 2005 Principal Statements ......................... 62


Financial Resources and Results of Operations ..................... 62


Custodial Activity .................................. .......... 65


Office of Inspector General Opinion Letter ........................ 66


Office of Inspector General Top Management Challenges of the FTC ... 70


FTC Financial Statements for Fiscal Year End 2005 ................. 72


Notes to the Financial Statements ................................ 84


iii 
Part I: Management’s Discussion and Analysis 

About the FTC 

The impact of the FTC on the nation’s marketplace belies 

its small size. The FTC’s activities affect the lives of 

consumers every day through, for example,receivingfewer 

telemarketing calls, paying lower prescription drug prices 

due to the availability of generic drugs, using care labels in 

clothing, having energy labels on appliances, seeing health 

warnings on cigarette packages, or enjoying competitive 

prices for goods as a result of a blocked merger. Congress 

has charged the FTC with the broadest legislative mandate 

of any federal consumer protection agency. It is an independent federal agency with a total staff of 

only 1,100 working in its Washington, D.C. headquarters (pictured at right) and in seven regions that 

span the nation, as shown below. (See ftc.gov; About the FTC; Regional Offices for more detail). 

East Central 

Midwest 

Western 

Southwest 

Southeast 

Northeast 

Northwest 

President Woodrow Wilson signed the FTC Act into law over 90 years ago on September 26, 1914. 

The Act prohibits “unfair methods of competition,” and was amended in 1938 to prohibit “unfair or 

deceptive acts or practices.” In addition, the FTC enforces a variety of consumer protection laws, 

such as the Fair Credit Reporting Act, Equal Credit Opportunity Act, and Telemarketing Sales Rule, 

and antitrust laws, such as the Sherman Act and Clayton Act. In recognition of the FTC’s 90th 

anniversary, the agency added a page to its Web site on FTC’s history (ftc.gov HISTORY OF 

THE FTC). Readers can find articles on the origin of the agency, oral histories, and annual reports, 

as well as information on the 100th anniversary of the FTC’s predecessor, the Bureau of 

Corporations. 

1 
FTC Consumer Resources 

Consumers are encouraged to call the FTC’s Consumer Response Center on its toll-free numbers – 

1-877-FTC-HELP or 1-877-ID-Theft – with complaints, inquiries, or requests for education 

materials. The FTC maintains a database of consumer calls and shares fraud and identity theft 

complaints with approximately 1,400 law enforcement partners. Although the FTC is not 

empowered to act on behalf of individual consumers, the consumer complaint data enables the FTC 

and its law enforcement partners to coordinate their enforcement efforts, and to spot current trends 

and target the most serious consumer problems. 

The FTC’s Web site, ftc.gov, contains information 

about the agency and its activities. Consumer and business education materials are available on a 

broad array of consumer issues, such as fraud, spam, identity theft, privacy, telemarketing, credit 

reports, diet, fitness, and health care. Links to Hurricane Relief and Hot Topics are on the main 

Web page. Consumers also can file complaints online at ftc.gov, File a Complaint. 

Proteccion para el Consumidor, the FTC’s Spanish Web page, also has consumer protection 

information and links to over 100 translated consumer publications (ftc.gov/ojo). 

At the FTC’s Consumer Sentinel Web site, consumer.gov/sentinel, consumers can view summary 

data collected by the FTC, such as the scams that garner the most frequent consumer complaints, the 

scams that cost consumers the most, the number of identity theft complaints by state, the types of 

identity theft most frequently reported, and tips on spotting and avoiding fraud and deception online 

and off. The FTC Web site also has a direct link to the government-wide public consumer help site, 

firstgov.gov, and to a site maintained by the FTC, consumer.gov, a one-stop link to a broad range 

of federal consumer information resources. 

Top Ten Categories of Consumer Fraud Complaints for CY 2004 

(percents rounded) 

Identity Theft 39% Prizes/Sweepstakes and Lotteries 5 % 

Internet Auctions 16 % Advance-Fee Loans & Credit Protection 3 % 

Shop-at-Home/Catalog Sales 8 % Business Opportunities &Work-at-Home 2 % 

Internet Services & Computers 6 % Telephone Services - 2 % 

Foreign Money Offers 6 % Other (miscellaneous) - 12 % 

2 
Organization 

The FTC is headed by a Commission comprised of five members who are nominated by the 

President and confirmed by the Senate, and who serve staggered seven-year terms. The President 

chooses one Commissioner to act as Chairman. No more than three Commissioners can be of the 

same political party. At the end of FY 2005, the Chairman was Deborah Platt Majoras, and the 

Commissioners were Thomas B. Leary, Pamela Jones Harbour, and Jonathan Leibowitz, with one 

position vacant. 

The FTC has two major law enforcement bureaus, Consumer Protection and Competition, that 

represent its two missions and strategic goals. These bureaus are supported by an economics bureau, 

regional offices, and administrative offices. The agency enforces laws that prohibit business 

practices that are anticompetitive, deceptive, or unfair to consumers. It also promotes informed 

consumer choice and public understanding of the competitive process. The work of the FTC is 

critical in protecting and strengthening free and open markets in the United States and, increasingly, 

the world. 

FEDERAL TRADE COMMISSION ORGANIZATION CHART 

3 
Mission 

The FTC’s vital mission is to stand up for America’s free market process and for its consumers, who 

benefit from competitive markets in which truthful information flows. Accordingly, the agency 

strives to develop and implement policies that recognize the remarkable consumer benefits inherent 

in our largely decentralized economic organization. Emphasizing the mutuality inherent in the 

relationship between consumers and business, the FTC’s central aim is to make discriminating 

judgments that permit the agency to channel its resources toward preventing and halting private and 

public measures that injure consumers. 

At the start of the 21st century, global markets, high-technology innovation, and markets in transition 

to new ways of competing dominate the economic landscape. The FTC continues to adapt its 

mission strategies and workforce in response to these marketplace forces. Consumer protection and 

antitrust law enforcement have played an important role in maintaining the competitiveness of U.S. 

markets. The FTC ensures that free markets work – that competition among producers and accurate 

information in the hands of consumers create the incentives to generate the best products at the 

lowest prices, spur efficiency and innovation, strengthen the economy, and produce benefits for 

consumers. 

For competition to thrive, consumers must receive accurate information about products and services. 

Through its consumer protection mandate, the FTC protects consumers from fraud, deception, and 

unfair practices in the marketplace. It works to foster the exchange of accurate, non-deceptive 

information, allowing consumers to make informed choices in their purchasing decisions and to 

participate with confidence in the traditional and electronic marketplaces. The FTC addresses 

current issues of importance to consumers, including identity theft, data security, consumer privacy, 

telemarketing fraud, Internet fraud, health care, and consumer credit. 

At the same time, for consumers to have a choice of products and services at competitive prices and 

quality, the marketplace must be free from unreasonable restrictions on competition. Through its 

maintaining competition mandate, the agency enforces the laws that prohibit anticompetitivemergers 

and business practices. It promotes free and open competitive markets, which bring consumers 

lower prices, innovation, and choice among products and services. A significant portion of the 

FTC’s resources are devoted to market segments that matter most to consumers, including energy, 

health care, prescription drugs, grocery retailing, and high tech. The FTC works to remove 

restrictions on competition so that markets can function at their best. 

4 
The FTC’s legislative mandate to serve as a locus of professional expertise on competition and 

consumer protection issues makes the FTC highly distinctive among antitrust and consumer 

protection agencies worldwide. To position itself to make intelligent contributions to consumer 

protection and competition policy through litigation or non-litigation instruments, the FTC must 

make substantial investments in “policy research and development.” Its capacity to enforce the 

antitrust and consumer protection laws, and its credibility as a voice for sound public policy, requires 

a continuing commitment to conduct research that increases its understanding of how markets and 

firms operate, the conditions under which business conduct is likely to harm consumers, and the 

effects of its previous enforcement efforts. 

5 
Strategic Goals and Objectives


FTC’s Mission 

To prevent business practices that are anticompetitive or deceptive or unfair 

to consumers; to enhance informed consumer choice and public 

understanding of the competitive process; and to accomplish these missions 

without unduly burdening legitimate business activity 

FTC’s Vision 

A U.S. economy characterized by vigorous competition among producers and 

consumer access to accurate information, yielding high-quality products at 

low prices and encouraging efficiency, innovation, and consumer choice. 

The FTC provides annual performance plans to Congress that set forth its goals and objectives, and 

its performance measures and targets as required by the Government Performance Results Act. The 

FTC has two strategic goals that link directly to its two missions, Consumer Protection and 

Maintaining Competition. Each goal has three objectives – identify, stop, and prevent illegal 

practices – and each objective has performance measures. The FTC uses strategic planning to set 

the strategies, implementation plans, performance measures, and targets for its goals. The FTC’s 

Performance Plans and FYs 2003-2008 Strategic Plan are available on its Web site at 

ftc.gov/opp/gpra/index.htm. In FY 2006, the FTC will revise its Strategic Plan to cover FYs 2006 ­

2011. 

6 
Strategic Goal 1 Protect Consumers 

Prevent fraud, deception, and unfair business 

practices in the marketplace. 

Objective 1.1	 Identify fraud, deception, and 

unfair practices that cause the 

greatest consumer injury. 

Objective 1.2 Stop fraud, deception, and 

unfair practices through law 

enforcement. 

Objective 1.3 Prevent consumer injury 

through education. 

Strategic Goal 2 Maintain Competition 

Prevent anticompetitive mergers and other anticompetitive business practices in the marketplace. 

Objective 2.1 Identify anticompetitive mergers 

and practices that cause the 

greatest consumer injury. 

Objective 2.2 Stop anticompetitive mergers and 

practices through law enforcement. 

Objective 2.3 Prevent consumer injury through 

education. 

7 
Program Performance Overview 

The systems and methodologies for collecting performance data are reviewed by the FTC’s Office 

of the Inspector General. Senior economists from the FTC’s Bureau of Economics review statistical 

data, as appropriate. Performance measure results are reviewed by senior management and the 

Commission periodically throughout the fiscal year. It was noted that targets were exceeded in 

several performance areas in FY 2005 and recent fiscal years. The agency determined that 

performance measures and results targets will be reevaluated in FY 2006 when it updates its strategic 

plan for FYs 2006 - 2011. Also in FY 2006, the FTC is scheduled for its first Program Assessment 

Ratings Tool (PART) Evaluation. A summary of findings and recommendations of the program 

evaluation will be included in the agency’s FY 2006 PAR. 

Goal 1: Protect Consumers 

The goal of the Consumer Protection Mission is to prevent fraud, deception, and unfair business 

practices in the marketplace. It works to accomplish this goal through three objectives, which are 

to: (1) identify fraud, deception, and unfair practices that cause the greatest consumer injury; (2) 

stop fraud, deception, and unfair practices through law enforcement; and (3) prevent consumer 

injury through education. 

Objective 1: Identify fraud, deception, and unfair practices that cause the 

greatest consumer injury 

To identify the most prevalent and serious forms of fraud and deception, the FTC relies on its 

Consumer Information System (CIS) database, the largest database of consumer complaints in the 

world. The FTC collects complaints via its toll-free help lines, postal mail, and online. It also 

receives complaint data from a broad array of public and private partner organizations in the United 

States and Canada. 

Analysis of the complaints in its CIS database enables the FTC to detect and respond rapidly to 

fraud, deception, and other illegal practices. This results in effective targeting of the agency’s law 

enforcement and education resources. The continuous input of new complaints into the database 

helps the FTC and its law enforcement partners determine where and how the latest incidents of 

fraud may be occurring. 

The FTC also shares complaints about fraud and deception with its law enforcement partners through 

Consumer Sentinel, a secure Web site that provides access to nearly 2.7 million fraud and identity 

8 
theft complaints. Consumer Sentinel is an unique and effective enforcement tool that permits 

approximately 1,400 law enforcers in the United States, Canada, and Australia to determine whether 

a particular fraudulent scheme is local, national, or cross-border in nature, and also to help spot 

larger trends for law enforcement action. 

The FTC determines its success under this objective using two performance measures. First, the 

agency measures the total number of consumer complaints and inquiries that are added annually to 

the CIS database (see graph below for actual results for the last five years). Second, it measures how 

many of these consumer complaints and inquiries relate to identity theft. The target for FY 2005 was 

to add at least 700,000 entries into the database, including 300,000 relating to identity theft. The 

FTC exceeded its target, adding 1,015,000 entries, including 348,000 relating to identity theft. 

The number of total annual entries has increased substantially in recent years. In response to the 

success of the CIS database, the agency has raised its targets in its strategic and performance plans, 

as appropriate. The graph below shows the upward trend of the annual actual results of this measure. 

The FTC began tracking identity theft entries in FY 2003, setting a target of 155,000 entries based 

on historical data. 

9 
Objective 2: Stop fraud, deception, and unfair practices through law 

enforcement 

The FTC uses its law enforcement authority to stop fraud, deception, and unfair practices. 

Consumers save money each time a fraudulent operator is stopped by successful litigation or 

settlement with the agency. Savings to consumers are increased when the agency leads joint law 

enforcement initiatives with federal, state, and international partners. The FTC determines its 

success under this objective using three performance measures. First, the agency measures the 

effectiveness of its law enforcement efforts to stop fraud by estimating the amount of money it has 

saved consumers based on the annual fraudulent sales of defendants. In FY 2005, the FTC saved 

consumers $366 million, which represents 92 percent of its $400 million target. However, the 

agency also set a target in its FY 2003-2008 Strategic Plan of saving consumers a total of $2 billion 

($400 million a year) by FY 2008. Despite being slightly below its current year target, the total 

actual savings from FY 2003-2005 is approximately $1,400 million exceeding its expected 3-year 

average of $1,200 million. The amount of savings vary year-to-year based on the number of cases 

and amounts of fraudulent sales of defendants. The following graph demonstrates the amounts the 

FTC has saved consumers in recent years. 

Second, as an indicator of the usefulness of the FTC’s Consumer Sentinel complaints, the agency 

measures the number of data searches by its staff and other law enforcement personnel. This 

measure was added in FY 2003, with a target of 20,000 searches and an actual result of 27,685. In 

FY 2005, the actual number of Consumer Sentinel searches was approximately 79,000, far exceeding 

the annual target of 26,000. However, Consumer Sentinel made several major changes and 

improvements in the past two years, and staff estimate that about half of the FTC and external law 

10 
enforcement personnel usage may be related to the testing of these changes. 

Finally, the agency measures the number of data searches by law enforcement personnel of the FTC’s 

identity theft complaints. This measure also was added in FY 2003, with a target of 1,400 and actual 

results of 2,167. In FY 2004, the target was 1,700 and actual results were 2,120. In FY 2005, the 

target was 1,850 and the actual results were 1,680 or 91 percent of the target. Although the results 

fell moderately below the targeted amount in FY 2005, the average annual results is higher than 

expected. To boost usage of the Identity Theft Clearinghouse, the FTC will encourage its law 

enforcement partners through speeches, conferences, education, and training to use the 

Clearinghouse as a resource in their efforts to protect consumers and aid victims of identity theft. 

Objective 3: Prevent consumer injury through education 

Consumer and business education represents the first line of defense against fraud, deception, and 

unfair practices. Most FTC law enforcement initiatives include a consumer and/or business 

education component aimed at preventing consumer injury and unlawful business practices. Public 

education programs benefit consumers by alerting them to their rights under various consumer 

protection laws and providing practical tips on how to recognize and avoid scams and rip-offs. To 

reach the broadest possible audience, the FTC makes maximum use of the national media and 

outreach to lead more consumers to the FTC’s Web site (ftc.gov) and the one-stop government Web 

site for consumer information (consumer.gov). Messages also reach the public through the FTC’s 

Consumer Response Center and hundreds of partners that distribute FTC print materials, link to its 

Web site, or post the FTC’s messages on their Web sites. 

The FTC determines its success under this objective using three performance measures. First, the 

agency measures the total number of education publications distributed to or accessed electronically 

by consumers. Second, it measures the number of publications related to identity theft distributed 

to or accessed electronically by consumers. Finally, it measures the number of Spanish-language 

education publications distributed to or accessed electronically by consumers. The latter two 

measures were added in FY 2003 to track the FTC’s efforts to respond to high-priority consumer 

issues. 

The target in FY 2005 was to reach a total audience of at least 20 million with FTC education 

publications. The FTC exceeded this target by distributing 35.3 million publications. More 

publications continue to be distributed online than in print (approximately 75 percent online). The 

35.3 million includes 6 million publications related to identity theft, double the target of 3.0 million, 

and 1,157,000 Spanish-language publications, far exceeding the target of 500,000. In FY 2003, the 

11 
FTC distributed 3 million publications related to identity theft and 458,000 Spanish-language 

publications. In FY 2004, the FTC distributed 26.5 million publications, including 3.7 million 

publications related to identity theft and 737,000 Spanish-language publications, The FTC exceeded 

these targets in FY 2005 due to the continuing increase in Web hits, interest in identity theft 

education, and communication of the availability of Spanish-language consumer materials. The 

following graph shows the trend in distribution of all Consumer Protection Mission education 

publications in recent years. 

Goal 2: Maintain Competition 

The goal of the Maintaining Competition Mission is to prevent anticompetitive mergers and other 

anticompetitive business practices in the marketplace. It works to accomplish this goal through three 

objectives, which are to: (1) identify anticompetitive mergers and practices that cause the greatest 

consumer injury; (2) stop anticompetitive mergers and practices through law enforcement; and (3) 

prevent consumer injury through education. 

Objective 1: Identify anticompetitive mergers and practices that cause the 

greatest consumer injury 

The FTC’s Bureau of Competition and the Antitrust Division of the U.S. Department of Justice 

(DOJ) share responsibility for enforcing laws that promote competition in the marketplace. 

12 
Competition benefits consumers by keeping prices low and the quality of goods and services high. 

Most mergers actually benefit competition and consumers by allowing firms to operate more 

efficiently. But some are likely to lessen competition. That, in turn, can lead to higher prices, 

reduced availability of goods or services, lower quality of products, and less innovation. Identifying 

and challenging anticompetitive mergers is a difficult task that can take thousands of hours of 

investigative work and, often, litigation. 

The Hart-Scott-Rodino (HSR) Act requires that companies planning a merger, in which the size of 

the transaction and the parties exceeds thresholds prescribed by the Act, notify the FTC and DOJ 

before proceeding with the transaction. The FTC uses these “premerger notification reports” as its 

primary means for identifying potentially anticompetitive mergers, screening each proposed 

transaction to determine which require further investigation. Over the past two years, a less active 

economy and revised HSR thresholds have kept the number of reported transactions at moderate 

levels. The modified reporting thresholds did not alter the standard of legality for mergers however, 

so the FTC has increased efforts to identify mergers not reported under HSR that might harm 

competition. These efforts include monitoring trade press and Internet resources, as well as 

following up on information from congressional offices, other Executive Branch agencies, state and 

local governments, consumers, businesses, and the antitrust bar about possibly anticompetitive 

mergers. The FTC uses similar means to identify business practices that may harm consumers. 

The FTC determined its success under this objective in FY 2005 using two performance measures. 

First, the agency measured the percentage of significant HSR merger investigations concluded during 

the year that resulted in enforcement action. Significant HSR merger investigations are those in 

which the Commission issued a formal request for additional information – called a “second 

request”– from the parties under the HSR Act, typically representing no more than 2 to 3 percent 

of the premerger notification filings received. Second, it measured the percentage of significant 

nonmerger investigations concluded during the year that resulted in enforcement action. Significant 

nonmerger investigations are those in which the Commission approved the use of its authority to 

compel the submission of information. 

The FTC’s target for both measures was that the number of significant investigations concluded 

during the year that result in enforcement action will generally fall in the range from 60 to 80 

percent. Results within this range show that the agency was successful in targeting potentially 

anticompetitive conduct because if the conduct was found not to be anticompetitive, no enforcement 

action would have been taken. 

In the merger area, the FTC took enforcement action in 13 of 25, or 52 percent, of the second request 

13 
investigations concluded during the fiscal year. In the nonmerger area, two of four investigations 

or 50 percent of significant investigations concluded during the year resulted in enforcement action. 

These results are not within the target range of 60-80 percent, although the small numbers of 

investigations concluded in FY 2005 make it difficult to draw any definitive conclusions. There are 

many ongoing investigations that could not be included in this year’s results. Proceedings may span 

several fiscal years, making it hard to capture the FTC’s performance in any particular fiscal year. 

In the future, these results will be presented in aggregate numbers spanning a five-year period to help 

remedy this situation. 

In the merger area, increases in economic activity generally and in the number of merger filings 

submitted during FY 2004 and 2005 foreshadow the beginning of a trend toward a higher volume 

of FTC merger activity and enforcement work, including a higher number of second requests. In the 

nonmerger area, health care, energy, and intellectual property issues have increasingly become a high 

priority to consumers and, therefore, to the FTC. These issues of growing importance will place 

increasing demands for action on the FTC. In both the merger and nonmerger areas, the initiation 

of new investigations and litigations, the completion of those cases in process, and the reporting of 

performance measure results in aggregate numbers will more accurately reflect FTC’s success under 

this objective. 

Objective 2: Stop anticompetitive mergers and practices through law 

enforcement 

The FTC uses its law enforcement authority to stop anticompetitive mergers and practices both 

directly and indirectly. Through federal court or administrative litigation or by negotiated settlement, 

the agency saves consumers millions of dollars annually by preventing harmful mergers from taking 

place, by arranging for the restructuring of transactions to eliminate anticompetitive effects, or by 

stopping unlawful business practices. In addition to these direct actions, an effective FTC 

enforcement presence indirectly serves its objective by demonstrating to the business and legal 

communities that the agency can and will take successful legal action to stop anticompetitive 

transactions and practices. 

The FTC determined its success under this objective using three performance measures. First, the 

agency measured the percentage of positive outcomes obtained in antitrust enforcement actions. 

Second, the agency measured the volume-of-commerce in markets in which the FTC took 

enforcement action to protect competition from the effects of unlawful mergers. Finally, the agency 

measured the volume of commerce in markets in which the FTC took enforcement action to protect 

competition from the effects of unlawful conduct. The latter two measures indicate the scope of the 

FTC’s antitrust enforcement activities, and were new in FY 2004. 

14 
A positive outcome for an enforcement action includes abandonment of an anticompetitive 

transaction following an FTC challenge, a consent agreement to resolve antitrust concerns, or a 

successful result in administrative or federal court litigation after all proceedings, including appeals, 

have concluded. A negative outcome occurs when parties refuse to settle antitrust concerns raised 

by the FTC and the agency is unsuccessful in obtaining relief through the courts or an administrative 

challenge. The FTC significantly exceeded its target of achieving positive outcomes in 80 percent 

of its enforcement actions by obtaining a positive result in approximately 95 percent of the 

administrative and federal court enforcement actions it concluded during the year. In recent years, 

the FTC has achieved similar results on this measure, 95 percent in 2000, 94 percent in 2001, and 

100 percent in 2002, 2003, and 2004. These results benefit consumers both directly and indirectly 

– because the agency’s track record of success in obtaining the relief it deems necessary on 

consumers’ behalf helps persuade more parties to settle FTC charges rather than resist, which could 

lead to higher prices, reduced availability of goods or services, lower quality of products, and less 

innovation. 

As discussed in the FTC’s 2003-2008 Strategic Plan, external factors, such as level of merger 

activity, may cause the results of the two volume of commerce measures to fluctuate significantly 

from year to year. Thus, the FTC’s targets for these two new measures now are both expressed as 

aggregate totals over the five-year period. In FY 2005, the FTC took merger enforcement actions 

that protected competition in markets with a total of $61.8 billion in annual sales (or more than 150 

percent of its annual target of $40 billion). The FTC’s nonmerger enforcement actions in FY 2005 

protected commerce in markets with a total of $19.36 billion in annual sales (or more than 99 percent 

of its annual target of $20 billion). 

As stated, the FY 2005 results exceed or equal the annual averages needed to attain the five-year 

goals of $200 billion (annual average $40 billion) and $100 billion (annual average $20 billion). The 

results on the two volume-of-commerce measures illustrate why the agency expressed its targets in 

terms of five-year amounts. The FY 2005 increase in these measures over FY 2004 results indicates 

that future results should be higher and the five-year targets attainable. Several factors support this 

conclusion. First, merger activity is increasing but is still short of the level it is likely to reach as the 

economy continues its recent pattern of growth. Second, the continued trend of administrative 

litigation means that much of the FTC’s current merger and nonmerger enforcement efforts are being 

devoted to ongoing matters that are not yet included in any measure. Third, the size of individual 

FTC cases varies widely, and a small number of large matters can have a significant impact on these 

measures. Finally, the agency’s record over the past several years is consistent with FY 2004, and 

viewed comprehensively, the FTC’s productivity over the past year has been extremely high. 

15 
Objective 3: Prevent consumer injury through education 

The FTC increases awareness of antitrust law and policy and promotes compliance with the antitrust 

laws by educating the public about its activities and communicating its enforcement intentions. The 

agency’s methods of informing the public include development and publication of antitrust 

guidelines and policy statements; press releases and public dissemination of documents describing 

its formal actions; and well-publicized testimony, speeches, and publications. 

The agency determined its success by measuring the number of hits on antitrust pages on the FTC’s 

Web site. In FY 2005, the FTC’s Web site recorded 9.8 million total hits on antitrust-related page, 

within two percent of the target of 10 million. 

16 
FY 2005 Performance Measure Targets and Results 

GOAL 1: Protect Consumers GOAL 2: Maintain Competition 

OBJECTIVE 1.1 OBJECTIVE 2.1 

Measure 1.1.1: Annual number of consumer Measure 2.1.1: Percent of HSR second requests

complaints and inquiries entered into database. resulting in enforcement action.


Target: 750,000 Target: 60% - 80%


Actual: 1,015,000 T Actual: 52%


Measure 1.1.2: Annual number of consumer Measure 2.1.3: Number of nonmerger investigations


complaints and inquiries related to identity theft resulting in enforcement action.


entered into database. Target: 60% - 80%


Target: 300,000 Actual: 50% 

Actual: 348,000 T

OBJECTIVE 1.2 OBJECTIVE 2.2 

Measure 1.2.1: Dollar savings for consumers from Measure 2.2.1: Positive outcome of cases brought by 

FTC actions which stop fraud. FTC due to alleged violations.


Target: $400 million Target: 80%


Actual: $366 million Actual: 95% T

Measure 1.2.3: Number of data searches conducted Measure 2.2.3: Volume-of-commerce in markets in 

by FTC and law enforcement personnel of the FTC's which FTC took action to prevent anticompetitive

Consumer Sentinel database. mergers. 

Target: 26,000 Target: $40.0 billion 

Actual: 79,000 T Actual: $61.8 billion T

Measure 1.2.4: Number of data searches conducted Measure 2.2.5: Volume-of-commerce in markets in 

by law enforcement personnel of the FTC's identity which FTC took action to prevent anticompetitive 

theft database. conduct. 

Target: 1,850 Target: $20.0 billion 

Actual: 1,680 Actual: $19.4 billion 

OBJECTIVE 1.3 OBJECTIVE 2.3 

Measure 1.3.1: Number of education publications Measure 2.3.2: Quantify number of hits on antitrust

distributed to or accessed electronically by information on FTC Web site. 

consumers. Target: 10.0 million


Target: 20.0 million Actual: 9.8 million


Actual: 35.3 million T

Measure 1.3.2: Number of education publications


related to identity theft distributed to or accessed


electronically by consumers.


Target: 3 million 

Actual: 6 million T

Measure 1.3.3: Number of Spanish-language


education publications distributed to or accessed


electronically by consumers.


Target: 500,000 

Actual: 1,157,000 T

T met or exceeded target 

17 
Ongoing and Future Challenges 

Consumer Protection Mission 

Recent news reports about data security breaches have heightened public awareness about the 

importance of safeguarding sensitive consumer information. Data security is one of several areas 

of concern to the FTC in its work to protect consumers’ privacy and combat identity theft. Through 

law enforcement and consumer and business education, the FTC is addressing the misuse of 

consumers’ sensitive information and helping consumers protect their privacy and identities. 

Identity theft continues to be a top concern for the agency. The FTC administers an extensive 

program to assist the victims of identity theft and to collect data to assist criminal law enforcement 

agencies in prosecuting the perpetrators of identity theft. In FY 2006, the FTC will launch a new 

consumer education campaign on identity theft to make sure that consumers know their rights under 

the Fair and Accurate Credit Transactions Act of 2003 (FACT Act). 

In other important privacy-related work, the FTC will continue to implement and enforce the 

Controlling theAssault of Non-Solicited Pornography and Marketing Act of 2003 (CAN-SPAMAct) 

and the FACT Act. In the spam (unsolicited commercial e-mail) arena, the agency protects 

consumers from, and reduces the impact of, fraudulent and deceptive spam by bringing law 

enforcement actions to stop deceptive or unfair spam practices. The FTC will continue to conduct 

rulemakings, studies, and policy efforts under the CAN-SPAM and FACT Acts. The FTC also will 

continue its enforcement efforts to stop improper usage of pre-acquired account information and 

other misuse of personal information, and to ensure that consumers have access to their credit 

information to confirm its accuracy. In addition, the agency will target deceptive subprime lending 

and deceptive debt counseling schemes through law enforcement actions. 

New and expanding technologies have created other challenges for the FTC. In addition to spam, 

the agency is working on matters involving spyware and unauthorized adware, peer-to-peer file 

sharing, and phishing to help protect consumers in the high-tech marketplace. Attacking telemarketing and business opportunity fraud continues to be a challenge and a priority, as does 

protecting consumers from more traditional scams that have found new life on the Internet, including 

pyramid schemes and health-related fraud. The Internet has become an especially fertile ground for 

scam artists who can reach vulnerable consumers easily and cheaply online and immediately access 

both a national and an international marketplace. 

18 
Given the rise in cross-border fraud consumer complaints that has occurred over the last several 

years, the FTC will continue to bring cases with international components. During FY 2005, the 

FTC released a report on proposed legislation, the U.S. SAFE WEB Act, that would improve the 

FTC’s ability to combat cross-border consumer protection law violations, particularly violations 

involving spam and spyware. 

The agency will continue to target its efforts based on the analysis of consumer complaint data that 

it gathers. FTC databases – Consumer Sentinel, Identity Theft Data Clearinghouse, Consumer 

Information System, and spam database – enable the agency and its law enforcement partners to 

detect trends and problems that involve fraud as they occur. The FTC’s prospective challenges 

include maintaining a rich array of data, ensuring that its systems are fully used by the agency and 

its law enforcement partners, and ensuring that the information it collects is reliable. The FTC also 

continually strives to identify new methods of mining this data and sharing the results in innovative 

ways to assist its law enforcement partners. These efforts bear fruit in the cases brought by the FTC 

and other law enforcement agencies who have access to this data. 

Through the use of its many tools for identifying consumer issues as they arise in the marketplace, 

the FTC is prepared to address and take action to protect consumers on a real time basis. For 

example, in the immediate wake of Hurricane Katrina, the FTC issued a consumer alert on wise 

charitable giving to make sure that the contributions of a generous nation went to hurricane relief, 

and not scam artists posing as charities. The FTC also set up special procedures to monitor and 

analyze every Katrina-related consumer complaint that came into its Consumer Response Center, 

and entered those complaints into Consumer Sentinel, the fraud complaint database used by 

approximately 1,400 law enforcement agencies. As hurricane victims began the slow task of 

rebuilding their lives, the FTC distributed, through a variety of media, important information about 

recreating financial records, using credit wisely, preventing identity theft, and other issues of 

immediate concern. Finally, the FTC joined with federal, state, and local law enforcement 

colleagues on the Department of Justice's Hurricane Katrina Fraud Task Force, to make sure that any 

who seek to exploit hurricane victims are stopped and punished. 

In addition to identifying the most serious problems for law enforcement action, the FTC encourages 

the private sector to consider self-regulatory initiatives, such as consumer education, voluntary 

compliance, and technological solutions. One particular area of focus in the next several years will 

be fraud, deception, and unfair business practices affecting Hispanic consumers and other minorities. 

19 
Maintaining Competition Mission 

As with the Consumer Protection Mission, the FTC monitors the marketplace for issues that may 

harm competition and, as a consequence, consumers. In the wake of Hurricane Katrina, the FTC 

continued to monitor gasoline prices in wholesale and retail markets across the United States to 

examine whether any unusual price movements might result from anticompetitive conduct that 

violates the FTC Act. If the FTC staff detects unusual price movements in an area, it will research 

the possible causes, including, where appropriate, consultation with the state attorneys general, state 

energy agencies, and the Department of Energy’s Energy Information Administration, and the FTC 

will bring enforcement actions as warranted. In addition, as required by Section 1809 of the recently 

enacted Energy Policy Act of 2005, the FTC is conducting an investigation “to determine if the price 

of gasoline is being artificially manipulated by reducing refinery capacity or by any other form of 

market manipulation or price gouging practices.” 

An important focus of the FTC’s traditional antitrust agenda includes efforts to identify and 

investigate the misuse of government processes. These types of anticompetitive practices, such as 

the improper use of the Food and Drug Administration’s regulatory process to delay entry of generic 

drugs to the marketplace, can exclude new competitors with little cost or risk to established firms, 

but with a very significant impact on consumers. The FTC also will continue to focus on the misuse 

of government processes involving intellectual property rights, such as when a firm improperly 

obtains intellectual property rights or litigates to enforce them in bad faith. 

The FTC also will focus on efforts to provide more transparency in its decision-making processes. 

Public understanding of the types of transactions or conduct the FTC is likely to challenge and the 

reasons for agency action communicates to the business and legal communities that the FTC can and 

will move successfully to challenge the type of merger transaction or conduct at issue. This 

information may prevent harmful mergers or anticompetitive practices without the need for 

government intervention. The FTC will continue to expand public awareness and understanding of 

its actions by seeking to make its published documents about enforcement actions clear and 

understandable, explaining why it declined to take action in particular matters, and releasing general 

policy statements outlining the conditions under which it will apply its different powers. 

The FTC also will continue to make full use of its uniquely broad array of policy instruments to 

provide intellectual leadership on competition issues. A key part of its responsibilities is to ensure 

that the agency remains at the leading edge of knowledge of both economic theory and real-world 

developments in the economy. The agency does so in a variety of ways, including sponsoring public 

workshops, conferences, and hearings, and conducting its own research. 

20 
Finally, because antitrust enforcement no longer stops at U.S. borders, the agency will continue its 

work in the international arena. Today, more than 70 governments enforce various sets of 

competition laws, and that number continues to grow. Because of the continued growth of 

commerce beyond national boundaries, these different antitrust enforcement authorities increasingly 

overlap and intersect. Inconsistencies and diverse requirements increase the costs faced by firms that 

seek to combine assets or businesses, establish distribution channels, or pursue other business 

arrangements. This includes both the cost to comply with different regulatory mechanisms and the 

risk of differing outcomes. Thus, the current growth and diversity in antitrust enforcement 

mechanisms can interfere with the common goal of promoting a competitive economy. The FTC 

continues to work with various international groups to increase the procedural and substantive 

convergence of merger oversight authorities throughout the world. The FTC also will broaden and 

deepen its cooperation with international agencies on individual cases and antitrust policy issues. 

21 
Significant Program Events 

In FY 2005, the FTC took action on a wide variety of significant consumer protection and 

competition matters. The highlighted actions, detailed below, helped ensure that business and 

consumers alike reaped the full benefits of market competition and product innovation. 

•	 Securing Data and Fighting Identity Theft. Concerns about data security and 

identity theft have spiked with recent press reports on data breaches. The FTC is 

investigating a number of these breaches; it also has an ongoing and active law enforcement 

program to encourage appropriate security. In November 2004, the FTC charged two 

mortgage companies in the first cases enforcing the Gramm-Leach-Bliley Safeguards Rule, 

alleging that they did not have reasonable protections for customers’ sensitive personal and 

financial information. In June 2005, a large wholesale club agreed to settle charges that its 

failure to take appropriate security measures to protect the sensitive information of thousands 

of its customers was an unfair practice that violated federal law. In addition to law 

enforcement, the FTC continues to provide consumer education and victim assistance. 

During the first three quarters of FY 2005, the FTC collected nearly 200,000 identity theft 

complaints in its consumer information system, 

bringing the total to more than 875,000. Since 2000, 

the FTC has distributed more than 3.3 million hard 

copies of its two main identity theft education 

publications, including its new and improved identity 

theft booklet, and recorded more than 2.5 million 

visits to the Web versions of these publications. 

http://www.consumer.gov/idtheft/ 

•	 Fighting Identity Theft Using the Fair and Accurate Credit Transactions 

(FACT) Act. Misuse of personal information is a top consumer privacy concern. 

According to an FTC staff 2003 Identity Theft survey, over a five-year period, more than 27 

million consumers were victims of identity theft; identity theft has become the number one 

consumer complaint received in the FTC’s database. The FACT Act provides important 

tools in the fight against identity theft. The FTC continues to work on the numerous rules 

and reports mandated by the Act. In November 2004, the FTC issued its final rule regarding 

the proper disposal of consumer report information and records, the final summary of rights 

for identity theft, the final summary of general consumer rights, and revised furnisher and 

user notices. Beginning in December 2004, consumers in 13 western states were able to 

22 
request a free annual credit report. The nationwide phase-in was completed in September 

2005. Also, in December 2004, the FTC issued a report to Congress on credit report 

accuracy and completeness. In January 2005, the FTC issued the final regulation to improve 

required notices in prescreened offers for credit or insurance . And, in June 2005, a new rule 

required businesses and individuals to take appropriate measures to dispose of sensitive 

information derived from consumer reports. 

http://onguardonline.gov/index.html 

•	 Evaluating the Impact of New Technology on Consumers. While innovation 

provides American consumers powerful technological tools for shopping, communication, 

and entertainment, it can also raise new consumer concerns such as spyware and phishing. 

Spyware is becoming one of the most serious consumer problems on the Internet. 

The FTC filed its first spyware case in October 2004, 

alleging that the defendants unfairly downloaded adware 

and other software programs to consumers’ computers 

without authorization and then advertised “anti-spyware” 

products to these same consumers. In March 2005, the 

FTC filed another case alleging that defendants offered 

consumers free spyware scans that “detected” spyware on 

their computers even if there was none, to market antispyware software that does not work as represented. 

In March, the FTC also released a staff workshop report on spyware. In June 2005, at the 

FTC’s request, an operation that used bogus “scans” and illegal spam to market an antispyware program that did not work as claimed had its assets frozen and was barred from 

making deceptive claims by a stipulated preliminary injunction order issued by a U.S. 

District Court judge. In August 2005, the FTC obtained a settlement in its first case to 

address deceptive distribution of adware. 

•	 Enforcing the CAN-SPAM Act and the Adult Labeling Rule to Protect 

Consumers. Experts have estimated that unsolicited commercial email (spam) costs U.S. 

businesses between $10 billion and $87 billion annually. Additionally, consumers spend 

countless hours each year dealing with spam. The CAN-SPAM Act provides the FTC with 

23 
new tools to address this issue. In April 2005, the FTC and California Attorney General 

sought a halt to an operation that sent millions of illegal spam messages touting mortgage 

loans and other products and services. The FTC’s Adult Labeling Rule and the CAN-SPAM 

Act require commercial e-mailers of sexually-explicit material to use the phrase 

“SEXUALLY EXPLICIT:” in the subject line of the e-mail message and to ensure that the 

initial viewable area of the message does not contain graphic sexual images. In 2005, the 

FTC filed suit against a network of individuals and corporations that used spam to sell access 

to online pornography, and charged seven companies with violating the labeling 

requirements of the Rule and the Act. The FTC also continues to work on the rulemaking 

and reporting requirements mandated by the CAN-SPAM Act. In June 2005, the FTC issued 

a report to Congress on the use of subject line labeling for commercial e-mail as a means to 

reduce spam, concluding that such labeling would not be an effective way to curb spam. 

www.ftc.gov/bcp/conline/edcams/spam/index.html 

•	 Examining Factors Affecting Gasoline Price Changes. In July 2005, the FTC 

issued a report entitled “Gasoline Price Changes: The Dynamic of Supply, Demand, and 

Competition.” The report analyzes the many factors that influence fluctuations in the prices 

that U.S. consumers pay for gasoline at their local gas station. It examines a wide range of 

gasoline price factors – including the cost of crude oil, increasing national and international 

demand, and federal, state, and local regulations, all of which influence the prices consumers 

pay at the pump. One of the report’s conclusions is that over the past 20 years, changes in 

the price of crude oil have led to 85 percent of the changes in the retail price of gasoline in 

the U.S., while other important factors have included increasing demand, supply restrictions, 

and federal, state, and local regulations such as clean fuel requirements and taxes. 

www.ftc.gov/ftc/oilgas/index.html 

•	 Promoting Healthy Consumers Through Healthy Competition. American 

consumers paid nearly $1.8 trillion for health care in 2004 – about 15 percent of gross 

domestic product – through tax dollars, insurance premiums, or out-of-pocket payments. 

24 
Thus, health care is an industry in which it is critical for the FTC to maintain competition. 

In 2005, the Commission conditionally approved a $1 billion acquisition involving two 

biotechnological companies, subject to a requirement that the firms agree to divest 

overlapping assets. In another case, an Administrative Law Judge (ALJ) upheld an FTC 

complaint that charged a physicians’ group practicing in Fort Worth, TX with restraining 

trade by conspiring to fix prices in certain contracts to provide medical services to the 

patients of health plans. In addition, under consent orders, five physician organizations 

consisting of more than 1,000 doctors were barred from collectively negotiating and fixing 

the prices they charge payors on behalf of their doctor members. 

•	 Administering the Merger Review Process. The FTC administers the Hart-ScottRodino (HSR) Premerger Notification Program for both the FTC and the Department of 

Justice. Increasing economic activity and a corresponding increase in merger notifications 

resulted in review of transactions valued at more than $900 billion in the first three quarters 

of FY 2005. The HSR program protects consumers by identifying potentially 

anticompetitive mergers and providing the antitrust agencies with the opportunity to prevent 

harmful mergers from taking place. 

•	 Enforcing the National Do Not Call Registry to Stop Unwanted 

Telemarketing Calls. Now past its two-year anniversary, the National Do Not Call 

Registry has registered more than 100 million telephone numbers. The Registry has been a 

significant success; one recent accolade came from Yahoo!, which ranked the launch of the 

FTC’s Do Not Call Web site as one of the top 100 moments on the Web over the last 10 

years. The Registry protects consumer privacy by prohibiting most telemarketing calls to 

consumers who register their telephone numbers on the list. Although compliance with this 

law has been very high, the FTC has received more than one million consumer complaints 

since October 2003, and enforcement remains a top priority. 

www.ftc.gov/bcp/conline/edcams/donotcall/index.html 

•	 Evaluating Self-Regulation Efforts and Childhood Obesity. The FTC and the 

Department of Health and Human Services hosted a workshop on marketing, self-regulation, 

and childhood obesity in July 2005. The workshop brought together representatives from 

25 
food and beverage companies, medical and nutrition experts, representatives from media and 

entertainment companies, consumer groups, advertising specialists, and other keyexpertsfor 

an open discussion on industry self-regulation concerning the marketing of food and 

beverages to children, as well as initiatives to educate children and parents about nutrition. 

•	 Protecting Consumers Against Fraud and Deception. Through the third quarter 

of FY 2005, the FTC filed 52 actions in federal district court to protect consumers against 

unfair and deceptive trade practices, and obtained 74 judgments ordering more than $380 

million in consumer redress, and seven judgments ordering payment of more than $3 million 

in civil penalties. These cases attacked a wide range of fraud and deception, including bogus 

weight loss products, advance-fee credit card scams, business opportunity schemes, 

deceptive spam,fraudulent telemarketing, deceptive credit counseling services, deceptive and 

unfair debt collection practices, and violations of the Fair Credit Reporting Act. Working 

with criminal law enforcers also remains a priority and the FTC’s Criminal Liaison Unit 

(CLU) facilitates prosecution of consumer fraud by coordinating with criminal law 

enforcement authorities. In FY 2005, the CLU was active in developing a partnership with 

the U.S. Attorney’s Office in the Southern District of Florida and organizing “Project Biz 

Opp Flop” with that office. Thus far, 19 people who worked for five business opportunity 

firms have been charged criminally with mail fraud, wire fraud, conspiracy, and/or criminal 

contempt; 11 of these defendants have already entered guilty pleas and four have been 

sentenced, with prison terms ranging from 57 to 81 months. 

•	 Helping Hispanic Consumers. A Consumer Fraud Survey released by FTC staff in 

FY 2004 found that Hispanic consumers are disproportionately victimized by fraud. In 

response, the FTC launched a Hispanic Law Enforcement and Outreach Initiative that has 

had immediate results. During Hispanic Heritage Month in October 2004, the FTC 

announced a series of law enforcement actions and a new consumer education campaign 

designed to address consumer fraud in the Hispanic community. Additional cases were 

announced during the Hispanic Law Enforcement and Outreach Forums in Miami, FL, 

Phoenix, AZ, and Dallas, TX. The FTC’s Hispanic Initiative also includes a significant 

outreach component that disseminates consumer information in Spanish, provides consumer 

news to the Spanish-language media, and builds partnerships with organizations, businesses, 

and leaders in the Hispanic community. 

!OJO! www.ftc.gov/ojo 

26 
•	 Enhancing International Cooperation. With advances in technology, spammers, 

spyware operators, fraudulent telemarketers, and other scam artists can strike quickly on a 

global scale. An increasing number of complaints the FTC receives involve international 

transactions, and an increasing number of law enforcement investigations the FTC 

undertakes involve some international component. As a result, the FTC has implemented 

a comprehensive program to combat cross-border consumer protection law violations. This 

includes a recently-released report on legislation that would improve the FTC’s ability to 

combat cross-border consumer protection law violations. The FTC continues to develop new 

bilateral and multilateral enforcement partnerships and to strengthen existing ones. In 

January 2005, the FTC announced that it had entered into a new consumer protection 

enforcement memorandum of understanding with its counterpart consumer protection agency 

in Mexico. The FTC also continues to work closely with Canadian agencies on cross-border 

telemarketing issues. Another FTC goal is to build a network of cooperation to combat 

illegal spam. In October 2004, the FTC announced the “London Action Plan on International 

Spam Enforcement Cooperation,” endorsed by 26 agencies from 20 countries and seven 

private sector organizations from four continents. 

•	 Fostering Global Competition and Protection of Consumers. The FTC also 

has worked with competition agencies worldwide to promote best practices and minimize 

policy divergences to ease burdens on firms that operate across the globe. Two key venues 

for competition officials to work toward a greater consensus are the Organization for 

Economic Coordination and Development (OECD) and the International Competition 

Network (ICN), a group launched two years ago by the FTC, the DOJ, and 13 other 

competition agencies that now numbers almost 90 member agencies. The FTC also 

promotes market-oriented policies. The FTC’s goal is to ensure that consumer protection 

rules outside the United States focus on practices that distort consumer choice and raise a 

serious threat to the proper functioning of markets. The FTC also advocates discussion of 

linkages between competition and consumer policy around the world. The FTC also devoted 

significant resources to assisting new competition agencies in countries with emerging 

market economies. 

•	 Preventing Deceptive Lending and Debt Counseling and Illegal Debt 

Collection Practices. The FTC pursues unscrupulous lenders who deceive consumers 

about loan terms, rates, and fees, and bogus organizations that target consumers with bad 

credit or significant debt, promising to help them obtain credit or manage their debt. The 

FTC has brought several cases against debt counseling, debt collection, and other financial 

27 
services companies that have engaged in deceptive or illegal practices. In one recent case, 

the FTC charged a company with falsely promoting itself as a nonprofit credit counseling 

organization. The judge presiding over the company’s bankruptcy case allowed the transfer 

of client accounts to a legitimate third-party credit counselor, protecting consumers who 

otherwise might have been stranded if it went out of business. In July 2005, the FTC won 

a $10.2 million judgment against a debt collection operation and its principals, the estimated 

amount of consumer injury they caused. The amount represents the largest judgment in FTC 

history for violations of the Fair Debt Collection Practices Act. In addition, a federal district 

court judge permanently banned the defendants from engaging in debt collection in the 

future. 

•	 Advancing Administrative Litigation. During the first three quarters of FY 2005, 

the FTC had nine antitrust cases pending at some stage of administrative litigation. These 

antitrust cases involved a variety of consumer issues including physician and dental services, 

pharmaceuticals,hospitalservices,transportation of household goods, computer software and 

hardware, and gasoline. Besides bringing the benefits of increased competition, these cases 

also provided opportunities for the FTC and the courts to offer detailed analysis and guidance 

on key policy questions for businesses, the bar, and the public. In January 2005, the 

Commission issued its first merger decision in administrative adjudication since 1995. The 

FTC charged that a company had illegally acquired its closest competitor and that the 

acquisition resulted in either a monopoly or a dominant firm in four U.S. markets. The 

Commission’s order requires the company to create two new divisions that could compete 

independently in the relevant markets, and to divest one of those divisions within six months. 

In addition, four consumer protection cases were also in administrative litigation in FY 2005. 

•	 Promoting Innovation. The FTC continued efforts to harmonize the application of 

competition law with the patent system in order to benefit consumers by fostering the 

invention and development of new goods, services, and processes. These efforts included 

continued administrative litigation in a significant matter involving alleged abuses of the 

standards-setting process to exploit patent rights. In FY 2005, the Commission considered 

an appeal from an ALJ dismissal of the complaint in an adjudicative proceeding. The 

complaint charged that a defendant violated the antitrust laws by knowingly failing to 

disclose its relevant intellectual property holdings to a standards-setting organization in 

which it was a participant. In dismissing the complaint, the ALJ concluded that the 

defendant’s conduct did not amount to deception or a violation of its duties and that 

complaint counsel did not prove that its conduct violated the antitrust laws. A decision is 

forthcoming. 

28 
•	 Advocating for Competition before the Courts and Other Government 

Entities. In FY 2005, the FTC sent comments to the governors of California, North 

Carolina, and North Dakota urging them to veto bills that likely would restrict competition 

among pharmaceutical companies in ways that harm consumers. The bills included 

proposals: (1) to require Pharmacy Benefit Managers (PBMs) to disclose certain information 

to purchasers of their services, prescribers, or consumers; (2) to restrict a PBM’s ability to 

set up low-cost pharmacy networks; or (3) to prohibit the use of certain cost-reducing drug 

substitutions. The FTC’s PBM efforts have proved successful. Governor Schwarzenegger 

cited the FTC’s comment on the potential harmful effects of the California bill when he 

vetoed it. While the North Dakota bill passed, it did not contain the provisions to which the 

FTC objected. 

Other FTC advocacy efforts contributed to several positive consumer outcomes. An intense 

real estate market has prompted some legislatures – often with pressure from state real estate 

commissions – to create proposals that impose minimum service requirements on brokers. 

These proposals place competitive restrictions on limited service brokerages, which offer 

unbundled services for lower prices. They also limit consumers’ ability to choose a lower 

level of brokerage services. The FTC sent comments about the potential harms of minimum 

service requirements to parties considering such proposals including the Texas Real Estate 

Commission (TREC), the governor of Missouri, and the Alabama Senate Members. The 

FTC’s efforts have had mixed success. Although TREC did not pass its proposed regulation, 

the Texas legislature passed a bill that has a similar effect as TREC’s regulation. Despite the 

FTC’s efforts in Missouri, the governor signed the bill. Alabama’s legislature, however, did 

not pass the bill. The FTC also continues to comment on attempts to define the practice of 

law broadly, which may restrict competition between attorneys and lay service providers in 

ways that harm consumers. The FTC’s advocacies against broad definitions of the 

unauthorized practice of law continue to be successful. 

29 
Financial Performance Overview 

As of September 30, 2005, the financial condition of the FTC was sound. The agency had sufficient 

funds to meet program needs and adequate financial controls in place to ensure obligations did not 

exceed available budget authority. The accompanying financial statements have been prepared in 

conformity with the hierarchy of accounting principles approved by the Federal Accounting 

Standards Advisory Board (FASAB) and the Office of Management and Budget (OMB) Circular A136, Financial Reporting Requirements. 

Sources of Funds 

The FTC has an annual appropriation for Salaries and Expenses, and its appropriated funds are 

available until expended. The FTC’s appropriated budget authority in FY 2005 was $205 million 

but imposed two rescissions that reduced agency funding by over $1 million. This amount represents 

an overall appropriation increase of $19 million over FY 2004. In addition, the FTC received $2 

million for Reimbursable Activity, and carried over $8 million in no-year funds from last fiscal year. 

The FTC’s total amount of 2005 budgetary resources was $214 million. 

The FTC’s budgetary resources are offset by the collection of fees from two sources. The HartScott-Rodino (HSR) Antitrust Improvements Act, P.L. 101-162, requires parties to mergers valued 

over a specified threshold amount to submit premerger review filing, and to pay an appropriate filing 

fee, to the FTC. The FTC and the Antitrust Division, Department of Justice, equally share each 

30 
dollar collected. Separately, the Do Not Call Implementation Act, P.L. 108-10, requires certain 

telemarketers to pay a fee to access telephone numbers in the National Do Not Call Registry from 

consumers who no longer wish to receive telemarketer calls. In FY 2005, the FTC’s share of 

collected fees was $100 million from HSR Premerger filings fees and $18 million from Do Not Call 

Registry fees. The total FY 2005 amount of the FTC’s share of offsetting fees was $118 million. 

Cost of Strategic Goals 

In FY 2005, the gross cost of the Consumer Protection Mission, which relates directly to the Protect 

Consumers strategic goal, was $112 million, and the gross cost of the Maintaining Competition 

Mission, which relates directly to the Maintain Competition strategic goal, was $84 million. The 

FTC’s total net cost of operations, i.e., gross cost less offsets, was $78 million. These amounts are 

shown in the Statement of Net Cost, which can be found in Part III, Audited Financial Statements, 

of this report. 

The FTC is moving forward to meet the goal of its Five-Year Financial Systems Strategic Plan: By 

2008, the FTC will have a state-of-the-art integrated CORE financial management system that 

encompasses accounting, budget, acquisitions, and performance measurement requirem1.1ents. 

With this new system, the FTC plans to build in indicators that will permit the agency to also 

determine the cost of achieving its strategic objectives and performance measure results. 

Audit Results 

The FTC received an unqualified audit opinion on FY 2005 financial operations. No material 

internal control weaknesses nor instances of substantial noncompliance with the Federal Financial 

Management Improvement Act were found. This was the ninth consecutive year the FTC received 

an unqualified opinion. 

Financial Statements 

The FTC’s financial statements summarize the financial activity and financial position of the agency 

in FY 2005. The financial statements, notes, and the balance of the required supplementary 

information appear in Part III, Audited Financial Statements. 

31 
Management Controls, Systems, and Compliance with Laws and 

Regulations 

Federal Managers’ Financial Integrity Act (FMFIA) 

The FMFIA requires federal agencies to provide an annual statement of assurance regarding 

management controls and financial systems. The statement of assurance is provided in the 

Chairman’s opening message at the beginning of the Performance and Accountability report. This 

statement was based on the review and consideration of a wide variety of evaluations, control 

assessments, internal analyses, reconciliations, reports, and other information, including OIG audits, 

and the inspectors general’s opinion on the FTC financial statements and OIG reports on internal 

control and compliance with laws and regulations. In addition, FTC is not identified on the 

Government Accountability Office’s (GAO) High Risk List related to controls governing various 

areas. 

In response to the FMFIA, the agency developed a management control program which holds 

managers accountable for the performance, productivity, operations and integrity of their programs 

through the use of management controls. Additionally, senior managers at the agency are 

responsible for evaluating the adequacy of the management controls surrounding their activities and 

determining whether they conform to the principles and standards established by the Office of 

Management and Budget (OMB) and the GAO. The results of these evaluations and other senior 

management information are used to determine whether there are any management control problems 

to be reported. 

Federal Information Security Management Act (FISMA) 

The FTC continues to stay vigilant in ensuring that there are no material weaknesses in 

administrative controls over information systems and is always seeking methods of improving its 

secure configuration As part of the effort to meet or exceed the requirements of FISMA, three 

agency systems have undergone certification and accreditation; the FTC’s certification and 

accreditation policy was revised to conform with the standard established by the National Institute 

of Standards and Technology (NIST); the agency reviewed and modified its Change Management 

process; and the Acceptance Test environment was separated from the Production and Development 

environments. The FTC also conducted an assessment of its security controls against the new NIST 

Special Publication 800-53, Recommended Security Controls for Federal Information Systems, and 

found that more than 80 percent of the recommended controls have been implemented. 

32 
Prompt Payment Act 

The Prompt Payment Act requires federal agencies to make timely payments to vendors, including 

any interest penalties for late invoice payments. In fiscal year 2005, the FTC paid interest penalties 

on 136 invoices, 3.4 percent, of the 3,968 vendor invoices processed, representing payments of 

approximately $4,202. The FTC paid only $0.01 in interest penalties for every 100 dollars disbursed 

in fiscal year 2005. 

Federal Financial Management Improvement Act (FFMIA) 

The FFMIA of 1996 requires federal agencies to report on agency substantial compliance with 

federal financial management system requirements, federal accounting standards, and the U.S. 

Government Standard General Ledger. Under this law, the agency heads are required to assess and 

report on whether these systems comply with FFMIA on an annual basis. 

In assessing compliance withFFMIA,FTCadheresto theFFMIA implementation guidance provided 

by OMB and considers the results of OIG and any GAO audit reports, annual financial statement 

audits, and any other information available. 

Based on all information assessed, the Chairman of FTC has determined that FTC is compliant with 

FFMIA requirements. 

Debt Collection Improvement Act 

The Debt Collection Improvement Act prescribes standards for the administrative collection, 

compromise, suspension, and termination of federal agency collection actions and referrals to the 

proper agency for litigation. Although the Act has no material effect on the FTC since it operates 

with minimal delinquent debt, all debt more than 180 days old has been transferred to the U.S. 

Department of the Treasury for cross-servicing. In addition, recurring payments were processed by 

electronic funds transfer (EFT) in accordance with the EFT provisions of the Debt Collection 

Improvement Act of 1996. 

Improper Payments Information Act 

The Improper Payments Information Act (Public Law (P.L.) No.107-300) defined requirements to 

reduce improper/erroneous payments made by the federal government. OMB also has established 

specific reporting requirements for agencies with programs that possess a significant risk of 

33 
erroneous payments and for reporting on the results of recovery auditing activities. A significant 

erroneous payment as defined by OMB guidance is an annual erroneous payment in a program that 

exceeds both 2.5 percent of the program payments and $10 million. 

The agency reviews controls and systems under the FMFIA to ensure that the agency has controls 

that can be relied on. In this review, the agency has not identified any programs where significant 

erroneous payments have occurred within the agency. The agency will continue to review programs 

on an annual basis to determine if any significant erroneous payments exist. 

34 
Part II: Program Performance 

Goal 1: Protect Consumers 

Prevent Fraud, Deception, and Unfair Business Practices in the 

Marketplace 

Congress has charged the FTC with the broadest legislative mandate of any federal consumer 

protection agency. While most federal consumer protection agencies have jurisdiction over a 

specific market sector, the FTC possesses broad law enforcement authority that encompasses most 

segments of the economy, including business and consumer transactions on the Internet. As the 

nation’s leading consumer protection agency, its goal is to protect consumers by preventing fraud, 

deception, and unfair business practices in the marketplace. It applies three related objectives to 

achieve this broad-reaching goal: 

C Identify fraud, deception, and unfair practices that cause the greatest 

consumer injury. 

C Stop fraud, deception, and unfair practices through law enforcement. 

C Prevent consumer injury through education. 

First, the FTC identifies practices that cause consumer injury by analyzing the consumer complaint 

data collected in its Consumer Information System database, holding public discussions, and 

monitoring the marketplace, including the Internet. Next, the FTC uses this information to target 

law enforcement efforts. Its law enforcement program aims to stop and deter fraud and deception, 

protect consumers’ privacy, and increase compliance with its consumer protection statutes to ensure 

that consumers have accurate information for purchasing decisions. Finally, the FTC targets its 

education efforts to give consumers the information they need to protect themselves from injury and 

to explain to businesses how to comply with applicable laws. 

A priority of the FTC is to ensure that consumer information is safeguarded in the electronic 

marketplace so consumers will enjoy the same confidence in these commercial transactions that they 

enjoy in the traditional marketplace. Online commerce has the potential to deliver goods and 

services, often more conveniently, faster, and at lower prices than traditional brick-and-mortar 

operations. Online commerce promises significant benefits to consumers and the economy. The 

Internet also stimulates the development of innovative products and services that were barely 

35 
conceivable just a few years ago and enables consumers to tap into rich sources of information that 

they can use to make better informed purchasing decisions. 

There is real risk, however, that these benefits may not be realized if consumers associate the Internet 

with fraudulent operators. The boom in e-commerce has opened up fertile ground for fraud. In the 

FTC’s experience, fraudulent operators are always among the first to appreciate the potential of a 

new technology and then use that potential to exploit and deceive consumers. Of particular concern 

is that Internet health fraud continues to plague consumers looking for solutions to serious illnesses. 

Traditional scams, such as pyramid schemes, also have found new life on the Internet. The FTC is 

using all the tools at its disposal – such as its consumer complaint database – to help target areas 

of consumer problems and is fashioning law enforcement and educational efforts to respond quickly 

and vigorously to these concerns. 

Privacy of personal information is important. Companies that make specific promises to consumers 

about privacy must honor those promises and should take appropriate measures to protect sensitive 

consumer information. Companies that honor their promises and take these measures add to 

consumer confidence in the marketplace. The FTC is concerned with the misuse of personal 

information and is fully committed to both enforcement and education in this area to encourage 

appropriate security. 

The FTC also works on policy and enforcement efforts related to spam. The FTC has brought more 

than 75 cases to date challenging deceptive spam. In addition, the CAN-SPAM Act addresses a wide 

range of practices relating to spam. FTC staff continues to work on CAN-SPAM enforcement, 

rulemaking, and studies. In June 2005, the FTC issued a report to Congress, as required by the Act, 

on the use of subject line labeling for commercial e-mail as a means to reduce spam, and concluded 

that such labeling would not be an effective way to curb spam. 

In the consumer credit arena, the FACT Act made sweeping changes and additions to the Fair Credit 

Reporting Act. Notably, the FACT Act makes existing preemption provisions permanent and adds 

several provisions to combat identity theft and enhance accuracy and consumer access to credit 

information. The FACT Act requires the FTC, among other things, to engage in a number of 

rulemakings. In November 2004, the FTC issued its final rule regarding the proper disposal of 

consumer report information and records under the FACT Act, the final summary of rights for 

identity theft, the final summary of general consumer rights, and revised furnisher and user notices. 

Beginning in December 2004, consumers in 13 western states were able to request a free annual 

credit report, and the nationwide phase-in to access the free annual reports was completed in 

September 2005. Also in December 2004, the FTC issued a report to Congress on credit report 

accuracy and completeness. In January 2005, the FTC issued the final regulation to improve 

36 
required notices in prescreened offers for credit or insurance, which became effective on August 1, 

2005. 

For most consumers, access to credit is essential to full participation in the nation’s economy. Some 

unscrupulous lenders, however, deceive consumers about loan terms, rates, or fees. Bogus 

organizations target consumers with bad credit or significant consumer debt, promising to help them 

manage their debt or obtain credit otherwise unavailable to them. Consumers may pay hundreds of 

dollars for these services, only to receive nothing in return, or worse, to see their credit damaged 

even further. The FTC’s enforcement actions target these deceptive lending schemes, especially in 

the subprime mortgage market, and those that involve deceptive credit counseling services. 

Objective 1.1: Identify Fraud, Deception, and Unfair Practices That Cause the Greatest 

Consumer Injury 

The first step in preventing fraud, deception, and unfair business practices in the marketplace is to 

identify the practices that cause the greatest consumer injury. 

Strategies 

To identify consumer protection problems, the FTC collects and analyzes data from many sources. 

Its Consumer Response Center receives consumer complaints and inquiries via a toll-free number 

(1-877-FTC-HELP), mail, and the Internet. Partners such as the National Fraud Information Center 

of the National Consumers League, the Internet Fraud Complaint Center (a partnership between the 

FBI and the National White Collar Crime Center), Better Business Bureaus, and PhoneBusters (the 

Canadian fraud database), also share the consumer complaint data they collect with the FTC. 

All of this information is entered into the FTC’s Consumer Information System database and then 

analyzed by FTC staff to identify trends and target fraudulent, deceptive, and unfair business practices. The agency shares the fraud complaints that it collects with more than 1,360 other law 

enforcement agencies across the United States, Canada, and Australia via an encrypted Web site 

called Consumer Sentinel. Although the FTC is not empowered to act on behalf of individual 

consumers, consumer complaint data obtained through Consumer Sentinel enables the FTC and its 

law enforcement partners to coordinate their enforcement efforts, and to spot trends and target the 

most serious consumer frauds. Summary and trend data are shared on the public Consumer Sentinel 

site (consumer.gov/sentinel). The constant input and analysis of fresh complaint data have allowed 

the FTC to move quickly to stop illegal practices before they cause more harm to consumers. 

37 
Consumers can call the FTC’s second toll-free number, 1-877-ID-THEFT, or view its Web site to 

obtain information about and report identity theft (consumer.gov/idtheft/). When they call the FTC 

or visit its Web site, consumers also can receive guidance on the steps they can take to resolve credit 

and other problems that may have resulted from identity theft. In FY 2005, the agency received 

263,000 identity theft complaints and inquiries. The FTC uses this data to spot patterns that can help 

criminal law enforcement agencies prosecute identity theft and help businesses avoid the financial 

consequences of this crime. Criminal cases are identified by the joint FTC and U.S. Secret Service 

Case Referral Program, and strong leads are referred to regional task forces, many led by the Secret 

Service Financial Crimes Division. 

The FTC, along with the Secret Service and Department of Justice, initiated a training program in 

2002 to provide local and state law enforcement officers with practical tools to enhance combined 

efforts to combat identity theft, including information about accessing Consumer Sentinel data. 

Through 2005, the FTC and its partners held 18 seminars and trained more than 2,550 law 

enforcement officers from more than 890 agencies. 

Finally, the FTC hosts workshops and conferences at which interested parties discuss practices that 

cause consumer injury, articulating concerns and identifying relevant strategies to combat these 

problems. These workshops enable the FTC to hear a 

variety of views on timely topics and help all parties Performance Measure 1.1.1 understand the ramifications of these issues. During FY Annual number of consumer 

complaints and inquiries
 2005, the FTC hosted workshops that covered peer-toentered into database.
 peerfile sharing, e-mailauthentication, childhood obesity, 

 (numbers in thousands) advertising guidelines, and Hispanic outreach and law 

enforcement. FY 2001 Actual: 430


FY 2002 Actual: 680


FY 2003 Actual: 944
 Performance Measures and Results 

FY 2004 Actual: 994 

FY 2005 Target: 750 To assess its effectiveness in identifying fraudulent and FY 2005 Actual: 1,015 

deceptive practices, the FTC measured the number of 

Performance Measure 1.1.2 consumer complaints and inquiries added to its Consumer 

Annual number of consumer Information System database. In FY 2005, the FTC 

complaints and inquiries added 1,015,000 entries into its database, far exceeding related to identity theft 

its projected number of 750,000. Included in these entered into database.


 (numbers in thousands)
 1,015,000 entries were 348,000 consumer complaints and 

inquiries related to identity theft, exceeding the projected FY 2003 Actual: 321 number of 300,000. These results reflect the increasing FY 2004 Actual: 314 

interest of organizations in contributing complaint data FY 2005 Target: 300


FY 2005 Actual: 348
 and consumers’ growing awareness of the FTC’s online 

complaint form and toll-free telephone numbers. They 

38 
give the FTC a broader view of what reporting consumers are experiencing. The database allows 

the FTC and its law enforcement partners to identify and develop cases against fraudulent and 

deceptive operators that cause the greatest consumer injury. By analyzing consumer complaints, the 

FTC can identify and ultimately refine its enforcement and education efforts to target the top 

consumer complaints, including identitytheft,Internetauctions, shop-at-home/catalog sales, Internet 

services and computer complaints, foreign money offers, prizes/sweepstakes/lotteries, advance fee 

loans and credit protection, business opportunities/work-at-home plans, and telephone services. 

Another top area of consumer complaints are allegations that involve violations of the Fair Debt 

Collections Practices Act. The Commission also has established a separate complaint mechanism 

for consumers who have complaints about media violence, including complaints about the 

advertising, rating, and sale of movies, electronic games (including video games), and music that are 

marketed to children. 

Performance Assessment and Future Trends 

Not only does the FTC’s database help identify the most serious and commonly reported consumer 

protection problems, it quickly informs the agency of emerging scams so that the agency can move 

rapidly to stop consumer injury. In addition, by collecting data from consumers and other sources 

and sharing it with other law enforcers, the FTC is able to coordinate and augment the effectiveness 

of law enforcement agencies across the country and in Canada and Australia. To make the database 

even more valuable, the FTC continues to pursue new international partnerships to increase its 

collection of information from consumer agencies in other countries. For example, through the 

econsumer.gov Web site (econsumer.gov), the agency partners with other members of the 

International Consumer Protection Enforcement Network, an international group that identifies and 

shares information about worldwide consumer protection issues. On this Web site, consumers in 

the 17 participating countries can file complaints using an online form and obtain consumer 

education materials. Law enforcement members can access a nonpublic Web site to obtain specific 

information about the complaints that consumers have filed. 

The FTC will continue to expand its complaint database and increase its use by recruiting and 

training additional law enforcement partners. It also will make better use of its rich store of data by 

identifying repeat offenders and sharing this information with other law enforcers. In addition, the 

FTC will increase its capacity to analyze data quickly in order to identify and respond to frauds, 

deception, and identity theft in their early stages and help prevent consumer injury. The data will 

be used to provide more information to the public – by giving consumers information to protect 

themselves from scams, deceptive practices, and identity theft, and providing trend and statistical 

information to those involved in public policy discussions about consumer protection issues in the 

39 
marketplace. The FTC also will continue to collect data on consumers’ experiences and general 

inquiries and upgrade its system to track and analyze privacy-related complaints more effectively. 

Objective 1.2: Stop Fraud, Deception, and Unfair Practices Through Law Enforcement 

Once fraud, deception, and unfair business practices are identified in the marketplace, the FTC 

focuses its law enforcement efforts on areas where it can have the greatest impact for consumers. 

Strategies 

The FTC plays a vital role in protecting consumers’ privacy, emphasizing both enforcement and 

education. It focuses on telemarketing, spam, identity theft, spyware and unauthorized adware, and 

financial privacy, as well as enforcement of the CAN-SPAM Act, FACT Act, Gramm-Leach-Bliley 

Act and the Safeguards Rule, the Telemarketing Sales Rule, and Section 5 of the FTC Act. 

The FTC’s enforcement efforts include cases covering the full range of topics – from data security 

to fraudulent spam to deceptive lending practices and credit counseling services to misleading health 

claims. Telemarketing fraud also continues to be a significant law enforcement priority. The FTC 

will continue to pursue telemarketing cases and enforce the National Do Not Call Registry. The FTC 

also will continue its outreach to consumers and industry, and its collaboration with other law 

enforcement agencies, as it monitors deceptive debt counseling and subprime lending practices. 

Other priorities include protecting consumers from more traditional scams and deceptive practices 

that have moved to the Internet. 

One of the most effective tools in the battle against fraud and deception has been the law 

enforcement sweep – simultaneous law enforcement actions by federal, state, and/or local partners 

against numerous defendants nationwide that focus on a particular, widespread type of fraud and 

deception. Each sweep is supported by consumer education aimed at preventing future losses to the 

public. Since its first sweep in 1995, the FTC and its partners have brought more than 2,465 law 

enforcement actions in 85 sweeps against fraudulent and deceptive operators. This total includes 575 

actions brought by the FTC alone. Thus, for every action that the FTC brings, its partners bring an 

average of three. In FY 2005, the FTC led five sweeps resulting in a total of 213 actions, including 

42 FTC actions. In addition to leveraging agency resources, sweeps generate substantial local, 

regional, and international interest, thus further raising consumer awareness. 

With advances in technology, spammers, spyware operators, fraudulent telemarketers, and other 

scam artists can strike quickly on a global scale. An increasing number of complaints the FTC 

40 
receives involve international transactions, and an increasing number of law enforcement 

investigations the FTC undertakes involve some international component. As a result, the FTC has 

implemented a comprehensive program to combat cross-border consumer protection law violations. 

This program includes a recently released report on proposed legislation, the U.S. SAFE WEB Act, 

that would improve the FTC’s ability to combat cross-border consumer protection law violations. 

The FTC continues to develop new bilateral and multilateral enforcement partnerships and to 

strengthen existing ones. In January 2005, the FTC announced that it had entered into a new 

consumer protection enforcement memorandum of understanding (MOU) with its counterpart 

consumer protection agency in Mexico. The FTC also continues to work closely with Canadian 

agencies on cross-border telemarketing issues. The FTC is building a network of cooperation to 

combat illegal spam and last year formed the “London Action Plan on International Spam 

Enforcement Cooperation,” endorsed by 26 agencies from 20 countries and seven private sector 

organizations from four continents. London Action Plan participantsshare information,investigative 

techniques, and enforcement strategies through periodic conference calls. The FTC also announced 

an MOU on spam enforcement cooperation in February 2005 with a Spanish agency. 

In the nonfraud area, the FTC works to ensure compliance with the consumer protection statutes that 

it enforces. Given its broad jurisdiction and limited resources, it focuses on the most serious 

identified problems, using varied enforcement tools and encouraging self-regulation in appropriate 

situations. Information obtained from its Consumer Information System database and from monitoring national advertising enables the agency to focus its law enforcement actions on areas that pose 

the greatest risks to consumer health, safety, and economic well-being. One area of particular 

concern to the FTC is the advertising and marketing directed to youth, including violent 

entertainment products, online gambling, pornography, and alcohol. The FTC also works with 

industry and interested groups to support private initiatives where appropriate. 

Performance Measures and Results 

The agency’s FY 2005 target was to save consumers more than $400 million by stopping fraudulent 

practices in the marketplace. In FY 2005, the FTC saved consumers an estimated $366 million, 

which represents 92 percent of the annual target. Because the amount of savings varies year-to-year, 

in its 2003 - 2008 Strategic Plan the FTC also set a target of saving consumers at least $2 billion by 

FY 2008. Having exceeded its annual target in FY 2003 and having achieved 87 percent in FY 2004, 

and 92 percent this year, the agency is on track to meet its $2 billion target. Consumer savings are 

measured by estimating the annual fraudulent and deceptive sales made by defendants in the 12 

months prior to the FTC’s filing a complaint. The savings calculation actually may underestimate 

the FTC’s impact because it assumes that the fraud and deception would have continued for only one 

41 
additional year. However, it provides a uniform method for 

calculating savings and minimizes speculation about the 

likely duration of the fraud and deception. The law 

enforcement actions included in this measure were taken 

against individuals or companies, as well as scam artists 

operating schemes on the Internet. The FTC’s experience 

in most cases is that once it files a complaint in federal 

district court and obtains a court order, the defendants stop 

their fraudulent practices. If they fail to comply, they are 

subject to contempt proceedings. Thus, in stopping these 

frauds, the agency stops further consumer losses to these 

defendants. By publicizing these law enforcement actions 

and distributing consumer education materials, it seeks to 

alert consumers to fraudulent and deceptive practices, 

educate them to avoid such practices in the future, and 

ultimately increase consumer confidence in the 

marketplace, while deterring similar behavior by would-be 

violators. 

As an indicator of the usefulness of the FTC’s consumer 

complaint databases, the agency measures the number of 

data searches by its staff and other law enforcement 

personnel. In FY 2005, more than 79,000 data searches of 

Consumer Sentinel complaints were conducted by the FTC 

and other law enforcement personnel, far exceeding the 

target of 26,000. However, Consumer Sentinel made 

several major changes and improvements beginning in late 

September 2003, and Consumer Sentinel staff projects that 

some of the FTC and external law enforcement personnel 

usage may be related to the testing of these changes. The 

number of identity theft searches by law enforcement 

personnel in FY 2005 is 1,680, or 91 percent of the target 

of 1,850. 

Performance Measure 1.2.1 

Dollar savings for consumers 

from FTC actions that stop 

fraud and deception. 

(numbers in millions) 

FY 2001 Actual: $487


FY 2002 Actual: $561


FY 2003 Actual: $606


FY 2004 Actual: $349


FY 2005 Target: $400


FY 2005 Actual: $366*


(*target not met – see Part I:


Program Performance


Overview)


Performance Measure 1.2.3 

Number of data searches 

conducted by FTC and law 

enforcement personnel of the 

FTC's Consumer Sentinel 

database. 

(numbers in thousands) 

FY 2003 Actual: 28 

FY 2004 Actual: 87 

FY 2005 Target: 26 

FY 2005 Actual: 79 

Performance Measure 1.2.4 

Number of data searches by 

law enforcement personnel of 

the FTC's identity theft 

database. 

FY 2003 Actual: 2,167 

FY 2004 Actual: 2,120 

FY 2005 Target: 1,850 

FY 2005 Actual: 1,680* 

(*target not met – see Part I: 

Program Performance 

Overview) 

42 
Performance Assessment and Future Trends 

Based on Consumer Sentinel data, Internet fraud is significant and continues to grow. The FTC 

targets the most pervasive online fraud and moves quickly to stop large, fast-growing Internet scams. 

In particular, the FTC has brought more than 75 spam-related cases against 220 individuals and 

companies. The FTC expects fraud to continue to grow as the use of the Internet rises and spam 

increases and, in response, it will increase its efforts to slow online fraud and prevent consumer 

injury. In particular, online fraud has the potential to reach consumers worldwide and cause great 

economic injury. As its technological expertise continues to develop, the agency will be better able 

to detect and deter online fraud before these schemes take hold. This effort, combined with 

strategies such as law enforcement sweeps, demonstrates the FTC’s effectiveness in preventing 

consumer injury. 

The FTC also continues to target deceptive and fraudulent advertising and other practices aimed at 

Hispanic consumers. The FTC will target frauds on the basis of Consumer Sentinel and other data 

that identify the top problems for Hispanic consumers, the products and services aimed at the 

Hispanic community that are extensively advertised, particularly in major media, and the practices 

causing significant economic or other harm to this community. 

The FTC also will build on its coordination with criminal law enforcers. The FTC’s Criminal 

Liaison Unit (CLU) facilitates prosecution of consumer fraud by coordinating with criminal law 

enforcement authorities. CLU was active in developing a partnership with the U.S. Attorney’s 

Office in the Southern District of Florida, and organizing a law enforcement sweep, Project Biz Opp 

Flop, with that office. To date, 19 people who worked for five business opportunity firms have been 

charged criminally with mail fraud, wire fraud, conspiracy, and/or criminal contempt; 11 of these 

defendants have already entered guilty pleas and four have been sentenced, with prison terms ranging 

from 57 to 81 months. 

In addition to fighting fraud, the agency also focuses on compliance with traditional advertising laws 

and the FTC’s Rules and Guides. It works cooperatively with its law enforcement partners, industry, 

and consumer groups to increase compliance. The scope of the agency’s current and upcoming 

priorities spans its broad jurisdiction, and this broad jurisdiction makes it difficult to measure the 

overall impact of its nonfraud activities. The FTC is exploring using new performance measures that 

focus its impact in more narrowly defined areas. Nonetheless, it will continue to use business and 

consumer education, as well as selective enforcement, to ensure broad compliance with the rules and 

regulations it enforces. 

43 
With respect to identity theft, although Congress established the FTC as the central clearinghouse 

for identity theft complaints, the FTC – a civil law enforcement agency – has no criminal authority 

to prosecute identity theft crimes. The information contained in its database, however, directly 

supports such criminal prosecutions. The agency has learned from experience that hands-on 

information and training provided to other law enforcement agencies greatly enhances their abilities 

to mine the information in the complaint database and ultimately prosecute identitytheft crimes more 

successfully. Consequently, the FTC and its partners have provided identity theft training for local, 

state, and federal criminal enforcement groups. 

Objective 1.3: Prevent Consumer Injury Through Education 

Consumer and business education is a first line of defense against fraud and deception. 

Strategies 

The FTC is committed to using education and outreach as cost-effective methods to prevent 

consumer injury, increase business compliance, and add an extra dimension to its law enforcement 

program. Virtually every consumer protection effort contains an educational component, from 

compliance surfs and law enforcement sweeps to the announcement of new rules and regulations. 

Through reports, publications, Web sites, media events, speeches, advocacies, and collaborative 

activities with other organizations, the FTC reaches tens of millions of consumers and businesses 

every year. In FY 2005, the agency issued 107 new or revised publications – covering traditional 

subjects such as weight-loss claims and credit issues; high-tech subjects such as spyware, peer-topeer file sharing, phishing, and spam; and timely subjects such as identity theft, telemarketing, and 

privacy. The FTC also issued new electronic education tools, including e-cards and teaser Web sites. 

The Consumer Information System database helps the FTC tailor its education effortsto topical areas 

where fraud, deception, unfair practices, and information gaps are causing the greatest injury. 

Consumers are given the tools they need to spot potentially fraudulent and other illegal promotions, 

and businesses are advised how they can comply with the law. As with the agency’s law 

enforcement, more of its educational efforts now involve the Internet. The FTC not only addresses 

consumer issues involving the Internet, such as spam and shopping online, but it also uses the 

Internet as a tool to reach consumers, for example, through its Web sites, online banner public 

service announcements, and online distribution of informational pieces called “news consumers can 

use.” 

The FTC coordinates with hundreds of private and public partners to provide information about 

specific campaigns, products, and services. It continues to manage the consumer.gov Web site, 

44 
which is linked with the interagency firstgov.gov Web site, which offers one-stop access to federal 

consumer information. The FTC continues to increase the federal agency partnership base for 

consumer.gov, with more than 180 agencies participating. In FY 2005, the FTC once again took the 

Performance Measure 1.3.1 

Total number of education 

publications distributed to or 

accessed electronically by 

consumers. 

(numbers in millions) 

FY 2001 Actual: 15.0 

FY 2002 Actual: 19.3 

FY 2003 Actual: 28.0 

FY 2004 Actual: 26.5 

FY 2005 Target: 20.0 

FY 2005 Actual: 35.3 

Performance Measure 1.3.2 

Number of education 

publications related to identity 

theft distributed to or 

accessed electronically by 

consumers. 

(numbers in millions) 

FY 2003 Actual: 3.0 

FY 2004 Actual: 3.7 

FY 2005 Target: 3.0 

FY 2005 Actual: 6.0 

Performance Measure 1.3.3 

Number of Spanish-language 

education publications 

distributed to or accessed 

electronically by consumers. 

(numbers in thousands) 

FY 2003 Actual: 458 

FY 2004 Actual: 737 

FY 2005 Target: 500 

FY 2005 Actual: 1,157 

lead in organizing National Consumer Protection Week. 

This year’s campaign theme was identity theft. Its 

partner organizers were the National Association of Consumer Agency Administrators, AARP, the National 

Consumers League, the Council of Better Business 

Bureaus, the Consumer Federation of America, the U.S. 

Postal Service, the U.S. Postal Inspection Service, the 

National Association of Attorneys General, and the 

Department of Justice. 

To reach the expanding population of Hispanic 

consumers in the United States, the FTC has furthered its 

Hispanic OutreachProgram. The Spanish-language page 

on the FTC Web site has been expanded and includes 

translations of more than 100 consumer publications. 

Performance Measures and Results 

The FTC gauges the impact of its education efforts by 

tracking the number of consumer and business education 

publications it distributes to the public in response to 

consumer requests. Ideally, the agency would like to 

measure the extent to which its educational materials 

improve consumer understanding and help them get 

better value for their money. This effect would be 

extremely difficult to measure, but tracking the 

distribution of publications provides a rough idea of how 

many consumers believe the information will prove 

useful. In FY 2005, the FTC exceeded its target of 20 

million publications by distributing 35.3 million 

publications. This includes 6 million publications related 

to identity theft, double the target of 3 million and 

1,157,000 Spanish-language publications, far exceeding 

the target of 500,000. The FTC exceeded these targets in 

45 
FY 2005 due to the continuing increase in Web hits, interest in identity theft education, and 

communication of the availability of Spanish-language consumer materials. 

Performance Assessment and Future Trends 

The FTC seeks to alert as many consumers as possible to the telltale signs of fraud, deception, and 

unfair business practices, and other critical consumer protection issues. Use of the Internet to 

disseminate information about fraud and technology-related matters plays an integral role in the 

FTC’s education, deterrence, and enforcement efforts, permitting the agency to reach vast numbers 

of consumers and businesses quickly, simply, and at low cost. 

The measure of the number of publications distributed by the FTC indicates its impact in educating 

consumers, although it does not fully capture the millions of FTC publications that are distributed 

to consumers by others. While the number of print publications the FTC distributed remained 

relatively static, the number of publications accessed through the Internet soared as more consumers 

and businesses go online. In 1996, the agency distributed only 140,000 publications online. In FY 

2005, approximately 21 million online publications were distributed. These numbers illustrate the 

Internet’s coming of age as a mainstream medium and highlight its usefulness in any large-scale 

educational campaign. Consequently, the FTC will continue to increase its use of its Web site, 

ftc.gov, and the multi-agency Web site, consumer.gov, to reach consumers, businesses, law 

enforcement officials, and the media more efficiently and effectively. 

In FY 2006, the FTC will continue to focus consumer and business education efforts on subjects 

identified by its consumer complaint databases where information gaps cause the greatest injury, 

such as financial literacy, spam, privacy, globalization, Internet scams, fraudulent schemes, and 

identity theft. In the privacy area, it will use an approach that has proven successful in the past by 

establishing an outreach program to increase consumer awareness of and business compliance with 

the privacy information required by the Gramm-Leach-Bliley Act, including the Safeguard Rule, and 

FACT Act. The FACT Act also makes the FTC a participant in the Financial Literacy and Education 

Commission. The FTC will continue to creatively use technology, including new interactive media, 

to extend the reach of consumer and business education. Also, as highlighted by its performance 

measures, the agency will continue to focus outreach in the identity theft arena and its efforts to reach 

the nation’s growing Hispanic population. The FTC will continue to work to identify and educate 

underserved consumer groups to help protect them from becoming victims of fraud. 

46 
Goal 2: Maintain Competition 

Prevent Anticompetitive Mergers and Other Anticompetitive 

Business Practices in the Marketplace 

The work of the FTC’s Maintaining Competition Mission is critical to protect and strengthen the free 

and open markets that are the cornerstone of a vibrant economy. Aggressive competition among 

sellers in an open marketplace gives consumers the benefit of lower prices, higher quality products 

and services, maximum choice, and innovation leading to beneficial new products and services. The 

FTC’s goal is to promote vigorous competition by using the antitrust laws to prevent anticompetitive 

mergers and stop business practices that diminish competition, such as agreements among 

competitors about prices or other aspects of competition (referred to as nonmerger enforcement). 

The agency applies three related objectives to achieve this broad-reaching goal: 

C Identify anticompetitive mergers andpracticesthat cause the greatest consumer injury. 

C Stop anticompetitive mergers and practices through law enforcement. 

C Prevent consumer injury through education. 

First, the FTC staff identifies mergers and business practices that have resulted in or are likely to 

result in anticompetitive effects by conducting thorough factual investigations and applying 

economic analysis to distinguish between actions that threaten the operation of free markets and 

those that are benign or pro-competitive. This step is critical because a merger or business practice 

may be either neutral, beneficial (by enabling sellers to be more efficient and pass those savings 

along to consumers), or harmful (by enabling sellers to reduce the output of their product and raise 

the price to consumers). Thus, indiscriminate or ill-considered intervention in the marketplace may 

do more harm than good. 

Second, once the FTC identifies a harmful or potentially harmful merger or business practice, it takes 

enforcement action under the antitrust laws to stop it, either through an administrative challenge or 

in federal court. In many instances, the agency is able to reach an agreement with the parties that 

remedies its competitive concerns and avoids litigation. 

Third, the FTC seeks to prevent anticompetitive activity by educating businesses and consumers 

about the antitrust laws and its efforts to ensure competitive markets. Increased knowledge and 

understanding facilitate businesses’ efforts to comply with the law and enable consumers to identify 

anticompetitive activity more readily and bring it to the FTC’s attention for possible enforcement 

action. 

47 
Objective 2.1: Identify Anticompetitive Mergers and Practices That Cause the Greatest 

Consumer Injury 

The first step in preventing anticompetitive mergers and anticompetitive business conduct is 

determining which mergers and business practices are anticompetitive. 

Strategies 

The FTC seeks to identify anticompetitive mergers and practices with as much accuracy as possible. 

While certain business conduct (such as price fixing among competitors) is clearly antitcompetitive, 

mergers and many other forms of business conduct can benefit, harm, or have no effect on 

consumers. Consequently, both under- and over-enforcement can harm consumers’ interests. The 

agency seeks to take enforcement action against transactions or conduct that harms consumers, but 

at the same time, to avoid taking enforcement action that prevents businesses from completing 

transactions or engaging in practices that fundamentally benefit consumers or would have no effect. 

The FTC also tries to accomplish this task as efficiently as possible so that it can devote the bulk of 

its resources to further investigation of, and possible challenge to, the most problematic mergers and 

practices. A related, but important, consideration is to conduct the inquiry in a way that minimizes 

the cost or inconvenience to businesses. 

The premerger notification requirements of the Hart-Scott-Rodino (HSR) Act provide the FTC with 

an effective starting point for identifying anticompetitive mergers, acquisitions, and joint ventures 

(collectively referred to as mergers) before they are consummated. The HSR Act requires companies 

to report certain proposed mergers to the FTC and Department of Justice (which jointly enforce the 

HSR Act) and wait for a specified period (usually 30 days) to allow for antitrust review. 

The FTC’s staff carefully examines each transaction reported under the HSR Act to determine 

whether it poses a threat to competition. The agency seeks to identify as many of the competitively 

harmless transactions as possible within the initial waiting period, both to conserve resources and 

to minimize the delay imposed on businesses. In most cases, the staff can make a reasonable 

judgment about whether a merger has the potential to be anticompetitive or not after an initial 

screening based on materials filed with the HSR Act notification. The agency may authorize a more 

extensive investigation of transactions that raise more difficult questions. Under the HSR Act, the 

agency may issue a formal request for additional information from the parties (a “second request”), 

which extends the initial waiting period. Given the typical scope and complexity of the issues, and 

the fact that the HSR statute permits only one request for additional information relating to a 

transaction, an investigation extended by the issuance of a second request almost always requires a 

48 
significant investment of resources by both the agency and the parties. 

Most transactions reported under the HSR Act raise no antitrust issues, and the antitrust agencies 

permit these to proceed. Together, the FTC and the Department of Justice Antitrust Division issued 

second requests in less than 3 percent of reported mergers in FY 2005. Moreover, the enforcement 

agencies frequently complete the initial screening in less time than the 30 days allowed under the 

HSR Act. In these instances, the government grants “early termination” of the HSR Act waiting 

periods, allowing transactions to go forward more quickly. Approximately two of every three filed 

transactions received early termination in FY 2005. 

Amendments to the HSR Act, effective in 2001, changed the criteria governing which mergers must 

be reported under the Act. Despite the revised filing thresholds that are now adjusted annually for 

inflation, and some decline in merger activity from the historic peak levels reached during the late 

1990's and 2000, the FTC has continued to face a demanding merger review workload. The renewal 

of economic growth, together with the increased pace of mergers in FY 2005, indicates that merger 

activity may be on the rise. The agency received 1,207 HSR filings in FY 2005, a 13 percent 

increase over the FY 2004 total. In addition, the dollar value of transactions is also on the rise; with 

the value of transactions reported during FY 2005 about 45 percent higher than the total for FY 2004. 

The number of mergers requiring investigation also increased. The FTC issued 22 second requests, 

a 10 percent increase over FY 2004. 

While the HSR Act amendments reduced the number of mergers subject to the advance reporting 

requirement, they did not change the standard of legality for mergers. While the vast majority of 

potentially problematic mergers continue to be subject to the revised HSR filing requirements, 

smaller merger transactions may still be anticompetitive. Consequently, the FTC now devotes more 

attention to the identification of unreported, usually consummated, mergers that could harm 

consumers. This effort involves monitoring the trade press, industry sources, and the Internet to stay 

informed of industry developments; following up on case leads from congressional offices, other 

Executive Branch agencies, and state and local governments; and encouraging consumers, 

businesses, and the bar to notify the FTC of possibly anticompetitive mergers. 

In the nonmerger area, agency staff review complaints received from consumers, businesses, 

congressional offices, and elsewhere to identify potentially anticompetitive nonmerger business 

practices. In addition to responding to complaints from the public, the FTC has pursued a “positive 

agenda” of planned initiatives; that is, it has taken a systematic and proactive approach to identifying 

specific conduct likely to pose the greatest threat to consumer welfare. Fundamentally, the focus 

continues to be on the types of practices, such as agreements among competitors, that are most likely 

to harm consumers. Other considerations include whether the relevant sector of the economy is one, 

49 
such as health care or energy, that has a significant impact on consumers' daily lives. Also the 

agency considers the deterrent effects of antitrust enforcement on businesses, and whether the FTC 

has enforcement experience in an area that will enable the agency to make an impact quickly and 

efficiently. Finally, consideration is given to whether the matter presents an opportunity to 

contribute positively to the development of antitrust law. 

Performance Measures and Results Performance Measure 2.1.1 

Percent of HSR requests 

resulting in enforcement 

action.

The FTC used two performance measures to determine how 

well it identified anticompetitive mergers and practices in FY 

2005. The first measure is the percentage of HSR second FY 2001 Actual: 68% 

request investigations concluded during the fiscal year that FY 2002 Actual: 68% 

ultimately resulted in enforcement action (i.e., consent FY 2003 Actual: 70% 

agreements, administrative complaints, Commission FY 2004 Actual: 55%

authorizations to seek a preliminary injunction, and merger FY 2005 Target: 60-80%

FY 2005 Actual: 52%* transactions abandoned after the FTC initiated an antitrust (*target not met – see Part I: 

investigation). The target for this measure is for at least 60 Program Performance 

percent, but no more than 80 percent, of second request Overview) 

investigations to result in an enforcement action. The universe 

Performance Measure 2.1.3 for this measure consists of investigations completed during Percent of nonmerger 

the fiscal year, regardless of when the second request was investigations which resulted 

issued, because second request investigations often extend in enforcement action. 

beyond fiscal year boundaries. Matters ultimately resulting in 

FY 2004 Actual: 63% enforcement action typically involve more extensive FY 2005 Target: 60-80% investigations than those that do not, so limiting the universe FY 2005 Actual: 50%* 

to those transactions in which a second request was issued and (*target not met – see Part I: 

Program Performance 

Overview) 

the matter was concluded within the same fiscal year could 

skew the results by disproportionately excluding enforcement 

outcomes. 

Meeting the minimum percentage set for the measure (60 percent) signifies that the agency 

effectively identified likely candidates for enforcement action during the initial HSR waiting period. 

The upper percentage of the target range for this measure (80 percent) is also important. Because 

the need for enforcement is apparent from the beginning in many transactions, the agency could raise 

its percentage under this measure by setting overly rigorous standards for the issuance of second 

requests. However, such an approach would likely screen out some matters for which a fuller 

investigation would demonstrate the need for enforcement. Therefore, a result approaching 90 or 

50 
100 percent on this measure would suggest that the agency potentially may have failed to pursue 

some illegal mergers. 

In FY 2005, the FTC took enforcement action in 13 of 25, or 52 percent, of the second request 

merger investigations concluded during the fiscal year. This figure is approximately equal to the 55 

percent recorded for this measure in FY 2004 and is consistent with the percentage in prior fiscal 

years from 2001 - 2003. The agency issued 25 second requests in FY 2005, an increase of five over 

FY 2004. This increase is consistent with the higher number of reported mergers, and does not 

reflect a change in the standards governing when a second request is warranted. 

The FTC began using a new measure of its success in identifying possibly illegal conduct in FY 

2004. This measure is a ratio similar to that used to measure the agency’s success in identifying 

anticompetitive mergers: the percentage of significant nonmerger investigations (i.e., those in which 

the Commission has used compulsory process – its authority to compel the submission of 

information) that ultimately result in enforcement action. 

The target for this measure is that between 60 and 80 percent of investigations result in enforcement 

action, where the universe consists of significant nonmerger investigations that were completed 

during the fiscal year. A percentage below 60 percent may suggest that the FTC is targeting 

enforcement resources ineffectively by investigating too many competitively benign practices (and 

unduly burdening businesses as a result). A percentage higher than 80 percent may suggest that the 

agency is focusing too narrowly and thus potentially allowing problematic business practices to go 

forward without sufficient review. 

In FY 2005, the FTC took enforcement action in two of four or 50 percent of the completed 

nonmerger investigations in which it used compulsory process. The agency authorized the use of 

compulsory process in an additional seven nonmerger investigations, a 75 percent increase over FY 

2004 levels. These and other investigations are continuing and will be included in the measure when 

completed in the coming fiscal years. 

Performance Assessment and Future Trends 

The issuance of a second request is a significant step in a merger investigation. Because the law 

permits only one second request, the FTC typically issues a very comprehensive request that calls 

for all relevant information on all possible issues in the investigation. Given the size of the parties 

involved and the necessarily broad scope of the inquiry, a response may consist of hundreds (or even 

thousands) of boxes of documents and as many electronic files. Gathering and examining this 

51 
material involves a major resource commitment by the parties and by FTC attorneys and economists. 

The HSR Act prevents the parties from proceeding with the merger while this process is taking 

place. Consequently, a second request can sometimes result in significant delays in closing a 

transaction. 

For all of these reasons, the FTC does not lightly issue a second request. In fact, it does as much as 

possible within the initial 30 day waiting period to determine which transactions pose no competitive 

threat, so that the truly benign mergers may proceed without the delay and expense of a second 

request. In FY 2005, for example, the FTC issued second requests in approximately 2 percent of 

the mergers reported under the HSR Act. At the same time, it is far easier to remedy an 

anticompetitive merger before it is consummated, so the agency makes every effort to identify and 

scrutinize potentially harmful mergers during the HSR waiting period. 

The FTC’s first performance measure reflects the balance between these two considerations. If the 

staff uses the initial HSR waiting period effectively, the agency should be able to “clear” the great 

majority of reported transactions, permitting them to go forward without further delay or burden. 

The FTC should also be able to isolate for more intensive investigation those transactions that could 

be harmful. While the initial screening process should permit as many benign transactions as 

possible to pass through, the focus should not be so narrow that only those transactions in which an 

antitrust problem is relatively obvious are subject to further investigation, while other transactions 

that may be similarly harmful, but in more subtle ways, can proceed unchallenged. 

Objective 2.2: Stop Anticompetitive Mergers and Practices Through Law Enforcement 

Law enforcement represents the most direct method by which the FTC pursues its goal of stopping 

mergers and business practices that significantly threaten competition and harm consumers. In both 

merger and nonmerger enforcement, the FTC focuses primarily on transactions or practices most 

likely to harm consumers, that is, mergers of firms competing in the same market or markets, and 

agreements among direct competitors. Other activities, such as unilateral action by a single firm, or 

a merger or agreement involving a supplier and customers or between a firm and a potential 

competitor, also may threaten competition and therefore are subject to FTC scrutiny. 

Since the FTC and DOJ jointly enforce the HSR Act, the FTC directs much of its attention and 

resources to certain segments of the economy that are particularly important to consumers and in 

which it has particular expertise. These include energy and natural resources, food, health care, 

consumer goods and services, pharmaceuticals, and technology. 

52 
Strategies 

To stop potentially anticompetitive mergers and practices through law enforcement, the FTC seeks 

legal remedies under the antitrust laws, through federal court action, administrative proceedings, or 

negotiated settlements. For mergers, the preferred – that is, the most effective and cost-efficient – 

strategy is to prevent anticompetitive mergers before they occur. The agency implements this 

strategy primarily through its authority to seek a federal court injunction preventing the transaction. 

In many cases, the merging parties elect not to defend a court challenge and instead agree to resolve 

competitive concerns through a consent agreement. This approach is suitable when the competitive 

problem relates to only a portion of the transaction, so a divestiture of assets sufficient to preserve 

or restore competition will allow other competitively neutral or beneficial aspects of the merger to 

go forward. In other instances, the parties may abandon a transaction after assessing the likely 

outcome of an FTC court challenge. 

When a merger already has been consummated, the FTC generally relies on administrative litigation 

to restore competition lost as a result of the merger. Administrative litigation seeking to restore 

competition following an alleged illegal merger likely will become more frequent in light of the 

revisions to HSR premerger filing thresholds. 

In nonmerger matters, the FTC seeks to stop ongoing activity that harms competition. The 

Commission may initiate administrative proceedings before an Administrative Law Judge to 

adjudicate the issues and establish a basis for an order that the parties to the proceeding “cease and 

desist” the conduct. The FTC also has authority to seek relief in federal courts, though it historically 

has used this option sparingly in nonmerger matters. Again, the agency is often able to negotiate a 

consent agreement with the parties that remedies the problem without need for litigation. 

In both merger and nonmerger matters, thorough investigation, as well as sophisticated legal and 

economic analysis, is of critical importance to ensuring accurate assessment of the potential for 

competitive harm resulting from the transaction or conduct in question and, if necessary, 

demonstrating the likelihood of harm before an adjudicative body. When the FTC concludes that 

the likelihood of such harm indicates a law violation, and no settlement is possible, the Commission 

authorizes its staff to litigate the matter. 

As described above, the “life cycle” of an FTC enforcement matter includes identification of 

potentially anticompetitive activity, investigation, and a decision to close the matter or to take 

enforcement action (usually a settlement but sometimes litigation). With the abatement of the 1990's 

merger wave, the FTC has devoted significant attention to restoring its nonmerger program. 

53 
Beginningin 2001, the agency emphasized identification of anticompetitive conduct, opening at least 

twice the number of nonmerger investigations in each of the years 2001-2003 as it opened in 2000. 

As work was completed on these investigations, the result 

Performance Measure 2.2.1 

Percentage of positive 

outcomes when the FTC 

challenges anticompetitive 

mergers and practices. 

FY 2001 Actual: 94% 

FY 2002 Actual: 100% 

FY 2003 Actual: 100% 

FY 2004 Actual: 100% 

FY 2005 Target: 80% 

FY 2005 Actual: 95% 

Performance Measure 2.2.3 

Dollar volume of commerce in 

markets in which the FTC 

took successful action to 

protect competition from 

anticompetitive mergers. 

(numbers in billions) 

FY 2004 Actual: $ 8.5 

FY 2005 Target: $ 40.0 

FY 2005 Actual: $ 61.8 

Performance Measure 2.2.5 

Dollar volume in markets in 

which the FTC took 

successful action to protect 

competition from 

anticompetitive conduct.

 (numbers in billions) 

FY 2004 Actual: $ 2.6 

FY 2005 Target: $ 20.0 

FY 2005 Actual: $ 19.4* 

(*target not met – see Part I: 

Program Performance 

Overview) 

was a significant number of nonmerger enforcement actions. 

Many of the FTC’s nonmerger inquiries of the past few 

yearshave involved complicated policy questions or cuttingedge legal issues, and many of the investigations resulted in 

issuance of an administrative complaint (though settlement 

remained a more frequent outcome). At the same time, the 

2001 change in HSR filing thresholds dictated more focus 

on non-reportable mergers, which are normally contested 

through administrative proceedings. 

Together, these factors resulted in an increase in the number 

of administrative complaints issued. In FY 2003, for 

example, the Commission issued more administrative 

complaints than in any year since 1985, and it issued an 

additional three complaints in FY 2004. Accordingly, the 

focus in FY 2005 was more on litigating these cases than on 

developing new ones. 

Performance Measures and Results 

Economictheory and evidence demonstrate that competition 

results in lower prices, better quality, and more innovation 

in markets. Because successful enforcement of the antitrust 

laws protects competition and therefore promotes these 

consumer benefits, it is important that the FTC succeed 

when it challenges anticompetitive mergers and practices. 

Even if the agency successfullyidentifies an anticompetitive 

merger or practice, consumers derive no benefit unless it 

obtains a positive outcome – that is, appropriate relief, 

through either settlement or successful litigation. 

54 
The frequency with which the agency obtains positive outcomes is an important indicator of its 

success in producing tangible benefits for consumers. In FY 2005, the FTC’s target was to obtain 

a positive result in at least 80 percent of the matters in which it determined that a merger or a course 

of conduct is anticompetitive. Positive results include the parties’ abandonment of an anticompetitive transaction after antitrust concerns are identified, an administrative consent agreement to 

resolve antitrust concerns, or a successful challenge in court. A negative result occurs when parties 

refuse to settle antitrust concerns raised by the agency, and court action fails to achieve the agency’s 

objectives. This is not to say that the FTC, or any law enforcement agency, should win every case. 

Some cases involve very close questions, on which reasonable minds can and do differ. Other cases 

may be very difficult from a litigation standpoint, but still worth pursuing, and all of the FTC’s 

antitrust challenges are defended by highly competent and well-financed counsel. 

In addition, the FTC’s responsibilities include taking action to help shape the development of the 

antitrust laws. Fulfillment of this duty requires occasionally litigating cases involving more than the 

usual degree of risk of a negative result, such as cases in which there is no clear precedent and the 

FTC is seeking to establish a new legal principle. In other instances, the FTC brings cases seeking 

to benefit consumers by clarifying, or perhaps improving upon, existing precedent. The FTC now 

has several cases pending in administrative litigation that involve legal issues that have not been 

resolved definitively by the courts. 

The agency’s complaints are grounded on sound policy considerations and the outcomes of staff 

investigations as judged by the Commission’s “reason to believe” standard. However, the ultimate 

outcomes depend on legal determinations often made by courts following appeal of Commission 

decisions, as well as development of a full factual record. The FTC’s mission includes bringing 

cases that highlight difficult issues and seeking to persuade the courts of the merit of its views on 

what the law should be. Bringing cases that test the boundaries of the law is an important part of the 

FTC’s responsibilities, even though the results are far from certain. The target on this measure 

reflects the reality that, even when the agency brings a meritorious case and litigates it well, success 

is not assured. In addition, setting the standard too high could be detrimental if the effect were to 

deter the agency from bringing important, but risky, cases. 

The agency exceeded its target of 80 percent for this measure in FY 2005, achieving relief through 

litigation, reaching a successful settlement agreement, or persuading parties not to proceed with an 

anticompetitive acquisition in 20, or approximately 95 percent, of 21 enforcement matters brought 

to conclusion during the fiscal year. 

55 
Antitrust enforcement saves consumers money by preventing price increases that likely would have 

occurred due to the loss of competition if an anticompetitive merger had gone forward unchallenged, 

or that have occurred as a result of anticompetitive conduct. In past years, the FTC estimated the 

dollar savings to consumers resulting from its enforcement actions. Some stakeholders commented, 

however, that this methodology was flawed in certain respects. Accordingly, the agency replaced 

the two “consumer savings” measures beginning in FY 2004. 

The revised measures indicate the scope of the FTC’s antitrust enforcement activities without 

attempting to quantify the specific benefit to consumers. For both merger and nonmerger 

enforcement, the agency now measures the volume-of-commerce in markets in which it takes 

successful enforcement action. The measures provide similar indications of the scope of FTC 

antitrust enforcement activity, without the troublesome aspects of the previous consumer savings 

measures. 

As noted in the FTC’s 2003-2008 Strategic Plan, external factors, such as level of merger activity, 

may cause the results to fluctuate significantly from year to year. Consequently, the two volume-ofcommerce targets are each expressed in terms of an aggregate target for the five-year strategic plan 

period, rather than as yearly targets. 

The five-year target for the volume-of-commerce in markets benefitting from FTC merger 

enforcement action is $200 billion. In FY 2005, the FTC’s merger enforcement actions affected 

markets in which the total volume-of-commerce was $61.8 billion. This figure well exceeds the 

annual average needed over the five-year Strategic Plan period to meet the target. 

The five-year target for the volume-of-commerce in markets benefitting from FTC nonmerger 

enforcement action is $100 billion. In FY 2005, the FTC’s nonmerger enforcement actions affected 

markets in which the total volume-of-commerce was $19.4 billion. This figure is almost exactly the 

annual average needed over the five-year Strategic Plan period to meet the target but represents a 

significant increase over the result for FY2004. 

Performance Assessment and Future Trends 

The high success rate of positive outcomes in actions initiated by the FTC helps deter 

anticompetitive behavior. Parties who agree to cease and desist orders, or who abandon mergers 

about which the agency has expressed concern, do so in recognition of both the FTC’s policy 

expertise and its ability to successfully litigate contested matters. If the agency were perceived to 

be less successful in obtaining the relief it deems necessary on behalf of consumers, more parties 

would resist rather than settling FTC charges. 

56 
The results on the two volume-of-commerce measures illustrate why the agency expressed its targets 

in terms of five-year amounts. The FY 2005 increase in these measures over FY 2004 results 

indicates that future results should be higher and the five-year targets attainable. Several factors 

support this conclusion. First, merger activity is increasing but is still short of the level it is likely 

to reach as the economy continues its recent pattern of growth. Second, the continued trend of 

administrative litigation means that much of the FTC’s current merger and nonmerger enforcement 

efforts are being devoted to ongoing matters that are not yet included in any measure. Third, the size 

of individual FTC cases varies widely, and a small number of large matters can have a significant 

impact on these measures. Finally, the agency’s record over the past several years is consistent with 

the targets, and viewed comprehensively, the FTC’s productivity over the past year has been 

extremely high. 

Objective 2.3: Prevent Consumer Injury Through Education 

In addition to its law enforcement activity, the FTC provides substantial information to the business 

community and consumers about the role of the antitrust laws and businesses’ obligations under 

those laws. 

Strategies 

The FTC uses education and outreach to help prevent consumer injury, increase business 

compliance, and augment its law enforcement efforts. The agency pursues this strategy through 

guidance to the business community; outreach efforts to federal, state, and local agencies, business 

groups, and consumers; development and publication of antitrust guidelines, policy statements, and 

reports; and speeches and testimony. By using these mechanisms to signal its enforcement policies 

and priorities, the FTC deters would-be violators of the antitrust laws. 

FTC law enforcement efforts also are made more effective by public awareness of what types of 

conduct are likely to be challenged as law violations. The FTC seeks to make its law enforcement 

presence visible and its enforcement policies transparent in order to serve its objectives through 

deterrence. Each successful enforcement action not only promotes competition in specificmarket(s), 

but also serves to communicate to the business and legal communities that the FTC can and will 

move successfully to challenge the type of merger transaction or conduct at issue. The agency 

explains the relevant facts and issues of cases in which it obtains a consent agreement in press 

releases and in published “Analyses To Aid Public Comment” so the nature of the problem is clear. 

Through press releases about FTC actions and publication of related materials on the agency Web 

57 
site, ftc.gov, the public facts underlying FTC actions provide bases for companies to evaluate the 

likelihood that other transactions likely would face challenge. 

At the close of this fiscal year, nine administrative proceedings were continuing, far more than at any 

time in the past two decades, signifying continuation of heavy litigation demands on the agency. 

Each of these cases may provide (or has provided) an opportunity for the FTC to set out in detail its 

analysis of important legal issues. Understanding fully the types of transactions or conduct the FTC 

is likely to challenge, and the reasons for the agency’s actions, greatly facilitates antitrust lawyers’ 

counseling of their clients and prevents many anticompetitive mergers from being proposed or 

anticompetitive practices from being implemented. 

In addition, the FTC educates the public through guidelines; congressional testimony (such as 

testimony on entry into hospital markets); conferences, hearings, and workshops (such as the series 

of hearings on the interrelationship between antitrust and intellectual property law and hearings on 

health care and competition law and policy); advisory opinions (addressing issues such as the scope 

of the Nonprofit Institutions Act); and reports (such as the report on factors affecting gasoline price 

changes). 

As a complement to FTC enforcement activity, the agency also advises, when asked, other federal 

and state government officials about the possible effect that various regulatory proposals may have 

on competition. By providing economic analysis and other informed guidance, the FTC can help 

policymakers better understand the impact of their decisions in creating, maintaining, or forestalling 

competitive markets. The FTC has a long and distinguished history in this area. The FTC advocates 

market-based solutions through the publication of studies and reports, as well as participation in state 

and federal legislative and regulatory forums. The agency also participates as an amicus curiae 

(friend of the court) in judicial proceedings when the FTC's involvement can help remove 

protectionist regulations, when substantial questions of antitrust law are involved, or when the FTC 

can add a different perspective to the deliberations because of special knowledge or experience. 

Performance Measures and Results 

The FTC uses the number of times (hits) that members of the public visit antitrust-related content 

on the FTC’s Web site (ftc.gov) as a good indicator of the quantity of information provided to the 

public, as well as its quality (because visitors will stay longer and return more often if the 

information is helpful). In FY 2005, the FTC’s Web site recorded approximately 9.8 million hits 

on antitrust-related content, close to its target of 10 million hits. This result indicates a significant 

continued public interest in the FTC and its Maintaining Competition Mission. In addition, the 

58 
broad and increasing distribution of educational and Performance Measure 2.3.2 policy materials through electronic channels represents Measure and establish 

important leveraging of the agency’s resources. appropriate target for the 

number of hits on the FTC 

antitrust Web site relevant to Performance Assessment and Future Trends 

business and legal 

communities.

Use of the Internet to disseminate information about (numbers in millions) 

antitrust and other competition-related matters plays an 

FY 2004 Actual: 11.0 integral role in the FTC’s education and deterrence efforts, FY 2005 Target: 10.0 permitting the agency to convey a wealth of information FY 2005 Actual: 9.8* 

quickly, simply, and inexpensively to the business, legal, (*target not met – see Part I: 

Program Performance 

Overview) 

and regulatory communities, and to consumers. The 

performance measure is an indicator of the FTC’s 

effectiveness because it measures outcome based on the 

agency’s constituencies’ assessment of the usefulness of the agency’s published materials. That is, 

the level of activity on the FTC’s antitrust Web site depends to a large degree on the scope, utility, 

and reliability of the information made available there. People will revisit the site to the extent that 

what they find there is of value. Matters that are of great importance to the public – as determined 

by the public – will draw a large number of visitors. But if the material presented is irrelevant, 

difficult to understand, or misleading, then interest in the site inevitably will diminish. Educating 

the legal and business communities about the applicable legal standards and enforcement policies 

helps to facilitate their compliance with the law, while educating the public in general, including 

policymakers, about the benefits of competition helps to ensure continued support for the agency’s 

efforts. 

The FTC possesses a broad array of policy instruments that complement its enforcement authority 

and help to educate the public. Through the use of hearings, workshops, research projects, reports, 

studies, advocacy filings, and amicus briefs – all in coordination with its enforcement initiatives – 

the agency provides intellectual leadership on competition issues and offers valuable education to 

the public. From the beginning, the FTC was conceived to be more than just an enforcement agency. 

President Woodrow Wilson saw the FTC as "an indispensable instrument of information and 

publicity, as a clearing house for the facts by which both the public mind and the managers of great 

business undertakings shall be guided.” 

Today's FTC has fully integrated all of the agency's various capabilities and applies them in a 

strategic and sensible way to accomplish its goals directly, and indirectly, by facilitating public 

understanding of policy and the agency's objectives. The FTC remains strongly committed to the 

59 
importance of education and outreach and will continue to place emphasis on these efforts and 

expand its activities in this area in the future. 

With the growing importance of the Internet as a vital source of information in today’s society, the 

volume of traffic on the FTC’s Web site will continue to be a meaningful indicator of FTC success 

in educating the public at large, policy makers, and the business and legal communities, and in 

stimulating public interest in the agency’s work. The agency will continue to seek ways to refine this 

important information to gain better understanding of its success in fulfilling this objective and to 

help assess how it might do so more effectively. 

60 
Part III: Audited Financial Statements 

Message from the Chief Financial Officer 

The Federal Trade Commission recognizes the importance of public disclosure and accountability. 

This report is a demonstration of our commitment to fulfill the FTC’s fiduciary responsibilities to 

American taxpayers. 

I am pleased to present the Federal Trade Commission’s financial statements for FY 2005. For the 

ninth consecutive year, our inspector general, aided by an independent public accounting firm, issued 

an unqualified opinion on the FTC’s consolidated financial statements. This is the highest possible 

audit result. 

These financial statements fairly present the FTC’s financial position and were prepared in 

conformity with the hierarchy of accounting principles approved by the Federal Accounting 

Standards Advisory Board (FASAB) and the Office of Management and Budget Circular A-136, 

Financial Reporting Requirements. The FTC is fully committed to the principles of the Chief 

Financial Officers Act of 1990 and the Federal Financial Management Improvement Act of 1996. 

Our goals for FY 2006 include continuing the same high level of quality financial services that 

resulted in our unqualified opinion and improving those services. We also will focus on continuing 

to implement our Five-year Financial Management Strategic Plan. In the past year, we documented 

our current financial management processes and systems, and took steps to develop our requirements 

for a new core financial management system that will improve our operations and permit us to better 

integrate financial, program, and performance data. We also have brought our agency stakeholders 

into the process and will work closely with them to improve our services and continue to produce 

timely, reliable, and useful data. 

James D. Baker 

Acting Chief Financial Officer 

61 
Limitations of the Financial Statements 

Responsibility for the integrity and objectivity of the financial information presented in the financial 

statements rests with FTC management. The accompanying financial statements have been prepared 

in conformity with the hierarchy of accounting principles approved by the Federal Accounting 

Standards Advisory Board (FASAB) and the Office of Management and Budget (OMB) Circular A136, Financial Reporting Requirements. FTC is fully committed to the principles and objectives 

of the Chief Financial Officers (CFOs) Act of 1990, the Accountability of Tax Dollars Act of 2002 

(ATDA), and the Federal Financial Management Improvement Act of 1996. Comparative data for 

the prior fiscal year is presented. The statements should be read with the realization that they are for 

a component of the U.S. Government, i.e., a sovereign entity. 

Audit of FTC’s 2005 Principal Statements 

The Office of Inspector General of the Federal Trade Commission has examined the agency’s 

financial statements. The inspector general’s report on the principal statements, internal controls, 

and compliance with certain laws and regulations accompanies the statements. 

Financial Resources and Results of Operations 

The accompanying statements summarize the FTC’s financial position, disclose the net cost of 

operations and changes in net position, provide information on budgetary resources and financing, 

and present the sources and disposition of custodial revenue for the years ended September 30, 2005 

and 2004. The FTC had total assets of $259.2 million and $252.9 million as of September 30, 2005 

and 2004, respectively. Approximately $131.6 million and $145.0 million of the 2005 and 2004 

assets, respectively, were funds collected or to be collected and distributed through the consumer 

redress program, under the agency’s Consumer Protection Mission. In addition, $42.0 million in 

fiscal year 2005 and $41.4 million in fiscal year 2004 was held in a divestiture fund and will be 

subsequently disbursed per the terms of the divestiture agreement under the agency’s Maintaining 

Competition Mission. In addition, $85.6 million and $66.5 million in equity assets in fiscal years 

2005 and 2004, respectively, represent fund balances in appropriated accounts, account receivables, 

and net capital assets. 

Revenue and financing sources received in fiscal years 2005 and 2004 totaled $211.9 and $193.4 

million, respectively. Exchange revenue, classified as earned revenue on the financial statements, 

was received from three sources; the collection of premerger notification filing fees, Do Not Call 

62 
(DNC) user fees, and reimbursements received for services provided to other government agencies. 

Financing was received through direct appropriations and imputed costs absorbed by others. 

Exchange revenue totaled $118.5 million and $98.4 million for fiscal years 2005 and 2004, 

respectively. The primary source of exchange revenue collected, $99.5 million in fiscal year 2005 

and $83.6 million in fiscal year 2004, was premerger filing fees. The FTC collects a filing fee from 

each business entity that files a Notification and Report form transaction, as required by the HartScott-Rodino (HSR) Anti-Trust Improvement Act. Qualifying mergers with a transaction amount 

over $50 million in total assets are charged a filing fee. The fee is based on a three-tiered structure: 

$45,000, $125,000, and $280,000, depending upon the combined total of assets of the merger 

transaction. The fee is divided equally between the FTC and the Antitrust Division of the Department 

of Justice (DOJ). The disposition of amounts collected for the DOJ is reported on the Statements 

of Custodial Activity. The number of filings increased by 198 over the previous year with 1,592 and 

1,394 recorded in fiscal years 2005 and 2004, respectively. Premerger filing fees represented 47.0 

percent and approximately 43.2 percent of the total revenue sources to the agency in fiscal years 

2005 and 2004, respectively. 

The second largest source of exchange revenue was Do Not Call fees. The FTC collects fees 

associated with the implementation and enforcement of the National Do Not Call Registry sufficient 

to cover registry costs. The Registry operates under Section 5 of the FTC Act, which enforces the 

Telemarketing Sales Rule (TSR). Telemarketers under the FTC’s jurisdiction are required to pay 

a user fee and download from the DNC database a list of consumer’s telephone numbers who do not 

wish to receive calls. Fees are based on the number of area codes downloaded and have resulted in 

collection of fees of $18.0 million and $14.0 million for fiscal years 2005 and 2004, respectively. 

DNC fees represented 8.5 percent and 7.2 percent of the total financing sources for fiscal year 2005 

and 2004, respectively. 

An additional source of exchange revenue was earned through reimbursable agreements with other 

federal agencies. Total earnings were $1.0 million and $0.8 million, represented 0.5 percent and 0.4 

percent for fiscal years 2005 and 2004, respectively. 

In addition to exchange revenue, other financing sources were realized through a direct appropriation 

from the General Fund of the Treasury, and other non-expenditure transfers, in the amount of $86.8 

million in fiscal year 2005 and $88.1 million in fiscal year 2004. The budgetary authority 

appropriated from the General Fund was reduced by the amount of offsetting collections (HSR and 

DNC fees) received during the year to arrive at the final amount of resources appropriated from the 

63 
General Fund. Direct appropriation and transfers represent 40.9 percent and 45.6 percent of total 

funding sources received for fiscal years 2005 and 2004, respectively. 

An imputed revenue source was recognized to provide unfunded employee benefits cost in the 

amount of $6.6 million and $7.0 million in fiscal years 2005 and 2004, respectively. These 

represented 3.1 percent and 3.6 percent of total financing sources for fiscal years 2005 and 2004, 

respectively 

Financing sources that are not needed to fund the cost of operations are added to Cumulative Results 

of Operations and Net Position. The accompanying chart compares major financing sources for fiscal 

years 2005 and 2004. 

The gross cost of operations for 2005 fiscal year was $196.5 million and represents an increase of 

5.7 percent over the fiscal year 2004 gross cost of operations which was $185.9 million. During 

2005, expenses for salaries and related benefits totaled $ 124.5 million, or 63.4 percent of the gross 

cost of operations. Rental expense was $17.2 million, or 8.7 percent, and the remaining $54.8 

million, or 27.9 percent, included travel, facility maintenance and equipmentrental, utilities, imputed 

benefit costs, depreciation, and other items. These costs supported 1,019 staff-years employed in 

fulfilling the FTC’s missions, a decrease of 38 staff years over the previous fiscal year. 

64 
Custodial Activity 

The Statement of Custodial Activity (SCA) is a required financial statement under Statement of 

Federal Financial Accounting Concepts (SFFAC) No. 2 for those federal agencies that collect nonexchange revenues (e.g., taxes, duties, fines, and penalties) for the general fund of the Treasury, a 

trust fund, or other recipient entities. 

Fighting consumer fraud is one of the FTC’s highest priorities; consumers lose billions of dollars 

a year by perpetrators of traditional fraud and fraud on the Internet. In fraud cases, the FTC files 

actions in federal district court to bring an immediate halt to ongoing business activities and freeze 

defendants’ assets. The FTC then pursues court orders that permanently ban the fraudulent activities 

and provide redress to consumers. In non-fraud cases, usually involving advertising claims, redress 

may be obtained for consumers in settlement of administrative complaints. In addition, when a 

company or individual violates an FTC Trade Regulation Rule, a statute enforced by the agency or 

a prior agency order, the FTC seeks federal district court orders permanently barring future violations 

and requiring payment of civil penalties. These agency enforcement activities often generate 

substantial funds that are used to provide redress to consumers who have been injured by deceptive 

practices. If not possible, these funds and civil penalty funds are transferred to the Treasury 

Department as non-exchange revenue. These activities are reported on the SCA, which forms part 

of the FTC’s financial statement package. 

In addition to the fines and penalties collected and transferred to the general fund of the Treasury, 

the SCA also identifies the portion of the premerger filing fees collected during the year which 

are transferred to DOJ. 

65 
Office of Inspector General Opinion Letter 

Chairman Majoras: 

The Office of Inspector General has audited the Federal Trade Commission’s (the Commission) 

Balance Sheets as of September 30, 2005 and 2004, and the related Statements of Net Cost, 

Statements of Changes in Net Position, Statements of Budgetary Resources, Statements of 

Financing, and Statements of Custodial Activity for the years then ended, and has considered internal 

control over financial reporting and the FTC’s compliance with laws and regulations. 

Opinion on Financial Statements 

In our opinion, the financial statements referred to above, including the notes thereto, present fairly, 

in all material respects, the Commission’s assets, liabilities and net position as of September 30, 

2005 and 2004, and the net costs and changes in net position, its budgetary resources, financing and 

custodial activities for the years then ended, in conformity with accounting principles generally 

accepted in the United States. 

Other Accompanying Information 

Our audits were conducted for the purpose of forming an opinion on the FY 2005 and 2004 principal 

financial statements of the Commission taken as a whole. The information discussed below is 

presented for purposes of additional analysis and is not a required part of the principal financial 

statements. 

•	 The information in the Required Supplementary Information section has been subjected to 

the auditing procedures applied in the audit of the Commission’s principal financial 

statements and, in our opinion, is fairly stated in all material respects in relation to the 

principal financial statements taken as a whole. 

•	 The information in the Management Discussion and Analysis and Program Performance 

sections of the Commission’s annual financial statements is supplementary information 

required by the Federal Accounting Standards Advisory Board. We have applied certain 

limited procedures, which consisted principally of inquiries of management regarding the 

methods of measurement and presentation of the supplementary information. However, we 

did not audit the information and express no opinion on it. This information is, however, 

addressed in our assessment of internal control discussed below. 

66 
Opinion on Internal Control 

In planning and performing our audits, we considered the Federal Trade Commission’s internal 

control over financial reporting by obtaining an understanding of the Commission’s internal control, 

determined whether internal controls had been placed in operation, assessed control risk, and 

performed tests of controls in order to determine our auditing procedures for the purpose of 

expressing our opinion on the financial statements. We limited our internal control testing to those 

controls necessary to achieve the objectives described in OMB Bulletin No. 01-02, “Audit 

Requirements for Federal Financial Statements”. We did not test all internal controls relevant to 

operating objectives as broadly defined by the Federal Managers’ Financial Integrity Act of 1982, 

such as those controls relevant to ensuring efficient operations. The objective of our audit was not 

to provide assurance on internal control. Consequently, we do not provide an opinion on internal 

control. 

With respect to internal control related to performance measures reported in the Management 

Discussion and Analysis and Program Performance sections, we obtained an understanding of the 

design of significant internal controls relating to the existence and completeness assertions, as 

required by OMB Bulletin No. 01-02. Our procedures were not designed to provide assurance on 

internal control over reported performance measures, and, accordingly, we do not provide an opinion 

on such controls. 

Reportable Conditions 

Our consideration of the internal control over financial reporting would not necessarily disclose all 

matters in the internal control over financial reporting that might be reportable conditions. Under 

standards issued by the American Institute of Certified Public Accountants, reportable conditions 

are matters coming to our attention relating to significant deficiencies in the design or operation of 

the internal control that, in our judgment, could adversely affect the Commission’s ability to record, 

process, summarize, and report financial data consistent with the assertions of management in the 

financial statements. Material weaknesses are reportable conditions in which the design or operation 

of one or more of the specific internal control components does not reduce to a relatively low level 

the risk that misstatements in amounts that would be material in relation to the financial statements 

being audited may occur and not be detected within a timely period by employees in the normal 

course of performing their assigned functions. Because of inherent limitations in internal controls, 

misstatements, losses, or noncompliance may nevertheless occur and not be detected. However, we 

noted no matters involving the internal control and its operation that we considered to be material 

weaknesses as defined above. 

67 
We noted certain other matters involving the internal control over financial reporting that we have 

reported to the Commission’s management in a separate letter (Management Letter AR 06-069A). 

Compliance with Laws and Regulations 

As part of obtaining reasonable assurance about whether the financial statements are free of material 

misstatement, we performed tests of the Commission’s compliance with certain provisions of laws 

and regulations, noncompliance with which could have a direct and material effect on the 

determination of financial statement amounts and certain other laws and regulations specified in 

OMB Bulletin No. 01-02, including the requirements referred to in the Federal Financial 

Management Improvement Act (FFMIA) of 1996. We limited our tests of compliance to these 

provisions and we did not test compliance with all laws and regulations applicable to the 

Commission. However, the objective of our audit of these financial statements, including our tests 

of compliance with selected provisions of applicable laws and regulations, was not to provide an 

opinion on overall compliance with such provisions. Accordingly, we do not express such an 

opinion. 

Materialinstances of noncompliance are failures to follow requirements, or violations of prohibitions 

contained in statutes and regulations, that cause us to conclude that the aggregation of the 

misstatements resulting from those failures or violations is material to the statement of financial 

position referred to above or that sensitivity warrants disclosure thereof. 

The results of our test of compliance disclosed no instances of noncompliance with laws and 

regulations that are required to be reported under Government Auditing Standards or OMB Bulletin 

No. 01-02. 

Under FFMIA, we are required to report whether the agency’s financial management systems 

substantially comply with the Federal financial management systems requirements, Federal 

accounting standards, and the United States Government Standard General Ledger at the transaction 

level. To meet this requirement, we performed tests of compliance with FFMIA Section 803(a) 

requirements. 

The results of our tests disclosed no instances in which the agency’s financial management systems 

did not substantially comply with the three requirements discussed in the preceding paragraph. 

With respect to items not tested, nothing came to our attention to cause us to believe the Commission 

had not complied, in all respects, with those provisions. 

Responsibilities and Methodology 

Management has the responsibility for: 

•	 preparing the financial statements in conformity with generally accepted accounting 

principles described in Note 1 to the financial statements; 

•	 establishing and maintaining an effective internal control over financial reporting; and 

•	 complying with applicable laws and regulations. 

68 
Our responsibility is to express an opinion on these financial statements based on our audit. 

Generally accepted auditing standards require that we plan and perform the audit to obtain 

reasonable assurance about whether the financial statements are free of material misrepresentation 

and presented fairly in accordance with generally accepted accounting principles. We performed 

tests of controls in order to determine our auditing procedures for the purpose of expressing our 

opinion on these financial statements and not to provide an opinion on the internal control over 

financial reporting. We also are responsible for testing compliance with selected provisions of 

applicable laws and regulations that may materially affect the financial statements. 

In order to fulfill these responsibilities, we 

• obtained an understanding of the design of relevant internal controls and determined 

whether they had been placed in operation; 

assessed control risk; • 

examined, on a test basis, evidence supporting the amounts and disclosures in the • 

financial statements; 

assessed the accounting principles used and significant estimates made by management; • 

evaluated the overall presentation of the financial statements; • 

tested compliance with selected provisions of the laws and regulations that may • 

materially affect the financial statements; and 

• performed other procedures that we considered necessary in the circumstances. 

Our audits were conducted in accordance with auditing standards generally accepted in the United 

States; Government Auditing Standards, as issued by the Comptroller General of the United States; 

and OMB Bulletin No. 01-02. We believe that our audits provide a reasonable basis for our opinion. 

While this report is intended solely for the information and use of the Federal Trade Commission, 

the Office of Management and Budget and the Congress, it is also a matter of public record, and its 

distribution is, therefore, not restricted. 

Howard L. Sribnick 

Washington, D.C. Inspector General 

October 28, 2005 Federal Trade Commission 

69 
Office of Inspector General Top Management Challenges of the FTC 

I. Performance Measurement and Accountability 

Management Challenge: To enhance accountability of the Federal Trade Commission to the 

American public by focusing on results and tying agency programs to reliable cost data. 

Agency Progress in Addressing the Challenge: The Government Performance Results Act of 

1993 (GPRA) holds federal agencies accountable for using resources efficiently and effectively 

and achieving program results. In addition, government-wide initiatives such as the President's 

Management Agenda attempt to refocus government operations using a performance and results 

model. GPRA requires agencies to establish strategic and annual plans with results-oriented 

goals, set annual targets, track progress, and measure results. The intent is to provide Congress, 

the president and the public with objective, useful and reliable information about Federal 

programs. 

Reviews of other federal agencies’ performance reporting by the Government Accountability 

Office and their respective IG's have found that performance measures were frequently not clear 

or quantifiable, some activities lacked performance measures, while other reported performance 

results were not always valid. 

A recent review of performance activity by the FTC’s OIG has shown, among other things, that 

the agency does not have a formal, ongoing process to review and adjust the agency’s Strategic 

Plan. The review also illustrated the need for full engagement of staff and management to ensure 

that FTC’s Strategic Plan is current, reflects all of the agency’s over-arching programmatic and 

organizational goals, and is used as an effective management tool. The Strategic Plan must be 

viewed as the initial step in preparing a foundation for the agency’s budget request and its 

performance plan, providing guidance relevant to routine and informative performance reporting, 

and enabling the agency to demonstrate accountability to the public through the Performance and 

Accountability Report. 

The Challenge Ahead: To focus on outcome-oriented reporting that is accurate and verifiable, 

develop measurable outcome-oriented goals, and make adjustments based on performance 

feedback and program evaluations. 

70 
II. Information Technology Management 

Management Challenge: Securing the agency’s critical systems and networks from destruction, 

data loss or compromise. 

Agency Progress in Addressing the Challenge: Information security has been an ongoing 

challenge at most Federal agencies, including the FTC. Some weaknesses identified by the OIG 

in past security reviews include untested or inadequate system security plans, systems placed into 

production before accreditation by the CIO, failure to adhere to NIST standards in the 

certification and accreditation of major applications and timely deletion of accounts for 

separating employees. The OIG also identified weaknesses in parameter controls that enabled 

the OIG’s team of “ethical hackers” to obtain privileged access to select FTC systems 

Within the last year, the FTC certified and accredited seven of its nine Major Applications and 

General Support Systems, completed 51 of the 111 issues identified in prior IT security 

evaluations and developed a schedule to address the remaining 60 issues, instituted a scanning 

and remediation process and modified inventory management to include interconnections to 

other systems. 

The Challenge Ahead: While taking steps to safeguard systems and information from the most 

creative and sophisticated “IT intruders,” it is sometimes easy to overlook basic security controls, 

such as changing default passwords on modems and newly purchased systems, limiting 

employees’ access to systems and data needed to perform their job responsibilities and ensuring 

that background checks for employees with access to the agency’s most sensitive systems are 

performed and updated regularly. The challenge for the agency’s IT managers is to remain 

focused on basic security controls as they strive to stay one step ahead of new, highly 

sophisticated security threats. 

71 
FEDERAL TRADE COMMISSION

BALANCE SHEETS

For the Years Ending September 30, 2005 and 2004

(Dollars in thousands)

2005 2004

Entity Assets:

Intragovernmental Assets:

Fund Balance with Treasury (Note 2) $ 60,571 $ 44,627

Accounts Receivable, Net (Note 4) 87 121

Total Intragovernmental Assets 60,658 44,748

Property and Equipment, Net (Note 5) 15,096 14,270

Total Entity Assets 75,754 59,018

Non-Entity Assets:

Intragovernmental Assets:

Fund Balance with Treasury (Note 2) 17,642 19,531

Cash and Other Monetary Assets (Note 3) 81,468 111,489

Accounts Receivable, Net (Note 4) 84,355 62,879

Total Non-Entity Assets 183,465 193,899

Total Assets $ 259,219 $ 252,917

The accompanying notes are an integral part of these statements.

72
FEDERAL TRADE COMMISSION

BALANCE SHEETS

For the Years Ending September 30, 2005 and 2004

(Dollars in thousands)

2005 2004

Liabilities:

Liabilities Covered by Budgetary Resources:

Intragovernmental Liabilities:

Accrued Benefits $ 716 $ 645

Accounts Payable 2,468 1,510

Total Intragovernmental Liabilities 3,184 2,155

With the Public

Accounts Payable 7,731 7,867

Accrued Salaries 3,918 3,625

Total Liabilities Covered by Budgetary Resources 14,833 13,647

Liabilities Not Covered by Budgetary Resources:

Intragovernmental Liabilities:

Undisbursed Premerger Filing Fees 9,389 6,530

Other Liabilities (Note 6) 702 1,380

Total Intragovernmental Liabilities 10,091 7,910

Actuarial FECA Liabilities 2,018 1,948

Accrued Annual Leave 7,583 7,496

With the Public (Note 6) 173,744 186,384

Total Liabilities Not Covered by Budgetary Resources 193,436 203,738

Total Liabilities 208,269 217,385

Net Position: (Note 7)

Balances:

Unexpended Appropriations 14 36

Cumulative Results of Operations 50,936 35,496

Total Net Position 50,950 35,532

Total Liabilities and Net Position $ 259,219 $ 252,917

The accompanying notes are an integral part of these statements.

73
FEDERAL TRADE COMMISSION

STATEMENTS OF NET COST

For the Years Ending September 30, 2005 and 2004

(Dollars in thousands)

2005 2004

Program Costs

Maintaining Competition Mission:

Intragovernmental gross costs $ 21,833 $ 19,692

Less: Intragovernmental earned revenue (864) (722)

Intragovernmental net costs 20,969 18,970

Gross costs with the public 62,653 62,083

Less: Earned revenue with the public (Note 12) (99,511) (83,598)

Net costs with the public (36,858) (21,515)

Net Cost Maintaining Competition Mission (15,889) (2,545)

Consumer Protection Mission:

Intragovernmental gross costs 28,941 25,063

Less: Intragovernmental earned revenue (117) (86)

Intragovernmental net costs 28,824 24,977

Gross costs with the public 83,051 79,015

Less: Earned revenue with the public (Note 12) (18,052) (13,984)

Net costs with the public 64,999 65,031

Net Cost of Consumer Protection Mission 93,823 90,008

Net Cost of Operations $ 77,934 $ 87,463

The accompanying notes are an integral part of these statements.

74
FEDERAL TRADE COMMISSION

STATEMENTS OF CHANGES IN NET POSITION

For the Years Ending September 30, 2005 and 2004

(Dollars in thousands)

2005 2004

Cumulative Cumulative 

Results of Unexpended Results of Unexpended 

Operations Appropriations Operations Appropriations

Beginning Balances $ 35,496 $ 36 $ 27,910 $ 142

Budgetary Financing Sources:

Appropriations Received - 87,838 - 88,435

Appropriations Transferred-In/Out - - - 67

Other Adjustments (Rescissions) - (1,106) - (536)

Appropriations Used 86,754 (86,754) 88,072 (88,072)

Other Financing Sources:

Imputed Financing (Note 9) 6,620 - 6,977 -

Total Financing Sources 93,374 (22) 95,049 (106)

Net Cost of Operations (77,934) - (87,463) -

Ending Balances $ 50,936 $ 14 $ 35,496 $ 36

The accompanying notes are an integral part of these statements.

75
FEDERAL TRADE COMMISSION

STATEMENTS OF BUDGETARY RESOURCES

For the Years Ending September 30, 2005 and 2004

(Dollars in thousands)

2005 2004

Budgetary Resources:

Budget authority

Appropriation $ 87,838 $ 88,435

Net Transfers - Current Year Authority - 68

Net Transfers - Prior Year Balances - (1)

Unobligated Balance:

Beginning of Period 8,427 8,642

Spending Authority from Offsetting Collections

Earned

Collected 118,579 98,500

Receivable from Federal Sources (34) (110)

Change in Unfilled Customer Orders

Without Advance from Federal Sources 258 40

Anticipated for rest of year, without advances - -

Recoveries of Prior Year Obligation 773 2,306

Enacted Reductions

Rescissions - New Budget Authority (1,106) (536)

Total Budgetary Resources $ 214,735 $ 197,344

Status of Budgetary Resources:

Obligations incurred

Direct 82,007 89,213

Reimbursable 118,802 99,704

Subtotal 200,809 188,917

Unobligated Balance

Available 5,287 1,027

Not Available 8,639 7,400

Total Status of Budgetary Resources $ 214,735 $ 197,344

Summary of Obligations and Outlays

Obligated balance net beginning of period $ 36,200 $ 32,257

Obligated balance net end of period: 

Accounts receivable (87) (121)

Unfilled customer orders from federal sources (313) (55)

Undelivered orders 32,212 22,729

Accounts payable 14,833 13,647

Total obligated balance net end of period $ 46,645 $ 36,200

Outlays:

Disbursements 189,366 182,739

Collections (118,579) (98,500)

Net Outlays $ 70,787 $ 84,239

The accompanying notes are an integral part of these statements.

76
 FEDERAL TRADE COMMISSION

 STATEMENTS OF FINANCING

For the Years Ending September 30, 2005 and 2004

(Dollars in thousands)

2005 2004

Resources Used to Finance Activities:

Budgetary Resources Obligated

Obligations incurred $ 200,809 $ 188,917

Less: Spending authority from offsetting collections and recoveries (119,576) (100,736)

Obligations net of offsetting collections and recoveries 81,233 88,181

Other Resources

Imputed financing from costs absorbed by others 6,620 6,977

Total Resources Used to Finance Activities 87,853 95,158

Resources Used to Finance Items not Part of the Cost of Operations:

Change in budgetary resources obligated for goods

and services ordered but not yet received or provided (9,225) (2,697)

Resources that finance the acquistion of assets (4,127) (7,063)

Total resources used to finance items not part of the net cost of operations (13,352) (9,760)

Total Resources Used to Finance the Net Cost of Operations 74,501 85,398

Components of the Net Cost of Operations that will not Require or

Generate Resources in the Current Period:

Components Requiring or Generating Resources in Future Periods:

Increase in annual leave liability 87 313

(Decrease) increase in FECA liability 45 (179)

Total components of the net cost of operations that will not require or

generate resources in future periods 132 134

Components not Requiring or Generating Resources:

Depreciation and amortization 3,301 1,931

Total components of the Net Cost of Operations that will not require or 

generate resources 3,301 1,931

Total Components of the Net Cost of Operations that will not Require or

Generate Resources in the Current Period 3,433 2,065

Net Cost of Operations $ 77,934 $ 87,463

The accompanying notes are an integral part of these statements.

77
FEDERAL TRADE COMMISSION

STATEMENTS OF CUSTODIAL ACTIVITY

For the Years Ending September 30, 2005 and 2004

(Dollars in thousands)

(Refer to Note 11)

MC Mission CP Mission 2005 2004

Sources of Collections:

Cash Collections:

Premerger Filing Fees (Net of Refunds) (a) $ 99,511 $ - $ 99,511 $ 82,190

Civil Penalties and Fines (b) - 6,479 6,479 6,542

Redress (c) - 62,181 62,181 337,585

Divestiture Fund (d) 708 - 708 184

Funeral Rule Violations - 7 7 30

Net Collections 100,219 68,667 168,886 426,531

Accrual Adjustments (e) - 21,476 21,476 (179,016)

Total Non-exchange Revenues $ 100,219 $ 90,143 $ 190,362 $ 247,515

Disposition of Revenue Collected:

Amounts Transferred to:

Treasury General Fund - 20,095 20,095 20,932

Department of Justice 96,652 - 96,652 77,259

Receivers (f) - 182 182 161

Redress to Claimants (g) - 66,109 66,109 294,058

Contrator Fees Net of Interest Earned (h) - 6,291 6,291 7,638

Attorney Fees (h) - 8,712 8,712 3,208

Court Registry - 2,755 2,755 -

Net Disbursements 96,652 104,144 200,796 403,256

Change in Liability Accounts (i) 3,567 (14,001) (10,434) (155,741)

Total Disposition of Revenues Collected $ 100,219 $ 90,143 $ 190,362 $ 247,515

Net Custodial Collections $ - $ - $ - $ -

78
FEDERAL TRADE COMMISSION

REQUIRED SUPPLEMENTARY INFORMATION

For the Years Ending September 30, 2005 and 2004

(Dollars in thousands)

Intragovernmental Assets:

Fund Balance with Treasury Accounts

Trading Partner Agency: Entity Non-Entity Receivable 2005 2004

Treasury $ 60,571 $ 17,642 $ - $ 78,213 $ 64,158

Agency for International Development - - 33 33 59

Other Government Agencies - - 54 54 62

Total Intragovernmental Assets $ 60,571 $ 17,642 $ 87 $ 78,300 $ 64,279

Intragovernmental Liabilities:

Accrued Accounts Total Total

Trading Partner Agency: Benefits Payable NA 2005 2004

Covered by Budgetary Resources:

Department of Labor $ 4 $ - $ - $ 4 $ 18

U.S. Postal Inspection Service - 125 - 125 12

Government Printing Ofice - 1,274 - 1,274 7

General Services Administration - 416 - 416 1,370

Office of Personnel Management 549 44 - 593 513

U.S. Environmental Protection - 100 - 100 -

Homeland Security - 416 - 416 -

Department of Treasury 163 93 - 256 235

Total Covered by Budgetary Resources $ 716 $ 2,468 $ - $ 3,184 $ 2,155

Not Covered by Budgetary Resources:

Department of Justice $ - $ 9,389 $ - $ 9,389 $ 6,530

Department of Labor - 370 - 370 395

Department of Treasury - 332 - 332 985

Total Not Covered by Budgetary Resources $ - $ 10,091 $ - $ 10,091 $ 7,910

79
FEDERAL TRADE COMMISSION

Required Supplementary Information

For the Years Ending September 30, 2005 and 2004

(Dollars in thousands)

Exchange Revenue from Reimbursable Agreements 

Trading Partner: 2005 2004

U.S. Department of State $ 401 $ 142

U.S. Agency for International Development 332 429

Department of Justice 42 90

Federal Mine Safety & Health Review Commission 38 41

U.S. Trade and Development Agency 29 36

Board of Governors of the Federal Reserve System 21 -

Federal Deposit Insurance Corp. 21 -

Securities and Exchange Commission 21 -

Office of the Comptroller of the Currency 21 -

Medicare Payment Advisory Commission/GSA 19 20

U.S. Postal Inspection Service 17 8

National Credit Union Admin 15 -

Department of Commerce 4 3

U.S. Patent and Trademark Office - 39

Total Exchange Revenue from Reimbursable Agreements $ 981 $ 808

Related Costs:

Budget Function Classification: 2005 2004

Other Advancement of Commerce $ 981 $ 808

Total Related Costs $ 981 $ 808

80
FEDERAL TRADE COMMISSION

Required Supplementary Information

For the Years Ending September 30, 2005 and 2004

(Dollars in thousands)

Intragovernmental Expenses:

Trading Partner: 2005 2004

Office of Personnel Management $ 21,109 $ 18,117

General Services Administration 18,422 18,331

Social Security Administration 5,254 5,151

Government Printing Office 2,270 646

Department of Homeland Security 1,038 -

Department of the Interior 865 864

Department of Transportation 709 724

Department of Labor 265 258

United States Postal Service 247 214

Department of Health and Human Services 229 218

U.S. Environmental Protection 185 -

Department of State 64 33

Department of Justice 53 107

National Archives and Records Administration 46 39

Department of the Treasury 14 15

Department of Commerce 4 -

Veterans Administration - 37

Other - 1

Total Intragovernmental Expenses $ 50,774 $ 44,755

Mission:

Maintaining Competition $ 21,833 $ 19,692

Consumer Protection 28,941 25,063

Total Intragovernmental Expenses $ 50,774 $ 44,755

81
FEDERAL TRADE COMMISSION

Notes to the Statements of Custodial Activity

Accrual Adjustments

September 30, 2005 and 2004

(Dollars in thousands)

MC Mission -------------------------------CP Mission-------------------------------- 2

Part 1 Civil Penalty Civil Penalty Redress Subtotal CP TJudgments Receivable - Net Beginning $ - $ 985 $ 61,894 $ 62,879 $ Add: Current Year Judgments (Note 11 j) - 6,664 834,985 841,649  Prior Year Recoveries (Note 11 k) - - 2,921 2,921 Less: Collections by FTC/Contractors Receivers - (6,479) (62,181) (68,660)  Collections by DOJ for Litigation Fees/Other - (199) - (199) Less: Adjustments to Allowance (Note 11 l) - (639) (753,596) (754,235) Judgments Receivable - Net, Ending $ - $ 332 $ 84,023 $ 84,355 $ 

Part 2Judgments Receivable - Net Ending $ - $ 332 $ 84,023 $ 84,355 $ Judgments Receivable - Net Beginning - 985 61,894 62,879 Accrual Adjustment $ - $ (653) $ 22,129 $ 21,476 $ 
FEDERAL TRADE COMMISSION

Notes to the Statements of Custodial Activity

Change in Liability Accounts

September 30, 2005 and 2004

(Dollars in thousands)

MC Mission CP Mission

Pre-Merger Divestiture Civil Penalty Subtotal MC Civil Penalty Redress 

Liabilities @ 09/30/05 $ 9,389 $ 42,084 $ - $ 51,473 $ 332 $ 131,660 $ Liabilities @ 09/30/04 $ 6,530 $ 41,376 $ - $ 47,906 $ 985 $ 145,008 $ Change in Liability Accounts $ 2,859 $ 708 $ - $ 3,567 $ (653) $ (13,348) $ 

MC Mission CP Mission

Pre-Merger Divestiture Civil Penalty Subtotal MC Civil Penalty Redress 

Liabilities @ 09/30/04 $ 6,530 $ 41,376 $ - $ 47,906 $ 985 $ 145,008 $ Liabilities @ 09/30/03 1,600 41,191 - 42,791 2,105 304,744 

Change in Liability Accounts $ 4,930 $ 185 $ - $ 5,115 $ (1,120) $ (159,736) $ 
FEDERAL TRADE COMMISSION 

Notes to the Financial Statements 

For the Years Ended September 30, 2005 and 2004

NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 

(a) Reporting Entity 

The Federal Trade Commission (FTC) was created by the Federal Trade Commission Act of 

1914. The FTC enforces a variety of federal antitrust and consumer protection laws. The 

FTC seeks to ensure that the nation’s markets function competitively and are vigorous, 

efficient, and free of undue restrictions. The FTC also works to enhance the smooth 

operation of the marketplace by eliminating acts or practices that are unfair or deceptive. In 

general, the FTC’s efforts are directed toward stopping actions that threaten consumers’ 

opportunities to exercise informed choice. Finally, the FTC performs economic analysis to 

support its law enforcement efforts and to contribute to the policy deliberations of the 

Congress, the Executive Branch, other independent agencies, and state and local 

governments when requested. 

(b) Fund Accounting Structure 

The FTC’s financial activities are accounted for by federal account symbol. They include 

the accounts for appropriated funds and other fund groups described below for which the 

FTC maintains financial records and consumer redress accounts for which the agency has 

management oversight. 

General Funds Consist of salaries and expense appropriation accounts used to fund agency 

operations and capital expenditures.

Deposit Funds Consist of monies held temporarily by the FTC as an agent for others. 

Suspense Funds Represent receipts awaiting proper classification, or held in escrow, until 

ownership is established and proper distributions can be made. 

Receipt Accounts Reflect civil penalties and other miscellaneous receipts that are collected 

but not retained by the FTC. Cash balances are automatically transferred to the general fund 

of the Treasury at the end of each fiscal year. 

(c) Basis of Accounting and Presentation 

The financial statements present the financial position, net cost of operations, changes in net 

position, budgetary resources, financing, and custodial activities of the FTC, in accordance 

with accounting principles generally accepted in the United States of America and the form

and content requirements of Office of Management and Budget (OMB) Circular A-136. 

They have been prepared from the books and records of the FTC and include the accounts of 

all funds under the control of the FTC. Accounting principles generally accepted in the 

United States of America encompass both accrual and budgetary transactions. Under the 

84
FEDERAL TRADE COMMISSION 

Notes to the Financial Statements 

For the Years Ended September 30, 2005 and 2004

accrual method, revenues are recognized when earned and expenses are recognized when a 

liability is incurred, without regard to receipt or payment of cash. Budgetary accounting 

facilitates compliance with legal constraints and controls over the use of federal funds. The 

accompanying financial statements are prepared on the accrual basis of accounting. 

In addition, the accompanying statements include information on the activities of the 

agency’s consumer redress program. Independent agents under current contract with the 

FTC administer the program and maintain the financial records for consumer redress 

activity. 

(d) Budget Authority 

Congress annually passes appropriations that provide the FTC with authority to obligate 

funds for necessary expenses to carry out mandated program activities. These funds are 

available until expended, subject to OMB apportionment and to Congressional restrictions 

on the expenditure of funds. Also, the FTC places internal restrictions on fund expenditures 

to ensure the efficient and proper use of all funds. Appropriated funding is derived from

various revenues and financing sources. 

(e) Fund Balances with the U.S. Treasury 

Fund balances with Treasury consist of appropriated funds that are available to pay current 

liabilities and to finance authorized purchase commitments, and restricted funds, which 

include deposit and suspense funds. The FTC’s fund balances with Treasury are carried 

forward until such time as goods or services are received and payment is made or until the 

funds are returned to the U.S. Treasury. With the exception of cash held in consumer 

redress custodial accounts by FTC’s contracted agents, the FTC does not maintain cash in 

commercial bank accounts. Cash receipts and disbursements are processed by the U.S. 

Treasury. 

(f) Advances and Prepayments 

Payments in advance of the receipt of goods and services are recorded as advances and 

prepayments and recognized as an expense when the related goods and services are 

received. 

(g) Accounts Receivable 

Entity accounts receivable include amounts due from other federal entities and from current 

and former employees and vendors. Non-entity accounts receivable include uncollected civil 

monetary penalties imposed as a result of the FTC’s enforcement activities and uncollected 

redress judgments. Since the FTC does not retain these receipts, a corresponding liability is 

also recorded for non-entity accounts receivable. 

85
FEDERAL TRADE COMMISSION 

Notes to the Financial Statements 

For the Years Ended September 30, 2005 and 2004

Opening judgment receivable balances reflect the Federal Accounting Standards Advisory 

Board (FASAB) standard for the recognition of losses using the collection criterion of 

“more likely than not.” This criterion results in receivable balances that are more 

conservatively stated than those valued by the private sector under generally accepted 

accounting principles. The Board states that it is appropriate to recognize the nature of 

federal receivables, which, unlike trade accounts of private firms or loans made by banks, 

are not created through credit screening procedures. Rather, these receivables arise because 

of the assessment of fines from regulatory violations. In these circumstances, historical 

experience and economic realities indicate that these types of claims are frequently not fully 

collectible. 

The FTC recognizes an allowance for uncollectible non-entity accounts receivable by 

individual account analysis based on the debtor’s ability and willingness to pay, and the 

probable recovery of amounts from secondary sources, including liens, garnishments, and 

other applicable collection tools. Entity accounts receivable are considered fully collectible, 

and therefore no allowance is recorded. 

(h) Property and Equipment 

Commercial vendors and the General Services Administration, which charges the FTC a 

Standard Level Users Charge (SLUC) that approximates the commercial rental rates for 

similar properties, provide the land and buildings in which the FTC operates. 

Property and equipment consists of equipment, leasehold improvements, and software. All 

items with an acquisition value greater than $100,000 and a useful life over two years are 

capitalized and depreciated using the straight-line method of depreciation. Service lives 

range from three to twenty years. 

Internal use software development and acquisition costs of $100,000 are capitalized as 

software development in progress until the development stage has been completed and the 

software successfully tested. Upon completion and testing, software development-inprogress costs are reclassified as internal use software costs and amortized using the 

straight-line method over the estimated useful life of three years. Purchased commercial 

software that does not meet the capitalization criteria is expensed. 

(i) Liabilities 

Liabilities represent the amount of monies or other resources that are likely to be paid as the 

result of a transaction or event that has already occurred. Liabilities classified as not covered 

by budgetary resources are liabilities for which appropriations have not been enacted and 

liabilities resulting from the agency’s custodial activities. See Note 11. Also, the 

Government, acting in its sovereign capacity, can abrogate FTC liabilities (other than 

contracts).

86
FEDERAL TRADE COMMISSION 

Notes to the Financial Statements 

For the Years Ended September 30, 2005 and 2004

(j) Undisbursed Premerger Filing Fees Liability 

A liability is recorded for the undisbursed filing fees collected under the Hart-Scott-Rodino 

(HSR) Antitrust Improvements Act of 1976, which are due to the Department of Justice in a 

subsequent period. 

(k) Federal Employees’ Compensation Act (FECA) Actuarial Liability and Accrued 

FECA Claims 

The FTC records an estimated liability for future workers’ compensation claims based on 

data provided from the Department of Labor (DOL). The FTC also records a liability for 

actual claims paid on its behalf by the DOL. 

(l) Accrued Leave 

A liability for annual leave is accrued as leave is earned and reduced when leave is taken. 

At year end, the balance in the accrued annual leave account is adjusted to reflect the 

liability at current pay rates and leave balances. Accrued annual leave is paid from future 

funding sources and, accordingly, is reflected as a liability not covered by budgetary 

resources. Sick and other leave is expensed as taken. 

(m) Employee Health Benefits and Life Insurance 

FTC employees are eligible to participate in the contributory Federal Employees Health 

Benefit Program (FEHBP) and the Federal Employees Group Life Insurance Program

(FEGLIP). The FTC contributes a percentage to each program to pay for current benefits. 

(n) Post-Retirement Health Benefits and Life Insurance 

FTC employees eligible to participate in the FEHBP and the FEGLIP may continue to 

participate in these programs after their retirement. The Office of Personnel Management 

(OPM) has provided the FTC with certain cost factors that estimate the true cost of 

providing the post-retirement benefit to current employees. The FTC recognizes a current 

cost for these and other retirement benefits (ORB) at the time the employee’s services are 

rendered. The ORB expense is financed by OPM, and offset by the FTC through the 

recognition of an imputed financing source on the Statement of Financing. During fiscal 

years 2005 and 2004, the cost factors relating to FEHBP were $4,903 and $4,420, 

respectively, per employee enrolled. During fiscal years 2005 and 2004, the cost factor 

relating to FEGLIP was 0.02 percent of basic pay per employee enrolled. See Note 9, 

Imputed Financing. 

87
FEDERAL TRADE COMMISSION 

Notes to the Financial Statements 

For the Years Ended September 30, 2005 and 2004

(o) Employee Retirement Benefits 

FTC employees participate in either the Civil Service Retirement System (CSRS) or the 

Federal Employees Retirement System (FERS). Employees hired after December 31, 1983, 

are covered by FERS and Social Security, while employees hired prior to January 1, 1984, 

may elect to either join FERS or remain in CSRS. Approximately 24 percent of FTC 

employees participate in CSRS. For employees participating in CSRS, the FTC contributes 

seven percent of the employee’s gross earnings to the CSRS Retirement and Disability 

Fund. For employees participating in FERS, the FTC contributes 11.2 percent to the Federal 

Employees’ Retirement Fund. Employees participating in FERS are covered under the 

Federal Insurance Contributions Act (FICA) for which the FTC contributes a matching 

amount to the Social Security Administration. FTC contributions are recognized as current 

operating expenses. 

The Thrift Savings Plan (TSP) is a defined contribution retirement savings and investment 

plan for employees covered by either CSRS or FERS. CSRS participating employees may 

contribute up to 10 percent of earnings for 2005, nine percent for 2004, to TSP, but do not 

receive a matching contribution from the FTC. FERS participating employees may 

contribute up to 15 percent and 14 percent of earnings for the years 2005 and 2004, 

respectively, to the TSP plan. For FERS employees, the FTC contributes one percent of the 

employee’s gross pay to the TSP. The FTC also matches 100 percent of the first three 

percent contributed and 50 percent of the next 2 percent contributed. FTC contributions are 

recognized as current operating expenses. Although the FTC contributes a portion for 

pension benefits and makes the necessary payroll withholdings, it is not responsible for 

contribution refunds, employee’s retirement benefits, or the retirement plan assets. 

Therefore, the FTC financial statements do not report CSRS and FERS assets, accumulated 

plan benefits, or unfunded liabilities, if any, which may be applicable to employees. Such 

reporting is the responsibility of the OPM. 

However, the FTC recognizes the full cost of providing future pension benefits to covered 

employees at the time the employees’ services are rendered. OPM has provided the FTC 

with certain cost factors that estimate the true service cost of providing the pension benefits 

to covered employees. The cost factors used to arrive at the service cost are 25.0 percent of 

basic pay for CSRS covered employees and 12.0 percent of basic pay for FERS covered 

employees during fiscal years 2005 and 2004. The pension expense recognized in the 

financial statements equals this service cost to covered employees less amounts contributed 

by these employees. If the pension expense exceeds the amount contributed by the FTC as 

employer, the excess is recognized as an imputed financing cost. The excess total pension 

expense over the amount contributed by the agency must be financed by OPM and is 

recognized as an imputed financing source, non-exchange revenue. 

88
FEDERAL TRADE COMMISSION 

Notes to the Financial Statements 

For the Years Ended September 30, 2005 and 2004

(p) Net Position 

The FTC’s net position is composed of the following: 

Unexpended appropriations include the amount of unobligated balances and undelivered 

orders. Unobligated balances are the amount of appropriations or other authority remaining 

after deducting the cumulative obligations from the amount available for obligation. 

Cumulative results of operations represent the net results of operations since inception, the 

cumulative amount of prior period adjustments, the remaining book value of capitalized 

assets, and future funding requirements. 

(q) Exchange Revenues 

The Federal Accounting Standards Advisory Board defines exchange revenue as inflows of 

resources to a governmental entity that the entity has earned. They arise from exchange 

transactions that occur when each party to the transaction sacrifices value and receives value 

in return. 

Exchange revenues are earned through the collection of fees under the Hart-Scott-Rodino 

Act. This Act, in part, requires the filing of premerger notifications with the FTC and the 

Antitrust Division of the Department of Justice (DOJ) and establishes a waiting period 

before certain acquisitions may be consummated. Mergers with transaction amounts over 

$50 million require the acquiring party to pay a filing fee. The filing fees are based on the 

transaction amount and follow a three-tiered structure: $45,000, $125,000, and $280,000. 

The FTC retains one-half of the HSR premerger filing fees collected. Revenue is 

recognized when all required documentation under the HSR Act has been received by the 

agency. Fees not retained by the FTC are maintained in a suspense fund until transferred to 

the DOJ and not reported as revenue to the FTC. 

Exchange revenues are also earned through the collection of fees for the national Do Not 

Call Registry. This registry operates under Section 5 of the FTC Act, which enforces the 

Telemarketing Sales Rule (TSR). The Do Not Call Implementation Act, P.L. 108-010, gives 

the FTC authority to establish fees for fiscal years 2003 through 2007 sufficient to offset the 

implementation and enforcement of the provisions relating to the Do Not Call Registry. 

Telemarketers are required to pay an annual subscription fee and download from the Do Not 

Call Registry database a list of telephone numbers of consumers who do not wish to receive 

calls. Fees are based on the number of area codes downloaded. The minimum charge was 

$40 to download one area code. The maximum charge was $11,000 for all area codes 

within the United States. Effective September 1, 2005, the new minimum charge is $56 and 

the maximum charge is $15,400. Fees collected over expenses are retained for use in other 

FTC missions. 

89
FEDERAL TRADE COMMISSION 

Notes to the Financial Statements 

For the Years Ended September 30, 2005 and 2004

Exchange revenue is also earned for services provided to other Government agencies 

through reimbursable agreements. The FTC recovers the full cost of services, primarily 

salaries and related expenses. Revenue is earned at the time the expenditures are incurred 

against the reimbursable order. All exchange revenues are deducted from the full cost of the 

FTC’s programs to arrive at net program cost. 

(r) Appropriations Used 

In addition to exchange revenue, the FTC receives financing sources through direct 

appropriation from the general fund of the Treasury to support its operations. A financing 

source, appropriations used, is recognized to the extent these appropriated funds have been 

consumed. In fiscal years 2005 and 2004, the FTC received a financing source in the form

of a direct appropriation that represented approximately 41 percent and 46 percent of total 

revenues and financing sources realized. 

(s) Methodology for Assigning Cost 

Total costs were allocated to each mission based on two components: a) direct costs to each 

mission and b) indirect costs based on the percentage of direct FTE used by each mission. 

(t) Use of Estimates 

The preparation of financial statements in conformity with generally accepted accounting 

principles requires management to make estimates and assumptions that affect the reported 

amounts of assets and liabilities at the date of the financial statements and the reported 

amounts of revenues and expenses during the reporting period. Actual results could differ 

from those estimates. 

NOTE 2 -- FUND BALANCES WITH TREASURY

Fund balances with Treasury consisted of the following at September 30, 2005 and 2004: 

(Dollars in thousands) Unobligated Unobligated 2005 2004

Obligated Available Not available Total Total

General Funds Entity $ 46,645 $ 5,287 $ 8,639 $ 60,571 $ 44,627

Non-Entity Funds

 Undisbursed Premerger Filing Fees - - - 9,389 6,530

 Deposit Funds - Redress - - - 8,253 13,001

 Total Non-Entity - - - 17,642 19,531

Total $ 46,645 $ 5,287 $ 8,639 $ 78,213 $ 64,158

90
FEDERAL TRADE COMMISSION 

Notes to the Financial Statements 

For the Years Ended September 30, 2005 and 2004

The obligated balance includes accounts payable and undelivered orders that have reduced 

unexpended appropriations but have not yet decreased the cash balance on hand. 

Other Information Deposit and suspense funds stated above are not available to finance 

FTC activities and are classified as non-entity assets, and a corresponding liability is 

recorded. 

NOTE 3 -- CASH AND OTHER MONETARY ASSETS 

Cash and other monetary assets held as non-entity assets consist of redress judgment 

amounts on deposit with FTC’s distribution agents and divestiture fund deposits. A 

corresponding liability is recorded for these assets. 

Cash and other monetary assets consisted of the following as of September 30, 2005 and 

2004: 

(Dollars in thousands) 2005 2004

Non-Entity:

 Redress Contractors $ 39,384 $ 70,113

 Divestiture Fund (Note 11(d)) 42,084 41,376

Total Non-Entity $ 81,468 $ 111,489

NOTE 4 -- ACCOUNTS RECEIVABLE 

Accounts receivable consisted of the following as of September 30, 2005 and 2004: 

(Dollars in thousands) 2005 2004

Currently Due Allowance Net Net

Entity Assets:

Intragovernmental-

 Accounts Receivable $ 87 $ - $ 87 $ 121

Non-Entity Assets:

Consumer Redress $ 1,270,723 $ 1,186,700 $ 84,023 $ 61,894

Civil Penalties 971 639 332 985

Total Non-Entity Assets $ 1,271,694 $ 1,187,339 $ 84,355 $ 62,879

For more detailed information on non-entity receivables, see Exhibit A. 

91
FEDERAL TRADE COMMISSION 

Notes to the Financial Statements 

For the Years Ended September 30, 2005 and 2004

NOTE 5 -- PROPERTY, PLANT, AND EQUIPMENT, NET 

Capitalized property and equipment, net of accumulated depreciation, consisted of the 

following as of September 30, 2005 and 2004:

(Dollars in thousands) 2005 2004

Service Acquisition Accumulated Net Net 

Asset Class Life Value Depreciation Book Value Book Value

Equipment & Furniture 5-20 yrs $ 7,173 $ 3,734 $ 3,439 $ 2,841

Leasehold Improvements 10-15 yrs 5,004 965 4,039 3,968

Software 3 yrs 8,702 3,501 5,201 951

Software-in-Development 2,417 - 2,417 6,510

Total $ 23,296 $ 8,200 $ 15,096 $ 14,270

Property and equipment are depreciated using the straight-line method. Depreciation 

expense was $3.3 million and $1.9 million for fiscal years ending September 30, 2005 and 

2004, respectively and is contained in the accumulated depreciation. 

NOTE 6 -- LIABILITIES NOT COVERED BY BUDGETARY RESOURCES 

A breakout of Intragovernmental Other Liabilities and Liabilities With the Public as of 

September 30, 2005 and 2004 are shown below: 

(a) Intragovernmental and With the Public

(Dollars in thousands) 2005 2004

Intragovernmental

 Other Liabilities:

 Civil Penalty Collections Due $ 332 $ 985

 Accrued FECA Claims 370 395

Total $ 702 $ 1,380

With the Public 

 Undisbursed Redress $ 47,637 $ 83,114

 Divestiture Fund Due 42,084 41,376

 Redress Net Collections Due 84,023 61,894

Total $ 173,744 $ 186,384

92
FEDERAL TRADE COMMISSION 

Notes to the Financial Statements 

For the Years Ended September 30, 2005 and 2004

(b) Other Information 

Civil Penalty Collections Due represents the contra account for accounts receivable due for 

civil monetary penalties, which will be transferred to the general fund of the Treasury upon 

receipt. 

Accrued FECA Claims consists of workers compensation claims payable to the Department 

of Labor (DOL), which will be funded in a future period. 

Undisbursed Redress includes redress in FTC’s Treasury deposit account, or with FTC 

redress contractors. 

Divestiture Fund Due represents the contra account for the divestiture fund held by one of 

FTC’s contractors until distribution of the funds are ordered per terms of the agreement. 

Redress Net Collections Due represents the contra account for accounts receivable due from

judgments obtained as a result of the agency’s consumer redress litigation. 

NOTE 7 -- NET POSITION 

Net position consisted of the following as of September 30, 2005 and 2004: 

(Dollars in thousands) 2005 2004

Unexpended Appropriations:

 Unobligated - Available $ 7 $ 20

 Undelivered Orders 7 16

Total Unexpended Appropriations 14 36

Cumulative Results of Operations:

 Invested Capital 15,096 14,270

 Retained Fees:

 Unobligated - Available 5,280 1,007

 Unobligated - Not Available 8,639 7,400

 Undelivered Orders, net of unfilled customer orders 31,892 22,658

 Future Funding Requirements (9,971) (9,839)

Total Cumulative Results of Operations 50,936 35,496

Total Net Position $ 50,950 $ 35,532

93
FEDERAL TRADE COMMISSION 

Notes to the Financial Statements 

For the Years Ended September 30, 2005 and 2004

NOTE 8 -- COMMITMENTS AND CONTINGENCIES 

Commitments The FTC is committed under obligations for goods and services that have 

been ordered but not yet received (undelivered orders) at fiscal year end. Undelivered 

orders, net of unfilled customer orders from federal sources, were $31.9 million and $22.7 

million as of September 30, 2005 and 2004, respectively.

Contingencies The FTC is a party in various administrative proceedings, legal actions, and 

claims brought by or against it. In the opinion of FTC management and legal counsel, the 

ultimate resolution of these proceedings, actions, and claims, will not materially affect the 

financial position or the results of operation of the FTC. 

Leases The FTC rents approximately 568,000 square feet of space in both commercial and 

government-owned properties for use as offices, storage and parking. Space leases for 

government-owned property are made with the General Services Administration (GSA). 

Leases of commercial property are made through and managed by GSA. The Commission 

has leases on three government-owned properties and nine commercial properties. The 

FTC’s current leases expire at various dates through 2013. Two leases provide for tenant 

improvement allowances totaling $7.1 million and provide that these costs be amortized 

over the length of the leases. Under the terms of the leases, the FTC agrees to reimburse the 

landlord for the principal balance of the unamortized portion of the tenant improvement 

allowance in the event the agency vacates the space before lease expiration. 

Rent expenditures for the years ended September 30, 2005 and 2004, were approximately 

$17.3 million and $17.1, respectively. 

Future minimum lease payments due under leases of government-owned property as of 

September 30, 2005, are as follows:

(Dollars in thousands)

Fiscal Year

2006 $ 1,611

2007 1,189

2008 1,133

2009 589

2010 -

Total Future Minimum Lease Payments $ 4,522

94
FEDERAL TRADE COMMISSION 

Notes to the Financial Statements 

For the Years Ended September 30, 2005 and 2004

Future minimum lease payments under leases of commercial property due as of September 

30, 2005 are as follows: 

(Dollars in thousands)

Fiscal Year

2006 $ 10,826

2007 10,800

2008 10,995

2009 11,001

2010 11,079

Thereafter 20,752

Total Future Minimum Lease Payments $ 75,453

NOTE 9 -- IMPUTED FINANCING 

Imputed financing recognizes actual costs of future benefits, which include the FEHBP, 

FEGLI, and pension benefits that are paid by other federal entities. Imputed financing was 

composed of the following: 

(Dollars in thousands) 2005 2004

FEHBP $ 4,327 $ 4,049

FEGLI 14 13

Pension Benefits 2,279 2,915

Total Imputed Costs $ 6,620 $ 6,977

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FEDERAL TRADE COMMISSION 

Notes to the Financial Statements 

For the Years Ended September 30, 2005 and 2004

NOTE 10 -- PENSION EXPENSE 

Pension expenses in 2005 and 2004 consisted of the following: 

(Dollars in thousands) 2005 2004

Employer Total Pension Total Pension

Contributions Imputed Costs Expense Expense

Civil Service Retirement System $ 1,773 $ 2,482 $ 4,255 $ 4,691

Federal Employees Retirement System 7,819 (203) 7,616 7,347

Thrift Savings Plan 3,164 - 3,164 2,998

 Total $ 12,756 $ 2,279 $ 15,035 $ 15,036

NOTE 11 -- CUSTODIAL ACTIVITIES

The FTC functions in a custodial capacity with respect to revenue transferred or transferable 

to recipient government entities or the public. These amounts are not reported as revenue to 

the FTC. The major components of the FTC’s custodial activities are discussed below. 

(a) Premerger Filing Fees

All Hart-Scott-Rodino (HSR) premerger filing fees are collected by the FTC pursuant to 

section 605 of P.L. 101-162, as amended, and are divided evenly between the FTC and the 

DOJ. The collected amounts are then credited to the appropriations accounts of the two 

agencies (FTC’s "Salaries and Expenses" and DOJ’s "Salaries and Expenses, Antitrust 

Division"). During fiscal years 2005 and 2004, respectively, FTC collected $199.0 million 

and $167.4 million in HSR fees. Total collections in the amount of $99.5 million were 

retained for distribution, of which $90.3 million of this collection was transferred to DOJ in 

2005 and $77.3 million in 2004. As of September 30, 2005 the undistributed collections 

remaining in the amount of $9.2 million represent amounts to be transferred to DOJ in a 

future period. 

(b) Civil Penalties and Fines

Civil penalties collected in connection with the settlement or litigation of the FTC’s 

administrative or federal court cases are collected by either the FTC or DOJ as provided for 

by law. DOJ assesses a fee equivalent to three percent of amounts collected before remitting 

them to the FTC. The FTC then deposits these collections into the U.S. Treasury. Civil 

penalties collected also include amounts collected for undecided civil penalty cases held in 

suspense until final disposition of the case. 

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FEDERAL TRADE COMMISSION 

Notes to the Financial Statements 

For the Years Ended September 30, 2005 and 2004

(c) Redress 

The FTC obtains consumer redress in connection with the settlement or litigation of both its 

administrative and its federal court cases. The FTC attempts to distribute funds thus 

obtained to consumers whenever possible. If consumer redress is not practical, the funds are 

paid (disgorged) to the U. S. Treasury, or on occasion, other alternatives, such as consumer 

education, are explored. Major components of the program include eligibility determination, 

disbursing redress to claimants, and accounting for the disposition of these funds. 

Collections made against court-ordered judgments totaled $62.2 and $337.6 during fiscal 

years 2005 and 2004, respectively. 

The sources of these collections are as follows: 

(Dollars in thousands)

2005 2004

Contractors $ 3,076 $ 259,031

Receivers 25,761 1,085

FTC 33,344 77,469

Total $ 62,181 $ 337,585

(d) Divestiture Fund 

One judgment obtained by the FTC on behalf of its maintaining competition mission 

stipulates the divestiture of assets by the defendants into an interest-bearing account to be 

monitored by the agency. The account balance represents principal and related interest held 

in one of the FTC’s contractor accounts as stipulated in the judgment. A corresponding 

liability is recorded. Net Interest earned in fiscal year 2005 and 2004, was $708,000 and 

$184,000, respectively. Interest earnings were significantly higher in fiscal year 2005 due to 

a substantial interest rate increase over the period. 

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FEDERAL TRADE COMMISSION 

Notes to the Financial Statements 

For the Years Ended September 30, 2005 and 2004

Divestiture Fund activity in fiscal years 2005 and 2004 consisted of the following: 

(Dollars in thousands) 2005 2004

Beginning Balance $ 41,376 $ 41,192

Interest 866 261

Expense (158) (77)

Net Total 708 184

Ending Balance $ 42,084 $ 41,376

(e) Accrual Adjustments 

These adjustments represent the difference between the agency’s opening and closing 

accounts receivable balances. Accounts receivable are the funds owed to the agency (as a 

custodian) and ultimately to consumers or other entities. See Exhibit A for computation of

accrual adjustments to the Statements of Custodial Activity.

(f) Receivers 

Funds forwarded to receivers for distribution to consumers was $182,000 and $162,000 for 

fiscal year 2005 and 2004, respectively. 

(g) Redress to Claimants 

Redress to claimants consists of amounts distributed to consumers by the FTC, one of its 

contracted agents, the court appointed receiver, or the defendant. In fiscal year 2005 a total 

of $66.1 million was distributed to consumers: $40.3 million was paid by the FTC and its 

contracted agents, and $25.8 million was paid by receivers. In fiscal year 2004, a total of 

$294.1 million was distributed to consumers: $293.0 million was paid by the FTC and its 

contracted agents, and $1.1 million was distributed by receivers. 

 (h) Contractor Fees Net of Interest Earned

Collections against monetary judgments are often deposited with one of the agency’s two 

redress contractors until distributions to consumers occur. Funds are deposited in interestbearing accounts, and the interest earnings are used to fund administrative expenses. 

Contractor expenses for the administration of redress activities and funds management 

amounted to $6.8 million and $8.0 million during the years ended September 30, 2005 and 

2004, respectively. Interest earned was $0.5 million and $0.4 million during fiscal years 

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FEDERAL TRADE COMMISSION 

Notes to the Financial Statements 

For the Years Ended September 30, 2005 and 2004

2005 and 2004, respectively, with the difference of $6.3 million and $7.6 million 

representing net expense. 

The FTC was required to pay attorney fees of $8.7 million and $3.2 million in fiscal year 

2005 and 2004, respectively. 

(i) Change in Liability Accounts 

Liability accounts contain funds that are in the custody of the agency or its agents, and are 

owed to others (consumers, receivers for fees, and/or the Department of Justice). See Exhibit 

B for the computation of liability account changes. 

 (j) Current Year Judgments 

A judgment is a formal decision handed down by a court. Redress judgments include 

amounts that defendants have agreed, or are ordered to pay, for the purpose of making 

restitution to consumers deemed to have been harmed by the actions of the defendant(s) in 

the case. For purposes of presentation in Exhibit A, redress judgments include cases in 

which the FTC, or one of its agents, is directly involved in the collection or distribution of 

consumer redress. In fiscal years 2005 and 2004, the agency obtained and reported in 

Exhibit A monetary redress judgments against defendants totaling $835.0 million and 

$445.5 million, respectively. 

The FTC does not include in the presentation of Exhibit A current redress judgment cases in 

which the FTC, or one of its agents, is not directly involved with the collection or 

distribution of consumer redress. These are cases in which the defendant, or other third 

party, has been ordered to pay redress directly to the consumers. In most of these cases, the 

judgment has ordered redress in the form of refunds or credits. 

The agency also obtained civil penalty judgments of $6.6 million and $6.0 million in fiscal 

years 2005 and 2004, respectively. 

(k) Treasury Referrals and Prior Year Recoveries 

Monetary judgments six months or more past due are referred to the Department of Treasury 

for follow-up collection efforts in keeping with the Debt Collection Improvement Act of 

1996 (DCIA). Treasury’s Debt Management Services (DMS) administers the program, and 

deducts 18 percent from amounts ultimately collected for its fee. Collections, net of fees, are 

returned to the FTC for distribution to either consumers, in the form of redress, or to the 

general fund of the Treasury as disgorged amounts. In fiscal years 2005 and 2004, $1.5 

million and $41,000 (net of fees) were collected by DMS based on FTC referrals and are 

reported as collections on the Statements of Custodial Activity. The FTC refers to DMS 

only those cases as defined in DCIA. This excludes cases that are in receivership, or 

99
FEDERAL TRADE COMMISSION 

Notes to the Financial Statements 

For the Years Ended September 30, 2005 and 2004

bankruptcy or foreign debt. During 2005 and 2004, $104.6 million and $2.0 million were 

referred to the DMS for collection. 

Prior year recoveries include amounts collected on cases that were written off in a previous 

year. In fiscal years 2005 and 2004, $2.9 million and $914,000 were collected. 

(l) Adjustments to the Allowance 

Adjustments to the allowance for redress, totaling $753.6 million, represent adjustments to 

the provision for uncollectible amounts. Adjustments to the allowance for civil penalty, 

totaling $639 million, represent adjustments to the provision for uncollectible amounts. 

NOTE 12 -- EARNED REVENUES 

Earned revenue with the public consisted of the following: 

(Dollars in thousands) 2005 2004

HSR Premerger filing fees $ 99,511 $ 83,598

Do-Not-Call registry fees 18,052 13,984

Total $ 117,563 $ 97,582

HSR premerger filing fees earned represent one-half of fees collected under the provisions 

of the Hart-Scott-Rodino Act. See Note 1 (q), Exchange Revenues. Revenue is recognized 

when earned; i.e., all required documentation under the HSR Act has been received by the 

agency. 

Do-Not-Call Registry fees represent collections of subscription fees paid by telemarketers 

under the Do Not Call Implementation Act, P. L. 108-010. See Note 1 (q), Exchange 

Revenues. Revenue is recognized when collected and the Telemarketer is given access to 

download data from the Do Not Call database. The Do Not Call Registry was implemented 

during fiscal year 2003 and began operations in September 2003. 

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FEDERAL TRADE COMMISSION 

Notes to the Financial Statements 

For the Years Ended September 30, 2005 and 2004

NOTE 13 -- STATEMENTS OF NET COST 

The Statements of Net Cost are consolidated for the FTC using a Budget Functional 

Classification (BFC) code. BFC codes are used to classify budget resources presented in the 

Budget of the United States Government per OMB. FTC is categorized under BFC code 376 

– Other Advancement of Commerce. Gross cost and earned revenue for the FTC fall under 

this code, regardless of whether the fees are intragovernmental or with the public. 

Note 13 – Statements of Net Cost (continued) 

(Dollars in thousands)

Gross Cost and Earned Revenue:

BFC Code Gross Cost Earned Revenue Net Cost

FY 2005 376 $ 196,478 $ (118,544) $ 77,934

FY 2004 376 $ 185,853 $ (98,390) $ 87,463

Intragovernmental Gross Cost and Earned Revenue:

BFC Code Gross Cost Earned Revenue Net Cost

FY 2005 376 $ 50,774 $ (981) $ 49,793

FY 2004 376 $ 44,755 $ (808) $ 43,947

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FEDERAL TRADE COMMISSION 

Notes to the Financial Statements 

For the Years Ended September 30, 2005 and 2004

NOTE 14 -- STATUS OF BUDGETARY RESOURCES 

(a) Apportionment Categories of Obligations Incurred 

Obligations incurred reported on the Statement of Budgetary Resources in 2005 and 2004 

consisted of the following: 

(Dollars in thousands) 2005 2004

Direct Obligations:

Category A $ 82,007 $ 89,213

Reimbursable Obligations:

Category A 117,563 98,856

Category B 1,239 848

Total Reimbursable Obligations 118,802 99,704

Total $ 200,809 $ 188,917

(b) Explanation of Differences Between the Statement of Budgetary Resources and 

the Budget of the United States Government 

The Budget of the United States Government with actual amounts for the year ended 

September 30, 2005, has not been published as of the issue date of these financial 

statements. This document will be available in December 2005. 

102